Cinram Reports 2012 Second Quarter and year to date results
(All figures in U.S. dollars unless otherwise indicated)
TORONTO, Aug. 10, 2012 /PRNewswire/ - Cinram International Income Fund ("Cinram" or the "Fund") today reported its 2012 second quarter and year to date financial results.
Q2-2012 Operating Results
- Consolidated revenue of $143.2 million in the 2012 second quarter compared to $147.5 million in the second quarter of 2011.
- Revenue from the Pre-recorded Multimedia Products segment fell to $123.5 million from $125.8 million in the second quarter of 2011, primarily as a result of a reduction in units shipped for standard DVD and CD units during the second quarter of 2012 compared with the second quarter of 2011, partially offset by an increase in Blu-ray disc shipments.
- Revenue from the Video Game segment in the second quarter of 2012 was $5.6 million, down from $6.4 million in 2011, primarily as a result of reduced orders from key customers resulting from increased competition and reduced consumer demand.
- Revenue from our Other business segment, including Wireless, Retail Services and 1K fell to $14.2 million from $15.2 million in 2011.
- Earnings (loss) before interest, taxes and amortization (EBITA1), excluding other charges, was $(19.6) million in 2012, compared to $(12.3) million in the second quarter of 2011.
- EBITA excluding other charges from the Pre-recorded Multimedia Products segment decreased from $(15.8) million in 2011 to $(21.8) million in the second quarter of 2012 as a result of increased professional and consulting fees associated with the ongoing strategic review of operations and related creditor protection proceedings
- EBITA excluding other charges generated by the Video Game business segment in the second quarter of 2012 was $(0.4) million, compared with $(0.5) million in the comparable period in 2011.
- EBITA excluding other charges from the Other business units decreased from $4.0 million in the second quarter of 2011, or 26% of revenue, to $2.6 million in 2012, or 18% of revenue.
The Fund reported a net loss for the second quarter of 2012 of $(91.8) million or $(0.21) per unit (basic), compared with a net loss of $(97.4) million or $(1.60) per unit (basic) in 2011.
For the first six months of 2012, revenue was $310.8 million, a 4% decrease from $324.2 million in the prior year comparable period, primarily as a result of lower standard DVD and CD revenue, partially offset by an increase in Blu-ray related revenue. EBITA excluding other charges declined to $(28.2) million, compared with $(13.3) million in the comparable prior year period, as a result of higher professional and consulting fees as indicated above.
On June 25, 2012, the Fund and certain North American entities (the "CCAA Entities") initiated Companies' Creditors Arrangement Act ("CCAA") proceedings, and subsequently the U.S. based CCAA Entities filed voluntary petitions under chapter 15 of Title 11 of the United States Code (the "Chapter 15 Proceedings") in order to enable them to pursue reorganization efforts under the protection of CCAA and the United States Code. The Fund and the other CCAA Entities remain in possession of their assets and are continuing to operate the business as "debtors in possession" under the jurisdiction of the Canadian Court and in accordance with the applicable provisions of the CCAA. In general, the Fund and the other CCAA Entities are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Canadian Court or the monitor appointed by the Canadian Court, as applicable.
The commencement of the CCAA Proceedings and Chapter 15 Proceedings constitutes an event of default under substantially all pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligation is stayed as a result of the commencement of the CCAA Proceedings and the Chapter 15 Proceedings. Due to the commencement of the CCAA Proceedings and the Chapter 15 Proceedings, pre-petition liabilities of $333.5 million are included in "Liabilities subject to compromise" in the condensed consolidated statement of financial position as of June 30, 2012.
On July 12, 2012, the Canadian Court approved the sale of substantially all of Cinram's assets and businesses in North America and Europe (the "Sale Transaction") to newly formed subsidiaries of Najafi Companies ("Najafi"). The Sale Transaction was also approved by the U.S. Court on July 25, 2012.
Under the Sale Transaction, Najafi will purchase for cash consideration of $82.5 million, subject to certain adjustments and before expenses, substantially all of the assets used in Cinram's core businesses for the manufacture of pre-recorded multimedia products and the provision of related logistics services, digital media solutions and outsourced vendor management inventory services in North America, and substantially all of the European business. Certain assets and businesses of the Fund were excluded from the Sale Transaction, including investment properties, certain land and building, the Fund's wireless division, as well as certain other non-operating subsidiaries of the Fund.
The Sale Transaction is expected to close during 2012, subject to satisfaction of closing conditions, some of which are beyond the sole control of the Fund. Accordingly, there is no certainty that the Sale Transaction will be completed as outlined above.
| Reconciliation of EBITA and EBIT to net loss | ||||||||
| Three months ended June 30 | Six months ended June 30 | |||||||
| (unaudited, in thousands of U.S. dollars) | 2012 | 2011 | 2012 | 2011 | ||||
| EBITA excluding other charges1 | $ | (19,597) | $ | (12,276) | $ | (28,189) | $ | (13,316) |
| Other charges (income), net | (745) | 5,276 | 1,100 | 10,717 | ||||
| EBITA2 | (18,852) | (17,552) | (29,289) | (24,033) | ||||
| Impairment charges | 51,486 | 17,311 | 51,486 | 17,311 | ||||
| Amortization of property, plant and equipment | 4,962 | 7,026 | 9,641 | 15,078 | ||||
| Amortization of intangible assets | 163 | 734 | 318 | 1,467 | ||||
| EBIT3 | (75,463) | (42,623) | (90,734) | (57,889) | ||||
| Net finance costs | 16,152 | 52,087 | 26,674 | 58,024 | ||||
| Income tax (recovery) expense | 224 | 2,724 | (94) | 4,295 | ||||
| Net loss | $ | (91,839) | $ | (97,434) | $ | (117,314) | $ | (120,208) |
| 1 EBITA excluding other charges is defined in this release as earnings (loss) before impairment charges, net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, amortization of unamortized transaction costs, investment banker fees and changes in fair value of derivatives and warrants), income taxes, amortization and other charges 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 excluding other charges 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 from operations, in each case as determined in accordance with IFRS. A reconciliation of EBITA excluding other charges to net loss from continuing operations under IFRS is found in the table above. |
| 2 EBITA is defined in this release as earnings (loss) from continuing operations before impairment charges, net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, amortization of unamortized transaction costs, investment banker fees and changes in fair value of derivatives and warrants), 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 from operations, in each case as determined in accordance with IFRS. A reconciliation of EBITA to net loss from continuing operations under IFRS is found in the table above. |
| 3 EBIT is defined in this release as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, amortization of unamortized transaction costs, investment banker fees, and change in fair value of derivatives and warrants) 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 flows from operations, in each case as determined in accordance with IFRS. A reconciliation of EBIT to net loss from continuing operations 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 release 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: risks related to the June 25, 2012 filing under the Companies' Creditors Arrangement Act (CCAA), including the possible unwillingness of customers or vendors to continue to do business or engage in new business with the Fund as a result of the CCAA filing, the failure of the fund to carry out an orderly restructuring of its business and financial affairs, and the failure of the Fund to obtain any additional stay of proceedings under the CCAA if required; risks related to the proposed sale of substantially all of Cinram's assets and businesses in North America and Europe to newly formed subsidiaries of Najafi Companies (Najafi); risks relating to the $15 million debtor in possession ("DIP") financing dated June 25, 2012, including the risk of default under the DIP facility of certain financial and non-financial covenants; the risk of non-compliance with certain covenants included within its DIP agreements; 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; 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, excluding those related to the CCAA filing and potential sale to Najafi, 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 MD&A 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.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars)
| June 30 2012 (unaudited) |
December 31 2011 |
|||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 49,993 | $ | 70,097 |
| Trade and other receivables | 102,671 | 167,523 | ||
| Inventories | 19,998 | 24,156 | ||
| Current income tax assets | 425 | - | ||
| Prepaid and other assets | 10,820 | 10,036 | ||
| Assets held for sale | - | 2,956 | ||
| Total current assets | 183,907 | 274,768 | ||
| Property, plant and equipment | 97,001 | 154,645 | ||
| Investment property | 3,719 | 5,121 | ||
| Intangible assets | 1,747 | 1,971 | ||
| Other non-current assets | 7,451 | 16,215 | ||
| Total assets | $ | 293,825 | $ | 452,720 |
| Liabilities and Unitholders' deficiency | ||||
| Current liabilities: | ||||
| Debtor-in-possession secured debt | $ | 15,000 | $ | - |
| Bank indebtedness | - | 19,000 | ||
| Trade and other payables | 51,844 | 148,999 | ||
| Provisions | 2,331 | 14,094 | ||
| Employee benefits | 32,754 | 34,765 | ||
| Taxes payable | 5,401 | 13,433 | ||
| First-lien debt | - | 232,456 | ||
| Second-lien debt | - | 22,422 | ||
| Current derivative financial instruments | - | 3,383 | ||
| Current portion of obligations under financing leases | 8,535 | 7,577 | ||
| Liabilities subject to compromise | 333,495 | - | ||
| Total current liabilities | 449,360 | 496,129 | ||
| Obligations under financing leases | 2,782 | 4,854 | ||
| Other non-current liabilities | 23 | 1,099 | ||
| Non-current provisions | 3,322 | 3,952 | ||
| Employee benefits | 20,006 | 20,899 | ||
| Deferred tax liabilities | - | 914 | ||
| Total liabilities | 475,493 | 527,847 | ||
| Unitholders' deficiency | (181,668) | (75,127) | ||
| Total liabilities and unitholders' deficiency | $ | 293,825 | $ | 452,720 |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS
(unaudited, in thousands of U.S. dollars)
| Three months ended June 30 | Six months ended June 30 | ||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||
| Revenue | $ | 143,246 | $ | 147,460 | $ | 310,827 | $ | 324,162 | |
| Cost of goods sold | 135,225 | 138,361 | 281,667 | 297,124 | |||||
| Gross profit | 8,021 | 9,099 | 29,160 | 27,038 | |||||
| Selling, general and administrative expenses | 32,743 | 29,135 | 67,308 | 56,899 | |||||
| Impairment charges | 51,486 | 17,311 | 51,486 | 17,311 | |||||
| Other charges (income), net | (745) | 5,276 | 1,100 | 10,717 | |||||
| Loss from operating activities | (75,463) | (42,623) | (90,734) | (57,889) | |||||
| Net finance costs | 16,152 | 52,087 | 26,674 | 58,024 | |||||
| Loss before income tax expense | (91,615) | (94,710) | (117,408) | (115,913) | |||||
| Income tax (recovery) expense | 224 | 2,724 | (94) | 4,295 | |||||
| Loss for the period | $ | (91,839) | $ | (97,434) | $ | (117,314) | $ | (120,208) | |
| Loss per unit: | |||||||||
| Basic | (0.21) | (1.60) | (0.27) | (2.07) | |||||
| Diluted | (0.21) | (1.60) | (0.27) | (2.07) | |||||
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in thousands of U.S. dollars)
| Three months ended June 30 | Six months ended June 30 | |||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||
| Loss for the period | $ | (91,839) | $ | (97,434) | $ | (117,314) | $ | (120,208) | ||
| Other comprehensive income (loss), net of income taxes | ||||||||||
| Unrealized gain (loss) on translating financial | ||||||||||
| statements of foreign operations | 738 | 711 | (244) | 946 | ||||||
| Unrealized gain on hedges of net investment | ||||||||||
| in foreign operations | - | (87) | - | 4,575 | ||||||
| Release of other comprehensive income due to | ||||||||||
| de-designation of hedge | - | 1,403 | - | 5,012 | ||||||
| Unrealized defined benefit actuarial loss | - | (7) | - | (7) | ||||||
| Other comprehensive income (loss) | 738 | 2,020 | (244) | 10,526 | ||||||
| Total comprehensive loss for the period, net of | ||||||||||
| income taxes | $ | (91,101) | $ | (95,414) | $ | (117,558) | $ | (109,682) | ||
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited, in thousands of U.S. dollars)
| Three months ended June 30 | Six months ended June 30 | |||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||||
| Loss for the period | $ | (91,839) | $ | (97,434) | $ | (117,314) | $ | (120,208) | ||
| Items not involving cash: | ||||||||||
| Amortization expense | 5,125 | 7,760 | 9,959 | 16,545 | ||||||
| Impairment charges | 51,486 | 17,311 | 51,486 | 17,311 | ||||||
| Income tax (recovery) expense | 224 | 2,724 | (94) | 4,295 | ||||||
| Other | (2,724) | (2,667) | (5,000) | (1,793) | ||||||
| Change in provisions | (1,940) | (7,056) | 177 | (2,895) | ||||||
| Change in employee benefits | (1,297) | (1,675) | (2,197) | (6,817) | ||||||
| Gain on disposal of property, plant and equipment | - | - | 246 | - | ||||||
| Net finance cost | 16,152 | 52,087 | 26,674 | 58,024 | ||||||
| Income taxes received | 225 | 212 | 106 | 3 | ||||||
| Change in non-cash operating working capital | 6,055 | 7,173 | 13,558 | 35,774 | ||||||
| Net cash provided by (used in) operating activities | (18,533) | (21,565) | (22,399) | 239 | ||||||
| Cash flows from financing activities: | ||||||||||
| Lender consent fees and transaction costs | - | (30,876) | - | (33,893) | ||||||
| Increase/repayment of long-term debt and bank indebtedness, net | 16,200 | (30,000) | 10,043 | (37,156) | ||||||
| Interest and fees paid | (1,240) | (6,417) | (7,717) | (14,246) | ||||||
| Increase (decrease) in obligations under financing leases | (2,383) | 1,961 | (5,249) | 1,746 | ||||||
| Net cash provided by (used in) financing activities | 12,577 | (65,332) | (2,923) | (83,549) | ||||||
| Cash flows from investing activities: | ||||||||||
| Purchase of property, plant and equipment | (339) | (5,299) | (930) | (6,414) | ||||||
| Proceeds of disposition of assets held for sale | - | - | 3,223 | - | ||||||
| Acquisitions | - | - | - | (2,963) | ||||||
| Change in non-current liabilities | (1,146) | (5,611) | (1,076) | (6,007) | ||||||
| Decrease in other non-current assets | 1,342 | 5,623 | 5,260 | 7,906 | ||||||
| Net cash provided by (used in) investing activities | (143) | (5,287) | 6,477 | (7,478) | ||||||
| Cash used in discontinued operating activities | - | (368) | - | (658) | ||||||
| Foreign currency translation gain on cash held in foreign currencies | (1,683) | (6,996) | (1,259) | (5,336) | ||||||
| Decrease in cash and cash equivalents | (7,782) | (99,548) | (20,104) | (96,782) | ||||||
| Cash and cash equivalents, beginning of period | 57,775 | 167,165 | 70,097 | 164,399 | ||||||
| Cash and cash equivalents, end of period | $ | 49,993 | $ | 67,617 | $ | 49,993 | $ | 67,617 | ||
SOURCE Cinram International Income Fund
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