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Cinram Reports Q1 2010 Financial Results

Cinram International Income Fund reported its 2010 first quarter 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 2010 First Quarter Results

(All figures in U.S. dollars unless otherwise indicated)

TORONTO, April 29 — Cinram International Income Fund (“Cinram” or the “Fund”) (TSX: CRW.UN) today reported its 2010 first quarter financial results. The Fund reported revenue of $301.6 million in the 2010 first quarter compared to $303.2 million in the first quarter of 2009. Earnings before interest, taxes and amortization (EBITA(1)), excluding other charges (income), improved by 27% to $35.5 million from $28.0 million in the first quarter of 2009. The increase in EBITA was the result of increased DVD shipments, combined with labour and overhead efficiencies realized during the quarter. EBITA was $42.7 million in the first quarter of 2010, including a gain on the sale of Cinram’s facility in Simi Valley of $7.46 million. The Fund reported net earnings from continuing operations for the 2010 first quarter of $7.9 million or $0.15 per unit (basic) compared with net loss from continuing operations of $17.6 million or $0.32 per unit (basic) in 2009.

“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

    ------------------------------------------------------------
                                    Three months ended March 31
    ------------------------------------------------------------
    (in thousands of US$)               2010               2009
    ------------------------------------------------------------
    Home Video               $240,597    80%    $220,629    73%
    CD                         31,711    10%      37,098    12%
    Video Game                 17,299     6%      23,612     8%
    Other                      11,956     4%      21,815     7%
    ------------------------------------------------------------
                             $301,563   100%    $303,154   100%
    ------------------------------------------------------------
    ------------------------------------------------------------

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
    -------------------------------------------------------------------------
                                                 Three months ended March 31
    (unaudited, in thousands of U.S. dollars)           2010            2009
    -------------------------------------------------------------------------
    EBITA excluding other charges (income)           $35,487         $28,041
    -------------------------------------------------------------------------
    Other charges (income), net                       (7,175)          1,300
    -------------------------------------------------------------------------
    EBITA(1)                                         $42,662         $26,741
    -------------------------------------------------------------------------
    Amortization of property, plant and equipment     15,179          22,014
    Amortization of intangible assets                  5,711          10,167
    -------------------------------------------------------------------------
    EBIT(2)                                          $21,772         $(5,440)
    -------------------------------------------------------------------------
    Interest on long-term debt                         8,410           9,837
    Other interest and financing charges                 654             580
    Foreign exchange loss                                336           5,838
    Investment income                                   (115)           (276)
    Income taxes (recovery)                            4,626          (3,813)
    -------------------------------------------------------------------------
    Net earnings (loss) from continuing operations    $7,861        $(17,606)
    -------------------------------------------------------------------------

(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).

    INTERIM CONSOLIDATED BALANCE SHEETS
    (in thousands of U.S. dollars)

    -------------------------------------------------------------------------
                                                       March 31  December 31
                                                           2010         2009
                                                     (unaudited)
    -------------------------------------------------------------------------

    Assets
    Current assets:
    Cash and cash equivalents                          $134,017     $122,072
    Accounts receivable                                 208,538      273,243
    Inventories                                          28,149       31,985
    Income taxes receivable                                 901        5,005
    Prepaid expenses                                     12,161       15,915
    Assets held for sale                                      -        6,047
    Future income taxes                                   5,659        6,007
    -------------------------------------------------------------------------
                                                        389,425      460,274

    Property, plant and equipment                       215,321      234,684
    Intangible assets                                    21,229       27,537
    Goodwill                                             40,634       40,634
    Other assets                                         18,809       21,571
    -------------------------------------------------------------------------
                                                       $685,418     $784,700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' deficiency
    Current liabilities:
    Accounts payable                                    $48,082      $90,282
    Accrued liabilities                                 175,744      226,856
    Income taxes payable                                 27,931       20,277
    Current portion of long-term debt                    28,624       28,624
    Current portion of obligations under capital leases   1,451        1,728
    -------------------------------------------------------------------------
                                                        281,832      367,767

    Long-term debt                                      356,835      363,396
    Obligations under capital leases                      1,931        2,337
    Other long-term liabilities                          41,175       43,637
    Derivative instruments                               21,140       25,225
    Future income taxes                                   3,390        6,638

    Unitholders' deficiency                             (20,885)     (24,300)
    -------------------------------------------------------------------------

                                                       $685,418     $784,700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
    (unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP
    unit amounts)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                  Three months ended March 31
                                                           2010         2009
    -------------------------------------------------------------------------
    Revenue                                            $301,563     $303,154
    Cost of goods sold                                  244,718      258,343
    -------------------------------------------------------------------------
    Gross profit                                         56,845       44,811
    Selling, general and administrative expenses         36,537       38,784
    Amortization of intangible assets                     5,711       10,167
    Other charges (income), net                          (7,175)       1,300
    -------------------------------------------------------------------------
    Earnings (loss) before the undernoted                21,772       (5,440)
    Interest on long-term debt                            8,410        9,837
    Other interest and financing charges, net               654          580
    Foreign exchange loss                                   336        5,838
    Investment income                                      (115)        (276)
    -------------------------------------------------------------------------
    Earnings (loss) from continuing operations
     before income taxes                                 12,487      (21,419)
    -------------------------------------------------------------------------
    Income taxes (recovery)                               4,626       (3,813)
    -------------------------------------------------------------------------
    Earnings (loss) from continuing operations            7,861      (17,606)
    Loss from discontinued operations                         -       (4,694)
    -------------------------------------------------------------------------
    Net earnings (loss)                                   7,861      (22,300)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per unit from continuing operation:
      Basic                                               $0.15       $(0.32)
      Diluted                                             $0.14       $(0.32)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) per unit:
      Basic                                               $0.15       $(0.40)
      Diluted                                             $0.14       $(0.40)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of units and exchangeable
     limited partnership units outstanding,
     (in thousands):
      Basic                                              53,988       55,256
      Diluted                                            55,645       55,256
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
    (unaudited, in thousands of U.S. dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                  Three months ended March 31
                                                           2010         2009
    -------------------------------------------------------------------------

    Net earnings (loss) for the period                   $7,861     $(22,300)
    Other comprehensive income, net of tax:
      Unrealized loss on translating financial
       statements of self-sustaining foreign
       operations                                       (13,512)        (922)
      Unrealized gain (loss) on hedges of net
       investment in self-sustaining foreign
       operations                                         4,689       (3,618)
      Partial release of cumulative translation
       adjustment                                         1,099            -
    -------------------------------------------------------------------------
      Unrealized foreign exchange translation loss,
       net of hedging activities                         (7,724)      (4,540)
      Net unrealized gain on derivatives designated
       as cash flow hedges                                    -        1,653
      Release of other comprehensive income due to
       de-designation of hedge                            3,275            -
    -------------------------------------------------------------------------

    Other comprehensive loss                             (4,449)      (2,887)
    -------------------------------------------------------------------------

    Comprehensive earnings (loss), net of tax            $3,412     $(25,187)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited, in thousands of U.S. dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                  Three months ended March 31
                                                           2010         2009
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating Activities:
      Net earnings (loss) from continuing operations     $7,861     $(17,606)
      Items not involving cash:
        Amortization of property, plant and equipment    15,179       22,014
        Amortization of intangible assets                 5,711       10,167
        Future income taxes                              (2,899)      (2,150)
        Partial release of cumulative translation
         adjustment                                       1,099            -
        Release of other comprehensive income due to
         de-designation of hedge                          3,275            -
        Mark-to-market adjustment of derivative
         liability                                       (4,086)           -
        Non-cash interest expense                           600          666
        Hedge ineffectiveness                                 -          196
        Gain on disposition of property, plant and
         equipment                                       (7,460)      (1,779)
        Other                                                89           76
      Change in non-cash operating working capital       (5,828)      56,483
    -------------------------------------------------------------------------
                                                         13,541       68,067
    Financing Activities:
      Transaction costs                                       -       (1,521)
      Repayment of long-term debt and bank indebtedness  (7,156)     (36,688)
      Decrease in obligations under capital leases         (682)        (910)
      Financing of employee unit purchase loan                6            -
    -------------------------------------------------------------------------
                                                         (7,832)     (39,119)
    Investing Activities:
      Purchase of property, plant and equipment          (5,176)     (17,368)
      Proceeds on disposition of property, plant and
       equipment                                         13,475       23,004
      Decrease in other assets                            2,762        1,996
      Decrease in other long-term liabilities            (2,462)      (3,538)
    -------------------------------------------------------------------------
                                                          8,599        4,094
      Cash used in discontinued operating activities       (406)      (3,630)
      Cash used in discontinued investing activities          -          (11)
      Foreign currency translation gain (loss) on cash
       held in foreign currencies                        (1,957)         832
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents                11,945       30,233
    Cash and cash equivalents, beginning of period      122,072       73,349
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period           $134,017     $103,582
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents are comprised of:
      Cash                                             $108,570      $77,647
      Cash equivalents                                   25,447       25,935
    -------------------------------------------------------------------------
                                                        134,017      103,582
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow information:
      Interest paid                                      $8,230      $11,077
      Income taxes paid (recovered)                      (4,410)         145
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
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