(All figures in U.S. dollars unless otherwise indicated)
TORONTO, Aug. 7 /CNW/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW-UN.TO) today reported its second quarter financial results. The Fund recorded revenue of $412.8 million, up from $345.1 million in 2007. Earnings before interest, taxes and amortization (EBITA(1)) were $33.3 million in 2008, down from $34.4 million the second quarter of 2007. Excluding unusual items, second quarter EBITA was $33.7 million, down from $35.3 million in 2007.
"During the second quarter, we gained a new DVD replication and distribution mandate from Universal Picture in Europe" said Cinram chief executive officer Dave Rubenstein. "This new agreement along with organic growth from some of our existing studio clients helped increase our second quarter DVD unit production by 17%. Additionally, we benefited from a full quarter of Ditan's games distribution business and the year over year growth in that segment. Our EBITA for the quarter was down slightly compared to Q2 07 due to transitional costs related to the Universal Pictures International mandate, start up costs in Europe related to the wireless business and lower DVD selling prices implemented in the second half of 2007."
The Fund reported net loss from continuing operations for the second quarter of 2008 of $8.7 million or $0.15 per unit (basic) compared with a net loss of $25.5 million or $0.44 per unit (basic) in 2007. Since the Fund completed the sale and liquidation of Giant Merchandising's assets and operations during the second quarter of 2008, Giant's results were excluded from Cinram's continuing operations for the three and six months ended June 30, 2008 and 2007.
Cinram reported a five per cent increase in revenue in the first half of 2008 to $800.7 million from $759.8 million in 2007 as a result of increases in revenue attributable to the acquisition of Ditan and from the wireless distribution business. EBITA for the first half was $74.5 million compared with $105.9 million in 2007; EBITA excluding unusual items was $78.2 million compared with $107.9 million in 2007. The EBITA declines were principally the result of lower average selling prices for DVDs which coupled with volume are the two main drivers of Cinram's profit margins. The Fund reported a net loss from continuing operations of $10.3 million or $0.18 (basic) in the first half of 2008 compared with a net loss of $17.0 million or $0.29 (basic) in 2007.
Segment revenue
Second quarter Home Video revenue (which includes replication and distribution of DVDs and high-definition discs) was up eight per cent to $247.7 million from $229.0 million in 2007 as a result of an increase in DVD replication revenue due to organic growth in North America and the addition of a new customer in Europe. Cinram replicated 246 million DVDs in the second quarter of 2008, up 18 per cent from 209 million units in 2007. High-definition disc replication revenue increased to $5.1 million in the second quarter of 2008 from $4.2 million in the comparable 2007 period.
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Three months ended Six months ended
June 30 June 30
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(in
thousands
of US$) 2008 2007 2008 2007
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Home Video $247,664 60% $229,002 66% $496,697 62% $536,508 71%
CD 54,030 13% 49,645 15% 101,463 13% 103,896 14%
Printing 57,918 14% 56,653 16% 109,109 14% 109,284 14%
Video Game 28,915 7% 9,454 3% 50,744 6% 9,454 1%
Other 24,310 6% 321 - 42,641 5% 640 -
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$412,837 100% $345,075 100% $800,654 100% $759,782 100%
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CD segment revenue (which includes replication and distribution of CDs) increased nine per cent in the second quarter to $54.0 million from $49.6 million in 2007 due to a change in product mix. Cinram recorded printing revenue for the second quarter of $57.9 million compared with $56.7 million in 2007. Revenue from the Video Game segment increased to $28.9 million in the second quarter of 2008 from $9.5 million in 2007 reflecting strong organic growth and the inclusion of a full quarter of business from Ditan in 2008. Cinram acquired Ditan on April 30, 2007.
Revenue from our Other segment (which includes the new handset distribution business and revenue from the acquisition of Vision Worldwide Management LLC (Vision)) increased to $24.3 million in the second quarter of 2008 from $0.3 million in 2007 due to the inception of the handset distribution business and the acquisition of Vision in the third quarter of 2007.
Second quarter revenue from discontinued operations declined to $17.2 million from $30.8 million in 2007 as a result of lower retail licence sales and the discontinuation of Giant's music tour segment as well as the partial sale of Giant Merchandising's assets in May 2008. Giant's remaining operations in the U.S. were liquidated for proceeds of $6.2 million and the Fund completed a share sale of Giant's subsidiary in Mexico for nominal proceeds during the second quarter.
Geographic revenue
Second quarter North American revenue increased 11 per cent to $269.4 million from $242.4 million in 2007, as the increase in revenue from the Ditan acquisition and the new handset distribution business more than offset lower sales in our core home video business. North America accounted for 65 per cent of second quarter consolidated revenue compared with 70 per cent in 2007.
European revenue increased 40 per cent in the second quarter to $143.4 million from $102.6 million in 2007, principally due to the new replication and distribution agreement with Universal. Second quarter European revenue represented 35 per cent of consolidated sales compared with 30 per cent in the second quarter of 2007.
Other financial highlights
Gross profit for the quarter ended June 30, 2008, was up 18 per cent to $54.2 million from $45.8 million in 2007, and gross profit margins were on par with the prior year at 13 per cent. Amortization expense from capital assets (property, plant and equipment), which is included in the cost of goods sold, decreased to $28.0 million from $32.6 million in the second quarter of 2007. This reduction in amortization was as a result of the lower net book value of property, plant and equipment due to the impairment charge of $55.2 million recorded at the end of 2007 as part of Cinram's annual impairment test. Amortization of intangible assets decreased to $10.7 million in the second quarter of 2008 from $17.3 million in 2007. This reduction in amortization was due to a reduction in intangible assets associated with the impairment charge of $16.8 million recorded at the end of 2007 as part of Cinram's annual impairment test and the extension of the Warner Home Video supply agreement signed in the fall of 2007.
Balance sheet and liquidity
The Fund had cash and equivalents on hand of $119.6 million and debt of $661.5 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $541.9 million at June 30, 2008, compared with a net debt position of $624.1 million at the end of 2007. Working capital increased to $123.5 million at June 30, 2008, from $119.0 million at December 31, 2007, due to a higher net cash balance from the collection of year-end receivables as well as the suspension of distributions and lower bank indebtedness. Cinram paid $25.8 million for property, plant and equipment in the second quarter of 2008 principally for equipment for the wireless business and cash payments on DVD equipment purchased in 2007.
Unit data
For the three-month period ended June 30, 2008, the basic weighted average number of units and exchangeable limited partnership units outstanding was 57.0 million compared with 58.4 million in the prior year. For the six-month period ended June 30, 2008, the basic weighted average number of units/shares and exchangeable limited partnership units outstanding was 57.1 million compared with 58.4 million in the prior year.
Reconciliation of EBITA and EBIT to net earnings (loss)
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Three months ended Six months ended
June 30 June 30
(unaudited, in thousands
of U.S. dollars) 2008 2007 2008 2007
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EBITA excluding unusual
items $ 33,704 $ 35,277 $ 78,224 $ 107,885
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Unusual items 365 927 3,736 1,947
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EBITA $ 33,339 $ 34,350 $ 74,488 $ 105,938
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Amortization of property,
plant and equipment 27,960 32,592 54,867 67,845
Amortization of intangible
assets 10,718 17,349 21,318 33,576
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EBIT $ (5,339) $(15,591) $ (1,697) $ 4,517
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Interest expense 11,084 13,230 23,582 25,787
Foreign exchange
(gain)/loss (1,318) (1,174) (5,078) (1,670)
Investment income (413) (1,199) (1,059) (2,814)
Income taxes (recovery) (6,001) (942) (8,875) 210
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Net loss from continuing
operations $ (8,691) $(25,506) $(10,267) $ (16,996)
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(1) EBITA is defined herein as earnings from continuing operations before
interest expense, investment income, income taxes, amortization and
foreign exchange gain/loss. It is a standard measure that is commonly
reported and widely used in the industry to assist in understanding
and comparing operating results. EBITA is not a defined term under
generally accepted accounting principles (GAAP). Accordingly, this
measure should not be considered as a substitute or alternative for
net earnings or cash flow, in each case as determined in accordance
with GAAP. See reconciliation of EBITA to net earnings under GAAP as
found in the table above.
(2) EBIT is defined herein as earnings from continuing operations before
interest expense, investment income, foreign exchange gain/loss and
income taxes, and is a standard measure that is commonly reported and
widely used in the industry to assist in understanding and comparing
operating results. EBIT is not a defined term under GAAP.
Accordingly, this measure should not be considered as a substitute or
alternative for net earnings or cash flow, in each case as determined
in accordance with GAAP. See reconciliation of EBIT to net earnings
under GAAP as found in the table above.
August 8 conference call and webcast
Cinram's management team will host a conference call to discuss its results on Friday, August 8, 2008, at 10:00 a.m. (ET). To participate, dial 416.644.3422 or 1.800.595.8550. The call will also be webcast live at http://investors.cinram.com/.
About Cinram
Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, is the world's largest provider of pre-recorded multimedia products and related logistics services. With facilities in North America and Europe, Cinram International Inc. manufactures and distributes pre-recorded DVDs, audio CDs, and CD-ROMs for motion picture studios, music labels, publishers and computer software companies around the world. Cinram now also provides distribution and logistics services to the telecommunications industry in North America and Europe through its wireless subsidiaries. The Fund's units are listed on the Toronto Stock Exchange under the symbol CRW.UN. For more information, visit our website at 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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June 30 December 31
2008 2007
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 119,582 $ 68,406
Accounts receivable 369,331 588,551
Inventories 53,300 42,822
Income taxes receivable 43,352 21,708
Prepaid expenses 22,855 32,478
Future income taxes 18,836 19,337
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627,256 773,302
Property, plant and equipment 448,431 463,374
Goodwill 52,004 55,326
Intangible assets 118,663 137,722
Other assets 42,038 11,945
Future income taxes 2,054 2,012
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$ 1,290,446 $ 1,443,681
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ - $ 27,599
Accounts payable 141,179 233,902
Accrued liabilities 343,419 364,609
Distributions payable - 9,488
Income taxes payable 9,889 9,485
Current portion of long-term debt 6,750 6,750
Current portion of obligations under
capital leases 2,509 2,462
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503,746 654,295
Long-term debt 649,421 651,778
Obligations under capital leases 5,184 6,187
Other long-term liabilities 32,286 30,986
Derivative instruments 20,183 22,495
Future income taxes 11,033 7,870
Unitholders' equity:
Fund units 181,579 181,660
Exchangeable limited partnership units 100 298
Contributed surplus 22 -
Deficit (234,636) (223,854)
Accumulated other comprehensive income 121,528 111,966
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68,593 70,070
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$ 1,290,446 $ 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)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
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Revenue $ 412,837 $ 345,075 $ 800,654 $ 759,782
Cost of goods sold 358,653 299,285 685,268 638,284
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Gross profit 54,184 45,790 115,386 121,498
Selling, general and
administrative expenses 48,440 43,105 92,029 81,458
Amortization of
intangible assets 10,718 17,349 21,318 33,576
Unusual items 365 927 3,736 1,947
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Earnings (loss) before
the undernoted (5,339) (15,591) (1,697) 4,517
Interest on long-term debt 11,350 12,914 23,081 25,186
Other interest expense
(income) (266) 316 501 601
Foreign exchange (gain)
loss (1,318) (1,174) (5,078) (1,670)
Investment income (413) (1,199) (1,059) (2,814)
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Loss from continuing
operations before
income taxes (14,692) (26,448) (19,142) (16,786)
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Income taxes (recovery) (6,001) (942) (8,875) 210
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Loss from continuing
operations (8,691) (25,506) (10,267) (16,996)
Earnings (loss) from
discontinued operations 1,611 (1,044) (200) (2,382)
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Net loss (7,080) (26,550) (10,467) (19,378)
Retained earnings
(deficit), beginning
of period (227,556) 226,326 (223,854) 259,876
Repurchase of units - - (315) -
Distributions declared - (43,689) - (84,411)
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Retained earnings
(deficit), end of period $(234,636) $ 156,087 $(234,636) $ 156,087
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Loss per unit from
continuing operations:
Basic $ (0.15) $ (0.44) $ (0.18) $ (0.29)
Diluted (0.15) (0.44) (0.18) (0.29)
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Loss per unit:
Basic $ (0.12) $ (0.45) $ (0.18) $ (0.33)
Diluted (0.12) $ (0.45) (0.18) $ (0.33)
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Weighted average number
of units and exchangeable
LP units outstanding,
(in thousands):
Basic 57,001 58,377 57,057 58,368
Diluted 57,001 58,377 57,057 58,368
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INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands of U.S. dollars)
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Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
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Net loss for the period $ (7,080) $ (26,550) $ (10,467) $ (19,378)
Other comprehensive
income, net of tax:
Unrealized gain (loss)
on translating
financial statements
of self-sustaining
foreign operations (4,319) 13,034 13,852 13,193
Gain (loss) on hedges
of unrealized foreign
currency translation
gains 2,491 22,649 (7,413) 24,541
Partial release of
cumulative translation
adjustment 1,032 - 1,203 -
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Unrealized foreign
exchange translation
gains (losses), net
of hedging activities (796) 35,683 7,642 37,734
Net unrealized gain
(loss) on derivatives
designated as cash
flow hedges 14,434 7,521 1,920 5,975
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Other comprehensive
income 13,638 43,204 9,562 43,709
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Comprehensive Income
(loss) $ 6,558 $ 16,654 $ (905) $ 24,331
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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of U.S. dollars)
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Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
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Cash provided by (used in):
Operating Activities:
Net earnings (loss)
from continuing
operations $ (8,691) $ (25,505) $ (10,267) $ (16,996)
Items not involving
cash:
Amortization 38,678 49,941 76,185 101,421
Future income taxes 1,159 (297) 3,623 (1,854)
Release of cumulative
translation
adjustment 365 - 536 -
Non-cash interest
expense 444 444 888 741
Other 182 (14) 472 (38)
Change in non-cash
operating working
capital 10,973 (448) 77,687 58,499
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43,110 24,121 149,124 141,773
Financing Activities:
Increase in long term
debt - 4,445 - 4,445
Transaction costs - - - (2,414)
Repayment of long-term
debt and bank
indebtedness (1,733) (8,079) (30,044) (11,687)
Decrease in obligations
under capital leases (613) (800) (956) (969)
Issuance of units - 899 - 992
Repurchase of units - (3,048) (729) (3,048)
Distributions paid - (43,701) (9,247) (84,423)
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(2,346) (50,284) (40,976) (97,104)
Investing Activities:
Purchase of property,
plant and equipment (25,813) (21,949) (37,798) (35,833)
Acquisitions, net of cash (1,994) (47,472) (1,994) (47,472)
Acquisition expense 755 - 755 -
Payment of acquisition
earnout amount (13,449) - (13,449) -
Proceeds on disposition
of property, plant and
equipment 3 19 500 72
Increase in other assets (8,631) (201) (7,958) (13,662)
Increase (decrease) in
other long-term
liabilities - (304) 1,107 (122)
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(49,129) (69,907) (58,837) (97,017)
Cash provided by (used in)
discontinued operating
activities (7,546) (658) (6,988) 1,098
Cash provided by (used in)
discontinued investing
activities 6,225 137 6,225 (995)
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Foreign currency
translation gain (loss)
on cash held in foreign
currencies (921) 1,580 2,628 1,893
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Increase (decrease) in
cash and cash equivalents (10,607) (95,011) 51,176 (50,352)
Cash and cash equivalents,
beginning of period 130,189 197,340 68,406 152,681
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Cash and cash equivalents,
end of period $ 119,582 $ 102,329 $ 119,582 $ 102,329
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Cash and cash equivalents
are comprised of:
Cash $ 78,035 $ 62,860 $ 78,035 $ 62,860
Cash equivalents 41,547 39,469 41,547 39,469
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$ 119,582 $ 102,329 $ 119,582 $ 102,329
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Supplemental cash flow
information:
Interest paid $ 12,048 $ 12,499 $ 24,485 $ 24,922
Income taxes paid
(received) (2,604) 12,842 8,945 24,116
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Cash and cash equivalents are defined as cash and short-term deposits
that have an original maturity of less than 90 days.
ContactsJohn H. Bell
Tel: (416) 332-2902
johnbell@cinram.com
30.85 (0.37%)
