Cinram International Income Fund reported its 2010 second quarter and year to date financial results.
According to the statement, on June 30, 2010 Cinram also completed the sale of its 50% share of its Mexican joint venture, Cinram Latinoamericana, S.A. de C.V (established in 1994 with Auriga-Aurex, S.A.), to its joint venture partner for total proceeds of $0.3 million. The agreement includes contingent consideration of up to another $0.2 million should certain conditions be met before the end of 2010.
Cinram trades on the TSX under the symbol CRW.UN
For more information visit: www.cinram.com
Unedited press release follows:
Cinram Reports 2010 Second Quarter Results
(All figures in U.S. dollars unless otherwise indicated)
TORONTO, Aug. 10 – Cinram International Income Fund (“Cinram” or the “Fund”) (TSX: CRW.UN) today reported its 2010 second quarter and year to date financial results. The Fund reported revenue of $255.9 million in the 2010 second quarter compared to $298.4 million in the second quarter of 2009. Earnings before interest, taxes and amortization (EBITA(1)), excluding other charges, improved by 12 percent to $25.9 million from $23.2 million in the second quarter of 2009. As a percent of revenue, EBITA excluding other charges improved 30 percent to 10.1 percent in 2010 from 7.8 percent in 2009. The increase in EBITA was the result of labour and overhead efficiencies combined with lower fixed costs incurred during the quarter. The Fund reported net loss from continuing operations for the 2010 second quarter of $8.9 million or $0.16 per unit (basic) compared with net earnings from continuing operations of $7.2 million or $0.13 per unit (basic) in 2009. On a year to date basis, revenue decreased to $554.7 million from $599.4 million, while EBITA excluding other charges, improved by 20 percent to $61.5 million from $51.3 million in the prior year.
“The results for the 2010 second quarter were generally consistent with our expectations. While revenue was slightly lower than forecast, the improved margins continue to reflect the results of the ongoing cost saving activities”, commented Steve Brown, Chief Executive Officer. “Given the termination of the Warner Home Video contract effective August 1st, results for the 2010 third quarter are expected to be below prior year”.
Balance sheet and liquidity
As a result of the maturity of the senior credit facility in May 2011, being less than one year from maturity, the entire debt balance has been recorded as a current liability in our June 30, 2010 balance sheet. As a result, our working capital balance is in a negative position.
“We are currently working with our financial advisors, Goldman Sachs, on a number of refinancing alternatives”, commented John Bell, Chief Financial Officer. “We are optimistic that we will complete a refinancing of the senior credit facility before the 2011 maturity.”
As of June 30, 2010, our net debt position (term debt excluding unamortized transaction costs, less cash and cash equivalents) improved to $255.6 million, compared with $273.3 million at the end of 2009. During the first six months of 2010, our cash balance increased by $3.3 million to $125.4 million from $122.1 million at year end.
Segment revenue
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Three months ended June 30 Six months ended June 30
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(in thousands
of US$) 2010 2009 2010 2009
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Home Video $203,764 80% $222,561 75% $442,795 80% $442,150 74%
CD 30,318 12% 38,173 13% 60,776 11% 74,148 12%
Video Game 10,451 4% 16,600 5% 27,750 5% 40,212 7%
Other 11,389 4% 21,052 7% 23,345 4% 42,847 7%
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$255,922 100% $298,386 100% $554,666 100% $599,357 100%
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Second quarter Home Video revenue (which includes replication and distribution of DVDs and Blu-ray discs) was down eight percent to $203.8 million from $222.6 million in 2009 as a result of lower DVD unit shipments combined with lower selling prices. Blu-ray disc replication revenue increased to $6.0 million in the second quarter of 2010 from $5.6 million in the comparable 2009 period.
CD segment revenue (which includes replication and distribution of CDs) was down 21 percent in the second quarter of 2010 to $30.3 million from $38.2 million in 2009 due primarily to lower unit shipments resulting from the closure of our CD facility in Richmond, Indiana during the prior year.
Video game revenue was $10.5 million in the second quarter of 2010 compared with $16.6 million in 2009 due to continued softness in the gaming industry combined with the loss of several customers.
Revenue from our wireless division related to logistics services was $9.3 million during the second quarter of 2010, compared to $19.1 million in 2009, as the prior year figure includes revenue from the Motorola Europe contract which was terminated effective July 2009.
Geographic revenue
Second quarter North American revenue decreased 15 percent to $153.4 million from $181.4 million in 2009, principally as a result of weaker video game distribution revenue from Ditan combined with lower CD revenue. North America accounted for 60 per cent of second quarter consolidated revenue compared with 61 percent in the prior year period.
European revenue was down 12 percent in the second quarter to $102.5 million from $117.0 million in 2009, due to the foreign exchange impact associated with the weakening of the Euro and British Pound relative to the U.S. dollar. Excluding the impact of foreign currency translation, European revenue decreased by six percent in the 2010 second quarter compared to the prior year period. Second quarter European revenue represented 40 percent of consolidated sales compared with 39 percent in the second quarter of 2009.
Other financial highlights
Gross profit for the second quarter of 2010 increased to $49.9 million from $44.5 million in 2009. The Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $12.9 million compared to $22.3 million in the second quarter of 2009. This reduction in amortization results from the lower net book value of property, plant and equipment due to impairment charges recorded at the end of 2009 as part of Cinram’s annual impairment test. Excluding capital asset amortization charges, gross profit as a percent of sales improved to 24.5 percent in the second quarter of 2010, compared to 22.4 percent in the prior year period.
Selling, general and administrative expenses decreased in the second quarter of 2010 to $36.9 million from $43.7 million in 2009. As a percentage of consolidated revenues, selling, general and administration expenses were 14 percent compared with 15 percent in 2009.
On June 30, 2010, the Fund completed the sale of its 50% share of the Mexican joint venture, Cinram Latinoamericana, S.A. de C.V, to the joint venture partner for total proceeds of $0.3 million. The agreement includes contingent consideration of up to another $0.2 million should certain conditions be met before the end of 2010. Accordingly, the Funds’ proportionate share of the results of operations of the joint venture were segregated and presented separately as discontinued operations in the consolidated financial statements for the three and six months ended June 30, 2010, and prior periods have been reflected on this basis.
Unit data
For the three month period ended June 30, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million compared with 55.1 million in the prior year. For the six month period ended June 30, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million compared with 55.2 million in the prior year.
Reconciliation of EBITA and EBIT to net earnings (loss) from continuing
operations
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Three months ended Six months ended
(unaudited, in June 30 June 30
thousands of U.S. dollars) 2010 2009 2010 2009
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EBITA excluding other charges $ 25,887 $ 23,160 $ 61,460 $ 51,264
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Other charges (income), net 4,821 226 (2,354) 1,526
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EBITA(1) 21,066 22,934 63,814 49,738
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Amortization of property, plant
and equipment 12,885 22,341 28,062 44,480
Amortization of intangible assets 5,434 10,332 11,145 20,499
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EBIT(2) 2,747 (9,739) 24,607 (15,241)
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Interest on debt 8,184 9,379 16,594 19,216
Other interest (income) and
financing charges, net (1,034) (377) (377) 191
Gain on repurchase of debt - (13,622) - (13,622)
Foreign exchange loss (gain) 10,127 (13,432) 10,463 (7,594)
Investment income (36) (25) (123) (240)
Income taxes (recovery) (5,618) 1,128 (992) (2,574)
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Net earnings (loss) from
continuing operations $ (8,876) $ 7,210 $ (958) $(10,618)
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(1) EBITA is defined as earnings from continuing operations before
interest expense, foreign exchange translation gain/losses,
investment income, gain on repurchase of debt, other interest and
financing charges, income taxes and amortization. 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 as earnings (loss) from continuing operations before
interest expense, foreign exchange translation gains/losses,
investment income, gain on repurchase of debt, other interest and
financing charges and incomes 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 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, Blu-ray discs, 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.
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
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June December
30 2010 31 2009
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $125,412 $122,072
Accounts receivable 167,343 273,243
Inventories 34,761 31,985
Income taxes receivable 620 5,005
Prepaid expenses 13,193 15,915
Assets held for sale - 6,047
Future income taxes 5,278 6,007
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346,607 460,274
Property, plant and equipment 198,693 234,684
Intangible assets 15,461 27,537
Goodwill 40,634 40,634
Other assets 17,997 21,571
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$619,392 $784,700
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LIABILITIES AND UNITHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 35,289 $ 90,282
Accrued liabilities 154,827 226,856
Income taxes payable 22,064 20,277
Current portion of long-term debt 378,993 28,624
Current portion of obligations under capital leases 1,315 1,728
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592,488 367,767
Long-term debt - 363,396
Obligations under capital leases 1,529 2,337
Other long-term liabilities 34,920 43,637
Derivative instruments 17,372 25,225
Future income taxes 150 6,638
Unitholders' deficiency (27,067) (24,300)
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$619,392 $784,700
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INTERIM 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 Six months ended
June 30 June 30
2010 2009 2010 2009
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Revenue $255,922 $298,386 $554,666 $599,357
Cost of goods sold 206,044 253,858 448,492 510,610
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Gross profit 49,878 44,528 106,174 88,747
Selling, general and administrative
expenses 36,876 43,709 72,776 81,963
Amortization of intangible assets 5,434 10,332 11,145 20,499
Other charges (income), net 4,821 226 (2,354) 1,526
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Earnings (loss) before the
undernoted 2,747 (9,739) 24,607 (15,241)
Interest on debt 8,184 9,379 16,594 19,216
Other interest (income) and
financing charges, net (1,034) (377) (377) 191
Gain on repurchase of debt - (13,622) - (13,622)
Foreign exchange loss (gain) 10,127 (13,432) 10,463 (7,594)
Investment income (36) (25) (123) (240)
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Earnings (loss) from continuing
operations before income taxes (14,494) 8,338 (1,950) (13,192)
Income taxes (recovery) (5,618) 1,128 (992) (2,574)
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Earnings (loss) from continuing
operations (8,876) 7,210 (958) (10,618)
Loss from discontinued operations (5,077) (7,822) (5,134) (12,419)
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Net loss (13,953) (612) (6,092) (23,037)
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Earnings (loss) per unit from
continuing operations:
Basic $ (0.16) $ 0.13 $ (0.02) $ (0.19)
Diluted $ (0.16) $ 0.13 $ (0.02) $ (0.19)
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Earnings (loss) per unit:
Basic $ (0.26) $ (0.01) $ (0.11) $ (0.42)
Diluted $ (0.26) $ (0.01) $ (0.11) $ (0.42)
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Weighted average number of units
and exchangeable limited
partnership units outstanding,
(in thousands):
Basic 54,003 55,096 53,995 55,174
Diluted 54,003 55,565 53,995 55,174
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INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in thousands of U.S. dollars)
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Three months ended Six months ended
June 30 June 30
2010 2009 2010 2009
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Net loss for the period $(13,953) $ (612) $ (6,092) $(23,037)
Other comprehensive income,
net of tax:
Unrealized gain (loss) on
translating financial
statements of self-sustaining
foreign operations 8,488 (16,049) (5,024) (16,971)
Unrealized gain (loss) on
hedges of net investment in
self-sustaining foreign
operations (7,675) 16,890 (2,986) 13,272
Partial release of cumulative
translation adjustment 2,660 - 3,759 -
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Unrealized foreign exchange
translation gain (loss), net
of hedging activities 3,473 841 (4,251) (3,699)
Net unrealized gain (loss) on
derivatives designated as
cash flow hedges - (235) - 1,418
Release of other comprehensive
income due to de-designated
hedge 4,102 - 7,377 -
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Other comprehensive income (loss) 7,575 606 3,126 (2,281)
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Comprehensive loss, net of tax $ (6,378) $ (6) $ (2,966) $(25,318)
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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of U.S. dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2010 2009 2010 2009
-------------------------------------------------------------------------
Cash provided by (used in):
Operating Activities:
Net earnings (loss) from
continuing operations $ (8,876) $ 7,210 $ (958) $(10,618)
Items not involving cash:
Amortization of property,
plant and equipment 12,885 22,341 28,062 44,480
Amortization of intangible
assets 5,434 10,332 11,145 20,499
Future income taxes (recovery) (2,860) 725 (5,759) (1,425)
Gain on repurchase of debt - (13,622) - (13,622)
Partial release of cumulative
translation adjustment (1,647) - (548) -
Release of other comprehensive
income due to de-designation
of hedge 4,102 - 7,377 -
Mark-to-market adjustment of
derivative liability (3,768) - (7,854) -
Non-cash interest expense 600 600 1,200 1,266
Hedge ineffectiveness - (690) - (494)
Loss (gain) on disposition
of property, plant and
equipment 33 42 (7,427) (1,737)
Other 42 126 131 202
Change in non-cash operating
working capital 9,274 5,548 3,499 61,827
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15,219 32,612 28,868 100,378
Financing Activities:
Transaction costs (1,200) - (1,200) (1,521)
Repayment/repurchase of debt
and bank indebtedness (7,156) (29,698) (14,312) (66,386)
Decrease in obligations under
capital leases (538) (637) (1,220) (1,547)
Financing of employee unit
purchase loan 6 (486) 12 (486)
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(8,888) (30,821) (16,720) (69,940)
Investing Activities:
Purchase of property, plant
and equipment (4,531) (12,357) (9,707) (29,725)
Payment of acquisition earn-out
amount - (16,131) - (16,131)
Proceeds on disposition of
property, plant and equipment - 3,638 13,475 26,642
Decrease (increase) in other
assets 2,043 (2,121) 4,805 (125)
Decrease in other long-term
liabilities (6,255) (1,802) (8,717) (5,340)
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(8,743) (28,773) (144) (24,679)
Cash provided by (used in)
discontinued operating
activities (852) (16,370) (1,377) (19,699)
Cash provided by (used in)
discontinued investing
activities (736) 14,001 (736) 13,990
Foreign currency translation
gain/(loss) on cash held in
foreign currencies (4,605) 2,392 (6,551) 3,224
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Increase (decrease) in cash and
cash equivalents (8,605) (26,959) 3,340 3,274
Cash and cash equivalents,
beginning of period 134,017 103,582 122,072 73,349
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Cash and cash equivalents, end
of period $125,412 $ 76,623 $125,412 $ 76,623
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Cash and cash equivalents are
comprised of:
Cash 89,117 61,490 89,117 61,490
Cash equivalents 36,295 15,133 36,295 15,133
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$125,412 $ 76,623 $125,412 $ 76,623
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Supplemental cash flow information:
Interest paid $ 8,395 $ 9,207 $ 16,625 $ 20,284
Income taxes paid (received) 2,263 1,549 (2,147) 1,694
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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.