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Cinram Reports Significant Losses

Cinram International Income Fund reported its 2009 fourth quarter and year end financial results.

According to the statement, Cinram posted a consolidated loss of $20 million ($0.37/share) in Q4 2009, down from loss of $23.1 million ($0.42/share) during the same quarter of 2008. For the full year 2009, Cinram lost $33.5 million ($0.61/share) compared to $31.5 million ($0.56/share) in 2008.

Fourth quarter home video revenue was down 2% to $412.3 million from $420.9 million in 2008.

In terms of raw production, Cinram replicated 426.7 million DVDs in Q4 2009, compared to 435.0 million units in Q4 2008. Blu-ray Disc (BD) replication revenue increased to $7.8 million in Q4 2009 from $5.1 million during the same period in 2008.

Cinram trades on the TSX under the symbol CRW.UN

For more information visit: www.cinram.com


Edited press release follows:

Cinram Reports Fourth Quarter and 2009 Year End Results

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

TORONTO, March 2 – Cinram International Income Fund (“Cinram” or the “Fund”) (TSX: CRW.UN) today reported its 2009 fourth quarter and year end financial results. The Fund recorded revenue of $508.1 million in the fourth quarter, a decrease of 9% from the $556.8 million reported in the fourth quarter of 2008. Despite this reduction in revenue, earnings before interest, taxes and amortization (EBITA(1)) were $88.7 million in 2009, compared to an adjusted $67.4 million in the fourth quarter of 2008 (reported EBITA of $117.9 million less the impact of a favorable royalty adjustment of $50.5 million). EBITA margins increased to 17.5% in 2009, compared to 12.1% on the adjusted EBITA reported in 2008. Adjusted gross profit (excluding the 2008 royalty adjustment) improved by 37% to $111.9 million during the fourth quarter of 2009 from $81.6 million in 2008. Adjusted gross profit margins were 22.0% in the fourth quarter of 2009, up from 14.7% in the prior year. Commented Steve Brown, CEO, “While 2009 saw an erosion in revenue largely in line with our expectations, the strong operating results reflect the efforts of a number of management initiatives within the period. Increased efficiency and reduced costs, derived from a matrix driven management team across our global operations, resulted in significant improvements in our gross margins and EBITA”.

During 2009, the Fund generated cash flow from operations of $302.6 million, a substantial increase from $146.2 million in the prior year, primarily resulting from improved working capital management. This cash flow generation contributed to the Fund’s ability to reduce debt balances by $251.8 million or 39% during 2009.

The Fund had cash and cash equivalents on hand as at December 31, 2009 of $122.1 million and debt of $395.4 million (excluding unamortized transaction costs and loan fees), resulting in a net debt position of $273.3 million as at December 31, 2009, compared with a net debt position of $573.8 million at the end of 2008. During 2009, the Fund repurchased $169.7 million of debt through a series of “modified Dutch” auctions at a cost of $129.8 million, resulting in a net gain after transaction fees of $38.4 million. Additionally, the Fund made voluntary repayments of $20.0 million combined with net mandatory debt repayments of $62.1 million. “Debt reduction was a primary focus during 2009 and we are pleased that we were able to achieve a reduction in our net debt position by over $300 million.” stated John Bell, Chief Financial Officer.

On February 1, 2010, the Fund announced that it had received written notice from Warner Home Video Inc. (“WHV”) that WHV was exercising its option to terminate its service agreements on July 31, 2010, five months prior to the scheduled termination date of the contract. The notice covers all Cinram entities globally and will directly impact operations in North America, Mexico, UK, France, Germany and Spain. WHV revenues for 2009 represented approximately 32% of the total consolidated revenues of the Fund.

As a result of this announcement, the Fund recorded a combined long-lived asset and goodwill impairment charge of $82.2 million during the fourth quarter, relating primarily to the tangible, intangible assets and goodwill associated with the Warner Home Video business.

“Warner’s decision not to extend their contract with Cinram was obviously regrettable. However, the initiatives undertaken this past year will continue to drive Cinram forward in a market which we forecast to still have a 10 to 15 year future. Physical media is still being embraced by the consumer markets and its migration to digital download and other non physical strategies have all been far slower than many previously forecasted. 2010 will hold its challenges, but will also provide us with opportunities,” stated Steve Brown, CEO.

For the year ended December 31, 2009, Cinram reported a 15% decrease in revenue to $1.46 billion from $1.73 billion in 2008 as a result of lower DVD unit sales and selling prices combined with lower revenue from CDs, wireless and the Ditan business. Excluding the effects of foreign exchange, revenue decreased by 14%.

EBITA for the year was $181.4 million compared with an adjusted 2008 EBITA of $193.6 million (2008 reported EBITA of $259.3 million less the $65.7 million reduction in cost of goods sold during 2008 that resulted from a patent settlement and a change in estimate related to invalid patent claims). Excluding the impact of these 2008 adjustments, the EBITA margin as a percent of revenue improved to 12.4% in 2009 from 11.2% in 2008.

On a year-to-date basis, as a result of the $82.2 million impairment charge, the Fund reported a net loss from continuing operations of $17.3 million or $0.32 per unit (basic) in 2009 compared with net earnings of $21.4 million or $0.38 per unit (basic) in 2008.

The 2008 results included an impairment charge of $22.3 million related to goodwill and long-lived assets in addition to an impairment charge of $38.5 million related to the Ivy Hill printing business that was sold in April 2009. Ivy Hill’s results for 2009 and 2008 are reflected under discontinued operations.

Fourth quarter Home Video revenue (which includes replication and distribution of DVDs and high-definition discs) was down 2% to $412.3 million from $420.9 million in 2008, primarily due to lower selling prices. Cinram replicated 426.7 million DVDs in the fourth quarter of 2009, compared to 435.0 million units in 2008. High-definition disc replication revenue increased to $7.8 million in the fourth quarter of 2009 from $5.1 million in the comparable 2008 period.

The CD segment revenue (which includes replication and distribution of CDs) was down 10% in the fourth quarter to $47.2 million from $52.5 million in 2008, primarily resulting from a 14% decline in replication volumes.

Revenue from the Video Game segment was down significantly from the prior year, reporting a decrease of 33% to $33.2 million in the fourth quarter of 2009 from $49.3 million in 2008, reflecting a general decline in consumer spending for this market.

Revenue from our Other segment (which primarily includes the Motorola distribution business in North America) decreased to $15.4 million in the fourth quarter of 2009 from $34.2 million in 2008. The prior year figure includes revenue of $12.0 million from Motorola Europe which, as previously reported, terminated its contract with the Fund in early 2009.

Geographic revenue

Fourth quarter North American revenue decreased 12% to $268.2 million from $305.7 million in 2008, principally as a result of lower DVD volumes and prices. North America accounted for 53% of fourth quarter consolidated revenue compared with 55% in 2008.

European revenue was down 4% in the fourth quarter to $239.9 million from $251.1 million in 2008. Fourth quarter European revenue represented 47% of consolidated sales compared with 45% in the fourth quarter of 2008.

Applying 2008 foreign exchange rates to the 2009 fourth quarter, consolidated revenue would have decreased by 15% to $475.4 million in 2009 from $556.8 million in 2008.

Other financial highlights

During the fourth quarter, the Fund recorded amortization expense relating to capital assets (included in the cost of goods sold) of $20.9 million compared to $26.4 million in the fourth quarter of 2008. This reduction in amortization results from the lower net book value of property, plant and equipment due to the impairment charges recorded at the end of 2008 as part of Cinram’s annual impairment test.

Unit data

For the three-month period ended December 31, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.3 million compared with 55.3 million in the prior year. For the year ended December 31, 2009, the basic weighted average number of units and exchangeable limited partnership units outstanding was 54.8 million compared with 56.4 million in the prior year.

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, 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.

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