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DVD Keeping Replicator Cinram On an Even Keel As Format Shift Continues

21 May, 2002 By: Holly J. Wagner

Cinram is looking for more studio customers for its DVD replication business, banking on industry forecasts that project monster growth for the format for the foreseeable future.

The company's first quarter 2002, earnings before interest expense, investment income and income taxes increased to $6.2 million, compared to $0.6 million in the same period last year, on the head of steam building behind DVD, executives said today.

Net earnings for the first quarter increased to $4 million or $0.07 per share, compared to $0 per share in the prior year.

Revenues from North American DVD shipments increased by 144 percent in the first quarter, driving overall sales increases of 2 percent in Canada and 5 percent in the United States.

But declining European shipments of CDs, audiocassettes and VHS cassettes put a drain on North American sales increases, however, with no corresponding increase in DVD shipments. While net sales for the quarter increased, overall sales declined by 2 percent to $181.4 million from $184.2 million in the prior-year period, resulting from lower European sales.

In both Canada and the United States, increased revenue was partially offset by declining shipments for CDs, audio cassettes and VHS video cassettes. In Europe, revenue declines were due to lower unit shipments.

Gross profit for the 2002 first quarter increased to $24.9 million from $24.1 million during the same period last year. As a percentage of sales, gross profit increased to 14 percent in the 2002 first quarter, compared to 13 percent in the first quarter of 2001. The increase in gross profit resulted from a shift in product mix to DVDs, lower raw material costs and overhead efficiencies, offset by lower selling prices in all media formats.

The company's restructuring plans announced at the end of 2001 were substantially completed during the 2002 first quarter, letting Cinram add DVD capacity at the Alabama facility while centralizing CD replication at its facility in Indiana. Now that the Alabama facility expansion is complete, labor and overhead efficiencies are expected to reach targeted levels once new distribution automation equipment becomes operational later this year.

Last month, Cinram signed an exclusive DVD supply agreement with a second Hollywood studio and the company continues to seek new business opportunities in the form of supply agreements to increase DVD market share, a spokesperson said.

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