Cinram Reports 2010 First Quarter Results

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“The significant improvement in the 2010 first quarter performance reflects the results of many of the improved operating metrics and cost saving activities begun last year” commented Steve Brown, Chief Executive Officer. “The management and employees in all regions have embraced these changes and it is due to their hard work that the company was able to achieve these results.”

Segment revenue

Home Video revenue for the first quarter of 2010 (which includes replication and distribution of DVDs and Blu-ray discs) was up nine per cent to $240.6 million from $220.6 million in 2009 as a result of higher DVD unit shipments in both North America and Europe. Cinram replicated 243.6 million DVDs in the first quarter of 2010, compared to 215.6 million units in 2009, an increase of 13%. Blu-ray disc replication revenue increased over 100% to $8.9 million in the first quarter of 2010 from $4.4 million in the comparable 2009 period.

CD segment revenue (which includes replication and distribution of CDs) was down 15 per cent in the first quarter to $31.7 million from $37.1 million in 2009 due primarily to lower unit shipments primarily resulting from the closure of our CD facility in Richmond, Indiana during the prior year.

Video game revenue was $17.3 million in the first quarter of 2010 compared with $23.6 million in 2009 due continued softness in the gaming industry.

Revenue from our wireless division related to logistics services was $9.5 million during the first quarter of 2010, compared to $19.7 million in the comparable 2009 period. The prior year figure includes revenue from the Motorola Europe contract which was terminated effective July 2009.

Geographic revenue

First quarter North American revenue of $176.9 million was slightly lower than the
$184.3 million in 2009, principally as a result of weaker video game revenue from Ditan combined with lower CD revenue. North America accounted for 59 per cent of first quarter of 2010 consolidated revenue compared with 61 per cent in the prior year period.

European revenue was up 5 per cent in the first quarter of 2010 to $124.7 million from $118.9 million in the comparable period in 2009, due to the foreign exchange impact associated with the strengthening of the Euro and British Pound relative to the U.S. dollar. Excluding the impact of foreign currency translation, European revenue in the 2010 first quarter was relatively flat compared to the prior year period. First quarter European revenue represented 41 per cent of consolidated sales compared with 39 per cent in the first quarter of 2009.

Other financial highlights

Gross profit for the first quarter of 2010 increased to $56.8 million from $44.8 million in 2009. The increase in gross profit was principally attributable to improved labour and overhead efficiencies combined with reduced capital asset amortization charges.

The Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $15.2 million in the first quarter of 2010 compared to $22.0 million in the first 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. During the prior year first quarter, the Fund recorded $4.0 million of severance charges associated with general workforce reductions across several facilities in Canada and the United States.

Selling, general and administrative expenses decreased in the first quarter of 2010 to $36.5 million from $38.8 million in 2009. As a percentage of consolidated revenues, selling, general and administration expenses were 12.1 percent in 2010 compared with 12.8 percent in 2009. The prior year total includes $4.8 million of severance charges associated with certain key employees.

On January 20, 2010, the Fund completed the sale of its owned distribution centre in Simi Valley, California for proceeds of $14.0 million resulting in a gain of $7.46 million. This gain was recorded in the first quarter of 2010.

Balance sheet and liquidity

As of March 31, 2010, our net debt position (long-term debt excluding unamortized transaction costs, less cash and cash equivalents) improved to $254.2 million, compared with $273.3 million at the end of 2009. During the 2010 first quarter, our cash balance increased by $11.9 million to $134.0 million from $122.1 million at year end combined with a mandatory debt repayment of $7.2 million. Our working capital balance increased to $107.6 million at March 31, 2010, from $92.5 million at December 31, 2009. During the 2010 first quarter, Cinram paid $5.2 million for property, plant and equipment, including cash payments on DVD equipment purchased in prior periods.

Unit data

For the three-month period ended March 31, 2010, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.0 million down from 55.3 million in the comparable period in 2009.

Reconciliation of EBITA and EBIT to net earnings (loss) from continuing operations

¹ EBITA is defined as earnings from continuing operations before interest expense on long-term debt, other interest and financing charges, foreign exchange translation gain/losses, investment income, 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 on long-term debt, other interest and financing charges, foreign exchange translation gains/losses, investment income 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 the world's largest provider 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 applicable securities law. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which 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 such forward looking statements. Such factors include, among others, the following: 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; 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 or maintenance of Blu-ray and standard DVD capacity, and variability in quarterly earnings); the ability of the Fund to implement its business strategy; a shortage of product due to labour disruptions; the Fund’s ability to invest successfully in new technologies and other factors which 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 2009 annual report and to prior quarterly reports). .

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For more information:
John H. Bell
Tel: 416.332.2902
johnbell@cinram.com