(All figures in U.S. dollars unless otherwise indicated)
TORONTO, May 6 /CNW/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW-UN.TO) today reported its first quarter financial results. The Fund recorded revenue of $406.6 million, down from $443.9 million in 2007. Earnings before interest, taxes and amortization (EBITA(1)) were $39.3 million in 2008 compared with $69.6 million in the first quarter of 2007. Excluding unusual items, first quarter EBITA was $42.7 million, down from $70.6 million in 2007.
"Our first quarter results were consistent with our expectations given the accelerated seasonality of our business," said Cinram chief executive officer Dave Rubenstein. "The decline in our first quarter EBITA compared to the first quarter of 2007 is not indicative of our outlook for the full year given that we were up against an unusually strong comparable period."
The Fund reported a net loss of $3.4 million or $0.06 per unit (basic) for the first quarter of 2008, down from net earnings of $7.2 million or $0.12 per share (basic) in 2007.
Segment revenue
First quarter home video revenue (which includes replication and distribution of DVDs and high-definition discs) was down 19 per cent to $249.0 million from $307.5 million in 2007 as a result of a decline in DVD replication revenue due to lower volumes and prices. We replicated 262 million DVDs in the first quarter of 2008, down 14 per cent from 305 million units in 2007, and we recorded DVD replication revenue of $180.2 million in the first quarter compared with $242.0 million in 2007. High-definition disc replication revenue increased to $4.3 million in the first quarter of 2008 from $1.9 million in the comparable 2007 period.
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Three months ended March 31
(in thousands of US$) 2008 2007
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Home Video $249,033 61% $307,506 69%
CD 47,432 12% 54,251 12%
Printing 51,191 13% 52,631 12%
Video Game 21,829 5% - -
Other 37,163 9% 29,558 7%
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$406,648 100% $443,946 100%
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CD segment revenue (which includes replication and distribution of CDs) decreased 13 per cent in the first quarter to $47.4 million from $54.3 million in 2007 due to lower replication revenue. Cinram recorded printing revenue for the first quarter of $51.2 million compared with $52.6 million in 2007. In the first quarter of 2008, Cinram finalized plans to close its printing facility in Vernon, California. The Fund incurred total costs of $3.6 million in the first quarter of 2008 related to this closure, $3.2 million of which was recorded in unusual items.
Cinram reported Video Game segment revenue of $21.8 million in the first quarter of 2008. This segment represents revenue from Ditan, which Cinram acquired in April 2007.
Revenue from our Other segment (which includes Giant Merchandising, the new handset distribution business and revenue from the acquisition of Vision Worldwide Management LLC (Vision)) increased to $37.2 million in the first quarter of 2008 from $29.6 million in 2007 due to the inception of the handset distribution business and the acquisition of Vision in the third quarter of 2007. This increase was offset by a 36 per cent decline in revenue from Giant Merchandising in the first quarter of 2008 to $18.8 million from $29.2 million in 2007 as a result of lower retail licence sales and the discontinuation of Giant's music tour segment. In December of 2007, Cinram initiated the rationalization of Giant's operations by relocating operations from Giant's facility in Commerce, California, to its existing Mexican facility. On May 2, 2008, the Fund completed the partial sale of Giant Merchandising's assets connected with its retail license business to a division of Li & Fung for cash proceeds of approximately $6.0 million. Giant's remaining operations in Commerce, California, are expected to be liquidated over the second and third quarters of 2008. The Fund is also pursuing a sale of Giant's remaining division.
Geographic revenue
First quarter North American revenue was down 16 per cent to $280.3 million from $333.0 million in 2007, as the increase in revenue from the Ditan acquisition and the new handset distribution business was more than offset by the performance of the core home video business and the decline in Giant Merchandising's sales. North America accounted for 69 per cent of first quarter consolidated revenue compared with 75 per cent in 2007.
European revenue increased 14 per cent in the first quarter to $126.4 million from $110.9 million in 2007, driven by stronger home video sales that were partially offset by lower CD distribution revenue. First quarter European revenue represented 31 per cent of consolidated sales compared with 25 per cent in the first quarter of 2007.
Other financial highlights
Gross profit for the quarter ended March 31, 2008, was down 20 per cent to $61.0 million from $76.5 million in 2007, and gross profit margins decreased to 15 per cent from 17 per cent in the first quarter of 2007, mainly as a result of lower volumes and selling prices for DVDs. Amortization expense from capital assets (property, plant and equipment), which is included in the cost of goods sold, decreased to $26.9 million from $35.3 million in the first quarter of 2007. Amortization of intangible assets decreased to $10.6 million in the first quarter of 2008 from $16.2 million in 2007 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.
Balance sheet and liquidity
The Fund had cash and equivalents on hand of $130.2 million and debt of $663.2 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $533.0 million at March 31, 2008, compared with a net debt position of $624.1 million at the end of 2007. The Fund repaid all borrowings on its revolving credit facility during the first quarter of 2008. At March 31, 2008, the revolving credit facility has a zero balance. Working capital increased to $144.4 million at March 31, 2008, from $119.0 million at December 31, 2007, due to a higher net cash balance.
Unit data
For the three-month period ended March 31, 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)
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Three months ended March 31
(unaudited, in thousands of U.S. dollars) 2008 2007
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EBITA excluding unusual items $42,709 $70,601
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Unusual items 3,371 1,020
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EBITA(1) $39,338 $69,581
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Amortization of property, plant and equipment 26,907 35,336
Amortization of intangible assets 10,600 16,227
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EBIT(2) $1,831 $18,018
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Interest expense 12,498 12,557
Foreign exchange gain (3,760) (496)
Investment income (646) (1,615)
Income taxes (recovery) (2,874) 400
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Net (loss) earnings $(3,387) $7,172
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(1) EBITA is defined herein as earnings before interest expense,
investment income, income taxes, amortization and foreign exchange
gain. It is a standard measure that is commonly reported and widely
used in the industry to assist in understanding and comparing
operating results. EBITA is not a defined term under generally
accepted accounting principles (GAAP). Accordingly, this measure
should not be considered as a substitute or alternative for net
earnings or cash flow, in each case as determined in accordance with
GAAP. See reconciliation of EBITA to net earnings under GAAP as found
in the table above.
(2) EBIT is defined herein as earnings before interest expense,
investment income, foreign exchange gain and income taxes, and is a
standard measure that is commonly reported and widely used in the
industry to assist in understanding and comparing operating results.
EBIT is not a defined term under GAAP. Accordingly, this measure
should not be considered as a substitute or alternative for net
earnings or cash flow, in each case as determined in accordance with
GAAP. See reconciliation of EBIT to net earnings under GAAP as found
in the table above.
May 7 conference call and webcast
Cinram's management team will host a conference call to discuss its results on Wednesday, May 7, 2008, at 10:00 a.m. (ET). To participate, dial 416.644.3422 or 1.800.590.1817. The call will also be webcast live at http://investors.cinram.com/.
May 12 annual meeting of unitholders
Cinram International Income Fund will be holding its annual meeting of unitholders at 10 a.m. ET on Monday, May 12, 2008, at the Ivey ING Leadership Centre in Toronto (130 King St. West, ground floor, amphitheatre 2). Unitholders are welcome to attend. The meeting will also be webcast live from Cinram's website 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 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)
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March 31 December 31
2008 2007
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 130,189 $ 68,406
Accounts receivable 360,192 588,551
Inventories 48,835 42,822
Income taxes receivable 38,473 21,708
Prepaid expenses 23,310 32,478
Future income taxes 18,853 19,337
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619,852 773,302
Property, plant and equipment 454,235 463,374
Goodwill 53,796 55,326
Intangible assets 129,556 137,722
Other assets 11,272 11,945
Future income taxes 1,977 2,012
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$ 1,270,688 $ 1,443,681
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ - $ 27,599
Accounts payable 141,738 233,902
Accrued liabilities 314,591 364,609
Distributions payable - 9,488
Income taxes payable 9,458 9,485
Current portion of long-term debt 6,750 6,750
Current portion of obligations
under capital leases 2,493 2,462
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475,030 654,295
Long-term debt 650,666 651,778
Obligations under capital leases 5,814 6,187
Other long-term liabilities 32,093 30,986
Derivative instruments 35,305 22,495
Future income taxes 9,815 7,870
Unitholders' equity:
Fund units 181,350 181,660
Exchangeable limited partnership
units 194 298
Contributed surplus 87 -
Deficit (227,556) (223,854)
Accumulated other comprehensive
income 107,890 111,966
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61,965 70,070
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$ 1,270,688 $ 1,443,681
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INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS (DEFICIT)
(unaudited, in thousands of U.S. dollars,
except per unit/exchangeable LP unit amounts)
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Three months ended March 31
2008 2007
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Revenue $ 406,648 $ 443,946
Cost of goods sold 345,620 367,405
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Gross profit 61,028 76,541
Selling, general and administrative
expenses 45,226 41,276
Amortization of intangible assets 10,600 16,227
Unusual items 3,371 1,020
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Earnings before the undernoted 1,831 18,018
Interest on long-term debt 11,731 12,272
Other interest 767 285
Foreign exchange gain (3,760) (496)
Investment income (646) (1,615)
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Earnings (loss) before income taxes (6,261) 7,572
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Income taxes (recovery) (2,874) 400
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Net earnings (loss) (3,387) 7,172
Retained earnings (deficit), beginning of
period as previously reported (223,854) 259,876
Repurchase of units (315) -
Distributions declared - (40,722)
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Retained earnings (deficit), end of period $ (227,556) $ 226,326
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Earnings (loss) per unit:
Basic $ (0.06) $ 0.12
Diluted (0.06) 0.12
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Weighted average number of units and
exchangeable LP units outstanding,
(in thousands):
Basic 57,115 58,358
Diluted 57,115 58,411
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INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands of U.S. dollars)
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Three months ended March 31
2008 2007
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Net earnings (loss) for the period $ (3,387) $ 7,172
Other comprehensive income, net of tax:
Unrealized gains on translating
financial statements of
self-sustaining foreign operations 18,172 159
Gain (loss) on hedges of unrealized
foreign currency translation gains (9,904) 1,892
Partial release of cumulative
translation adjustment 171 -
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Unrealized foreign exchange translation
gains, net of hedging activities 8,439 2,051
Net unrealized loss on derivatives
designated as cash flow hedges (12,514) (1,546)
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Other comprehensive income (loss) (4,075) 505
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Comprehensive income (loss) $ (7,462) $ 7,677
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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, In thousands of U.S. dollars)
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Three months ended March 31
2008 2007
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Cash provided by (used in):
Operating Activities:
Net earnings (loss) $ (3,387) $ 7,172
Items not involving cash:
Amortization 37,507 51,563
Future income taxes 2,464 (1,557)
Release of cumulative translation
adjustment 171 -
Non-cash interest expense 444 297
Other 290 (24)
Change in non-cash operating working
capital 69,083 61,957
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106,572 119,408
Financing Activities:
Transaction costs - (2,414)
Repayment of long-term debt
and bank indebtedness (28,311) (3,608)
Decrease in obligations under
capital leases (343) (169)
Issuance of units - 93
Repurchase of units (730) -
Distributions paid (9,246) (40,722)
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(38,630) (46,820)
Investing Activities:
Purchase of property, plant
and equipment (11,984) (13,969)
Proceeds on disposition of property,
plant and equipment 496 53
Decrease (increase) in other assets 673 (14,507)
Decrease in other long-term liabilities 1,107 182
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(9,708) (28,241)
Foreign currency translation gain
on cash held in foreign currencies 3,549 312
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Increase in cash and cash equivalents 61,783 44,659
Cash and cash equivalents, beginning
of period 68,406 152,681
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Cash and cash equivalents, end of period $ 130,189 $ 197,340
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Supplemental cash flow information:
Interest paid $ 12,435 $ 12,423
Income taxes paid 11,549 11,274
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ContactsLyne B. Fisher
Tel: (416) 321-7930
lynefisher@cinram.com
535.02 (5.57%)
