Cinram Reports Fourth Quarter and 2009 Year End Results
(All figures in U.S. dollars unless otherwise indicated)
TORONTO, March 2 /PRNewswire-FirstCall/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2009 fourth quarter and year end financial results. The Fund recorded revenue of $508.1 million in the fourth quarter, a decrease of 9% from the $556.8 million reported in the fourth quarter of 2008. Despite this reduction in revenue, earnings before interest, taxes and amortization (EBITA(1)) were $88.7 million in 2009, compared to an adjusted $67.4 million in the fourth quarter of 2008 (reported EBITA of $117.9 million less the impact of a favorable royalty adjustment of $50.5 million). EBITA margins increased to 17.5% in 2009, compared to 12.1% on the adjusted EBITA reported in 2008. Adjusted gross profit (excluding the 2008 royalty adjustment) improved by 37% to $111.9 million during the fourth quarter of 2009 from $81.6 million in 2008. Adjusted gross profit margins were 22.0% in the fourth quarter of 2009, up from 14.7% in the prior year. Commented Steve Brown, CEO, "While 2009 saw an erosion in revenue largely in line with our expectations, the strong operating results reflect the efforts of a number of management initiatives within the period. Increased efficiency and reduced costs, derived from a matrix driven management team across our global operations, resulted in significant improvements in our gross margins and EBITA".
During 2009, the Fund generated cash flow from operations of $302.6 million, a substantial increase from $146.2 million in the prior year, primarily resulting from improved working capital management. This cash flow generation contributed to the Fund's ability to reduce debt balances by $251.8 million or 39% during 2009.
The Fund had cash and cash equivalents on hand as at December 31, 2009 of $122.1 million and debt of $395.4 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $273.3 million as at December 31, 2009, compared with a net debt position of $573.8 million at the end of 2008. During 2009, the Fund repurchased $169.7 million of debt through a series of "modified Dutch" auctions at a cost of $129.8 million, resulting in a net gain after transaction fees of $38.4 million. Additionally, the Fund made voluntary repayments of $20.0 million combined with net mandatory debt repayments of $62.1 million. "Debt reduction was a primary focus during 2009 and we are pleased that we were able to achieve a reduction in our net debt position by over $300 million." stated John Bell, Chief Financial Officer.
On February 1, 2010, the Fund announced that it had received written notice from Warner Home Video Inc. ("WHV") that WHV was exercising its option to terminate its service agreements on July 31, 2010, five months prior to the scheduled termination date of the contract. The notice covers all Cinram entities globally and will directly impact operations in North America, Mexico, UK, France, Germany and Spain. WHV revenues for 2009 represented approximately 32% of the total consolidated revenues of the Fund.
As a result of this announcement, the Fund recorded a combined long-lived asset and goodwill impairment charge of $82.2 million during the fourth quarter, relating primarily to the tangible, intangible assets and goodwill associated with the Warner Home Video business.
"Warner's decision not to extend their contract with Cinram was obviously regrettable. However, the initiatives undertaken this past year will continue to drive Cinram forward in a market which we forecast to still have a 10 to 15 year future. Physical media is still being embraced by the consumer markets and its migration to digital download and other non physical strategies have all been far slower than many previously forecasted. 2010 will hold its challenges, but will also provide us with opportunities," stated Steve Brown, CEO.
For the year ended December 31, 2009, Cinram reported a 15% decrease in revenue to $1.46 billion from $1.73 billion in 2008 as a result of lower DVD unit sales and selling prices combined with lower revenue from CDs, wireless and the Ditan business. Excluding the effects of foreign exchange, revenue decreased by 14%.
EBITA for the year was $181.4 million compared with an adjusted 2008 EBITA of $193.6 million (2008 reported EBITA of $259.3 million less the $65.7 million reduction in cost of goods sold during 2008 that resulted from a patent settlement and a change in estimate related to invalid patent claims). Excluding the impact of these 2008 adjustments, the EBITA margin as a percent of revenue improved to 12.4% in 2009 from 11.2% in 2008.
On a year-to-date basis, as a result of the $82.2 million impairment charge, the Fund reported a net loss from continuing operations of $17.3 million or $0.32 per unit (basic) in 2009 compared with net earnings of $21.4 million or $0.38 per unit (basic) in 2008.
The 2008 results included an impairment charge of $22.3 million related to goodwill and long-lived assets in addition to an impairment charge of $38.5 million related to the Ivy Hill printing business that was sold in April 2009. Ivy Hill's results for 2009 and 2008 are reflected under discontinued operations.
Segment revenue
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Three months ended Twelve months ended
December 31 December 31
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(in thousands
of US$) 2009 2008 2009 2008
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Home Video $412,296 81% $420,903 76% $1,133,596 78% $1,271,146 74%
CD 47,221 9% 52,458 9% 166,074 11% 221,656 13%
Video Game 33,204 7% 49,272 9% 91,608 6% 126,561 7%
Other 15,418 3% 34,180 6% 72,287 5% 109,174 6%
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$508,139 100% $556,813 100% $1,463,565 100% $1,728,537 100%
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Fourth quarter Home Video revenue (which includes replication and distribution of DVDs and high-definition discs) was down 2% to $412.3 million from $420.9 million in 2008, primarily due to lower selling prices. Cinram replicated 426.7 million DVDs in the fourth quarter of 2009, compared to 435.0 million units in 2008. High-definition disc replication revenue increased to $7.8 million in the fourth quarter of 2009 from $5.1 million in the comparable 2008 period.
The CD segment revenue (which includes replication and distribution of CDs) was down 10% in the fourth quarter to $47.2 million from $52.5 million in 2008, primarily resulting from a 14% decline in replication volumes.
Revenue from the Video Game segment was down significantly from the prior year, reporting a decrease of 33% to $33.2 million in the fourth quarter of 2009 from $49.3 million in 2008, reflecting a general decline in consumer spending for this market.
Revenue from our Other segment (which primarily includes the Motorola distribution business in North America) decreased to $15.4 million in the fourth quarter of 2009 from $34.2 million in 2008. The prior year figure includes revenue of $12.0 million from Motorola Europe which, as previously reported, terminated its contract with the Fund in early 2009.
Geographic revenue
Fourth quarter North American revenue decreased 12% to $268.2 million from $305.7 million in 2008, principally as a result of lower DVD volumes and prices. North America accounted for 53% of fourth quarter consolidated revenue compared with 55% in 2008.
European revenue was down 4% in the fourth quarter to $239.9 million from $251.1 million in 2008. Fourth quarter European revenue represented 47% of consolidated sales compared with 45% in the fourth quarter of 2008.
Applying 2008 foreign exchange rates to the 2009 fourth quarter, consolidated revenue would have decreased by 15% to $475.4 million in 2009 from $556.8 million in 2008.
Other financial highlights
During the fourth quarter, the Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $20.9 million compared to $26.4 million in the fourth quarter of 2008. This reduction in amortization results from the lower net book value of property, plant and equipment due to the impairment charges recorded at the end of 2008 as part of Cinram's annual impairment test.
Unit data
For the three-month period ended December 31, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.3 million compared with 55.3 million in the prior year. For the year ended December 31, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.8 million compared with 56.4 million in the prior year.
Reconciliation of EBITA and EBIT to net earnings (loss) from continuing
operations
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Three months ended Year ended
December 31 December 31
(unaudited, in thousands
of U.S. dollars) 2009 2008 2009 2008
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EBITA excluding other
charges $88,062 $115,732 $183,871 $257,160
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Other charges (income), net (630) (2,148) 2,483 (2,148)
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EBITA(1) $88,692 $117,880 $181,388 $259,308
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Impairment of long lived
assets and goodwill 82,234 22,252 82,234 22,252
Amortization of property,
plant and equipment 20,946 26,440 86,641 101,420
Amortization of intangible
assets 10,515 10,215 41,465 42,127
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EBIT(2) $(25,003) $58,973 $(28,952) $93,509
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Interest expense 9,221 11,452 37,584 45,925
Other interest and
financing charges 4,942 2,171 6,127 3,371
Gain on repurchase of debt (14,965) - (38,440) -
Foreign exchange (gain)/loss (1,129) 9,813 (15,179) 12,312
Investment income (95) (218) (622) (1,729)
Income taxes (recovery) (2,086) 19,375 (1,154) 12,213
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Net earnings (loss) from
continuing operations $(20,891) $16,380 $(17,268) $21,417
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(1) EBITA is defined herein as earnings from continuing operations before
impairment charges, amortization, interest expense and financing
charges, investment income, gain on repurchase of debt, foreign
exchange gain/loss and income taxes. 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 may not be comparable with other issuers
and 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 and financing charges, investment income, gain on
repurchase of debt, foreign exchange gain/loss and income taxes. It
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 may not be comparable with other issuers and 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.
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, audio 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. 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: 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.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands of U.S. dollars)
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As at December 31 2009 2008
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Assets
Current assets:
Cash and cash equivalents $ 122,072 $ 73,349
Accounts receivable 273,243 495,604
Inventories 31,985 48,987
Income taxes receivable 7,705 18,235
Prepaid expenses 15,915 21,913
Assets held for sale 6,047 -
Future income taxes 6,007 1,827
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462,974 659,915
Property, plant and equipment 234,684 361,804
Intangible assets 27,537 94,423
Goodwill 40,634 64,737
Other assets 21,571 24,557
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$ 787,400 $1,205,436
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Liabilities and Unitholders' Equity (DEFICIENCY)
Current liabilities:
Accounts payable $ 90,282 $ 188,352
Accrued liabilities 226,856 263,235
Income taxes payable 20,277 11,581
Current portion of long-term debt 28,624 6,750
Current portion of obligations under capital leases 1,728 3,094
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367,767 473,012
Long-term debt 363,396 636,299
Obligations under capital leases 2,337 3,926
Other long-term liabilities 43,637 43,625
Derivative instruments 25,225 26,586
Future income taxes 6,638 5,208
Unitholders' equity (deficiency) (21,600) 16,780
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$ 787,400 $1,205,436
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CONSOLIDATED STATEMENTS OF LOSS
(unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP
unit amounts)
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Three months ended Twelve months ended
December 31 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $508,139 $556,813 $1,463,565 $1,728,537
Cost of goods sold 396,203 424,714 1,199,086 1,410,194
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Gross profit 111,936 132,099 264,479 318,343
Selling, general and
administrative expenses 44,820 42,807 167,249 162,603
Amortization of intangible
assets 10,515 10,215 41,465 42,127
Impairment of long-lived
assets and goodwill 82,234 22,252 82,234 22,252
Other charges (income),
net (630) (2,148) 2,483 (2,148)
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Earnings (loss) before
the undernoted (25,003) 58,973 (28,952) 93,509
Interest on long-term debt 9,221 11,452 37,584 45,925
Other interest and
financing charges 4,942 2,171 6,127 3,371
Gain on repurchase of debt (14,965) - (38,440) -
Foreign exchange loss (gain) (1,129) 9,813 (15,179) 12,312
Investment income (95) (218) (622) (1,729)
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Earnings (loss) from
continuing operations
before income taxes (22,977) 35,755 (18,442) 33,630
Income taxes (recovery) (2,086) 19,375 (1,154) 12,213
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Earnings (loss) from
continuing operations (20,891) 16,380 (17,268) 21,417
Earnings (loss) from
discontinued operations 919 (39,464) (16,260) (52,946)
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Net loss for the period (19,972) (23,084) (33,528) (31,529)
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Earnings (loss) per unit
from continuing operations:
Basic (0.38) 0.30 (0.32) 0.38
Diluted (0.38) 0.30 (0.32) 0.38
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Loss per unit:
Basic (0.37) (0.42) (0.61) (0.56)
Diluted (0.37) (0.42) (0.61) (0.56)
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Weighted average number
of units and exchangeable
limited partnership units
outstanding (in thousands):
Basic 54,307 55,253 54,785 56,445
Diluted 55,618 55,343 54,785 56,510
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in thousands of U.S. dollars)
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Three months ended Twelve months ended
December 31 December 31
2009 2008 2009 2008
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Loss for the period $(19,972) $(23,084) $(33,528) $(31,529)
Other comprehensive
income, net of tax:
Unrealized gain (loss)
on translating
financial statements
of self-sustaining
foreign operations (13,986) 28,696 (43,402) 42,041
Unrealized gain (loss)
on hedges of net
investment in
self-sustaining foreign
operations 9,236 (39,147) 35,135 (53,594)
Partial release of
cumulative translation
adjustment - - - 1,203
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Unrealized foreign
exchange translation
loss, net of hedging
activities (4,750) (10,451) (8,267) (10,350)
Net unrealized gain
(loss) on derivatives
designated as cash flow
hedges 1,546 (3,547) 1,067 (2,501)
Release of other
comprehensive income due
to de-designated hedge 3,840 - 3,840 -
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Other comprehensive income
(loss) for the period 636 (13,998) (3,360) 12,851
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Comprehensive loss, net
of tax $(19,336) $(37,082) $(36,888) $(44,380)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, In thousands of U.S. dollars)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Earnings (loss) from
continuing operations $(20,891) $16,380 $(17,268) $21,417
Items not involving cash:
Amortization of property,
plant and equipment 20,946 26,440 86,641 101,420
Amortization of
intangible assets 10,515 10,215 41,465 42,127
Future income taxes (1,540) 13,844 (2,750) 16,860
Gain on repurchase of
debt (14,965) - (38,440) -
Partial release of
cumulative translation
adjustment - - - 536
Impairment of long-lived
assets and goodwill 82,234 22,252 82,234 22,252
Non-cash interest
expense related to
hedging and derivative
liability 3,549 1,833 3,545 1,590
Non-cash interest expense 600 443 2,466 1,776
Loss (gain) on
disposition of property,
plant and equipment 694 (2,378) (859) (2,687)
Other 532 (50) 827 175
Change in non-cash
operating working capital 58,832 (72,244) 144,723 (59,242)
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140,506 16,735 302,584 146,224
Financing:
Repayment/repurchase of
long-term debt and bank
indebtedness (109,863) (12,687) (213,320) (44,419)
Transaction costs and
loan fees - - (1,525) -
Increase (decrease) in
obligation under capital
leases (751) 197 (2,956) (1,628)
Financing of employee
unit purchase loan (1,067) - (2,315) -
Repurchase of units - - - (9,085)
Distributions paid - - - (9,247)
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(111,681) (12,490) (220,116) (64,379)
Investments:
Purchase of property,
plant and equipment (4,326) (14,089) (42,179) (68,141)
Acquisitions, net of cash - - - (5,386)
Acquisition expense - - - 1,003
Payment of acquisition
earn-out amount - - (16,131) (13,449)
Proceeds on disposition
of property, plant and
equipment 77 12,123 29,483 12,487
Decrease in other assets 3,378 7,715 2,987 2,453
Decrease in other
long-term liabilities (1,222) (2,994) (6,433) (1,791)
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(2,093) 2,755 (32,273) (72,824)
Cash provided by (used in)
discontinued operating
activities 2,819 (763) (17,233) (16,657)
Cash provided by (used in)
discontinued investing
activities (2,779) - 11,211 6,822
Foreign currency translation
gain on cash held in
foreign currencies 1,678 4,947 4,550 5,757
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Increase in cash and cash
equivalents 28,450 11,184 48,723 4,943
Cash and cash equivalents,
beginning of period 93,622 62,165 73,349 68,406
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Cash and cash equivalents,
end of period 122,072 73,349 $122,072 $73,349
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Cash and cash equivalents
are comprised of:
Cash $88,846 $42,093 $88,846 $42,093
Cash equivalents 33,226 31,256 33,226 31,256
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$122,072 $73,349 $122,072 $73,349
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Supplemental cash flow
information:
Interest paid $9,100 $11,382 $38,109 $46,349
Income taxes paid
(recovered) 588 3,278 (17,012) (11,082)
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Cash and cash equivalents are defined as cash and short-term deposits,
which have an original maturity of less than 90 days
SOURCE Cinram International Income Fund
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