TORONTO, Aug. 15, 2011, 2011 (Canada NewsWire via COMTEX News Network) --
(All figures in U.S. dollars unless otherwise indicated)
Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2011 second quarter and year to date financial results.
Q2-2011 Operating Results
-- Consolidated revenue of $147.5 million in the 2011 second
quarter compared to $256.2 million in the second quarter of
2010.
o Revenue from the pre-recorded multimedia products fell to $124.5
million from $234.4 million in the second quarter of 2010,
primarily as a result of the loss of the Warner Home Video (WHV)
contract in 2010 and a general softness in new releases in the
second quarter of 2011 compared with the second quarter of 2010,
which had hits such as Avatar, It's Complicated, Tooth Fairy and
Valentine's Day. Excluding revenue associated with the loss of the
WHV contract, revenue declined by 14% over the comparable prior
year period.
o Revenue from the Video Games segment in the second quarter of 2011
was $6.4 million, down from $10.5 million in 2010, primarily as a
result of the loss of major clients that were sold during 2010.
o Revenue from our other businesses, including Wireless, Retail
services and our new digital offerings, grew 46% to $16.6 million
from $11.4 million in 2010.
-- Earnings before interest, taxes and amortization (EBITA(1)),
excluding other charges, was $(12.3) million in 2011, compared
to $24.2 million in the second quarter of 2010.
o EBITA from the pre-recorded multimedia business was down
significantly, from $23.1 million in the second quarter of 2010 to
$(15.3) million in the second quarter of 2011. The significant drop
in volume put a major negative pressure on earnings and cash
generation. While some direct manufacturing costs closely track
production volumes, other cost elements, even semi variable costs,
are required to be maintained in order to ensure that the proper
competencies and capabilities are in place to handle the growth in
demand that we normally experience in the third and fourth
quarters.
o EBITA generated by the Video Games business segment in the second
quarter of 2011 was essentially flat, despite the drop in revenue.
o EBITA from the Other business units increased significantly from
.3 million in the second quarter of 2010, or 3.0% of revenue, to
$3.5 million in 2011, or 21.2% of revenue.
Steve Brown, Cinram's CEO, commented that "Obviously, the loss of the Warner contract continues to impact our revenues and earnings. In addition, the extremely soft first half performance from our remaining clients is disappointing. Our business does have cyclical trends and will be impacted by the success of our clients' offerings. On a more positive note, we were delighted to announce earlier this year the signing of service contracts with a number of new clients, including Relativity Media, Wm Morrisons in the UK, TF1 in France and some additional offload volumes related to Warner Home Video in Europe. These new contracts were completed in Q2 and are just now starting to contribute to the revenues of the Fund. A very positive trend in Q2 was the double digit growth in our Digital Media Group, Wireless and Cinram Retail Services." Brown commented further that "Although the first half of 2011 was weak, we remain confident that the future will see growth in both our revenues and our profitability."
Credit facility amendment On April 11, 2011, Cinram closed the refinancing and recapitalization transaction which was initially disclosed on January 25, 2011. That refinancing and recapitalization plan resulted in a $120 million reduction in the Fund's gross senior debt, significantly de-leveraging the Fund.
The extremely disappointing results for the second quarter resulted in the Fund having to seek additional amendments to its credit agreements. As announced last Friday August 12, Cinram completed amendments to Cinram's first and second lien senior secured credit facilities. Significant changes resulting from the amendment, which were detailed in Cinram's press release issued Wednesday, August 10, involved re-setting of certain financial covenants and changes to the pricing of the various tranches of debt. The latest amendment also included some modifications to various other credit conditions.
Other financial highlights
Pre-recorded multimedia segment:
-- Second quarter pre-recorded multimedia revenue (which includes
replication and distribution of Blu-ray discs, DVDs and CDs)
was down 47% to $124.5 million from $234.4 million in 2010, as
the prior year results included revenue associated with Warner
Home Video combined with a more robust slate of studio
releases.
-- Cinram replicated 81.9 million DVDs in the second quarter of
2011, compared to 203.4 million units in 2010.
-- DVD revenue (which includes replication and distribution
services) was $91.2 million, compared to $198.1 million in the
prior year.
-- Blu-ray disc replication revenue was $5.7 million in the second
quarter of 2011, compared to $6.0 million in the comparable
2010 period.
-- CD revenue (including replication and distribution of CDs) was
down 9% to $27.6 million from $30.3 million due to lower unit
shipments, consistent with industry declines for this format.
Revenue from this segment was down 46% in the first half of 2011 to $274.3 million compared with $503.7 million in the prior year, given the lower CD and DVD shipments compared to the prior year. This segment represented 85% of consolidated revenue in the first half of 2011, compared with 91% in the prior year period.
On April 14, 2011, Cinram announced that it had signed a new multi-year contract with Twentieth Century Fox Home Entertainment ("Fox"). Under the renewed service agreements Cinram will continue to serve as the primary supplier for replication and distribution services for Fox across North America and Europe, extending Cinram and Fox's long standing relationship.
Geographic revenue:
Second quarter North American revenue decreased 44% to $85.8 million from $153.7 million in 2010, principally as a result of lower pre-recorded multimedia product revenue and lower video game distribution revenue, offset by growth in the other business segments. North America accounted for 58% of second quarter consolidated revenue, compared with 60% in the prior year period.
For the first half of 2011, revenue from North America was down 42% to $189.6 million compared with $327.6 million in the prior year.North America revenue represented 58% of the first six months consolidated revenue, compared with 59% in the prior year.
European revenue was down 40% in the second quarter to $61.7 million from $102.5 million in 2010, consistent with North America, due primarily to the loss of the Warner Home Video contract combined with a weak film slate release. Second quarter European revenue represented 42% of consolidated sales, compared with 40% in the second quarter of 2010.
For the first half of 2011, revenue from Europe was down 41% to $134.6 million compared with $227.2 million in the prior year.European revenue represented 42% of the first six months consolidated revenue compared with 41% in the prior year.
Reconciliation of EBITA and EBIT to net
earnings (loss) from continuing operations
Three months ended June 30 Six months ended June 30
(unaudited, 2011 2010 2011 2010
in thousands
of U.S.
dollars)
EBITA $ $ 24,204 $ $ 58,647
excluding (12,276) (13,316)
other
charges
Other
charges 5,276 4,821 10,717 (2,354)
(income),
net
EBITA 19,383 61,001
(17,552) (24,033)
Impairment
of property, 17,311 - 17,311 -
plant and
equipment
Amortization 10,993 22,970
of property, 7,026 15,078
plant and
equipment
Amortization 2,580
of 734 1,290 1,467
intangible
assets
EBIT 35,451
(42,623) 7,100 (57,889)
Net finance 19,077 26,748
costs 52,087 58,024
Income taxes
(recovery) 2,724 (5,618) 4,295 (992)
Net earnings $ $ (6,359) $ $ 9,695
(loss) from (97,434) (120,208)
continuing
operations
The Fund reported a net loss from continuing operations for the 2011 second quarter of $97.4 million or $1.60 per unit (basic) compared with a net loss from continuing operations of $6.4 million or
.12 per unit (basic) in 2010. The loss includes an impairment charge of $17.3 million resulting from carrying values of certain assets exceeding recoverable amounts and $52.1 million of net finance costs, including both cash and non-cash charges associated with the refinancing and recapitalization completed in April 2011.
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 the attached second quarter of 2011 interim 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 now 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. The Cinram group of companies now 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 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: the Fund's ability to retain major customers; 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 invest successfully in new technologies and other factors which are described in the Fund's filings with the securities commissions.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands of U.S. dollars)
June 30 December 31
2011 2010
(unaudited)
Assets
Current assets:
Cash and cash equivalents $67,617 $164,399
Trade and other receivables 109,728 177,760
Inventories 27,348 24,109
Current income tax assets - 706
Prepaid and other assets 11,502 10,910
Total current assets 216,195 377,884
Property, plant and equipment 148,369 165,675
Investment property 8,528 8,446
Goodwill 40,634 40,634
Intangible assets 11,128 11,349
Other non-current assets 22,325 25,701
Total assets $447,179 $629,689
Liabilities and Unitholders' deficiency
Current liabilities:
Trade and other payables $114,141 $149,559
Provisions 14,949 17,468
Employee benefits 34,653 39,498
Current tax liability 18,352 13,749
Current portion of long-term debt 237,341 365,927
Mandatorily exchangeable secured debt 93,070 -
Derivative financial instruments 5,895 11,087
Current portion of obligations under financing 2,363 1,141
leases
Total current liabilities 520,764 598,429
Obligations under financing leases 1,609 1,086
Other non-current liabilities 1,650 7,254
Provisions - non current 6,546 5,787
Employee benefits 21,913 20,864
Deferred tax liabilities 1,988 1,229
Total liabilities 554,470 634,649
Unitholders' deficiency (107,291) (4,960)
Total liabilities and unitholders' deficiency $447,179 $629,689
INTERIM CONSOLIDATED STATEMENTS OF INCOME (loss) (unaudited, in thousands of U.S. dollars, except per unit)
Three months ended June 30 Six months ended June 30
2011 2010 2011 2010
Revenue $ 147,460 $ 256,207 $ 324,162 $ 554,777
Cost of goods 138,361 207,410 297,124 448,904
sold
Gross profit 9,099 48,797 27,038 105,873
Selling, general
and administrative 29,135 36,876 56,899 72,776
expenses
Impairment of
property, plant 17,311 - 17,311 -
and equipment
Other charges 5,276 4,821 10,717 (2,354)
(income), net
Results from
operating (42,623) 7,100 (57,889) 35,451
activities
Net finance costs 52,087 19,077 58,024 26,748
Earnings (loss)
before income tax (94,710) (11,977) (115,913) 8,703
expense
Income tax expense 2,724 (5,618) 4,295 (992)
(recovery)
Earnings (loss)
from continuing (97,434) (6,359) (120,208) 9,695
operations
Loss from
discontinued - (608) - (827)
operations, net of
income tax
Earnings (loss) $ (97,434) $ (6,967) $ (120,208) $ 8,868
for the period
Earnings (loss)
from continuing
operations per
unit:
Basic $ (1.60) $ (0.12) $ (2.07) $ 0.18
Diluted (1.60) (0.12) (2.07) 0.17
Earnings (loss)
per unit:
Basic (1.60) (0.13) (2.07) 0.16
Diluted (1.60) (0.13) (2.07) 0.16
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands of U.S. dollars)
Three months ended June 30 Six months ended June 30
2011 2010 2011 2010
Earnings (loss) $ (97,434) $ (6,967) $ (120,208) $ 8,868
for the period
Other
comprehensive
income, net of
income taxes
Unrealized gain
(loss) on
translating
financial 711 9,582 946 (1,442)
statements of
foreign
operations
Unrealized gain
(loss) on hedges
of net (87) (7,675) 4,575 (2,986)
investment in
foreign
operations
Unrealized
foreign exchange
translation gain 624 1,907 5,521 (4,428)
(loss), net of
hedging
activities
Release of other
comprehensive
income due to 1,403 4,102 5,012 7,377
de-designation
of hedge
Unrealized
defined benefit (7) - (7) -
actuarial loss
Other
comprehensive 2,020 6,009 10,526 2,949
income
Total
comprehensive
income (loss) for $ (95,414) $ (958) $ (109,682) $ 11,817
the period, net of
income taxes
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands of U.S. dollars)
Three months ended June 30 Six months ended June 30
2011 2010 2011 2010
Cash flows from
operating
activities:
Earnings (loss) $ (97,434) $ (6,967) $ (120,208) $ 8,868
for the period
Items not
involving cash:
Amortization 7,760 12,283 16,545 25,550
expense
Impairment of
property, 17,311 - 17,311 -
plant and
equipment
Release of
cumulative (648) 118 (648) 118
translation
adjustment
Mark-to-market
adjustment of (3,632) (3,768) (8,232) (7,854)
derivative
liabilities
Release of
accumulated
other
comprehensive 1,403 4,102 5,012 7,377
income due to
de-designation
of hedge
Loss (gain) on
disposal of
property, - 33 - (7,427)
plant and
equipment
Lender consent 10,937 - 10,937 -
fees
Transaction 20,390 - 20,390 -
costs
Issuance of 7,351 - 7,351 -
fund units
Interest 14,538 8,237 22,711 16,707
expense
Income tax 2,724 (5,618) 4,295 (992)
expense
Other (919) 2,560 (1,290) 3,763
Change in (7,056) 3,425 (2,895) 4,224
provisions
Change in
employee (1,675) (1,674) (6,817) (9,577)
benefits
Income taxes 212 (2,263) 3 2,147
received (paid)
Change in
non-cash
operating 7,173 10,991 35,774 (1,084)
working capital
Net cash
provided by
(used in) (21,565) 21,459 239 41,820
operating
activities
Cash flows from
financing
activities:
Lender consent (10,937) - (10,937) -
fees
Transaction (19,939) (1,200) (22,956) (1,200)
costs
Repayment of
long-term debt (30,000) (7,156) (37,156) (14,312)
and bank
indebtedness
Interest paid (6,417) (8,395) (14,246) (16,625)
Increase
(decrease) in
obligations 1,961 (538) 1,746 (1,220)
under financing
leases
Net cash used in
financing (65,332) (17,289) (83,549) (33,357)
activities
Cash flows from
investing
activities:
Purchase of
property, plant (5,299) (4,531) (6,414) (9,707)
and equipment
Proceeds on
disposition of - - - 13,475
property, plant
and equipment
Acquisition - - (2,963) -
Decrease in
non-current (5,611) (4,702) (6,007) (5,748)
liabilities
Decrease in
other 5,623 2,043 7,906 4,805
non-current
assets
Net cash
provided by
(used in) (5,287) (7,190) (7,478) 2,825
investing
activities
Cash used in
discontinued (368) (980) (658) (1,386)
operating
activities
Foreign currency
translation loss
on cash held in (6,996) (4,605) (5,336) (6,562)
foreign
currencies
Net increase
(decrease) in cash (99,548) (8,605) (96,782) 3,340
and cash
equivalents
Cash and cash
equivalents, 167,165 134,017 164,399 122,072
beginning of
period
Cash and cash
equivalents, end $ 67,617 $ 125,412 $ 67,617 $ 125,412
of period
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