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Moving Forward Annual Report 2010 About Cinram

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Moving Forward Annual Report 2010 About Cinram MOVING FORWARD ANNUAL REPORT 2010 ABOUT CINRAM Cinram International Inc. is an indirect, wholly owned subsidiary of Cinram International Income Fund. We are one of the world’s largest providers of pre-recorded multimedia products and related logistics services. Our facilities in North America and Europe have the capacity to manufacture approximately 2.1 billion DVDs, 57 million Blu-ray discs and 459 million CDs each year. An integral part of our offering is distribution and supply-chain management services, which we provide to customers such as motion- picture studios, music labels, video game publishers, computer software companies, telecommunications companies and retailers around the world. At the end of 2010, Cinram had approximately 8,800 employees worldwide. Our units are listed on the Toronto Stock Exchange under the symbol CRW.UN. www.cinram.com 2 Taking the reins 4 Building the bridge 6 Raising the bar 8 Chairman’s message 9 Letter to unitholders 13 Management’s Discussion and Analysis 59 Consolidated Financial Statements 64 Notes to the Consolidated Financial Statements 104 Financial Highlights 106 Comparative Balance Sheets OVER THE PAST YEAR WE CONTINUED TO ADD VALUE, PROVIDE SOLUTIONS AND DELIVER EXCITEMENT. DESPITE SOME SIGNIFICANT BUSINESS CHALLENGES, WE STAYED FOCUSED ON MAKING FUNDAMENTAL IMPROVEMENTS AND PUTTING IN PLACE THE FOUNDATIONAL CHANGES THAT WILL ALLOW US TO CAPITALIZE ON FUTURE OPPORTUNITIES. NOW WE’RE MOVING FORWARD ON OUR STRATEGIC PLAN, ENHANCING BOTH OUR PHYSICAL AND DIGITAL OFFERINGS, AND ENSURING THAT A WORLD-CLASS ORGANIZATION WILL ONLY GET BETTER. Cinram 2010 Annual Report 1 TAKING THE REINS SOMETIMES THE TOUGHEST CIRCUMSTANCES BRING OUT THE BEST IN PEOPLE. WE’VE TURNED ADVERSITY INTO FOCUS AND CHALLENGE INTO OPPORTUNITY. AND NOW WE’RE READY TO ACCELERATE THE PACE. 2 Cinram 2010 Annual Report FORWARD MOMENTUM A firm purpose, a shared focus, and the ability to adapt as we go. These are the things that set Cinram apart. resilience, what we find on the other side is resoundingly optimistic. We have always moved forward with purpose while adapting dynamically to the evolving needs of customers. The Warner termination presented a significant obstacle, forcing us to make a number of complex decisions. They were the right decisions, and, thanks to the strength and spirit of our people, we continued to deliver solid financial results, maintain uninterrupted customer support and outperform the market. Now, with client satisfaction as high as ever, it’s full steam ahead. In 2009, we began executing the long-term strategic plan laid out by CEO Steven Brown. This momentum has already been highlighted The unexpected termination of one of our by some exciting wins, including the acquisition main customers, Warner, in 2010 required us of 1K Studios, a leading digital media studio to take corrective action, but it did not divert whose innovative flair and technical brilliance our overall focus or alter our ongoing will enhance our digital content delivery commitment to excellence. platforms and allow customers to have truly special experiences today and in the future. Out of challenge comes focus, and we lived We also launched a new version of our popular that dictum all year, putting us in a strong vendor-managed inventory software, Vision 2.0, position for 2011 and beyond. We made tough to strong market response. These are just a few decisions and focused on our most important of the bright spots, with many more on the strategic priorities. As a result of this collective horizon as we drive forward. Cinram 2010 Annual Report 3 BUILDING THE BRIDGE Our company mission involves making a KEEPING OUR FINGER number of small connections in order to ensure ON THE PULSE successful connections on a larger scale. In a world where technology We connect ideas and information. We offerings expand constantly, Cinram is committed to connect different parts of the supply chain. staying in lock-step with Most important, we bring exciting products consumer preferences. into the hands of customers around the world. At Cinram, we like to think of this as building bridges. Among the most important bridges we build are those within our own company. Only from cross-pollination can you unearth the best ideas from the greatest number of As a result, our customers have shown us people. Across individual sites and broader great support, and in turn we’ve delivered the geographies we stress information exchange outstanding service they’ve come to expect. and idea-sharing constantly, making us a better, stronger organization that uses its resources Finally, we are building a bridge between the in optimal ways. We continue to discover how physical media formats that remain crucial bright, creative and committed our people are, to our business and the digital platforms that and those qualities are enhanced many times continue to evolve almost daily. As our logo over by the collaboration we promote. symbolizes, support of our core physical market remains as important as ever, while at the same Of course, bridge-building doesn’t just happen time we are putting in place measures that will on the inside. We take great pride in the ensure we are on the leading edge of enhanced interaction we maintain with our customers. digital offerings. Whether the customer wants Knowing what your customer needs means their content packaged traditionally or in newer listening, understanding and responding. It formats, we will enable that delivery. We like to is a testament to our people that, despite the think of ourselves as analogous to the candle challenges we encountered over the past year, maker. He isn’t in the business of candles. our relationships remained as solid as ever. He’s in the business of light. 4 Cinram 2010 Annual Report CONNECTING WITH OUR CUSTOMERS. COLLABORATING WITH EACH OTHER. LINKING THE TRADITIONAL WITH THE INNOVATIVE. AT CINRAM, DELIVERING EXCITEMENT MEANS BUILDING BRIDGES. Cinram 2010 Annual Report 5 RAISING THE BAR THE ONLY WAY WE’RE HAPPY IS IF OUR CUSTOMERS ARE HAPPY. WE DON’T AIM TO BE GOOD. WE AIM TO BE THE BEST. 6 Cinram 2010 Annual Report ENTERTAINMENT VALUE The desire to be entertained has always existed; it’s the form that changes over time. Cinram will enable entertainment in whatever form it may take — today, tomorrow and into the future. Delivering excitement happens on two fronts. Our revitalized brand identity marks the start We deliver exciting results and experiences of what we know will be a successful journey. to our customers, and also for our customers. Whatever type of entertainment a consumer Delivering excitement to our customers seeks, be it movies, music, games or their new means providing them cutting-edge products, phone or tablet, and in whatever manner of outstanding business results and flawless delivery, whether box, truck or by digital means, customer service. Delivering excitement for we will make it happen. our customers means helping them get their own exciting products into consumers’ hands. To execute this goal, we must continue our pursuit of maximum efficiency throughout the In both cases, we strive for nothing less than organization. We have already implemented making the customer experience perfect steps to maintain our volume levels while leaving at every touchpoint. We recognize this is a a smaller footprint, and we continue to identify lofty expectation, and we aim to meet it. ways to drive out waste at every opportunity. Our internal expectations in this regard are likewise high. We aren’t looking at what we’ve done; we’re looking at what we’ve yet to do. If we’re shipping boxes that are three-quarters full, there’s still one quarter of opportunity to be seized. This mindset exists top to bottom and is reflected in the efforts of groups like our Cinram Retail Services division, a brain trust that is showing the marketplace inventive ways to minimize cost and maximize space. Finally, while our balance sheet has seen significant deleveraging, we have full lender support to reduce the company’s indebtedness to our lowest level in history, and this support is in place for another three years. We are on firm footing – and committed to delivering excitement every step of the way. Cinram 2010 Annual Report 7 FROM THE CHAIRMAN WILLIAM J. ANDERSON Chairman Cinram International Income Fund This past year brought with it a number of challenges, A key part of 2010’s challenge was the need to make most significant among them the loss of a major customer, some difficult decisions resulting from the Warner loss. Warner Home Entertainment, and protracted refinancing Your management team, along with the Board of Trustees, and restructuring events. But out of adversity often comes undertook this task with a view toward ensuring a profitable renewed strength and focus. In the wake of the challenges future for the company. Staying focused and performing that arose we have seen a number of strong positives, well are not always easy when tough decisions are being resulting in a revitalized Cinram bolstered by a long-term made around you, but everyone at Cinram redoubled their renewal from our largest customer, a well-positioned productivity and dedication in 2010 even in the face of balance sheet, and several new initiatives for rebuilding downsizing and restructuring. We, the Board of Trustees, our DVD volumes, expanding our Blu-ray investment, are extremely proud of this show of spirit and solidarity and creating best-in-class digital delivery and media that has not only carried us through rough waters but has enhancement. In addition, the acquisition of 1K Studios, also landed us on the other side poised to make great the hiring of key management leaders, and our continued strides in the years to come.
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