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Cinram Reports Q3 2011 Results

Cinram International Income Fund announced its third 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 Positive Third Quarter Results Reversing Trends from Previous Quarters in 2011

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

TORONTO, Nov. 7, 2011 – Cinram International Income Fund (“Cinram” or the “Fund”) (TSX: CRW.UN) today reported its 2011 third quarter and year to date financial results.

Q3-2011 Operating Results

• Consolidated revenue of $209.2 million in the third quarter of 2011 exceeds Q2-2011 revenues of $147.5 million, an increase of $61.7 million or 42%, as studio orders returned to more normal levels.

- Revenue from the pre-recorded multimedia products of $182.1 million grew from $124.5 million in Q2-2011, primarily as a result of growth in new release revenue as well as a strong performance from CD volumes. Q3-2011 revenues were comparable with the prior year period, after adjusting for the loss of Warner Home Video.

- Revenue from the video games segment in the third quarter of 2011 was $9.5 million, up 48% from Q2-2011 revenues of $6.4 million. The drop from the $11.1 million in Q3-2010 was due to the sale of certain customers to new owners and the subsequent cancellation of service contracts and a general decline in volume.

- Revenue from our other businesses, including wireless, retail services and our new digital media services group continues to grow, with third quarter revenue of $17.6 million up from $16.6 million in Q2-2011 and up 36% from $12.9 million in the comparable quarter of 2010.

• Earnings before interest, taxes, impairment charges and amortization (EBITA1), excluding other charges, was $12.4 million in third quarter of 2011, substantially eliminating the EBITA losses from the first half of the year.

- EBITA from the pre-recorded multimedia business was $10.8 million in the third quarter of 2011, reflecting a significant recovery of over $15.0 million negative EBITA from the disappointing results of the second quarter of 2011. EBITA in Q3-2010 was $21.5 million, generally reflecting the impact of the final months of the WHV contract which expired during that quarter.

- EBITA generated by the video games business segment in the third quarter of 2011 includes one-time costs related to consolidating various games distribution facilities.

- EBITA from the other business segments, including the wireless division, retail services and the digital media services group are growing steadily, increasing to $3.6 million in the third quarter of 2011 and up significantly from $2.1 million in the third quarter of 2010.

Commented Steve Brown, CEO, “The third quarter saw business return to more normal levels and the impact of the new client awards signed in Q2 start to show positive results. These new contracts were completed in Q2 and are just now starting to contribute to the revenues of the Fund. In addition, we are seeing the return of some distribution activities related to Warner Home Video in some geographic locations. A very positive trend in Q3 is the continuing strong performance of both the wireless division and the digital media group.”

Other financial highlights

Pre-recorded multimedia segment:

• Cinram replicated 169 million DVDs in the third quarter of 2011, over double the 82 million units replicated in the second quarter of 2011. Unit volume in Q3-2010 was 226 million, including approximately 50 million units for Warner Home Entertainment.

• DVD revenue (which includes replication and distribution services) was $141.6 million for the third quarter of 2011, compared to $91.2 million in the second quarter of 2011.

• Blu-ray disc replication revenue was $10.7 million in the third quarter of 2011, compared to $5.7 million in the second quarter, reflecting the growing importance of high definition Blu-ray discs in the physical media segment.

• CD revenue (including replication and distribution of CDs) of $29.8 million was up slightly from the $27.6 million recorded in the second quarter, as demand for this format has been steady given the consumer price reductions recently offered at retail. Revenue in this quarter was down 9% from the $32.7 million reported in Q3-2010.

Geographic revenue:

Third quarter 2011 North American revenue of $115.2 million was up significantly from the $85.8 million recorded in the second quarter of 2011, principally as a result of a substantial increase in volumes as our studio customers rebounded from a very soft first half of 2011.  North America accounted for 55% of third quarter consolidated revenue, down from the 58% reported in the second quarter but in line with the prior year period.

European revenue of $94.0 million was up $32.3 million from the $61.7 million reported in the second quarter, again reflecting the significant increase in replication and distribution activity, partially driven by new contract awards announced earlier this year. European revenue represented 45% of consolidated sales, up from the 42% reported in the second quarter of 2011 and in line with the third quarter of 2010.

The Fund reported a net loss from continuing operations for the 2011 third quarter of $10.2 million, or $0.16 per unit (basic), compared with net earnings from continuing operations of $13.9 million, or $0.25 per unit (basic), in 2010. The loss includes net finance costs of $21.4 million, which includes $12.9 million of interest expense combined with $10.4 million of non-cash unrealized foreign exchange losses primarily relating to intercompany loans.

Comparative information is presented for the Fund’s 2011 second quarter to reflect the reversal of trends experienced relative to previous quarters in 2011.  The seasonality of Cinram’s business, with pre-recorded multimedia products sales higher in the third and fourth quarters due to consumer holiday buying patterns, affects comparisons between quarters.

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 principles (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 third quarter 2011 interim 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 tax expense (recovery), 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 tax expense (recovery) , 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.

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