Cinram International Income Fund announced its fourth quarter 2011 financial results.
Cinram trades on the TSX under the symbol CRW.UN
For more information visit: www.cinram.com
Unedited press release follows:
Cinram Reports Fourth Quarter and Year to Date Results and provides update on review of strategic alternatives
(All figures in U.S. dollars unless otherwise indicated)
TORONTO, March 29, 2012 – Cinram International Income Fund (“Cinram” or the “Fund”) (TSX: CRW.UN) today reported its 2011 fourth quarter and year to date consolidated financial results and provided an update on the review of strategic alternatives.
Q4-2011 Operating Results
• Consolidated revenue of $267.5 million in the fourth quarter of 2011 compared to $300.1 million in the fourth quarter of 2010.
– Revenue from the pre-recorded multimedia products segment of $232.8 million decreased from $264.2 million in Q4-2010, primarily as a result of a decrease in new release revenue leading to lower DVD volumes, most notably in North America.
– Revenue from the video games segment in the fourth quarter of 2011 was $17.8 million, a decrease of 12% from Q4-2010 revenues of $20.2 million.
– Revenue from the other business segment, which includes wireless, retail services and the digital media services group continues to grow, with fourth quarter revenue of $16.9 million, up 8% from $15.7 million in the comparable quarter of 2010.
• Earnings before interest, taxes, impairment charges and amortization (EBITA1), excluding other charges, was $28.5 million in fourth quarter of 2011, compared to $49.3 million in the prior year.
– EBITA from the pre-recorded multimedia segment was $22.0 million in the fourth quarter of 2011, or 8% of consolidated revenue, compared with $40.3 million or 13% of consolidated revenue in the prior year comparable period.
– EBITA generated by the video games segment in the fourth quarter of 2011 was $2.7 million, compared to $5.6 million in the prior year period as the Fund continued consolidating various games distribution facilities into our Nashville location.
– EBITA from the other business segment was $3.8 million in the fourth quarter of 2011 compared with $3.4 million in the fourth quarter of 2010.
2011 full year Operating Results
• Consolidated revenue of $800.8 million in 2011 compared to $1,108.9 million in the 2010.
– Revenue from the pre-recorded multimedia products segment of $693.4 million decreased from $1,002.2 million in 2010.
– Revenue from the video games segment in 2011 was $44.9 million, a decrease from 2010 revenues of $59.0 million.
– Revenue from the other business segment was $62.5 million in 2011, compared with $47.7 million in 2010.
• Earnings before interest, taxes, impairment charges and amortization (EBITA1), excluding other charges, was $27.6 million in 2011, compared to $131.9 million in the prior year.
Commented Steve Brown, CEO, “As reflected above, 2011 was a difficult year for the Fund and the industry generally as the impact of a general softness in the economy in our primary markets of North America and Europe impacted consumers’ discretionary spending. Notwithstanding, we continue to be encouraged by the growth of our new digital media services group.”
Update on strategic review
As previously disclosed, Cinram engaged Moelis & Company as financial advisor to undertake a strategic process for the Fund. As part of this process, the Fund is engaged in active discussions with a number of potential counterparties concerning strategic alternatives. Cinram is working with a view to completion of the strategic process within the next few months. There can be no assurance that the process will identify a transaction that is in the best interests of the Fund or that the Fund will be able to implement any such transaction.
Senior Credit Facilities
The Fund has been working with Cinram’s senior lenders and their advisors with respect to the Fund’s current strategic review process and Cinram’s previously disclosed breach of certain of the financial covenants in its senior credit agreements. The senior lenders have waived or amended the senior credit facilities on numerous occasions as the strategic process has continued. The current waiver provided on March 28, 2012 waives certain financial covenant defaults occurring on or prior to April 30, 2012 and certain other defaults. This waiver is subject to lender termination rights on notice to Cinram under certain conditions, which take effect on or after April 13, 2012. There can be no assurance that further waivers will be provided or that ongoing waivers will not be retracted.
Other financial highlights
Pre-recorded multimedia segment:
• As expected, fourth quarter pre-recorded multimedia revenue (which includes replication and distribution of Blu-ray discs, DVDs and CDs) was down 12%, to $232.8 million for the fourth quarter of 2011, compared to $264.2 million in the fourth quarter of 2010.
• Cinram replicated 204 million DVDs in the fourth quarter of 2011, compared to 261 million units replicated in the fourth quarter of 2010.
• DVD revenue (which includes replication and distribution services) was $179.8 million for the fourth quarter of 2011, compared to $213.9 million in the fourth quarter of 2010.
• Blu-ray replication revenue was $16.8 million in the fourth quarter of 2011, compared to $13.1 million in the fourth quarter of 2010, reflecting the importance of high definition Blu-ray discs in the physical media segment.
• CD revenue (including replication and distribution of CDs) of $36.2 million was down slightly from $37.2 million recorded in the fourth quarter of 2010, as demand for this format has stabilized given the consumer price reductions recently offered at the retail level.
Geographic revenue:
Fourth quarter 2011 North American revenue of $142.9 million was down from $178.6 million recorded in the fourth quarter of 2010, principally as a result of lower shipments of standard DVDs, partially offset by higher Blu-ray unit shipments. North America accounted for 53% of fourth quarter consolidated revenue, down from the 60% reported in the fourth quarter of 2010.
For the year ended December 31, 2011, North American revenue was $447.6 million, down from $645.7 million recorded in 2010.
European revenue of $124.6 million increased by $3.1 million from $121.5 million reported in the fourth quarter of 2010, reflecting an increase primarily in distribution activity, partially driven by new contract awards announced earlier this year. European revenue represented 47% of consolidated sales, up from the 40% reported in the fourth quarter of 2010.
For the year ended December 31, 2011, European revenue was $353.2 million, compared with $463.2 million recorded in 2010.
Impairment of non-financial assets:
During the fourth quarter of 2011, the Company performed a review of non-financial assets. As a result, an impairment loss of $50.0 million was recorded, of which $48.7 million related to the video game cash generating unit (CGU) and pertained to property, plant and equipment, supply contracts and goodwill.
The Fund reported net earnings from continuing operations for the 2011 fourth quarter of $42.9 million, or $0.67 per unit (basic), compared with a net loss from continuing operations of $7.9 million, or $0.15 per unit (basic), in 2010. The net earnings include net finance income of $68.3 million, primarily resulting from the change in the fair value of an embedded derivative of $79.5 million related to the second lien exchangeable debt, offset by interest and other charges.
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 its annual consolidated 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 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.
