<PAGE>

[CINRAM LOGO]   2004 ANNUAL REPORT

<PAGE>

Cinram International Inc. is the world's largest independent provider of
pre-recorded multimedia products and related logistics services. With facilities
in North America and Europe, Cinram manufactures and distributes pre-recorded
DVDs, VHS video cassettes, audio CDs, audio cassettes and CD-ROMs for motion
picture studios, music labels, publishers and computer software companies around
the world. The Company's shares are listed on the Toronto Stock Exchange (CRW)
and are included in the S&P/TSX Composite Index. For more information, visit our
Web site at www.cinram.com.

INSIDE CINRAM

2004 Revenue by Product


[PIE CHART]

<TABLE>
<S>             <C>
DVD             51%
CD              15%
VHS              3%
DISTRIBUTION    10%
PRINTING        11%
OTHER           10%
</TABLE>

 5 To Our Fellow Shareholders
 8 Management's Discussion and Analysis
31 Management's Responsibility/Auditors' Report
32 Consolidated Financial Statements
35 Notes to Consolidated Financial Statements
58 11-Year Financial Summary
61 Trading of Common Shares
62 Directors and Officers
63 Corporate Information

<PAGE>

For years ended December 31

<TABLE>
<CAPTION>
(in thousands of U.S. dollars, except share and per share amounts)     2004          2003          2002
------------------------------------------------------------------  -----------   -----------   -----------
<S>                                                                 <C>           <C>           <C>
FINANCIAL SUMMARY
Revenue                                                             $ 2,026,638   $   826,893   $   559,287
Gross profit                                                            411,096       171,519       101,965
EBITA *                                                                 382,134       163,617        96,745
Capital expenditures                                                    145,704        80,226        44,116
                                                                    -----------   -----------   -----------
EBITA *                                                             $   382,134   $   163,617   $    96,745
Amortization                                                           (219,735)      (75,156)      (47,766)
Interest expense                                                        (53,102)      (13,743)       (3,305)
Investment income                                                         2,436         3,583         2,888
Income taxes                                                            (35,909)      (25,281)      (13,891)
                                                                    -----------   -----------   -----------
Net earnings                                                        $    75,824   $    53,020   $   $34,671
                                                                    ===========   ===========   ===========
PER COMMON SHARE
Earnings per share
   Basic                                                            $      1.34   $      0.95   $      0.63
   Diluted                                                          $      1.32   $      0.94   $      0.63
                                                                    -----------   -----------   -----------
Diluted average number of shares outstanding (in thousands)              57,514        56,612        55,335
                                                                    ===========   ===========   ===========
FINANCIAL POSITION AT DECEMBER 31
Cash and cash equivalents                                           $    41,789   $   253,823   $   103,987
Goodwill                                                                328,393       279,426         4,299
Intangible assets                                                       315,247       376,393             -
Long-term debt                                                          858,343     1,049,873        34,187
Working capital                                                          11,109        34,916       117,841
Shareholders' equity                                                    486,191       385,283       291,395
</TABLE>

----------
*  EBITA is defined herein as earnings before amortization, interest expense,
   investment income, and income taxes, and 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 should not
   be considered as a substitute or alternative for net earnings or cash flow,
   in each case as determined in accordance with GAAP. The table outlined above
   provides a reconciliation of EBITA to net earnings under GAAP.

FINANCIAL HIGHLIGHTS

TOTAL PRE-RECORDED MULTIMEDIA UNIT SALES
(in thousands of units)

[BAR CHART]

<TABLE>
<S>     <C>
00      537,600
01      624,200
02      637,000
03      893,600
04    2,001,100
</TABLE>

REVENUE
(in thousands of U.S. dollars)

[BAR CHART]

<TABLE>
<S>     <C>
00      438,756
01      535,607
02      559,287
03      826,893
04    2,026,638
</TABLE>

CASH FLOW FROM OPERATIONS
(in thousands of U.S. dollars)

[BAR CHART]

<TABLE>
<S>     <C>
00      24,570
01      68,188
02      96,947
03     358,652
04     129,400
</TABLE>

                                                     CINRAM ANNUAL REPORT 2004 1

<PAGE>
INTEGRATED

IN 6 COUNTRIES


Cinram's distribution capabilities are what sets us apart from the
competition. The value we create for our customers is directly proportionate to
our level of integration with each movie studio and music label.

Our strategy focuses on `de-commoditizing' our services by providing
best-in-class execution at retail and creating value with state-of-the-art
distribution systems. Our manufacturing and distribution networks are an
integral part of our customers' supply chain.

By establishing strong electronic and logistical links to our customers, and our
customer's customer, we build highly valuable, long-term relationships.

2 CINRAM ANNUAL REPORT 2004

<PAGE>
23 MAJOR LOCATIONS

IN 24 HOURS


With operations in the United States, Canada, Mexico, France, the United Kingdom
and Germany, we supply the most important consumer markets for home video, which
represent more than 80 percent of the worldwide DVD demand.

Our local presence in each major market and strategically located distribution
centers allow us to pick, pack and ship orders within 24 hours of order receipt.
From these centers, we can reach more than 240,000 points of distribution
worldwide, making our customers some of the best-rated suppliers to retail
stores throughout North America and Europe.

                                                     CINRAM ANNUAL REPORT 2004 3

<PAGE>
IN 130 MILLION HOUSEHOULDS


Home video is a multi-billion dollar industry. With DVD players installed in
more than 70 million American households, and more than 60 million Western
European households, the industry-wide demand for DVDs skyrocketed to 5.4
billion units in 2004. In the United States, sales and rentals of DVDs and VHS
video cassettes accounted for $24 billion of consumer spending in 2004 - an
increase of 8.5 percent over last year - and the market is poised for further
growth in 2005.

The number of titles available on DVD surpassed 40,000 in 2004, with categories
such as blockbuster motion pictures, television series, and music on DVD driving
the growth.With 40 percent of the major studio market share, Cinram-manufactured
products are present in every DVD household in North America and Europe today.

4 CINRAM ANNUAL REPORT 2004

<PAGE>

TO OUR FELLOW SHAREHOLDERS

In 2004, we focused on completing the integration of the Time Warner businesses
acquired in late 2003 and on paying down the debt we incurred to finance this
landmark acquisition. At the same time, we increased our DVD production capacity
by 65 percent, built two state-of-the-art distribution facilities in the United
States and further developed our distribution facilities in Europe, completed a
strategic acquisition in the United Kingdom, continued to win new contracts and
expanded a major customer relationship to include Europe.

Sustained strength in consumer demand for digital video discs (DVDs) - Cinram's
core product - resulted in a 198 percent increase in our DVD unit shipments in
2004. During the same period, our consolidated revenue rose to $2.0
billion. While the full year results of the acquired Time Warner businesses
contributed in large part to the increase in revenue from 2003, internal growth
from a strong slate of releases among our major studio clients also added to the
increase. In step with our customers' growth, we invested approximately $190
million in additional DVD manufacturing capacity and distribution systems in
2004, accelerating a portion of our 2005 planned capital spending.

The result of our continued investment is that Cinram is now the largest optical
disc manufacturer in the world, and operates the most advanced distribution
system in the home video industry, all with the intent and effect of satisfying
the needs of our valued customers.

DVDs have revolutionized the way we shop for entertainment. According to Video
Business News, an industry publication, consumer spending on DVDs reached a
record $21 billion in the United States in 2004, an increase of 28 percent over
the previous year.

The extraordinary growth of DVDs has been accompanied by a major shift in the
supply chain, making direct-to-retail distribution a key success factor for our
customers, and in turn, for Cinram. Our proprietary engineering and information
technology has allowed us to quickly respond to this shift, with distribution
solutions that provide world-class execution at retail. As a full-service
outsourcer for the studios, from replication to point-of-sale, we have become an
integral part of their supply chain by offering the most automated and
responsive distribution and logistics services in the industry. Our strong
partnership with our customers has enabled us to deliver shelf-ready product to
more than 240,000 points of distribution worldwide. In Europe, as a result of
our acquisition of The Entertainment Network Ltd. in July, we now offer
value-added services that include full order-to-cash management, invoicing,
claims and carrier management.

                                                     CINRAM ANNUAL REPORT 2004 5

<PAGE>

OPERATIONAL AND FINANCIAL PERFORMANCE

We attempted this year to strike a balance between managing the integration of
the acquired Time Warner businesses and fulfilling the increasing requirements
of our growing customer base. Early in the year, we undertook a full review of
the acquired businesses, removing redundancies where possible and using
benchmarking to implement best practices across the company. We also identified
key areas of improvement, where we quickly moved to augment capacity and refine
capabilities to keep pace with demand.

We continued to aggressively pursue new business opportunities in 2004, and
solidified our market position with the addition of Metro-Goldwyn-Mayer's North
American business and Twentieth Century Fox's European business.We also
strengthened our CD segment by entering into a manufacturing agreement with EMI
in the United States.

In the latter half of 2004, raw material prices rose significantly, impacting
our profit margins. Despite this and start-up costs associated with new
customers, we achieved EBITA margins of 19 percent and generated cash flow from
operations before changes in non-cash working capital of $300 million, allowing
us to repay $192 million of the debt incurred to finance the acquisition of the
Time Warner businesses, ahead of schedule.

In December, the Board of Directors, on my recommendation, appointed David
Rubenstein as president and chief operating officer of Cinram International, to
oversee all aspects of our worldwide operations. Previous to this appointment,
David was the president of Cinram Americas. His assumption of all day-to-day
operations of Cinram International will enable me to focus more specifically on
the search for other investment opportunities, the early retirement of Cinram's
debt, and other long-term strategies.

THE YEAR AHEAD

With the right people and operations in place, Cinram is well positioned for
2005 and beyond. We will focus on spending capital carefully and maximizing cash
flow to further pay down debt. We will continue to seek alternative ways of
reducing costs and improving efficiencies and profitability through automation
and industry best practices; exercising financial discipline has always been an
integral part of managing our business.

The new high-definition format for optical discs will be commercially launched
in the very near future, with high-definition players expected to be available
to consumers later this year. As in the past, Cinram is ready to meet the
technological and market needs of this new and exciting format, while at the
same time benefiting from the growth of the current DVD format, which is
expected to share the market with the new format for many years to come.

In closing, I sincerely thank our shareholders, customers and employees for
their valuable support. We are fortunate to have a dedicated management team
whose tireless commitment to our customers will continue to drive future growth
and build value for our shareholders.

/s/ Isidore Philosophe
---------------------------
ISIDORE PHILOSOPHE
Chief Executive Officer

6 CINRAM ANNUAL REPORT 2004

<PAGE>

                                8 Management's Discussion & Analysis
                               31 Management's Responsibility Statement
                               31 Auditors' Report
                               32 Consolidated Financial Statements
                               35 Notes to the Consolidated Financial Statements

FINANCIAL REVIEW


March 4, 2005

The following management's discussion and analysis (MD&A) should be read in
conjunction with the consolidated financial statements and notes for the year
ended December 31, 2004. We prepare our financial statements in accordance with
Canadian generally accepted accounting principles. Where we say "we," "us," or
the "Company," we mean Cinram International Inc. and its subsidiaries.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this management's discussion and analysis and
elsewhere in this annual report constitute "forward-looking statements" within
the meaning of the United States Private Securities Litigation Reform Act of
1995. These forward-looking statements, by their nature, are not guarantees of
future performance and involve risks and uncertainties, which could cause actual
results to differ materially from those anticipated in these forward-looking
statements. We consider the assumptions on which these forward-looking
statements are based to be reasonable, but caution the reader that these
assumptions regarding future events, many of which are beyond our control, may
ultimately prove to be incorrect. Some of these risks and uncertainties as well
as other additional information are outlined in this management's discussion and
analysis. For a complete list of risks and uncertainties, please consult the
Company's annual information form filed with Canadian securities commissions,
available on www.sedar.com.

Cinram disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise, except as required by law. These cautionary statements expressly
qualify all forward-looking statements attributable to Cinram.

                                                     CINRAM ANNUAL REPORT 2004 7

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

NON-GAAP FINANCIAL MEASURES

EBITA is defined herein as earnings before interest expense, investment income,
income taxes and amortization, and 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 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 below.

EBIT is defined herein as earnings before interest expense, investment income
and income 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 generally accepted accounting principles
(GAAP). 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 GAAP. See reconciliation of EBIT to net earnings under GAAP as
found in the table below.

We use EBIT and EBITA as a benchmark for measuring operating performance and for
our lending arrangements.

RECONCILIATION OF EBITA AND EBIT TO NET EARNINGS

<TABLE>
<CAPTION>
                                                               Years ended December 31,
               (in thousands of U.S. dollars)                    2004           2003
-------------------------------------------------------------  ---------      ---------
<S>                                                            <C>            <C>
EBITA                                                          $ 382,134      $ 163,617
                                                               ---------      ---------
Amortization of capital assets                                   146,697         63,707
Amortization of intangible assets and deferred financing fees     73,038         11,449
                                                               ---------      ---------
EBIT                                                           $ 162,399      $  88,461
                                                               ---------      ---------
Interest expense                                                  53,102         13,743
Investment income                                                 (2,436)        (3,583)
Income taxes                                                      35,909         25,281
                                                               ---------      ---------
NET EARNINGS                                                   $  75,824      $  53,020
                                                               ---------      ---------
</TABLE>

8 CINRAM ANNUAL REPORT 2004

<PAGE>

1.    ABOUT OUR BUSINESS

      Cinram International Inc. (Cinram or the Company) manufactures and
      distributes pre-recorded DVDs,VHS video cassettes, audio CDs, music
      cassettes and CD-ROMs, for motion picture studios, music labels,
      publishers and computer software companies in North America and Europe. We
      also manufacture print components for the entertainment industry.

      In 2003, Cinram became the world's largest pre-recorded optical disc
      replicator with the acquisition of Time Warner Inc.'s DVD and CD
      manufacturing, distribution, printing and screen-printing entertainment
      merchandising businesses (the Acquisition or the Acquired Businesses).
      Along with the Acquisition, Cinram also signed exclusive, long-term
      manufacturing and distribution agreements with Warner Home Video and
      Warner Music Group in North America and Europe, and with New Line Home
      Entertainment, Inc. in North America (the Time Warner Agreements).

      The final allocation of the purchase price, based on independent
      appraisals and management's estimates is as follows:

<TABLE>
<CAPTION>
(in thousands of U.S. dollars)
<S>                                               <C>
Current assets, including cash of $1,437          $   317,071
Capital assets                                        406,104
Intangible assets                                     387,900
Goodwill                                              320,351
                                                  -----------
                                                    1,431,426
                                                  -----------

Current liabilities                                  (208,715)
Other long-term liabilities                           (49,611)
Future tax liabilities                                (22,611)
                                                  -----------
                                                     (280,937)
                                                  -----------
Total cash purchase consideration                 $ 1,150,489
                                                  -----------
</TABLE>

      We operate four primary business segments: Home Video, Audio/ROM, Printing
      and Distribution. Our Home Video segment consists primarily of the
      replication/duplication of DVDs and VHS video cassettes, including new
      releases and catalog titles. Our Audio/ROM segment consists primarily of
      the replication/duplication of audio CDs, CD-ROMs and audio cassettes. Our
      Printing segment manufactures printing and packaging components for the
      home entertainment industry including the art work that is inserted into
      DVD and CD packaging, custom box sets and point-of-purchase merchandise
      displays, through our wholly-owned subsidiary, Ivy Hill Corporation (Ivy
      Hill). Our Distribution segment includes revenue for direct-to-retail
      distribution, warehousing, and pick, pack and ship and order fulfillment
      services for our home video customers. Revenue from our remaining
      operations is included in `Other', which is principally made up of Giant
      Merchandising Inc. (Giant), the screen-printing entertainment
      merchandising business we purchased through the Acquisition.

      We currently have the capacity to manufacture approximately 1.65 billion
      DVDs and more than one billion CDs per year to service our industry's
      seasonal peaks in demand, which typically occur in the second half of the
      year. We only produce pre-recorded content to specific orders from our
      customers, generally pursuant to multi-year contracts that typically range
      from two to six years, and as a result, we do not bear the risk of unsold
      products. Our major contracts are exclusive for particular territories,
      and frequently contain a market price test that may, depending on
      prevailing industry prices, require us to lower the prices we charge. The
      products we manufacture generally experience larger price declines in the
      early stages of their life-cycles, from introduction up to mass-market
      adoption, at which point prices typically decline in smaller increments.

      Our major customers include Warner Home Video, Warner Music Group, New
      Line Home Entertainment,Twentieth Century Fox Home Entertainment (Fox),
      Metro-Goldwyn-Mayer Home Entertainment (MGM), Artisan Entertainment/Lions
      Gate, Alliance Atlantis and EMI Group plc (EMI).

                                                     CINRAM ANNUAL REPORT 2004 9

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

      Today, we generate the majority of our revenue from the sale of
      pre-recorded DVDs.

THREE-YEAR REVENUE BY PRODUCT

<TABLE>
<CAPTION>
(in thousands of U.S. dollars)              2004              2003              2002
------------------------------  ----------  ----  ----------  ----  ----------  ----
<S>                             <C>         <C>   <C>         <C>   <C>         <C>
DVD                             $1,025,389   51%  $  386,413   47%  $  156,156   28%
VHS video cassette                  65,154    3%     108,889   13%     187,061   33%
Audio CD/CD-ROM                    313,420   15%     162,362   20%     132,074   24%
Audio cassette                      10,906    1%      10,219    1%      21,491    4%
Printing                           225,388   11%      46,626    6%           -    -
Distribution                       207,302   10%      71,302    9%      45,958    8%
Merchandising                      143,368    7%      20,320    2%           -    -
Other                               35,711    2%      20,762    2%      16,547    3%
                                ----------  ---   ----------  ---   ----------  ---
                                $2,026,638  100%  $  826,893  100%  $  559,287  100%
                                ----------  ---   ----------  ---   ----------  ---
</TABLE>

      1.1   THE PRE-RECORDED MEDIA INDUSTRY, which encompasses video and audio
            products, mainly serves major motion picture studios and music
            labels by providing the replication and distribution services
            required for the physical delivery of their content.The industry,
            currently dominated by DVDs and CDs, has evolved significantly since
            its inception. In the home video industry, the VHS video cassette
            was introduced in the early 1970s and experienced strong sales
            growth in the 1980s and early-to-mid 1990s. However, the demand for
            VHS video cassettes has declined in recent years due to the rapid
            growth of DVDs which were introduced in 1997 and have since become
            the standard for the home video industry. The music industry has
            seen a transition from vinyl records and eight-track cartridges to
            cassettes and subsequently to CDs, the current standard for the
            music industry.

            The DVD format currently represents the primary source of growth for
            the pre-recorded media industry. The key drivers of the rapid growth
            in DVD demand include: strong DVD player penetration due to
            declining prices of DVD players, aggressive retail pricing of DVDs,
            and an expanding list of titles and genres. Strong consumer adoption
            of the DVD technology is evident in the growth of household
            penetration of DVD players. According to Understanding & Solutions,
            an industry research and consulting firm, at the end of 2004, the
            installed base of DVD players reached 65% of all U.S. homes, and it
            is forecasted to increase to 80% by the end of 2005. Declining
            retail prices for DVD players have been an important factor
            underlying the growth in DVD player penetration. Studios have also
            intentionally adopted a sell-through philosophy with DVDs,
            maintaining low price points to encourage sales of DVDs rather than
            rentals, which had been the traditional focus for VHS video
            cassettes. In addition, in recent years, the number of titles and
            genres available on DVD has increased substantially.The combination
            of these factors has significantly broadened and increased consumer
            demand for DVDs.

            The CD is, and in the foreseeable future is expected to remain, the
            standard format for the music industry. While CD volumes peaked in
            1999, volumes have since declined due to several factors, including
            the advent of file-sharing and digital distribution through Web
            sites, increased piracy and illegal downloading and a lack of new
            hit titles and gold/platinum releases. We believe that over the past
            year, the music industry has better dealt with distribution
            challenges by more aggressively fighting piracy and illegal
            downloading, as well as refocusing on promoting artists, developing
            new genres and devising creative marketing strategies (e.g.,
            multi-disc sets and bundling with other products such as DVDs and
            apparel).

      1.2   OUR STRATEGY is to secure exclusive, large-scale, multi-year DVD and
            CD replication and distribution agreements in North America and
            Europe. Our expanded distribution capabilities and our new printing
            operations also give us an opportunity to provide additional
            services to our existing customers.

            We are focused on reinforcing our existing relationships with
            customers by maintaining or improving service levels, increasing the
            level of integration between us and our customers, managing our
            manufacturing capacity to service demand with minimal outsourcing
            and maintaining strong communications with our customers. We expect
            to achieve this, in part,

10 CINRAM ANNUAL REPORT 2004

<PAGE>

            through continued internal development of distribution systems and
            automation that improve our efficiencies and our continued
            commitment to customer service.

            We intend to maintain our focus on reducing costs and increasing
            profitability over time. We expect to achieve this by continuing to
            benchmark our facilities to determine best practices in order to
            improve processes at each facility. We will also continue to pursue
            opportunities to leverage synergies with the Acquired Businesses.
            In addition, our increased geographic capacity and scale of
            operations from the Acquisition enable us to balance production
            loads among our facilities, reducing our need to use third-party
            outsourcing.

            We have consistently evolved with changes in pre-recorded media
            formats over our 36-year history. As our customers and other
            industry participants make the transition to successor pre-recorded
            media formats, such as high-definition DVD (Blu-ray or HD-DVD), we
            expect to leverage our strong presence in North America and Western
            Europe, as well as our manufacturing and distribution scale and
            expertise, to position our Company to capitalize on the new
            opportunities afforded by this transition. We believe that our
            highly developed manufacturing and distribution capabilities and our
            experience in adapting our processes to new pre-recorded media
            formats efficiently and in a cost effective manner will enable us to
            remain an industry leader.

2.    2004 PERFORMANCE

      Our 2004 results include those of the Acquisition for the full period,
      while our 2003 results include only the results of the Acquired Businesses
      from October 24, 2003, to December 31, 2003.

      KEY PERFORMANCE METRICS

<TABLE>
<CAPTION>
(in thousands of U.S. dollars, except per share data)     2004        2003        2002
-----------------------------------------------------  ----------  ----------  ----------
<S>                                                    <C>         <C>         <C>
Revenue                                                $2,026,638  $  826,893  $  559,287
EBITA                                                  $  382,134  $  163,617  $   96,745
EBIT                                                   $  162,399  $   88,461  $   48,979
Net earnings                                           $   75,824  $   53,020  $   34,671
Basic earnings per share                               $     1.34  $     0.95  $     0.63
Diluted earnings per share                             $     1.32  $     0.94  $     0.63
</TABLE>

      2.1   GENERAL OVERVIEW

            Over the last three years, our revenue base has shifted
            significantly from VHS video cassettes to DVD as a result of the
            shift in consumer preferences, as well as the change in our product
            mix pursuant to the Acquisition. DVD revenue increased from 28% of
            consolidated revenue in 2002, to 47% in 2003, and 51% in 2004.
            Conversely, VHS video cassettes accounted for 33% of our
            consolidated revenue in 2002, 13% in 2003 and 3% in 2004. In 2004,
            our revenue increased 145% to $2,026.6 million from $826.9 million
            in 2003, and 262% from $559.3 million in 2002, principally as a
            result of the contribution of the Acquisition and solid organic
            growth in our DVD sales. A strong slate of home video releases by
            our existing studio customers along with additional business from
            new customers such as MGM, EMI and Fox Europe also contributed to
            the increase in our consolidated revenue in 2004. In November, we
            signed an exclusive, multi-year manufacturing and distribution
            agreement with Fox in Europe; however, we began manufacturing and
            distributing DVDs and VHS video cassettes for Fox in France under a
            transitional agreement in August 2004. We will begin manufacturing
            and distributing Fox products in the United Kingdom, Germany and the
            Benelux in the first half of 2005.

            We sold more than 1.9 billion optical discs (DVD and CD) in 2004, up
            144% from 2003, and 339% from 2002. Because we began balancing our
            production requirements across our facilities immediately after the
            close of the Acquisition in October 2003, it is not meaningful to
            separate our organic growth from that of the Acquired Businesses.

                                                    CINRAM ANNUAL REPORT 2004 11

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

            EBITA increased to $382.1 million from $163.6 million in 2003 and
            $96.7 million in 2002, principally due to the contribution of a full
            year of results from the Acquired Businesses in addition to new
            business from MGM.

            We recorded EBITA margins of 19% in 2004, down from 20% in 2003
            mainly as a result of the increase in raw material costs, start-up
            expenses related to new and existing customers, and to a lesser
            extent, lower selling prices. In comparison, we recorded EBITA
            margins of 17% in 2002. The change in margin from 2002 to 2003 was
            attributable to the significant shift in our product mix from VHS
            video cassettes to higher margin DVDs. VHS video cassettes, by their
            product makeup, yield higher average selling prices, generate lower
            profit margins and are more expensive to produce than DVDs because
            of higher raw material costs and real-time manufacturing
            constraints. While the shift in our product mix in 2003 had a
            positive impact on gross margins and net earnings, it had a negative
            impact on revenue for that year.

      2.2   2004 GUIDANCE REVIEW: RESULTS VERSUS EXPECTATIONS

            In March 2004, the Company issued guidance for the full year of $1.8
            to $2.0 billion in revenue and $390 to $410 million in EBITA.
            Subsequent to this, higher than expected commodity price increases
            caused our third quarter results to vary significantly from our
            initial internal expectations, which in turn prompted us to revise
            our expectations for the full year. Accordingly, we lowered our
            initial EBITA estimate to $360 to $380 million and narrowed the
            range of our revenue guidance to $1.9 to $2.0 billion in our 2004
            third quarter news release.

            2004 GUIDANCE VS. ACTUAL RESULTS

<TABLE>
<CAPTION>
(in U.S. dollars)        Initial              Revised            Actual
-----------------  -------------------  -------------------  --------------
<S>                <C>                  <C>                  <C>
Revenue            $1.8 - $2.0 billion  $1.9 - $2.0 billion  $  2.0 billion
EBITA              $390 - $410 million  $360 - $380 million  $382.1 million
</TABLE>

            Our business is seasonal, with a large portion of sales recorded
            towards the holidays (U.S.Thanksgiving and Christmas), and is
            dependent on consumer acceptance of our customers' products (DVD
            movies and CD albums). For these reasons, we generate the majority
            of our revenue and earnings in the fourth quarter, and the success
            of a few titles can play an important role in December re-order
            volumes, and in turn, the strength of our year-end results. In 2004,
            we benefited from strong production volumes up until the end of
            December, which allowed us to reach the high end of our revised
            revenue and EBITA guidance ranges.

3.    SEGMENTED RESULTS

      3.1   INDUSTRY SEGMENTS - REVENUE

<TABLE>
<CAPTION>
(in millions of U.S. dollars)              2004              2003
-----------------------------  ----------  ----  ----------  ----
<S>                            <C>         <C>   <C>         <C>
Home video                     $1,090,543   54%  $  495,302   60%
Audio/ROM                         324,326   16%     172,581   21%
Printing                          225,388   11%      46,626    6%
Distribution                      207,302   10%      71,302    9%
Other                             179,079    9%      41,082    4%
                               ----------  ---   ----------  ---
Total                          $2,026,638  100%  $  826,893  100%
                               ----------  ---   ----------  ---
</TABLE>

            3.1.1 HOME VIDEO

                  Revenue from our Home Video segment, which includes DVD and
                  VHS video cassettes sales, increased 120% to $1,090.5 million
                  from $495.3 million in 2003. The significant growth in our DVD
                  sales was partially offset by a decline in VHS video cassettes
                  sales and lower average selling prices for both products.

12 CINRAM ANNUAL REPORT 2004

<PAGE>

                  DVD revenue increased 165% to $1,025.4 million from $386.4
                  million in 2003, reflecting a full-year contribution of the
                  Acquired Businesses, the addition of the MGM business in
                  North America, the Fox business in France and greater overall
                  consumer demand for DVDs across all geographic regions. DVD
                  revenue represented 51% of consolidated revenue in 2004, up
                  from 47% in 2003.

                  Revenue from VHS video cassettes was down 40% to $65.1 million
                  from $108.9 million in 2003, reflecting lower unit shipments
                  in Europe and North America, and lower average selling
                  prices. VHS video cassettes accounted for 3% of consolidated
                  revenue in 2004, down from 13% in 2003.

                  The Home Video segment represented 54% of our consolidated
                  revenue, down from 60% in 2003 due to the change in our
                  product mix subsequent to the Acquisition.

            3.1.2 AUDIO/ROM

                  Revenue from our Audio/ROM segment (audio CDs, CD-ROMs and
                  audio cassettes) increased 88% to $324.3 million from $172.6
                  million in 2003. The growth in this segment resulted from
                  higher unit shipments due to the Acquired Businesses in the
                  United States and Europe, along with the new EMI contract in
                  the United States.

                  Audio CD revenue increased 94% to $267.3 million from $137.6
                  million in 2003. The increase was driven primarily by the
                  full-year contribution of the Acquired Businesses and the
                  addition of the EMI business in the second half of the year.
                  The revenue growth in audio CDs was offset by lower unit
                  shipments in France and Canada, as well as lower average
                  selling prices. Audio CDs represented 13% of consolidated
                  revenue in 2004, down from 17% in 2003.

                  CD-ROM revenue increased 86% to $46.1 million from $24.8
                  million in 2003, principally as a result of the full-year
                  contribution of the Acquired Businesses in North America and
                  Europe in addition to strong organic growth in France. CD-ROM
                  represented 2% of consolidated sales in 2004, down from 3% in
                  2003.

                  Audio cassette revenue increased 7% to $10.9 million from
                  $10.2 million in 2003 as a result of the contribution of the
                  Acquired Businesses. Audio cassette revenue represented 1% of
                  consolidated revenue in both 2004 and 2003.

                  The Audio/ROM segment accounted for 16% of consolidated
                  revenue in 2004, down from 21% in 2003. This segment has
                  declined as a percentage of consolidated revenue because of
                  the increasing importance of DVDs and distribution services in
                  our product mix, and the addition of new businesses from the
                  Acquisition.

            3.1.3 PRINTING

                  Printing revenue increased to $225.4 million from $46.6
                  million in 2003 as a result of the full-year inclusion of Ivy
                  Hill's results in our 2004 consolidated revenue, compared to
                  its nine-week contribution in 2003. In 2004, Ivy Hill
                  benefited from additional business from movie studios and
                  record labels who were considered competitors when it was a
                  captive subsidiary of Time Warner. Printing sales accounted
                  for 11% of consolidated revenue in 2004.

            3.1.4 DISTRIBUTION

                  Distribution and fulfillment services revenue was up 191% to
                  $207.3 million from $71.3 million in 2003, and represented 10%
                  of consolidated revenue compared to 9% in 2003. The increase
                  in distribution revenue was attributable to the full-year
                  contribution of the Acquired Businesses, the addition of the
                  MGM business and the July acquisition of The Entertainment
                  Network in the United Kingdom. Distribution and fulfillment
                  services continue to be a major factor in our ability to
                  attract and retain customers. In 2004, we expanded our
                  distribution and fulfillment service offerings by opening two
                  customer-dedicated distribution centers in Tennessee to
                  accommodate Warner Home Video and MGM. We incurred costs for
                  setting up these facilities, including training, relocation of
                  customers' components, equipment relocation, freight and
                  expediting costs as well as travel expenses that had an

                                                    CINRAM ANNUAL REPORT 2004 13
<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

            unfavorable impact on gross profit margins for the year. We also
            made enhancements to our existing distribution facility in Alabama
            to provide Fox and Lions Gate with increased frequency of shipments,
            more customized order sizes, and the ability to handle more stock
            keeping units, which also had a negative impact on our margins.

      3.1.5 OTHER

            Revenue from Giant Merchandising (included in Other segment)
            increased to $143.4 million from $20.3 million in 2003 as a result
            of the full-year inclusion of Giant's results in our 2004
            consolidated revenue compared to its nine-week contribution in 2003.
            Giant accounted for 7% of consolidated revenue in 2004, up from 2%
            in 2003.

            Revenue from other non-core activities increased to $35.7 million
            from $20.8 million in 2003. Non-core activities represented 2% of
            consolidated revenue in 2004, on par with 2003. Non-core activities
            include authoring and other pre-production services, information
            technology, the sale of components, stampers and digital linear
            tapes.

3.2   GEOGRAPHIC SEGMENTS - REVENUE

<TABLE>
<CAPTION>
(in millions of U.S. dollars)                  2004                 2003
-----------------------------                  ----                 ----
<S>                              <C>           <C>     <C>          <C>
North America                    $ 1,534,229    76%    $ 641,508     78%
Europe                               492,409    24%      185,385     22%
                                 -----------   ---     ---------    ---
Total                            $ 2,026,638   100%    $ 826,893    100%
                                 ===========   ===     =========    ===
</TABLE>

      3.2.1 NORTH AMERICA

            North American revenue increased 139% to $1,534.2 million from
            $641.5 million in 2003. The significant increase in revenue was
            primarily driven by the full-year results of the Acquired
            Businesses, which included DVD, CD, distribution, printing and
            merchandising revenue. New customer agreements with MGM in North
            America and EMI in the United States also fueled the increase in
            revenue in addition to a general increase in consumer demand for
            DVDs across the industry. While we replicated virtually all of MGM's
            DVD volume in 2004, we only benefited from EMI's CD volume in the
            third and fourth quarters of the year. The growth in North American
            revenue was partially offset by lower VHS video cassette and audio
            cassette shipments as well as a typical decline in selling prices
            for all products.

            With full-year results from the Acquired Businesses, strong organic
            growth from Fox and new business from MGM, DVD revenue increased
            130% to $753.2 million from $326.9 million in 2003. The increase in
            DVD revenue was offset by expected declines in unit selling prices.
            As a percentage of North American revenue, DVDs accounted for 49%
            of revenue down from 51% in 2003 because of the change in our
            product mix subsequent to the Acquisition. VHS video cassette
            revenue decreased 28% to $43.4 million from $60.6 million in 2003
            due to lower shipments owing to a significant shift in consumer
            preferences, as well as lower unit selling prices. VHS video
            cassette sales accounted for 3% of North American revenue in 2004,
            down from 9% in 2003.

            Audio CD and CD-ROM revenue was up 90% to $203.9 million from $107.6
            million in 2003 as a result of the increase in unit shipments from
            the Acquired Businesses and the new EMI agreement in the United
            States. Audio CD and CD-ROM sales accounted for 13% of North
            American revenue in 2004, down from 17% in 2003. Audio cassette
            revenue declined 4% to $9.5 million from $9.9 million in 2003, and
            represented less than one percent of North American revenue in 2004,
            compared with 2% in 2003.

            Printing revenue increased to $225.4 million from $46.6 million in
            2003 as result of the full-year inclusion of Ivy Hill's results in
            our 2004 consolidated revenue compared to its nine-week contribution
            in 2003. Printing sales accounted for 15% of North American revenue
            in 2004, compared with 7% in 2003.

14 CINRAM ANNUAL REPORT 2004

<PAGE>

            North American distribution revenue increased 146% to $136.8 million
            in 2004 from $55.5 million in 2003 principally due to a significant
            increase in the number of units distributed for Warner Home Video,
            New Line Home Entertainment and MGM, in addition to organic growth
            from Fox and our other studio clients. During the year, we invested
            in two state-of-the-art distribution facilities in
            LaVergne,Tennessee to accommodate the growing distribution
            requirements of Warner Home Video and MGM. Distribution accounted
            for 9% of North American revenue in 2004, in line with 2003.

            Revenue from Giant Merchandising increased to $143.4 million from
            $20.3 million in 2003 as a result of the full-year inclusion of
            Giant's results in our 2004 consolidated revenue compared to its
            nine-week contribution in 2003. Giant accounted for 9% of North
            American revenue in 2004, compared with 3% in 2003.

            Revenue from other non-core activities increased to $18.6 million
            from $14.1 million in 2003. It represented 1% of North American
            revenue in 2004, down from 2% in 2003. Non-core activities include
            authoring and other pre-production services, information technology,
            the sale of components, stampers and digital linear tapes.

            North American revenue accounted for 76% of consolidated revenue in
            2004, down from 78% in 2003.

      3.2.2 EUROPE

            European revenue increased 166% to $492.4 million from $185.4
            million in 2003, primarily due to the inclusion of a full-year of
            results from the Acquired Businesses, which included DVD, CD and
            distribution revenue. The growth in Europe was offset by a
            significant decline in VHS video cassettes sales and typical annual
            price declines for all products.

            DVD revenue in Europe increased 357% to $272.2 million from $59.5
            million in 2003 as a result of revenue generated from the European
            Acquired Businesses and new business from Fox in France. In line
            with industry trends in North America, consumer demand for DVDs
            increased significantly in Europe in 2004. DVD sales accounted for
            55% of European revenue in 2004, up from 32% in 2003. In contrast,
            VHS video cassette sales declined 55% to $21.7 million from $48.3
            million in 2003 due to the shift in consumer preferences to DVD and
            lower selling prices. VHS video cassette sales accounted for 5% of
            European revenue in 2004, down from 26% in 2003.

            Audio CD and CD-ROM revenue increased 100% to $109.5 million from
            $54.8 million in 2003 as a result of higher unit shipments from the
            European Acquired Businesses as well as increased CD-ROM sales in
            France. The increase in revenue was offset by lower Audio CD sales
            in France and the United Kingdom and lower selling prices. Audio CD
            and CD-ROM sales accounted for 22% of European revenue in 2004, down
            from 30% in 2003. Audio cassette revenue increased to $1.4 million
            from $0.3 million in 2003, and represented less than one percent of
            European revenue in both 2004 and 2003.

            European distribution revenue increased 346% to $70.5 million from
            $15.8 million in 2003 due to the July acquisition of The
            Entertainment Network in the United Kingdom, the full-year results
            of the European Acquired Businesses and new business from Fox in
            France. Distribution revenue accounted for 14% of European revenue
            in 2004, up from 8% in 2003.

            Revenue from other non-core activities increased to $17.1 million
            from $6.7 million in 2003. It represented 4% of European revenue in
            2004, in line with 2003. Non-core activities include authoring and
            other pre-production services, information technology, the sale of
            components, stampers and digital linear tapes.

            European revenue accounted for 24% of consolidated revenue in 2004,
            up from 22% in 2003.

                                                    CINRAM ANNUAL REPORT 2004 15

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

4.    GROSS PROFIT

      Gross profit increased by 140% to $411.1 million from $171.5 million in
      2003. As a percentage of consolidated revenue, gross profit decreased to
      20% from 21% in 2003 largely as a result of the increase in raw material
      costs in the second half of the year, notably polycarbonate and
      polystyrene. Polycarbonate is the type of plastic that is used to
      manufacture discs (DVDs and CDs) and polystyrene is used to manufacture
      jewel boxes and trays for CDs. Although we have the ability to
      pass-through polycarbonate cost increases to most of our DVD customers, we
      are contractually restricted as to the timing of the pass-through to our
      customers. If we have several consecutive raw material cost increases such
      as those we experienced over the course of the second half of 2004, we can
      only pass on these increases on a time delay basis. Our major CD contracts
      do not contain any raw material pass-through mechanisms that currently
      allow us to adjust pricing for polycarbonate cost increases, and there are
      limitations on price adjustments for polystyrene.

      Our polycarbonate costs increased by approximately 50% from January 2004
      to December 2004, while our polystyrene costs increased by nearly 40%
      during the same period. After taking into account our raw material
      pass-throughs, these costs increases had a $20.1 million dollar impact on
      gross profit in 2004.

[BAR CHART]

FIVE-YEAR
GROSS PROFIT
(% of sales)

<TABLE>
<S>     <C>
'00     15%

'01     14%

'02     18%

'03     21%

'04     20%
</TABLE>

      4.1   START-UP COSTS

            During the second half of 2004, we also incurred start-up costs
            associated with new customers that had a $5 million impact on our
            gross profit margins. These start-up costs included:

            - Training and overtime;

            - Relocation of customers' finished goods and components;

            - Equipment relocation;

            - Incremental overtime costs to pick and process orders manually
              until automation was up and running;

            - Manual packaging at higher costs while operators were being
              trained;

            - Freight and expediting costs; and

            - Travel expenses.

      Amortization expense from capital assets, which is included in our cost of
      goods sold, increased to $146.7 million in 2004 from $63.7 million in
      2003.The increase was mainly attributable to increased amortization
      associated with the Acquired Businesses as well as with the increase in
      capital assets that were purchased and put into service during the year.

      Foreign exchange loss on transactions, included in our costs of goods
      sold, increased to $1.8 million from $0.2 million in 2003 due to the
      weakening U.S. dollar against other currencies in the countries in which
      we operate.

5.    GOODWILL

      As a result of the Acquisition that was completed in October 2003, we
      recorded $320.4 million in goodwill for the excess of the purchase price
      over the value of the acquired assets. In the fourth quarter of 2004, we
      completed our annual goodwill impairment test and concluded that there was
      no impairment.

6.    AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED FINANCING FEES

      Amortization of intangible assets and deferred financing fees related to
      the acquisition was $73.0 million in 2004 compared with $11.4 million in
      2003. We completed our intangible asset impairment test at the end of 2004
      and concluded there was no impairment.

7.    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Selling, general and administrative expenses - which include sales and
      marketing expenses, office expenses, non-manufacturing related salaries
      and professional fees - increased to $177.4 million from $68.9 million in
      2003 due to the full-year effect of expenses incurred by the Acquired
      Businesses. As a percentage of consolidated revenue, selling, general and
      administrative expenses were 9% in 2004 compared with 8% in 2003.

16 CINRAM ANNUAL REPORT 2004

<PAGE>

8.    INTEREST EXPENSE

      Interest expense increased to $53.1 million from $13.7 million in 2003 due
      to a full year of interest charges associated with the debt incurred to
      finance the Acquisition. We paid interest at both fixed and floating rates
      during 2004. Earlier this year, we entered into interest protection
      arrangements for a three-year term on $250.0 million of our long-term
      debt. In July, we entered into an additional interest rate cap arrangement
      for $210.0 million of our long-term debt that is set to expire in January
      2007.

      In August, we amended our $1,175.0 million credit facilities, originally
      established in connection with the acquisition of the Time Warner
      businesses in 2003, to significantly reduce borrowing costs. The interest
      rate on the outstanding principal amount of $181.1 million on Cinram's
      $250.0 million term loan A facility was reduced to the London Interbank
      Offered Rate (LIBOR) plus 250 basis points, from LIBOR plus 300 basis
      points. We used $65.0 million in cash to repay part of the $635.0 million
      outstanding principal amount under our $675.0 million term loan B facility
      and part of the $98.3 million outstanding principal amount under our
      $100.0 million term loan C facility. The remaining principal amounts
      outstanding under term loan facilities B and C were paid out from a new
      $668.2 million term loan D facility that bears an interest rate of LIBOR
      plus 300 basis points. Prior to the amendments, the term loan B facility
      had an interest rate of LIBOR plus 375 basis points and the term loan C
      facility an interest rate of LIBOR plus 575 basis points. The maturity
      date for the term loan A facility remains September 2007. The maturity
      date for the term loan D facility is September 2009; the maturity dates
      for term loan facilities B and C were September 2009 and March 2010,
      respectively. We fully benefited from the reduced rates in the fourth
      quarter of 2004.

9.    INVESTMENT INCOME

      Investment income decreased to $2.4 million from $3.6 million in 2003 due
      to lower cash balances and lower interest rates.

10.   UNUSUAL ITEMS

      During 2003, we closed a VHS duplication facility in St. Die, France. We
      began to formulate an exit plan in April 2003, concurrent with our
      discussions with the employee works council, which were concluded in July
      2003. The exit plan was finalized in November 2003, and termination
      notices were given shortly thereafter to St. Die's 102 employees. The
      duplication facility closed on December 17, 2003, and we recorded a
      restructuring provision of $2.7 million in 2003 for severance and other
      employee-related costs, lease cancellation and idle facility costs, asset
      write-downs and certain other exit costs. In October 2004, we realized a
      gain of $2.2 million on the sale of this facility. We also incurred an
      additional $0.5 million in other exit costs in 2004 relating to the
      closure of this facility, which was paid out during the year.

11.   INCOME TAXES

      Our effective tax rate for 2004 was 32%, on par with our effective tax
      rate in 2003. This rate is below the 36% statutory rate as a result of
      lower tax rates in certain jurisdictions, and the use of certain tax loss
      carryforwards.

12.   EARNINGS

      Net earnings for the year were up 43% to $75.8 million or $1.34 per share,
      from $53.0 million or $0.95 per share in 2003, principally due to the
      full-year contribution of the Acquired Businesses as well as higher DVD
      sales from both new and existing customers. Our 2004 earnings also
      included the full-year non-cash intangible asset amortization expense
      relating to the Time Warner Agreements and increased interest expense
      related to the Acquisition financing. By comparison, 2002 net earnings
      were $34.7 million or $0.63 per share.

13.   LIQUIDITY AND CAPITAL RESOURCES

      Cinram's principal sources of funds include cash flow from operating
      activities and long-term debt issued under our syndicated credit facility.
      Our primary uses of funds are working capital requirements as the business
      grows, operational expenses, maintenance and growth capital spending,
      principal and interest debt repayments on our credit facilities, and
      dividends.

                                                    CINRAM ANNUAL REPORT 2004 17

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

<TABLE>
<CAPTION>
     SOURCES AND USES OF CASH
   (in thousands of U.S. dollars)                     2004             2003
-----------------------------------                ----------      ------------
<S>                                                <C>             <C>
Cash flow from operating activities                $  129,400      $    358,652
Cash flow from financing activities                $ (183,025)     $    987,997
Cash flow from investing activities                $ (155,102)     $ (1,225,298)
</TABLE>

We ended 2004 with a cash balance of $41.8 million, down from $253.8 million in
2003, largely due to the net repayment of $191.5 million of long-term debt,
$145.7 million of capital asset purchases, which were offset by positive cash
flows from operations of $129.4 million.

We generated cash flow from operations of $129.4 million in 2004, down from
$358.7 million in 2003, as stronger net earnings and a significant increase in
amortization related to the Acquisition were offset by a non-cash working
capital outflow of $171.1 million, compared with a non-cash working capital
inflow of $213.8 million in 2003. The outflow in non-cash working capital in
2004 was due in part to a $63.0 million purchase price adjustment related to the
Acquisition, combined with the build-up of accounts receivable and inventory
levels during the year. Conversely, the non-cash working capital inflow in 2003
was the result of a significant increase in accounts payable and accrued
liabilities related to the Acquisition, with no offsetting increase in accounts
receivable as a significant portion of the acquired receivables were collected
before year-end. Our working capital position at December 31, 2004, was $11.1
million, compared with $34.9 million in 2003, principally reflecting a lower
cash balance.

Cash used in financing activities was an outflow $183.0 million, compared with
an inflow of $988.0 million in 2003, as we made net repayments of $191.5 million
to long-term debt during the year, which were partially offset by proceeds from
the issuance of common shares combined with an increase in other long-term
liabilities. The large inflow of cash from financing activities in 2003 was
primarily due to the debt we incurred to finance the Acquisition in October
2003.

At December 31, 2004, our net debt position (long-term debt, including the
current portion, less cash and cash equivalents) was a liability of $816.6
million compared to a liability of $796.1 million at the end of 2003. The
decrease in our long-term debt was offset by a lower year-end cash position in
2004 due to significant debt repayments, working capital usage and capital
expenditures throughout 2004.

We had total assets of $2,097.0 million at December 31, 2004, compared with
$2,059.2 million in 2003 and $525.4 million in 2002. The significant increase in
assets in 2003 was attributable to the Acquisition.

13.1  CAPITAL SPENDING

      In 2004, we paid $145.7 million for capital assets to increase our DVD
      replication capacity in the United States and Europe, and distribution
      automation in the United States. We also purchased an additional $48.8
      million of capital assets, in line with our 2004 capital spending budget,
      which will be paid out during 2005.

13.2  LONG-TERM DEBT

      In October 2003, we entered into a credit agreement with a syndicate of
      lenders for credit facilities comprised of term loans of $1,025.0 million
      and a revolving credit facility of $150.0 million to finance the
      Acquisition. Consequently, total debt increased significantly to $1,049.9
      million at December 31, 2003, from $34.2 million in 2002. Amounts
      outstanding under the facilities are secured by substantially all of the
      assets of the Company.

      In August 2004, we amended the credit facilities to lower our interest
      costs and to take advantage of better terms. The interest rate on the
      outstanding principal amount of $181.1 million on our $250.0 million term
      loan A facility was reduced to LIBOR plus 250 basis points, from LIBOR
      plus 300 basis points. We used $65.0 million in cash to repay part of the
      $635.0

18 CINRAM ANNUAL REPORT 2004

<PAGE>

      million outstanding principal amount under our $675.0 million term loan B
      facility and part of the $98.3 million outstanding principal amount under
      our $100.0 million term loan C facility. The remaining principal amounts
      outstanding under term loan facilities B and C were paid out from a new
      $668.2 million term loan D facility that bears an interest rate of LIBOR
      plus 300 basis points. At December 31, 2004, $659.0 million was
      outstanding under the term loan D facility, and our total debt was at
      $858.3 million. Amounts outstanding under the facilities are shown in the
      table below:

<TABLE>
<CAPTION>

                                  DECEMBER 31,                   December 31,
(in thousands of U.S. dollars)        2004       INTEREST RATE       2003       Interest rate     Maturity
------------------------------    ------------   -------------   ------------   -------------  --------------
<S>                               <C>            <C>             <C>            <C>            <C>
Credit agreement:
Term loan A                         $ 181,050     LIBOR + 250    $   250,000     LIBOR + 300   Sept. 30, 2007
Term loan B                                 -              -         675,000     LIBOR + 375   Sept. 30, 2009
Term loan C                                 -              -          98,270     LIBOR + 575    Mar. 31, 2010
Term loan D                           658,976     LIBOR + 300             -               -    Sept. 30, 2009
                                    ---------     -----------    -----------     -----------   --------------
                                    $ 840,026                    $ 1,023,270
                                    =========                    ===========
</TABLE>

      The revolving credit facility bears interest of LIBOR plus 300 basis
      points. In the third quarter of 2004, we borrowed $48.0 million from our
      revolving credit facility to finance capital expenditures. We subsequently
      repaid the $48.0 million during the fourth quarter of 2004. At December
      31, 2004, there were no amounts outstanding under the revolving credit
      facility.

      In 2004, we renegotiated the terms of our asset-backed financing
      agreement, which is now due in June 2007 and bears an interest rate of
      5.49%.

13.3  DEBT COVENANTS

      Our credit agreement includes four covenants: three are leverage tests
      based on earnings before interest, taxes and amortization (EBITA), and one
      is a maximum level of capital expenditures in any fiscal year during the
      life of the credit agreement. We are required to complete all leverage
      tests on a quarterly basis, using trailing 12-month data. The capital
      expenditure covenant is tested annually.

      As of December 31, 2004, we were in compliance with all of the terms of
      our credit agreement. We also expect to remain compliant with our debt
      covenants based on our current internal forecasts. Under the terms of the
      credit agreement, we are obliged to make a mandatory offer to prepay the
      credit facilities from the following:

            - 75% of excess cash flow (as defined in the credit agreement);

            - 100% of net cash proceeds of non-ordinary course asset sales;

            - 100% of net proceeds of debt issuance;

            - 100% of net cash proceeds of casualty events (in excess of
              $2.5 million); and

            - 75% of net proceeds of equity issuance.

      The above percentages are subject to a step-down, based on reductions in
      leverage.

      The credit agreement is guaranteed by Cinram and each of its existing and
      future material subsidiaries, and will be secured by substantially all of
      the assets of Cinram and each guarantor, including but not limited to (a)
      a first-priority pledge of all of the capital stock of each of the
      subsidiaries of Cinram, and (b) perfected first-priority security
      interests in, and mortgages on, substantially all tangible and intangible
      assets of Cinram and each guarantor (including but not limited to all
      material multi-year revenue-generating contracts, accounts receivable,
      inventory, equipment, leaseholds, investment property, intellectual
      property, real property, cash and proceeds of the foregoing).

                                                    CINRAM ANNUAL REPORT 2004 19

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

      13.4  CONTRACTUAL OBLIGATIONS

            At December 31, 2004, we had contractual obligations that require
            future payment as follows:

<TABLE>
<CAPTION>
Contractual obligations
(in thousands of U.S. dollars)       2005      2006       2007       2008       2009    2010 & after    Total
------------------------------    ---------  ---------  ---------  --------  ---------  ------------  ----------
<S>                               <C>        <C>        <C>        <C>       <C>        <C>           <C>
Long-term debt                    $  71,509  $ 112,698  $ 116,842  $ 36,975  $ 520,319  $          -  $  858,343
Capital lease obligations             1,177      1,102        885       654        607         2,351       6,776
Operating leases                     10,032      7,621      6,270     5,416      2,750         2,485      34,574
Capital obligations                  49,000          -          -         -          -             -      49,000
Pension obligations                   1,250      1,249      1,238     1,228      1,218         5,853      12,036
Other obligations                     4,214      4,214      4,214     1,328      1,328            -       15,298
                                  ---------  ---------  ---------  --------  ---------  ------------  ----------
                                  $ 137,182  $ 126,884  $ 129,449  $ 45,601  $ 526,222  $     10,689  $  976,027
                                  =========  =========  =========  ========  =========  ============  ==========
</TABLE>

            Included in other long-term liabilities are amounts recorded as
            management's best estimate of contingent liabilities assumed on the
            acquisition of the Acquired Businesses. The actual cash settlement
            amount is unknown at this time, and accordingly, these amounts are
            not reflected in the table above.

            All of the Company's debt and future commitments are disclosed in
            NOTES 7 and 8 to the financial statements.

      13.5  OTHER FINANCIAL INSTRUMENTS

            During 2004, we entered into hedging agreements for a three-year
            term on $250.0 million of long-term debt expiring in June 2007. We
            also entered into an additional interest rate cap agreement for
            $210.0 million of long-term debt expiring in January 2007. At
            December 31, 2004, the fair values of these arrangements, based on
            values quoted by the counterparties to the agreements, represent a
            liability of $0.5 million.

            Revenue and expenses are predominantly incurred in the currencies of
            the countries in which we have substantial operations - Canada, the
            United States, Germany, France and the United Kingdom. We are
            exposed to U.S. dollar, Euro and Pound Sterling currency
            fluctuations. The majority of our borrowings are denominated in U.S.
            dollars and represent a hedge of our net investment in our U.S.
            operations. We have not entered into any other foreign currency
            management arrangements.

      13.6  CAPITAL STOCK AND DIVIDENDS

            The authorized capital stock of the Company consists of an unlimited
            number of common shares and an unlimited number of preference
            shares. The preference shares are non-voting and are entitled to
            dividends, as and when declared by the Board of Directors.

            At March 1, 2005, Cinram had 56.9 million common shares issued and
            outstanding. Cinram's Board of Directors declared a C$0.03 cash
            quarterly dividend for all of the Company's shareholders in 2004.The
            Board of Directors also declared cash dividends of C$0.12 in 2003
            and $0.08 in 2002, respectively.

            At December 31, 2004, the Company had one stock-based compensation
            plan pursuant to which the Company may grant options to employees,
            Officers and Directors of the Company for up to 5,500,000 common
            shares. For more details, please refer to NOTE 9 to the financial
            statements.

      We anticipate that all capital spending and debt repayments for the
      foreseeable future will be financed with cash generated from operations,
      which will be supplemented, if and as necessary, by borrowing from our
      existing revolving credit facility. We believe that outside sources for
      additional debt and equity financing will, if needed, be available to
      finance debt repayment, expansion projects and any acquisition. The form
      of any financing will vary depending on prevailing market and other
      conditions. However, there can be no assurance that funds will be
      available on terms acceptable to the Company.

20 CINRAM ANNUAL REPORT 2004

<PAGE>

14.   RELATED PARTY TRANSACTIONS
      In 2004, we entered into the following related party transactions:

            -     Paid $1.5 million ($2.3 million including $2.2 million for
                  acquisition-related work in 2003, $0.3 million in 2002) to a
                  law firm where one of our Directors and one of our Officers
                  are each partners; and

            -     Paid $0.2 million ($0.2 million in 2003, $0.1 million in 2002)
                  in consulting fees to one of our Directors.

      In 2003, we purchased premises from three companies owned by certain
      shareholders of the Company and their families for $5.5 million,
      representing the fair market value of the land and building, based on
      independent appraisals. Prior to the purchase of the land and building, we
      leased the premises on a month-to-month basis at an exchange amount as
      agreed to by the parties. Lease costs for 2003 up to the purchase of the
      premises amounted to $0.4 million.

15.   SUMMARY OF QUARTERLY RESULTS

      Cinram's annual and quarterly operating results vary significantly from
      period to period as a result of the level and timing of customer orders,
      fluctuations in materials and other costs, and the relative mix of
      value-add products and services. Since most large-scale home video
      releases are clustered around the holidays (U.S. Thanksgiving and
      Christmas), and since this period is the busiest shopping season of the
      year, we typically experience stronger manufacturing volumes and record
      higher revenue and earnings in the fourth quarter. In 2004, the fourth
      quarter accounted for 32% of our annual revenue and 46% of our annual
      earnings, compared with 50% and 44% in 2003, and 34% and 51% in 2002,
      respectively.

<TABLE>
<CAPTION>
(in thousands of U.S. dollars)                              Revenue                          Net Earnings
           Quarter                  2004          2003        2002       2004       2003         2002
------------------------------   -----------   ---------   ---------   --------   -------    ------------
<S>                              <C>           <C>         <C>         <C>        <C>        <C>
First                            $   462,237   $ 130,261   $ 113,509   $ 14,972   $  7,297     $  2,493
Second                               425,411     137,812     111,610      8,477      8,340        4,928
Third                                494,772     147,229     142,877     17,822     13,833        9,437
Fourth                               644,218     411,591     191,291     34,553     23,550       17,813
                                 -----------   ---------   ---------   --------   --------     --------
Year                             $ 2,026,638   $ 826,893   $ 559,287   $ 75,824   $ 53,020     $ 34,671
                                 ===========   =========   =========   ========   ========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                            Earnings                          Earnings
                                                           per share                          per share
(in U.S. dollars)                                            Basic                             Diluted
     Quarter                         2004         2003        2002       2004        2003       2002
-----------------                -----------   ---------   ---------   --------   --------    --------
<S>                              <C>           <C>         <C>         <C>        <C>         <C>
First                            $      0.27   $    0.13   $    0.05   $   0.26   $   0.13    $   0.05
Second                                  0.15        0.15        0.09       0.15       0.15        0.09
Third                                   0.31        0.25        0.17       0.31       0.24        0.17
Fourth                                  0.61        0.42        0.32       0.60       0.42        0.32
                                 -----------   ---------   ---------   --------   --------    --------
Year                             $      1.34   $    0.95   $    0.63   $   1.32   $   0.94    $   0.63
                                 ===========   =========   =========   ========   ========    ========
</TABLE>

      The seasonality of our business can also cause our capacity utilization to
      vary throughout the year. Although we have made significant investments in
      our DVD capacity in the past three years to accommodate our growing
      customer requirements and to handle peaks in demand, the shift of a
      particular release or the timing of the arrival of a master can affect our
      manufacturing schedule and influence our outsourcing decisions. We
      generate lower profit margins on units that are offloaded to a third
      party.

16.   RISKS AND UNCERTAINTIES

      16.1  OUR FINANCIAL PERFORMANCE IS SENSITIVE TO ECONOMIC TRENDS AND
            CONSUMER PREFERENCES IN OUR MAJOR MARKETS.

            Our financial performance depends on consumer demand for our
            customers' products. Substantially all of the purchases of the
            pre-recorded media products sold by our customers are discretionary.
            Accordingly, weak economic conditions or outlook or consumer
            confidence could significantly reduce consumption in any of our
            customers' major markets thereby causing material declines in our
            sales and net earnings. In addition, because of the discretionary
            nature of their products,

                                                    CINRAM ANNUAL REPORT 2004 21

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

            our customers must continually compete for the public's leisure time
            and disposable income with other forms of entertainment, including
            sporting events, concerts, live theatre and restaurants. They also
            compete for retail shelf space with other consumer goods. As a
            result of this competition, demand for our customers' products could
            be reduced and our sales volumes and gross profit margins could be
            adversely affected.

      16.2  EVENTS AND CONDITIONS IN THE MOTION PICTURE INDUSTRY MAY AFFECT
            SALES OF OUR PRODUCTS.

            Our DVD sales tend to fluctuate based on the underlying trends in
            the motion picture industry and are driven in part the by the
            release of hit films on home video, particularly on DVD. When box
            office receipts for the motion picture industry increase, we have
            typically seen sales of related DVDs increase as well. The number of
            films that are produced can be affected by a number of factors,
            including strikes and work stoppages within the motion picture
            industry, as well as by the tax incentive arrangements that many
            foreign governments provide filmmakers to promote local filmmaking.

      16.3  INCREASED COSTS OR SHORTAGES OF RAW MATERIALS OR ENERGY COULD
            ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

            Each year we purchase significant quantities of plastics, the key
            raw materials used in the production of DVDs, CDs,VHS video
            cassettes and audio cassettes. The availability and prices of these
            materials may be influenced by a number of different factors, many
            of which are beyond our control, including weather, transportation,
            increased demand, production delays and the price of oil.
            Significant shortages of, and price increases for, the plastics we
            use have occurred in the past. We generally do not hedge against
            price increases in the raw materials that we use. If we experience
            raw material price increases and we are either unable to pass such
            increases through to our customers or we are contractually
            restricted as to the timing of any increases in the amount we charge
            our customers, our gross margins would be adversely affected. Also,
            the processes at our manufacturing, distribution and printing
            facilities are energy-intensive. Therefore, increases in energy
            costs would adversely affect our gross margins and, consequently,
            our results of operations.

      16.4  OUR DEPENDENCE ON A LIMITED NUMBER OF LARGE CUSTOMERS WITH
            SUBSTANTIAL BARGAINING POWER CREATES POTENTIAL RISKS TO OUR REVENUE
            AND CASH FLOWS.

            We operate in an industry in which there is a high degree of
            customer concentration. Our two largest customers are Warner Home
            Video and Twentieth Century Fox Home Entertainment. Collectively,
            these two customers accounted for approximately 50% of our
            consolidated 2004 revenue. Warner Home Video, our largest customer,
            accounted for more than one-third of our 2004 consolidated revenue.
            If any of our most significant customers discontinues its
            relationship with us for any reason, our business could be
            materially adversely affected. In addition, our customers face a
            variety of risks and competitive pressures in the industries in
            which they operate and if market and other factors cause them to
            cancel, reduce or postpone current or expected purchase commitments
            for our products, our operating results and financial condition may
            be adversely affected. Similarly, if our significant customers do
            not own the licensing and distribution rights to the content they
            produce, there is no assurance that we will be provided with the
            contract for such products regardless of the exclusive nature of our
            contracts with such customers. Our operating results could also be
            significantly impacted if one of our largest customers fails or is
            unable to pay amounts owed to us in a timely manner, or at all,
            whether due to strategic redirections or adverse changes in their
            businesses or for other reasons.

      16.5  OUR BUSINESS COULD BE HARMED IF WE ARE UNABLE TO MANAGE THE
            SUCCESSFUL PRODUCTION, SUPPLY OR SECURITY OF OUR PRODUCTS.

            In our business, we are required to deliver substantial volumes of
            products meeting the stringent requirements of our customers. Our
            failure to successfully manage the production or supply of our
            products, including the failure to meet scheduled production and
            delivery deadlines, or the failure of our products to meet the
            quality requirements of our customers, could materially adversely
            affect our business, operating results and financial condition. In
            addition, if a person with authorized access to any of our
            facilities was to make an unauthorized copy of one of our clients'
            audio or video files and to circulate such content prior to its
            scheduled release, we could be subject to liability arising from
            this breach of security. Accordingly, our business operations, as
            well as our reputation, could be adversely affected.

22 CINRAM ANNUAL REPORT 2004

<PAGE>

      16.6  ADVANCES IN TECHNOLOGY AND CHANGES IN OUR CUSTOMERS' DEMANDS MAY
            REQUIRE US TO INCUR SIGNIFICANT CAPITAL EXPENDITURES IN ORDER TO
            REMAIN COMPETITIVE.

            Changes in the technology employed by the pre-recorded media
            industry and the emergence of the future generations of multimedia
            products, such as Blu-ray discs or HD-DVD, may require us to
            extensively upgrade or alter our manufacturing processes and
            production facilities in order to offer the most up-to-date product
            variations. As the demands and requirements of our customers shift,
            it will be necessary for us to modify the products and services we
            offer in order to retain these customers. The costs associated with
            adapting our operations to these requirements will likely be
            significant. There can be no assurance that we will be able to
            finance the necessary capital requirements through internally
            generated funds, additional borrowings or other sources. If we are
            unable to obtain the resources necessary to fund product expansion
            and new technology development, we may not be able to successfully
            implement our business strategies and our market share, gross profit
            margins and results of operations could be adversely affected. In
            addition, we cannot assure you that any of our existing customers
            will continue to employ our services with respect to future
            generations of multimedia products.

      16.7  DUE TO THE NATURE OF OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
            CASH FLOWS MAY FLUCTUATE SIGNIFICANTLY FROM PERIOD TO PERIOD.

            Our production levels and, in turn, our revenue and cash flows are
            largely affected by the schedule according to which our major
            customers release their products, which, in turn, is dependent on a
            variety of factors such as consumer demand and the availability of
            marketable content. Our results of operations and cash flows in any
            period are materially affected by the timing of product releases by
            our customers, which may result in significant fluctuations from
            period to period. In addition, in the music and home video
            industries, purchases typically are made in the last three months of
            the calendar year. Accordingly, a significant percentage of our
            annual revenue and earnings is typically realized during our fourth
            quarter. These fluctuations in our sales may adversely affect our
            ability to meet our obligations.

      16.8  FLUCTUATIONS IN OUR QUARTERLY AND ANNUAL OPERATING RESULTS MAY
            ADVERSELY AFFECT THE VALUE OF OUR STOCK.

            A number of factors, many of which are outside our control, may
            cause or contribute to significant fluctuations in our quarterly and
            annual revenue and operating results. These fluctuations may make
            financial planning and forecasting more difficult. In addition,
            these fluctuations may result in unanticipated decreases in our
            available cash, which could negatively impact our business and
            prospects. As discussed more fully below, these fluctuations also
            could increase the volatility of our stock price. Factors that may
            cause or contribute to fluctuations in our operating results and
            revenue include:

            -     Fluctuations in demand for our products;

            -     Introduction or enhancement of products and technologies by us
                  and our competitors, and market acceptance of these new or
                  enhanced products and technologies;

            -     Events and conditions in the motion picture industry that
                  affect the number of movies produced and distributed on home
                  video, the popularity of motion pictures generally and strikes
                  by motion picture industry participants;

            -     Consolidation by participants in the markets in which we
                  compete, which could result, among other things, in pricing
                  pressure;

            -     The amount and timing of our operating costs and capital
                  expenditures, including those related to the expansion of our
                  business, operations and infrastructure;

            -     Variations in the time-to-market of our technologies in the
                  entertainment industries in which we operate;

            -     Seasonal product purchasing patterns by consumers;

            -     The impact of, and our ability to react to, interruptions in
                  the entertainment distribution chain, including as a result of
                  work stoppages at our facilities, our customers' facilities
                  and other points throughout the entertainment distribution
                  chain;

            -     The impact of, and our ability to react to, political
                  instability, natural disasters, war and/or events of
                  terrorism;

            -     Adverse outcomes of litigation or governmental proceedings,
                  including any foreign, federal, state or local tax assessments
                  or audits; and

            -     Costs of litigation.

                                                    CINRAM ANNUAL REPORT 2004 23

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

            One or more of the foregoing or other factors may cause our
            operating expenses to be disproportionately higher or lower or may
            cause our revenue and operating results to fluctuate significantly
            in any particular quarterly or annual period. Results from prior
            periods are thus not necessarily indicative of the results of future
            periods.

      16.9  DEMAND AND PRICING FOR OUR PRODUCTS COULD BE MATERIALLY ADVERSELY
            AFFECTED BY THE DEVELOPMENT OR PROLIFERATION OF DIGITAL DISTRIBUTION
            ALTERNATIVES, INCLUDING COPYING AND DISTRIBUTION OF MUSIC AND VIDEO
            FILES.

            Our business is dependent on the continued viability and growth of
            physical distribution of music and video through authorized
            pre-recorded media. Alternative distribution channels and methods,
            both authorized and unauthorized, for delivering music have eroded
            our volume of sales and the pricing of our products and services.
            The growth of these alternatives is driven by advances in technology
            that allow for the transfer and downloading of music and video files
            from the Internet. The proliferation of this copying, use and
            distribution of such files is supported by the increasing
            availability and decreasing price of new technologies, such as
            personal video recorders, CD and DVD burners and portable MP3 music
            and video players, widespread access to the Internet and the
            increasing number of peer-to-peer digital distribution services that
            facilitate file transfers and downloading. We expect that file
            sharing and downloading, both legitimate and illegal, will continue
            to exert significant downward pressure on the demand for CDs. As
            current technologies improve, the digital transfer and downloading
            of video files will likely become more widespread. As the speed and
            quality with which video files can be transferred and downloaded
            improves, file sharing and downloading may in the future exert
            significant downward pressure on the demand for DVDs. Demand for our
            products may also be adversely affected by CD, DVD and VHS video
            cassette piracy if this practice increases in the future. In
            addition, our business faces pressure from the emerging distribution
            alternatives, like video on demand, or VOD, and personal digital
            video recorders. As substantially all of our revenues are derived
            from the sale of DVDs and CDs, continued file sharing, downloading
            and piracy or the growth of other alternative distribution channels
            and methods could materially adversely affect our business,
            financial condition and results of operations.

      16.10 CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR CASH FLOWS AND
            RESULTS OF OPERATIONS.

            The Credit Facility bears interest at variable rates with a fixed
            interest rate spread. The weighted average interest rate on the debt
            of $840 million for the year ended December 31, 2004, was below
            6%.The Company currently has hedged 30% of its debt balance at fixed
            interest rates, with an interest rate cap in place on an additional
            25% of the debt balance. With respect to the remaining 45% floating
            rate debt, we continuously monitor the interest rate environment and
            are prepared to hedge additional debt should we feel it is
            necessary. Any increases in interest rates will affect the amount of
            cash required to service our indebtedness under the Credit Facility
            and could have a negative impact on our cash flows and results of
            operations.

      16.11 WE MAY EXPERIENCE ADVERSE EFFECTS DUE TO EXCHANGE RATE FLUCTUATIONS.

            While the majority of our revenue and earnings are generated in the
            United States, our operations in foreign markets expose us to the
            risk of foreign currency fluctuations. To the extent we incur
            expenses that are not denominated in the same currency as the
            related revenue, exchange rate fluctuations could cause our expenses
            to increase as a percentage of revenue, thereby negatively affecting
            our profitability and cash flows.

      16.12 DEMAND AND PRICING FOR OUR PRODUCTS GENERALLY DECLINE AS OUR
            PRODUCTS MATURE.

            Demand for our products and the prices at which we are able to sell
            our products generally decline as our products mature. Over the
            course of their product lifecycle, each of the audio cassette, VHS
            video cassette and CD formats has experienced a substantial decline
            in demand and pricing. As a result, to the extent we are unable to
            increase our sales volumes or reduce our manufacturing costs, our
            profit margin for these formats may decline. We have experienced
            similar pricing declines in respect of the DVD format and expect to
            experience similar volume declines as the DVD format matures. We
            also expect to experience similar pricing and volume declines in any
            future formats that we manufacture. Therefore, our long-term success
            depends on our ability to invest in new technologies and to secure
            our customers for new formats as they make the transition from
            mature formats. In addition, as a result of declines in demand for
            audio cassette, VHS video cassette and CD formats, our revenue is
            increasingly dependent on sales of the DVD format.

24 CINRAM ANNUAL REPORT 2004

<PAGE>

      16.13 WE FACE SIGNIFICANT COMPETITIVE AND PRICING PRESSURES IN THE MARKETS
            WE SERVE.

            We are engaged in an industry that is highly price competitive. Some
            of our competitors are companies, or divisions or operating units of
            conglomerates that have greater financial and other resources than
            we have. We may not be able to continuously compete successfully in
            our industry, and this could have a material adverse effect on our
            business, results of operations and financial condition.
            Furthermore, our multi-year contracts with our customers frequently
            contain a market price test which may, depending on prevailing
            industry prices, require us to lower the prices we charge such
            customers. Many of our customers have recently undergone, or may
            undergo, consolidation. As our customers grow larger and their
            industries grow more concentrated, the few remaining large entities
            may develop greater bargaining power and may be able to exert
            significant pricing pressure on our products which would adversely
            affect our results of operations. If any of our customers is
            acquired by or consolidates with another participant in the
            industry that has either an existing relationship with one of our
            competitors or the internal capacity to supply the products and
            services we provide, we may lose that customer and our results of
            operations may be materially adversely affected.

      16.14 WE RELY ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY AND
            WE MAY NOT BE ABLE TO RETAIN THOSE EMPLOYEES OR RECRUIT ADDITIONAL
            QUALIFIED PERSONNEL.

            Our operations and prospects depend, in large part, on the
            performance and continued service of our senior and middle
            management teams. The loss of key employees or the inability to
            attract and retain skilled employees could adversely affect our
            ability to effectively pursue our business strategy. Currently, only
            certain of our key officers and employees are bound by written
            employment contracts.

      16.15 WE ARE EXPOSED TO POTENTIAL CLAIMS OF INTELLECTUAL PROPERTY
            INFRINGEMENT.

            The industry in which we compete has many participants who own, or
            who claim to own, intellectual property for certain of the
            manufacturing processes we employ, the products we produce or the
            content produced by our customers. We currently accrue for the
            payment of licensing fees to certain third parties that claim to own
            the rights to intellectual property that we employ in our
            manufacturing processes or products. While currently we believe that
            these accruals are adequate, we cannot assure you that, if we are
            required to obtain licensing in respect of these rights, we could
            obtain such licensing on the terms assumed in these accruals.
            Furthermore, we cannot determine with certainty whether these or any
            other existing third party patents or the issuance of any new third
            party patents would require us to alter, or obtain licenses relating
            to, our processes or products. There is no assurance that we will be
            able to obtain any such licenses on terms favorable to us, if at
            all, and obtaining and paying royalties on new licenses might
            materially increase our costs. Additionally, the fees we pay in
            respect of existing licenses could increase materially in the future
            when these licenses are renewed. New multimedia formats will likely
            require that we obtain additional licenses. There can be no
            assurance that the content on the multimedia products we manufacture
            on behalf of our customers does not infringe upon the rights of
            third parties. Any claims brought against us by third parties with
            respect to intellectual property rights, with or without merit,
            could be time-consuming, result in costly litigation or cause delays
            in our operations. Since there can be no assurance of the outcome of
            such claims, we may be subject to fines or penalties that could be
            significant. We are involved in various intellectual property
            related legal actions that are in the ordinary course of our
            business. We cannot be certain that these actions, or any future
            actions, will not have a material adverse effect on our business,
            operating results or financial condition.

      16.16 IF WE FAIL TO MAINTAIN PROPER AND EFFECTIVE INTERNAL CONTROLS, OUR
            ABILITY TO PRODUCE ACCURATE FINANCIAL STATEMENTS COULD BE IMPAIRED,
            WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS, OUR ABILITY TO
            OPERATE OUR BUSINESS AND INVESTORS' VIEWS OF US.

            We have a complex business organization that is international in
            scope. Ensuring that we have adequate internal financial and
            accounting controls and procedures in place to help ensure that we
            can produce accurate financial statements on a timely basis is a
            costly and time-consuming effort that needs to be re-evaluated
            frequently. We are in the process of documenting, reviewing and, if
            appropriate, improving our internal controls and procedures in
            connection with Section 404 of the Sarbanes-Oxley Act, which
            requires annual management assessments of the effectiveness of our
            internal controls over financial reporting and a report by our
            independent auditors addressing these assessments, commencing
            December 31, 2006. Both we and our independent auditors will be
            testing our internal controls in connection with the

                                                    CINRAM ANNUAL REPORT 2004 25

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

            Section 404 requirements and could, as part of that documentation
            and testing, identify areas for further attention or improvement.
            Implementing any appropriate changes to our internal controls may
            require specific compliance training of our directors, officers and
            employees, entail substantial costs in order to modify our existing
            accounting systems, and take a significant period of time to
            complete. Such changes may not, however, be effective in maintaining
            the adequacy of our internal controls, and any failure to maintain
            that adequacy, or consequent inability to produce accurate financial
            statements on a timely basis, could increase our operating costs and
            could materially impair our ability to operate our business. In
            addition, investors' perceptions that our internal controls are
            inadequate or that we are unable to produce accurate financial
            statements may adversely affect our stock price.

      16.17 WE CONDUCT BUSINESS INTERNATIONALLY WHICH EXPOSES US TO
            UNCERTAINTIES AND RISKS THAT COULD NEGATIVELY AFFECT OUR OPERATIONS
            AND SALES.

            A significant portion of our sales are made to customers located
            outside the United States and Canada, primarily in Western Europe.
            We expect our international operations to continue to account for a
            significant portion of our revenues in the future and we may expand
            into new international markets in the future. The economies of
            foreign countries important to our operations could suffer slower or
            negative economic growth or instability in the future. In addition,
            our operations and sales in foreign markets could be negatively
            affected by a variety of risks, including new restrictions and
            controls on access to markets, unusual or burdensome foreign laws or
            regulatory requirements or unexpected changes to such laws or
            requirements, fluctuations in the value of foreign currencies
            against the Canadian and U.S. dollar, dependence on foreign
            distributors and their sales channels and the failure to recognize
            intellectual property rights. We may not be able to insure or hedge
            against these risks, and we may not be able to ensure compliance
            with all applicable regulations without incurring significant
            additional costs.

      16.18 WORK STOPPAGES OR OTHER LABOR DISRUPTIONS AFFECTING OUR KEY
            CUSTOMERS COULD HAVE AN ADVERSE EFFECT ON OUR PROFITABILITY AND
            FINANCIAL CONDITION.

            Labor disruptions at our key customers or with or by the clients
            they service, particularly work stoppages and disputes involving
            those associated with the music recording or film industries, could
            significantly affect demand for our products. Any prolonged strikes
            or other forms of labor protests or disputes affecting the
            businesses of our customers could have a material impact on our
            financial condition and results of operations.

      16.19 OUR MANUFACTURING OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS AND
            REQUIREMENTS THAT MAY IMPOSE MATERIAL LIABILITIES AS WELL AS
            OPERATING AND CAPITAL EXPENDITURES ON US.

            Our manufacturing facilities are subject to a range of federal,
            state, provincial, local and foreign laws and regulations relating
            to the environment. These include laws and regulations that govern
            discharges into the air, water and land, the handling and disposal
            of hazardous substances and wastes and the remediation of
            contamination associated with our facilities and off-site disposal
            locations. Compliance with existing and future environmental laws
            and regulations and enforcement policies may require us to incur
            capital and other costs, which may materially adversely affect our
            future financial condition. In addition, if we are found not to be
            in compliance with applicable environmental laws and regulations at
            our facilities, we may be subject to fines and penalties that could
            be significant.

17.   CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      We prepare our financial statements in accordance with Canadian generally
      accepted accounting principles (GAAP). The preparation of financial
      statements in conformity with GAAP requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and disclosure of contingent assets and liabilities at the date of the
      financial statements and the reported amounts of revenue and expenses
      during the year. Significant accounting policies and methods used in
      preparation of the financial statements are described in NOTE 1 to the
      2004 consolidated financial statements. The Company evaluates its
      estimates and assumptions on a regular basis, based on historical
      experience and other relevant factors. Significant estimates are used in
      determining, but not limited to, the valuation of intangible assets and
      goodwill, provisions for sales allowances, royalty accruals, the allowance
      for doubtful accounts, inventory valuation, income tax valuation
      allowances, restructuring costs, the useful lives of all depreciable
      assets and the recoverability of capital assets and long lived assets.
      Actual results could differ from those estimates.

26 CINRAM ANNUAL REPORT 2004

<PAGE>

      17.1  BUSINESS COMBINATIONS

            The Company accounts for business combinations using the purchase
            method and accordingly, the results of operations of the businesses
            acquired have been included in the consolidated financial statements
            since the acquisition date. The purchase method of accounting
            requires that all assets acquired and liabilities assumed in a
            business combination be assigned a portion of the total cost of the
            purchase based on their fair values at the date of acquisition. The
            excess of the cost of the purchase over the net amounts assigned to
            assets acquired and liabilities assumed should be recognized as
            goodwill. The process of determining the purchase price allocation
            requires management to make certain estimates of the assets and
            liabilities assumed including their respective fair values.

      17.2  REVENUE RECOGNITION

            Revenue is comprised of product sales and service revenue earned
            from fulfillment services. Revenue from product sales is recognized
            upon shipment since title to the goods is transferred to customers,
            persuasive evidence of an arrangement exists, the selling price is
            fixed and determinable, and collectibility is reasonably assured.
            Volume rebates are recorded as a reduction of revenue at the time of
            shipment. Contractual payments to acquire sales contracts are
            amortized against revenue over the term of the contract. Services
            revenue is recognized as services are performed.

      17.3  INTANGIBLE ASSETS

            Intangible assets are comprised of customer supply agreements
            arising from the acquisition of certain of the assets of Time Warner
            Inc. Customer supply agreements are amortized on a straight line
            basis over a period of six years, which represents the exclusive
            term in which the Company will manufacture, print, package and
            physically distribute DVDs and CDs for Warner Home Video and Warner
            Music Group in North America and Europe, and for New Line Home
            Entertainment Inc. in North America.

            The Company performs an annual impairment test on all intangible
            assets, and more frequently if events or changes in circumstances
            indicate that the carrying value may not be recoverable. The
            valuation of intangible assets is based on the amount of
            undiscounted future net cash flows these assets are estimated to
            generate. Revenue and expense projections are based on management's
            estimates, including estimates of current and future industry
            conditions. A significant change to these assumptions could impact
            the estimated useful lives or valuation of intangible assets
            resulting in a change to amortization expense and impairment
            charges in the Home Video replication/duplication, Audio/ROM
            replication/duplication and Printing operating segments.

      17.4  GOODWILL

            The Company performs an annual impairment test on goodwill, and more
            frequently if events or changes in circumstances indicate that an
            impairment loss may have been incurred. Impairment is tested at the
            reporting unit level by comparing the reporting unit's carrying
            amount to its fair value. The fair values of the reporting units are
            estimated using discounted cash flows. The process of determining
            fair values is subjective and requires management to exercise
            judgment in making assumptions about future results, including
            revenue and cash flow projections at the reporting unit level,
            current and future industry conditions, and discount rates. A
            significant change to these assumptions could impact the valuation
            of goodwill resulting in impairment charges in the Home Video
            replication/duplication, Audio/ROM replication/duplication and
            Printing operating segments.

      17.5  PROVISIONS FOR VOLUME REBATES

            The Company records provisions for volume rebates offered to certain
            of its customers. The volume rebates are based on a discount
            percentage per unit ordered and increase in accordance with
            contractual sales volume target requirements. The accrual for volume
            rebates is recorded as a reduction of revenue at the time of
            shipment based on contractual terms. The process of determining the
            appropriate provision requires management to exercise judgment in
            making assumptions about future sales to customers. A significant
            change to this assumption could impact revenue recognized and the
            provision for sales allowances in the Home Video
            replication/duplication, Audio/ROM replication/duplication and
            Printing operating segments.

                                                    CINRAM ANNUAL REPORT 2004 27

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

      17.6  ROYALTY ACCRUALS

            The Company records accruals for royalty obligations due to various
            companies holding patents on the DVD and CD manufacturing processes.
            The royalty rates are on a per unit basis and based on contractual
            terms and conditions or management's best estimates. The royalty
            provision is recorded as a cost of goods sold at the time of
            shipment. The process of determining the appropriate provision
            requires management to apply the applicable royalty rates in
            accordance with the Company's license agreements. In situations
            where formal license agreements are not in place, management's best
            estimate of the royalty obligation is used. A significant change in
            the royalty rates used could impact the cost of goods sold
            recognized and the provisions for royalties in the Home Video
            replication/duplication and Audio/ROM replication/duplication
            operating segments.

      17.7  ALLOWANCE FOR DOUBTFUL ACCOUNTS

            The Company records an allowance for doubtful accounts related to
            accounts receivable that are considered to be noncollectible. The
            allowance is based on the Company's knowledge of the financial
            condition of its customers, the ageing of the receivables, current
            business environment, customer and industry concentrations, and
            historical experience. A change to these factors could impact the
            estimated allowance and the provision for bad debts recorded in
            selling, general and administrative expenses in the Home Video
            replication/duplication, Audio/ROM replication/duplication,
            Printing, Distribution and Other operating segments.

      17.8  INCOME TAX VALUATION ALLOWANCE

            The Company records a valuation allowance against future income tax
            assets when management believes it is more likely than not that some
            portion or all of the future tax assets will not be realized.
            Management considers factors such as reversal of future income tax
            liabilities, projected future taxable income, and the character of
            the income tax asset. A change to these factors could impact the
            estimated valuation allowance and income tax expense in the Home
            Video replication/duplication, Audio/ROM replication/duplication,
            Printing and Other operating segments.

      17.9  RESTRUCTURING COSTS

            The Company recorded restructuring charges in 2003, relating to
            facility consolidations and workforce reductions. These charges are
            recorded based on detailed plans approved and committed to by
            management. The restructuring charges include employee severance and
            other employee related costs, lease cancellation and idle facilities
            costs, other exit costs, and certain asset write-downs. The
            recognition of these charges requires management to make certain
            judgments and estimates regarding the nature, timing and amount
            associated with these plans. The estimates of future liability may
            change, requiring additional restructuring charges or a reduction of
            the liabilities already recorded. At the end of each reporting
            period, the Company evaluates the appropriateness of the remaining
            accrued balances.

      17.10 LONG-LIVED ASSETS

            The Company reviews capital and intangible assets (long-lived
            assets) for impairment on an annual basis or whenever events or
            changes in circumstances indicate that the carrying amount may not
            be recoverable. The Company uses the estimated useful life of
            long-lived assets to determine amortization expense. The estimate of
            an asset's useful life is made when the Company acquires the asset,
            and is based on past experience with similar assets, taking into
            account expected technological or industry changes.

            The valuation of long-lived assets depends upon whether the assets
            are classified as either held-for-use or available-for-sale. An
            impairment loss is recognized when the carrying amount of an asset
            that is held-for use exceeds the projected undiscounted future net
            cash flows expected from its use and disposal, and is measured as
            the amount by which the carrying amount of the asset exceeds its
            fair value, which is measured by discounted cash flows when quoted
            market prices are not available. For assets available-for-sale, an
            impairment loss is recognized when the carrying amount exceeds the
            fair value less costs to sell.

28 CINRAM ANNUAL REPORT 2004

<PAGE>

            The process of determining the projected cash flows is subjective
            and requires management to exercise judgment in making assumptions
            about future results, including revenue and cash flow projections,
            current and future industry conditions, and discount rates. A
            significant change to these assumptions could impact the valuation
            or the estimated useful lives of long-lived assets resulting in a
            change to amortization expense and could result in impairment
            charges in the Home Video replication/duplication, Audio/ROM
            replication/duplication, Printing, and Other operating segments.

      17.11 CHANGES AND INITIAL ADOPTION OF ACCOUNTING POLICIES

            17.11.1 CHANGE IN REPORTING CURRENCY

                    The Company has historically prepared its consolidated
                    financial statements in Canadian dollars. Beginning with the
                    first quarter of 2004, the Company changed its reporting
                    currency to U.S. dollars to provide the financial statement
                    users with more relevant information. The change in
                    reporting currency and presentation of the financial
                    statements is acceptable under Canadian GAAP, and does not
                    impact the amounts recorded in the statement of earnings
                    related to foreign currency gains and losses. The Company
                    used the current rate method to translate the consolidated
                    Canadian dollar results into U.S. dollars for both the
                    current and prior periods. Under the current rate method,
                    the consolidated assets and liabilities are translated into
                    U.S. dollars at the rate of exchange in effect at the
                    balance sheet date. Revenue and expenses as well as cash
                    flow items are translated at weighted average rates for the
                    period. Any resulting exchange gain or loss is charged or
                    credited to the "foreign currency translation adjustment"
                    account included as a separate component of shareholders'
                    equity.

                    The functional currencies of the Company and each of its
                    subsidiaries remained unchanged. The Company's operations in
                    the United States, the United Kingdom, France, Germany, and
                    Mexico are considered to be self-sustaining. Assets and
                    liabilities are translated using period-end exchange rates
                    and revenue and expenses are translated at average exchange
                    rates. Exchange gains and losses arising from the
                    translation of the financial statements of self-sustaining
                    foreign operations are deferred in the "foreign currency
                    translation adjustment" account included as a separate
                    component of shareholders' equity.

            17.11.2 ASSET RETIREMENT OBLIGATIONS

                    Effective January 1, 2004, the Company retroactively adopted
                    CICA Handbook Section 3110, Asset Retirement Obligations
                    (Section 3110), which establishes standards for the
                    recognition, measurement and disclosure of liabilities for
                    asset retirement obligations and the associated retirement
                    costs. Section 3110 applies to legal obligations associated
                    with the retirement of tangible long-lived assets that
                    results from their acquisition, lease, construction,
                    development or normal operation. We record the present value
                    of the estimated fair value of a liability for an asset
                    retirement obligation in the year in which it is incurred
                    and when a reasonable estimate of fair value can be made.
                    The fair value of a liability for an asset retirement
                    obligation is the amount at which that liability could be
                    settled in a current transaction between willing parties,
                    that is, other than in a forced liquidation transaction. We
                    subsequently allocate the asset retirement cost to expense
                    using a systematic and rational method over the asset's
                    useful life, and record the accretion of the liability as a
                    charge to the statement of earnings.

                                                    CINRAM ANNUAL REPORT 2004 29

<PAGE>

MANAGEMENT'S DISCUSSION & ANALYSIS
Of financial condition and results of operations (in U.S. dollars)

      17.12 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

            17.12.1 LIABILITIES AND EQUITY

                    Effective for fiscal years beginning after November 1, 2004,
                    CICA Handbook Section 3860, "Financial Instruments -
                    Presentation and Disclosure," has been amended to provide
                    guidance for classifying certain financial obligations of a
                    fixed amount that may be settled, at the issuer's option, by
                    a variable number of the issuer's own equity instruments to
                    be presented as liabilities. Any financial instruments
                    issued by an enterprise that give the issuer unrestricted
                    rights to settle the principal amount in cash or in the
                    equivalent value of its own equity instruments will no
                    longer be presented as equity.

                    The CICA concluded that not all such obligations establish
                    the type of relationship that exists between an entity and
                    its owners, but rather they convey more of a debtor/creditor
                    relationship because they require the issuer to convey a
                    fixed amount of value to the holder that does not vary with
                    changes in the fair value of the issuer's equity
                    instruments. Therefore, these instruments should be
                    presented as liabilities. The standard will be effective for
                    the Company's 2005 fiscal year on a retroactive basis. The
                    adoption of this standard will not have an impact on the
                    consolidated financial statements.

            17.12.2 CONSOLIDATION OF VARIABLE INTEREST ENTITIES

                    In June 2003, the CICA issued Accounting Guideline AcG-15,
                    "Consolidation of Variable Interest Entities" (AcG-15).
                    AcG-15 addresses the consolidation of variable interest
                    entities (VIEs), which are entities that have insufficient
                    equity at risk to finance their operations without
                    additional subordinated financial support and/or entities
                    whose equity investors lack one or more of the specified
                    essential characteristics of a controlling financial
                    interest. AcG-15 will be applied in the Company's year
                    beginning January 1, 2005.The adoption of this standard will
                    not have an impact on the consolidated financial statements.

            17.12.3 ARRANGEMENTS CONTAINING A LEASE

                    Emerging Issues Committee (EIC) Abstract 150, "Determining
                    Whether an Arrangement Contains a Lease," addresses a
                    situation where an entity enters into an arrangement,
                    comprising a transaction that does not take the legal form
                    of a lease but conveys a right to use a tangible asset in
                    return for a payment or series of payments. For example,
                    this may include items such as take-or-pay or similar
                    contracts, in which specified payments must be made
                    regardless of whether delivery is taken of the contracted
                    products or services. The Company will adopt this standard
                    effective January 1, 2005, and is currently assessing its
                    impact.

30 CINRAM ANNUAL REPORT 2004

<PAGE>

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been prepared by
management and approved by Cinram's Board of Directors. Management is
responsible for the information and representations contained in these financial
statements and in other sections of this annual report.

The Company maintains appropriate processes to ensure that it produces relevant
and reliable financial information. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
Canada. The significant accounting policies, which management believes are
appropriate for the Company, are described in NOTE 1 to the consolidated
financial statements.

The Board of Directors is responsible for reviewing and approving the
consolidated financial statements and overseeing management's performance of its
financial reporting responsibilities. The Board appoints an audit committee of
three non-management Directors to review the consolidated financial statements,
as well as the adequacy of its internal controls, audit process and financial
reporting with management and with the external auditors. The audit committee
reports to the Directors prior to the approval of the audited consolidated
financial statements for publication.

KPMG LLP, our independent auditors appointed by shareholders at the last annual
meeting, have audited the consolidated financial statements. Their report is
presented below.

/s/ Isidore Philosophe                /s/ Lewis Ritchie
ISIDORE PHILOSOPHE                    LEWIS RITCHIE
Chief Executive Officer               Chief Financial Officer

March 1, 2005

AUDITORS' REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Cinram International Inc. as
at December 31, 2004 and 2003, and the consolidated statements of earnings and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2004
and 2003, and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.

/s/ KPMG LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
March 1, 2005

                                                    CINRAM ANNUAL REPORT 2004 31

<PAGE>

CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)

<TABLE>
<CAPTION>
                       As at December 31                              2004          2003
--------------------------------------------------------------    -----------    -----------
<S>                                                               <C>            <C>
ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                        $    41,789    $   253,823
   Accounts receivable, net of an allowance for doubtful
    accounts of $12,511 (2003 - $13,569)                              518,216        369,901
   Income taxes recoverable                                             8,356              -
   Inventories (NOTE 3)                                                56,861         44,606
   Prepaid expenses                                                    26,573         11,341
   Future income taxes (NOTE 12)                                       22,872         21,933
                                                                  -----------    -----------
                                                                      674,667        701,604
Capital assets (NOTE 4)                                               706,360        646,563
Goodwill (NOTE 5)                                                     328,393        279,426
Intangible assets (NOTE 5)                                            315,247        376,393
Deferred financing fees (NOTE 6)                                       24,344         28,083
Other assets                                                           36,218         22,488
Future income taxes (NOTE 12)                                          11,804          4,657
                                                                  -----------    -----------
                                                                  $ 2,097,033    $ 2,059,214
                                                                  ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES

   Accounts payable                                               $   213,876    $   192,789
   Accrued liabilities                                                377,323        375,293
   Income taxes payable                                                     -          2,131
   Current portion of long-term debt (NOTE 7)                          71,509         95,417
   Current portion of obligations under capital leases(NOTE 8)            850          1,058
                                                                  -----------    -----------
                                                                      663,558        666,688
Long-term debt (NOTE 7)                                               786,834        954,456
Obligations under capital leases (NOTE 8)                               4,603          5,911
Other long-term liabilities                                            62,778         17,227
Future income taxes (NOTE 12)                                          93,069         29,649

   SHAREHOLDERS' EQUITY
   Capital stock (NOTE 9)                                             170,145        163,174
   Contributed surplus                                                  4,145            117
   Retained earnings                                                  240,367        172,564
   Foreign currency translation adjustment                             71,534         49,428
                                                                  -----------    -----------
                                                                      486,191        385,283
Lease commitments (NOTE 8)
                                                                  -----------    -----------
                                                                  $ 2,097,033    $ 2,059,214
                                                                  ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

On behalf of the Board

/s/ Isidore Philosophe                      /s/ Lewis Ritchie
ISIDORE PHILOSOPHE                          LEWIS RITCHIE
Director                                    Director

32 CINRAM ANNUAL REPORT 2004

<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(In thousands of U.S. dollars, except per share amounts)

<TABLE>
<CAPTION>
                        Years ended December 31                                2004          2003
-----------------------------------------------------------------------    -----------    ---------
<S>                                                                        <C>            <C>
Revenue                                                                    $ 2,026,638    $ 826,893
Cost of goods sold                                                           1,615,542      655,374
                                                                           -----------    ---------
Gross profit                                                                   411,096      171,519
Selling, general and administrative expenses                                   177,372       68,883
Amortization of intangible assets and deferred financing fees
 (NOTES 5 and 6)                                                                73,038       11,449
Unusual items (NOTE 11)                                                         (1,713)       2,726
                                                                           -----------    ---------
Earnings before the undernoted                                                 162,399       88,461
Interest on long-term debt                                                      51,642       13,264
Other interest                                                                   1,460          479
Investment income                                                               (2,436)      (3,583)
                                                                           -----------    ---------
Earnings before income taxes                                                   111,733       78,301
Income taxes (NOTE 12):
   Current                                                                      24,555       10,107
   Future                                                                       11,354       15,174
                                                                           -----------    ---------
                                                                                35,909       25,281
                                                                           -----------    ---------
Net earnings                                                                    75,824       53,020
Retained earnings, beginning of year                                           172,564      124,340
Effect of a change in accounting policy related to stock-based
 compensation (NOTE 1(k))                                                       (2,759)           -
Dividends declared                                                              (5,262)      (4,796)
                                                                           -----------    ---------
Retained earnings, end of year                                             $   240,367    $ 172,564
                                                                           ===========    =========
Earnings per share:
   Basic                                                                   $      1.34    $    0.95
   Diluted                                                                        1.32         0.94
                                                                           ===========    =========
Weighted average number of shares outstanding (in thousands) (NOTE 10):
   Basic                                                                        56,589       55,628
   Diluted                                                                      57,514       56,612
                                                                           ===========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                                    CINRAM ANNUAL REPORT 2004 33
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)

<TABLE>
<CAPTION>
Years ended December 31                                                           2004            2003
-----------------------                                                           ----            ----
<S>                                                                             <C>            <C>
Cash provided by (used in):
OPERATIONS
   Net earnings                                                                 $ 75,824       $   53,020
   Items not involving cash:
     Amortization                                                                219,735           75,156
     Future income taxes                                                          11,354           15,174
     Stock-based compensation                                                      1,269                -
     Gain on disposition of capital assets                                        (2,330)            (146)
   Unrealized foreign exchange loss (gain)                                        (5,391)           1,599
   Change in non-cash operating working capital (NOTE 16)                       (171,061)         213,849
                                                                                --------       ----------
                                                                                 129,400          358,652
FINANCING
   Increase in long-term debt                                                     48,000        1,025,000
   Repayment of long-term debt                                                  (239,530)          (9,225)
   Deferred financing fees                                                        (2,250)         (28,627)
   Decrease in obligations under capital leases                                   (1,885)            (630)
   Issuance of common shares                                                       6,971            6,230
   Change in other long-term liabilities                                          10,931               45
   Dividends paid                                                                 (5,262)          (4,796)
                                                                                --------       ----------
                                                                                (183,025)         987,997
INVESTMENTS
   Acquisition, net of cash acquired of $1,437 (NOTE 2)                                -       (1,149,052)
   Transaction costs relating to Time Warner acquired businesses                    (890)               -
   Purchase of capital assets                                                   (145,704)         (80,226)
   Proceeds on disposition of capital assets                                       4,015              960
   Decrease (increase) in other assets                                           (12,523)           3,020
                                                                                --------       ----------
                                                                                (155,102)      (1,225,298)
Foreign exchange gain (loss) on cash held in foreign currencies                   (3,307)          28,485
                                                                                --------       ----------
Increase (decrease) in cash and cash equivalents                                (212,034)         149,836
Cash and cash equivalents, beginning of year                                     253,823          103,987
                                                                                --------       ----------
Cash and cash equivalents, end of year                                          $ 41,789       $  253,823
                                                                                ========       ==========
Supplemental cash flow information:
   Interest paid                                                                $ 52,540       $    8,954
   Income taxes paid                                                              35,455           17,193
                                                                                ========       ==========
</TABLE>

See accompanying notes to consolidated financial statements.

34 CINRAM ANNUAL REPORTS 2004

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

1.    SIGNIFICANT ACCOUNTING POLICIES

      (a)   BASIS OF PRESENTATION

            These consolidated financial statements include the accounts of
            Cinram International Inc. (the "Company") and its wholly owned
            subsidiaries, and have been prepared in accordance with Canadian
            generally accepted accounting principles (GAAP) and, except as
            outlined in NOTE 19, are, in all material respects, in accordance
            with United States GAAP. The results of subsidiaries acquired are
            consolidated from the date of acquisition. All intercompany balances
            and transactions have been eliminated on consolidation.

            The Company has historically prepared its consolidated financial
            statements in Canadian dollars. Beginning with the first quarter of
            2004, the Company changed its reporting currency to U.S. dollars to
            provide the financial statement users with more relevant
            information. The Company used the current rate method to translate
            the consolidated Canadian dollar results into U.S. dollars for both
            the current and prior years. Under the current rate method, the
            assets and liabilities are translated into U.S. dollars at the rate
            of exchange in effect at the balance sheet date; revenue and
            expenses as well as cash flow items are translated at weighted
            average rates for the year. Any resulting exchange gain or loss is
            charged or credited to the foreign currency translation adjustment
            account included as a separate component of shareholders' equity.

            The functional currencies of the Company and each of its
            subsidiaries remained unchanged. The functional currency of the
            Company is the Canadian dollar. The Company's operations in the
            United States, the United Kingdom, France, Germany and Mexico are
            considered to be self-sustaining. Assets and liabilities are
            translated using year-end exchange rates and revenue and expenses
            are translated at average exchange rates. Exchange gains and losses
            arising from the translation of the financial statements of
            self-sustaining foreign operations are deferred in the foreign
            currency translation adjustment account included as a separate
            component of shareholders' equity. The Company's borrowings, as
            outlined in NOTE 7, are denominated in U.S. dollars and the majority
            represent a hedge of the Company's net investment in its U.S.
            operations. The Company formally assesses the hedge's effectiveness
            at the beginning of each quarter.

            Certain 2003 comparative figures have been reclassified to conform
            with the financial statement presentation adopted in 2004.

      (b)   REVENUE RECOGNITION

            Revenue is comprised of product sales and service revenue earned
            from fulfillment services. Revenue from product sales is recognized
            upon shipment since title to the goods is transferred to customers,
            persuasive evidence of an arrangement exists, the selling price is
            fixed and determinable and collectibility is reasonably assured.
            Volume rebates are recorded as a reduction of revenue at the time of
            shipment. Contractual payments to acquire sales contracts are
            amortized against revenue over the term of the contract.

            Services revenue is recognized as services are performed.

      (c)   INVENTORIES

            Raw materials are stated at the lower of cost, on a first-in
            first-out basis, and replacement cost. Finished goods and work in
            process are stated at the lower of cost and net realizable value.
            Cost includes materials and an application of relevant manufacturing
            labour and overhead.

      (d)   CAPITAL ASSETS

            Capital assets are recorded at cost and are amortized over their
            estimated useful lives. Cost represents acquisition or construction
            costs, including preparation, installation and testing charges
            incurred with respect to capital assets until they are ready for
            commercial production. Major renewals and improvements are
            capitalized, while maintenance and repairs are charged to operations
            as incurred. Gains or losses arising from the disposition of capital
            assets are reflected in net earnings.

                                                    CINRAM ANNUAL REPORT 2004 35

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

            Capital assets are amortized on a straight-line basis, commencing
            when the asset is entered into use. Estimated useful lives for the
            principal asset categories are as follows:

<TABLE>
<S>                                       <C>
Buildings                                      20 - 40 years
Machinery and equipment                         3 - 13 years
Computer equipment                               3 - 5 years
Furniture                                            5 years
Leasehold improvements                    Over term of lease
</TABLE>

      (e)   GOODWILL AND INTANGIBLE ASSETS

                  (i)   GOODWILL

                        Goodwill is the residual amount that results when the
                        purchase price of an acquired business exceeds the sum
                        of the amounts allocated to the tangible and intangible
                        assets acquired, less liabilities assumed, based on
                        their fair values. When the Company enters into a
                        business combination, the purchase method of accounting
                        is used. Goodwill is assigned as of the date of the
                        business combination to reporting units that are
                        expected to benefit from the business combination.

                        Goodwill is not amortized but instead is tested for
                        impairment annually, or more frequently, if events or
                        changes in circumstances indicate that the asset might
                        be impaired. The impairment test is carried out in two
                        steps. In the first step, the carrying amount of the
                        reporting unit, including goodwill, is compared with its
                        fair value. When the fair value of the reporting unit
                        exceeds its carrying amount, goodwill of the reporting
                        unit is not considered to be impaired and the second
                        step of the impairment test is unnecessary. The second
                        step is carried out when the carrying amount of a
                        reporting unit exceeds its fair value, in which case,
                        the implied fair value of the reporting unit's goodwill,
                        in the same manner that value of goodwill is determined
                        in a business combination, is compared with its carrying
                        amount to measure the amount of the impairment loss, if
                        any.

                  (ii)  INTANGIBLE ASSETS

                        Intangible assets acquired in a business combination are
                        recorded at their fair values less accumulated
                        amortization. Amortization is provided on a
                        straight-line basis as follows:

<TABLE>
<S>                                                      <C>
Customer supply agreements
Cross-licensing                                          6 years
agreements                                               1 year
</TABLE>

      (f)   IMPAIRMENT OF LONG-LIVED ASSETS

            The Company reviews capital and intangible assets (long-lived
            assets) for impairment annually or more frequently if events or
            changes in circumstances indicate that the carrying amount may not
            be recoverable. Absent any triggering factors during the year, the
            Company conducts its long-lived asset assessment in the fourth
            quarter to correspond with its planning cycle. If the sum of
            undiscounted future cash flows expected to result from the use and
            disposition of a group of assets is less than its carrying amount,
            it is considered impaired. An impairment loss is measured as the
            amount by which the carrying amount of a group of assets exceeds its
            fair value.

            At December 31, 2004 and 2003, no impairments in the carrying value
            of these assets existed.

      (g)   PENSION BENEFITS

            The Company accrues its obligations under employee benefit plans and
            the related costs, net of plan assets. The cost of pensions earned
            by employees is actuarially determined using the projected benefit
            method prorated on service and management's best estimate of
            expected plan investment performance, salary escalation,
            compensation levels at time of retirement, and retirement ages of
            employees. Changes in these assumptions could impact future pension
            expense. For the purpose of calculating the expected return on plan
            assets, assets are valued at fair value. Actuarial gains or losses
            are amortized over the average remaining service period of active
            employees. Pension assets are recorded as other assets while pension
            liabilities are recorded as accrued pension benefits within accrued
            liabilities and other long-term liabilities.

36 CINRAM ANNUAL REPORT 2004

<PAGE>

      (h)   ASSET RETIREMENT OBLIGATIONS

            Effective January 1, 2004, the Company retroactively adopted the
            Canadian Institute of Chartered Accountants' (CICA) Handbook
            Section 3110, "Asset Retirement Obligations" (Section 3110), which
            establishes standards for the recognition, measurement and
            disclosure of liabilities for asset retirement obligations and the
            associated retirement costs. Section 3110 applies to legal
            obligations associated with the retirement of tangible long-lived
            assets that result from their acquisition, lease, construction,
            development or normal operation. The Company records the present
            value of the estimated fair value of a liability for an asset
            retirement obligation in the year in which it is incurred and when a
            reasonable estimate of fair value can be made. The fair value of a
            liability for an asset retirement obligation is the amount at which
            that liability could be settled in a current transaction between
            willing parties, that is, other than in a forced liquidation
            transaction. The Company subsequently allocates the asset retirement
            cost to expense using a systematic and rational method over the
            asset's useful life, and records the accretion of the liability as a
            charge to the statement of earnings.

            As at January 1, 2004, the Company recorded a liability of $2,886
            for the estimated present value of the costs of retiring leasehold
            improvements at the maturity of the facility leases and recorded
            deferred asset retirement costs of $2,886. The following table
            details the changes in the leasehold retirement liability:

<TABLE>
<S>                      <C>
January 1, 2004          $2,886
Accretion charges           177
                         ------
December 31, 2004        $3,063
                         ======
</TABLE>

            The adjustment to leasehold improvements in respect of asset
            retirement costs is amortized into income on a straight-line basis
            over the remaining life of the leases. For the year ended December
            31, 2004, the Company recorded amortization expense of $543 in cost
            of sales. The impact of this new accounting standard was not
            material for 2003.

      (i)   DEFERRED FINANCING FEES

            The costs of obtaining bank and other debt financings are deferred
            and amortized on a straight-line basis over the term of the related
            debt or debt facilities to which they relate.

      (j)   DERIVATIVE FINANCIAL INSTRUMENTS

            Derivative financial instruments are utilized to reduce interest
            rate risk on the Company's debt. The Company does not enter into
            financial instruments for trading or speculative purposes.

            The Company's policy is to formally designate each derivative
            financial instrument as a hedge of a specifically identified debt
            instrument. The Company believes the derivative financial
            instruments are effective as hedges, both at inception and over the
            term of the instrument; as the term to maturity, the (notional)
            principal amount and the interest rate basis in the instruments all
            match the terms of the debt instrument being hedged.

            Interest rate swap agreements are used as part of the Company's
            program to manage the fixed and floating interest rate mix of the
            Company's total debt portfolio and related overall cost of
            borrowing. The interest rate swap agreements involve the periodic
            exchange of payments without the exchange of the notional principal
            amount upon which the payments are based, and are recorded as an
            adjustment of interest expense on the hedged debt instrument. The
            related amount payable to or receivable from the counterparties is
            included as an adjustment to accrued interest.

            Gains and losses on terminations of interest rate swap agreements
            are deferred on the balance sheet and amortized as an adjustment to
            interest expense related to the obligation over the remaining term
            of the original contract life of the terminated swap agreement. In
            the event of early extinguishment of the debt obligation, any
            realized or unrealized gain or loss from the swap would be
            recognized in the consolidated statement of earnings at the time of
            extinguishment.

            For those instruments that do not meet the above criteria,
            variations in their fair value are marked-to-market on a current
            basis, with the resulting gains or losses recorded in or charged
            against earnings.

                                                    CINRAM ANNUAL REPORT 2004 37

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      (k)   STOCK-BASED COMPENSATION

            Effective January 1, 2004, Canadian GAAP requires the Company to
            calculate the fair value of stock-based compensation awarded to
            employees and to expense the fair value over the vesting period of
            the stock options. In accordance with the transition rules, the
            Company adopted the standard retroactively to January 1, 2002,
            without restating prior periods. The Company determined the fair
            value of stock options granted to employees since January 1, 2002,
            using the Black-Scholes option pricing model and recorded an
            adjustment to opening retained earnings in the amount of $2,759,
            representing the expense for the 2003 and 2002 fiscal years, with a
            corresponding increase in contributed surplus.

      (l)   INCOME TAXES

            The Company follows the asset and liability method of accounting for
            income taxes. Under the asset and liability method, future income
            tax assets and liabilities are recognized for the estimated future
            tax consequences attributable to differences between the financial
            statement carrying amounts of existing assets and liabilities and
            their respective tax bases. Future income tax assets and liabilities
            are measured using enacted or substantively enacted tax rates in
            effect for the year in which those temporary differences are
            expected to be recovered or settled. The effect on future income tax
            assets and liabilities of a change in tax rates is recognized in
            income in the year that includes the enactment or substantive
            enactment date. Future income tax assets are recognized, and if
            realization is not considered more likely than not, a valuation
            allowance is provided. Income tax expense is the sum of the
            Company's provision for current income taxes and the difference
            between opening and ending balances of future income tax assets and
            liabilities.

      (m)   EARNINGS PER SHARE

            Basic earnings per share is calculated by dividing the earnings
            available to common shareholders by the weighted average number of
            common shares outstanding during the year. Diluted earnings per
            share is calculated using the treasury stock method, which assumes
            that all stock options with exercise prices below the market prices
            are exercised with the proceeds used to purchase common shares of
            the Company at the average market price during the year.

      (n)   USE OF ESTIMATES

            The preparation of financial statements requires management to make
            estimates and assumptions that affect the reported amounts of assets
            and liabilities and disclosure of contingent assets and liabilities
            at the date of the financial statements and the reported amounts of
            revenue and expenses during the year. Significant estimates are used
            in determining, but not limited to, the valuation of intangible
            assets and goodwill, provisions for volume rebates, the allowance
            for doubtful accounts, inventory valuation, income tax valuation
            allowances, restructuring costs, assets and obligations related to
            employee future benefits, the useful lives of all depreciable assets
            and the recoverability of capital assets and long-lived assets.
            Royalty charges are incurred as a result of the use of third party
            replication technologies. The Company records these amounts as
            incurred based on the sale of the Company's product. Accordingly, at
            each balance sheet date, the Company records its best estimate of
            the royalties payable based on contractual arrangements and
            management's best estimate for non-contractual amounts. Actual
            results could differ from those estimates.

      (o)   CASH AND CASH EQUIVALENTS

            The Company considers all highly liquid investment instruments with
            a maturity of three months or less at the time of purchase to be
            cash equivalents.

      (p)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

            (i)   LIABILITIES AND EQUITY

                  Effective for fiscal years beginning after November 1, 2004,
                  CICA Handbook Section 3860, "Financial Instruments -
                  Disclosure and Presentation," has been amended to provide
                  guidance for classifying certain financial obligations of a
                  fixed amount that may be settled, at the issuer's option, by a
                  variable number of the issuer's own equity instruments to be
                  presented as liabilities. Any financial instruments issued by
                  an enterprise that give the issuer unrestricted rights to
                  settle the principal amount in cash or in the equivalent value
                  of its own equity instruments will no longer be presented as
                  equity.

38 CINRAM ANNUAL REPORT 2004

<PAGE>

                  The CICA concluded that not all such obligations establish the
                  type of relationship that exists between an entity and its
                  owners, but rather they convey more of a debtor/creditor
                  relationship because they require the issuer to convey a fixed
                  amount of value to the holder that does not vary with changes
                  in the fair value of the issuer's equity instruments.
                  Therefore, these instruments should be presented as
                  liabilities. The standard will be effective for the Company's
                  2005 fiscal year on a retroactive basis. The adoption of this
                  standard will not have an impact on the consolidated financial
                  statements.

            (ii)  CONSOLIDATION OF VARIABLE INTEREST ENTITIES

                  In June 2003, the CICA issued Accounting Guideline AcG-15,
                  "Consolidation of Variable Interest Entities" (AcG-15). AcG-15
                  addresses the consolidation of variable interest entities
                  (VIEs), which are entities which have insufficient equity at
                  risk to finance their operations without additional
                  subordinated financial support and/or entities whose equity
                  investors lack one or more of the specified essential
                  characteristics of a controlling financial interest. AcG-15
                  will be applied in the Company's year, beginning January 1,
                  2005. The adoption of this standard will not have an impact on
                  the consolidated financial statements.

            (iii) ARRANGEMENTS CONTAINING A LEASE

                  Emerging Issues Committee (EIC) Abstract 150, "Determining
                  Whether an Arrangement Contains a Lease," addresses a
                  situation where an entity enters into an arrangement,
                  comprising a transaction that does not take the legal form of
                  a lease but conveys a right to use a tangible asset in return
                  for a payment or series of payments. For example, this may
                  include items such as take-or-pay or similar contracts, in
                  which specified payments must be made regardless of whether
                  delivery is taken of the contracted products of services. The
                  Company will adopt this standard effective January 1, 2005,
                  and is currently assessing its impact.

2.    ACQUISITION OF TIME WARNER INC. BUSINESSES

      On October 24, 2003, the Company acquired Time Warner Inc.'s DVD and CD
      manufacturing and physical distribution businesses, together with certain
      related printing and apparel businesses, in the U.S. and Europe for total
      cash consideration of $1,137,378 plus acquisition costs of $13,111. The
      acquisition has been accounted for using the purchase method and,
      accordingly, the results of operations of the businesses acquired have
      been included in the consolidated financial statements since the
      acquisition date.

      During the fourth quarter of fiscal 2004, the Company completed the
      allocation of the purchase price for the acquisition. The final allocation
      of the purchase price, based on independent appraisals and management's
      estimates, is as follows:

<TABLE>
<S>                                                             <C>
Current assets, including cash of $ 1,437                       $   317,071
Capital assets                                                      406,104
Intangible assets                                                   387,900
Goodwill                                                            320,351
                                                                -----------
                                                                  1,431,426

Current liabilities                                                (208,715)
Other long-term liabilities                                         (49,611)
Future tax liabilities                                              (22,611)
                                                                -----------
                                                                   (280,937)
                                                                -----------
Total cash purchase consideration                               $ 1,150,489
                                                                ===========
</TABLE>

      Included in other long-term liabilities are pre-acquisition contingencies
      assumed on the acquisition of the Time Warner Inc. businesses. These
      amounts have been recorded based on management's best estimate.The actual
      cash settlement amount and timing is unknown at this time.

                                                    CINRAM ANNUAL REPORT 2004 39

<PAGE>


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      Intangible assets totalling $385,700 were assigned to customer supply
      agreements with Time Warner Inc. and are being amortized over the six-year
      period of the agreement. Intangible assets totalling $2,200 were assigned
      to certain cross-licensing agreements and have been fully amortized by
      December 31, 2004.

3.    INVENTORIES

<TABLE>
<CAPTION>
                         2004       2003
                         ----       ----
<S>                    <C>       <C>
Raw materials          $ 38,481  $ 32,844
Work in process          15,119     8,330
Finished goods            3,261     3,432
                       --------  --------
                       $ 56,861  $ 44,606
                       ========  ========
</TABLE>

4.    CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                    ACCUMULATED    NET BOOK
       2004                               COST     AMORTIZATION     VALUE
       ----                               ----     ------------     -----
<S>                                  <C>           <C>            <C>
Land                                 $    23,440    $       -     $  23,440
Buildings                                143,975       22,793       121,182
Machinery and equipment                  837,303      357,747       479,556
Computer equipment                        29,305       12,222        17,083
Furniture                                 20,213       15,526         4,687
Leasehold improvements                    46,176       24,614        21,562
Construction in progress                  38,850            -        38,850
                                     -----------    ---------     ---------
                                     $ 1,139,262    $ 432,902     $ 706,360
                                     ===========    =========     =========
</TABLE>

<TABLE>
<CAPTION>
                                                   Accumulated     Net book
         2003                            Cost      amortization     value
         ----                            ----      ------------     -----
<S>                                    <C>         <C>            <C>
Land                                   $  23,265    $       -     $  23,265
Buildings                                138,661       17,528       121,133
Machinery and equipment                  664,993      233,567       431,426
Computer equipment                        15,590        8,781         6,809
Furniture                                 19,162       14,266         4,896
Leasehold improvements                    31,295       18,674        12,621
Construction in progress                  46,413           -         46,413
                                       ---------    ---------     ---------
                                       $ 939,379    $ 292,816     $ 646,563
                                       =========    =========     =========
</TABLE>

      Included in the above are assets under capital lease with a cost of
      $11,486 and a net book value of $6,350 (2003 - $16,914 and $6,971,
      respectively), which are being amortized on a straight-line basis over
      their anticipated economic life, which is 20 years for building and four
      years for machinery and equipment.

      Amortization expense for capital assets for the year ended December 31,
      2004 amounted to $146,697 (2003 - $63,707).

5.    GOODWILL AND INTANGIBLE ASSETS

      (a)   GOODWILL

            On October 24, 2003, the Company acquired the assets of Time Warner
            Inc.'s DVD and CD manufacturing and physical distribution
            businesses, together with certain related printing and apparel
            businesses, in the U.S. and Europe.This transaction had the impact
            of increasing goodwill by $320,351 (NOTE 2).

40 CINRAM ANNUAL REPORT 2004

<PAGE>

<TABLE>
<CAPTION>
                                         Effect of                               Effect of
                                          foreign                                 foreign
              December 31,   Goodwill     exchange  December 31,   Goodwill       exchange   DECEMBER 31,
                  2002       acquired    and other      2003      adjustments    and other       2004
              -----------   ----------   ---------  ------------  -----------   ----------   ------------
<S>           <C>           <C>          <C>        <C>           <C>           <C>          <C>
Goodwill      $     4,299   $  269,793   $   5,334  $   279,426   $    50,558   $   (1,591)  $   328,393
</TABLE>

            The goodwill adjustments amount during 2004 arose on the
            finalization of the purchase price of the acquired Time Warner
            businesses (NOTE 2).

            During the fourth quarter of 2004, the Company performed its
            annual goodwill impairment test and concluded no impairment had
            occurred. The fair values of the reporting units were estimated
            using a combination of a market approach and discounted cash flows.
            Revenue and expense projections used in determining the fair value
            of the reporting units were based on management estimates, including
            estimates of current and future industry conditions.

      (b)   INTANGIBLE ASSETS

            Customer supply agreements and cross-licensing agreements were
            acquired as part of the acquisition of certain of the assets of Time
            Warner Inc. (NOTE 2). Customer supply agreements are being amortized
            on a straight-line basis over a period of six years, which
            represents the exclusive term in which the Company will manufacture,
            print, package and physically distribute DVDs and CDs for Warner
            Home Video and Warner Music Group in North America and Europe and
            for New Line Home Entertainment Inc. in North America.
            Cross-licensing agreements were being amortized over a period of one
            year.

<TABLE>
<CAPTION>

                                                                            EFFECT OF
                                                           ACCUMULATED       FOREIGN     NET BOOK
           2004                           COST            AMORTIZATION       EXCHANGE      VALUE
--------------------------             ---------          ------------      ---------    ---------
<S>                                    <C>                <C>               <C>          <C>
Customer supply agreements             $ 385,700            $ 75,382         $ 4,929     $ 315,247
Cross-licensing agreements                 2,200               2,200               -             -
                                       ---------            --------         -------     ---------
                                       $ 387,900            $ 77,582         $ 4,929     $ 315,247
                                       =========            ========         =======     =========
</TABLE>

<TABLE>
<CAPTION>
                                                                             Effect of
                                                           Accumulated        foreign    Net book
           2003                          Cost             amortization       exchange      value
--------------------------             ---------          ------------       ---------   ---------
<S>                                    <C>                <C>                <C>         <C>
Customer supply agreements             $ 385,700            $ 10,294          $   (832)  $ 374,574
Cross-licensing agreements                 2,200                 381                -        1,819
                                       ---------            --------         ---------   ---------
                                       $ 387,900            $ 10,675          $   (832)  $ 376,393
                                       =========            ========         =========   =========
</TABLE>

            Amortization of intangible assets for the year ended December 31,
            2004 amounted to $66,907 (2003 - $10,675).

6.    DEFERRED FINANCING FEES

      2004

      During the year, the Company amended its credit facilities as described in
      NOTE 7, and as a direct result incurred $2,250 of financing fees.

      Amortization of deferred financing fees for the year ended December 31,
      2004 amounted to $6,131 (2003 - $774).

      2003

      In connection with the credit agreement entered into in October 2003 (NOTE
      7), the Company incurred $28,627 of financing fees.

                                                    CINRAM ANNUAL REPORT 2004 41

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

7.    LONG-TERM DEBT

      CREDIT AGREEMENT

      In October 2003, the Company entered into a credit agreement with a
      syndicate of lenders to provide the Company with credit facilities of up
      to $1,175,000. The facilities were comprised of term loans of $1,025,000
      and a revolving credit facility of $150,000. Amounts outstanding under the
      facilities are secured by substantially all of the assets of the Company.
      The revolving credit facility bore interest at the London InterBank
      Offered Rate (LIBOR) plus 300 basis points.

      The terms of the credit agreement require the Company to comply with
      certain financial and other covenants over the term. As at December 31,
      2004, the Company was in compliance with all the terms of its credit
      agreement. Amounts outstanding under the facilities are shown in the table
      below:

<TABLE>
<CAPTION>
                                           2004           2003
                                        ---------      ---------
<S>                                     <C>            <C>
Credit agreement
   Term loan A (a)                      $ 181,050      $ 250,000
   Term loan B (b)                              -        675,000
   Term loan C (c)                              -         98,270
   Term loan D (d)                        658,976              -
                                        ---------      ---------
                                          840,026      1,023,270
Other long-term debt
   Asset-backed financing (e)              18,317         26,603
                                        ---------      ---------
                                          858,343      1,049,873
Less current portion                       71,509         95,417
                                        ---------      ---------
                                        $ 786,834      $ 954,456
                                        =========      =========
</TABLE>

      In August 2004, the Company amended its $1,175,000 credit facilities. The
      interest rate on the outstanding principal amount of $181,050 on the
      Company's $250,000 term loan A facility was reduced to the LIBOR plus 250
      basis points, from LIBOR plus 300 basis points. The Company used $65,000
      in cash to repay part of the $635,000 outstanding principal amount under
      its $675,000 term loan B facility and part of the $98,270 outstanding
      principal amount under its $100,000 term loan C facility. The remaining
      principal amounts outstanding under term loan facilities B and C were paid
      out from a new $668,220 term loan D facility that bears an interest rate
      of LIBOR plus 300 basis points. At December 31, 2004, $658,976 is
      outstanding under the term loan D facility.

      (a)   Term loan A for $181,050 is due September 30, 2007, with quarterly
            principal repayments resuming on June 30, 2005, and bears an
            interest rate of LIBOR plus 250 basis points.

      (b)   Term loan B for $675,000 was due on September 30, 2009, and bore an
            interest rate of LIBOR plus 375 basis points.

      (c)   Term loan C for $98,270 was due March 31, 2010, and bore an interest
            rate of LIBOR plus 575 basis points.

      (d)   Term loan D for $668,220 is due on September 30, 2009, with
            quarterly principal repayments beginning in 2005, and bears an
            interest rate of LIBOR plus 300 basis points.

      Under the terms of the credit agreement, we are obliged to make a
      mandatory offer to prepay the credit facilities from the following:

           -  75% of excess cash flow (as defined in the credit
              agreement);

           -  100% of net cash proceeds of non-ordinary course asset
              sales;

           -  100% of net proceeds of debt issuance;

           -  100% of net cash proceeds of casualty events (in excess
              of $2.5 million); and

           -  75% of net proceeds of equity issuance.

42 CINRAM ANNUAL REPORT 2004

<PAGE>

      The above percentages are subject to a step-down, based on reductions in
      leverage.

      (e)   Asset-backed financing: The Company has entered into asset-backed
            financing due in July 2007 with blended monthly principal and
            interest repayments over a three-year period, secured by certain
            capital assets, bearing interest at 5.49%.

      Future minimum repayments of long-term debt for the fiscal years ending
      December 31 are as follows:

<TABLE>
<S>       <C>
2005      $  71,509
2006        112,698
2007        116,842
2008         36,975
2009        520,319
          ---------
          $ 858,343
          =========
</TABLE>

      INTEREST PROTECTION ARRANGEMENTS

      During the year, the Company entered into hedging agreements for a
      three-year term on $250,000 of long-term debt expiring in June 2007. In
      addition, the Company entered into an additional interest rate cap
      agreement for $210,000 of long-term debt expiring in January 2007.

      The weighted average interest rate for the year ended December 31, 2004,
      was 5.3% (2003 - 6.3%).

8.    LEASE COMMITMENTS

      Future minimum rental commitments for all non-cancellable operating and
      capital leases as at December 31, 2004, are as follows:

<TABLE>
<CAPTION>
                                                        Capital  Operating    Total
                                                        -------  ---------  --------
<S>                                                     <C>      <C>        <C>
2005                                                    $ 1,177   $ 10,032  $ 11,209
2006                                                      1,102      7,621     8,723
2007                                                        885      6,270     7,155
2008                                                        654      5,416     6,070
2009                                                        607      2,750     3,357
2010 and thereafter                                       2,351      2,485     4,836
                                                        -------   --------  --------
                                                          6,776   $ 34,574  $ 41,350
                                                                  ========  ========
Less interest (average rate of 7%)                        1,323
                                                        -------
                                                          5,453
Less current portion                                        850
                                                        -------
                                                        $ 4,603
                                                        =======
</TABLE>

      Operating lease expense for the year ended December 31, 2004, amount to
      $12,591 (2003 - $6,811).

9.    CAPITAL STOCK

      (a)   AUTHORIZED

            The authorized capital stock of the Company consists of an unlimited
            number of common shares and an unlimited number of preference
            shares.The preference shares are non-voting and are entitled to
            dividends as and when declared by the Board of Directors.

      (b)   ISSUED AND OUTSTANDING

            Capital stock issued and outstanding at December 31, 2004, and 2003
            includes the following:

                                                    CINRAM ANNUAL REPORT 2004 43
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                           Common
                                           shares       Warrants       Amount
                                         ----------   -----------   -----------
<S>                                      <C>          <C>           <C>
Balance outstanding, December 31, 2002   55,196,891    1,700,000    $   156,944
Warrants expired                                  -   (1,500,000)             -
Warrants exercised                          200,000     (200,000)         2,297
Options exercised during 2003               678,401            -          3,933
                                         ----------   ----------    -----------
Balance outstanding, December 31, 2003   56,075,292            -        163,174
Options exercised during 2004               727,794            -          6,971
                                         ----------   ----------    -----------
Balance outstanding, December 31, 2004   56,803,086            -    $   170,145
                                         ==========   ==========    ===========
</TABLE>

(C)   STOCK-BASED COMPENSATION PLAN

      The Company has one stock-based compensation plan pursuant to which the
      Company may grant options to employees, Officers and Directors of the
      Company. During 2004, the Company amended its stock option plan to
      increase the number of options that may be granted under the plan to
      5,500,000 from 4,000,000. The exercise price of each option equals the
      market price of the Company's stock on the date of the grant; an option's
      maximum term is 10 years. The options vesting periods range from three
      years to five years.

      A summary of the status of the Company's employee stock option plan as at
      December 31, 2004, and 2003 and changes during the years ended on those
      dates is presented below in Canadian dollars:

<TABLE>
<CAPTION>
                                                 2004                    2003
                                  ----------------------  --------------------
                                               WEIGHTED               Weighted
                                               AVERAGE                average
                                  NUMBER OF    EXERCISE   Number of   exercise
                                   OPTIONS      PRICE      options     price
                                  ----------  ----------  ----------  --------
<S>                               <C>         <C>         <C>         <C>
Outstanding, beginning of year    2,527,939   $     9.67  2,756,340   $   9.04
Granted                                   -            -    478,000      11.25
Exercised                          (727,794)       12.77   (678,401)      8.08
Forfeited                           (25,001)        4.63    (28,000)     12.69
                                  ---------   ----------  ---------   --------
Outstanding, end of year          1,775,144        11.42  2,527,939       9.67
                                  =========   ==========  =========   ========
Options exercisable, end of year  1,225,811   $    11.70  1,455,339   $  11.83
                                  =========   ==========  =========   ========
</TABLE>

The following summarizes information about the employee stock options at
December 31, 2004, in Canadian dollars:

<TABLE>
<CAPTION>
                                                                Options outstanding                         Options exercisable
                           ----------------------------------------------------------------------------------------------------
                                                    Weighted
                                                    average                Weighted                                    Weighted
                            Number of              remaining               average              Number of               average
    Range of                 options              contractual              exercise              options               exercise
exercise prices            outstanding            life (years)              price              exercisable               price
---------------            -----------            ------------             --------            -----------             --------
<S>                        <C>                    <C>                      <C>                 <C>                     <C>
$2.74 - $ 4.00                 87,669                  1.4                 $   2.74               87,669               $   2.74
$6.00 - $ 8.00                160,000                  0.2                     6.88              160,000                   6.88
$8.00 - $10.00                110,000                  5.2                     8.10              110,000                   8.10
$10.00 - $15.00             1,062,975                  3.0                    10.81              513,642                  10.81
$15.00 - $20.00               249,000                  2.0                    17.01              249,000                  17.01
$20.00 - $22.00               105,500                  3.5                    22.00              105,500                  22.00
                            ---------                  ---                 --------            ---------               --------
$2.74 - $22.00              1,775,144                  2.4                 $  11.42            1,225,811               $  11.70
                            =========                  ===                 ========            =========               ========
</TABLE>

44 CINRAM ANNUAL REPORT 2004

<PAGE>

(d)   STOCK-BASED COMPENSATION

      On January 1, 2004, the Company adopted CICA Handbook Section 3870 and
      recorded a charge to opening retained earnings of $2,759 for stock options
      granted on or after January 1, 2002 (NOTE 1(k)).

      For the year ended December 31, 2004, the Company recorded compensation
      expense of $1,269 (2003 - nil).

      For stock options granted to employees on or after January 1, 2002, had
      the Company determined compensation expense based on the fair value method
      at the grant date of such stock option awards consistent with the method
      prescribed under the CICA Handbook Section 3870, the Company's net
      earnings and earnings per share for the year ended December 31, 2003,
      would have been reported as the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                2003
                                             ----------
<S>                                          <C>
Net earnings, as reported                    $   53,020
Stock-based compensation expense                  2,005
                                             ----------
Pro forma net earnings                       $   51,015
                                             ==========
Basic earnings per share, as reported        $     0.95
Effect of stock-based compensation expense         0.04
                                             ----------
Pro forma basic earnings per share           $     0.91
                                             ==========
Diluted earnings per share, as reported      $     0.94
Effect of stock-based compensation expense         0.04
                                             ----------
Pro forma diluted earnings per share         $     0.90
                                             ==========
</TABLE>

There were no stock options granted during the year ended December 31, 2004.

The weighted average estimated fair value at the date of the grant for options
granted during the year ended December 31, 2003, was C$5.56 per share (2002 -
C$5.28 per share).

The fair value of each option granted during 2003 and 2002 was estimated on the
date of the grant using the Black-Scholes option pricing model with the
following assumptions:

<TABLE>
<CAPTION>
                                                                          2003      2002
                                                                        --------  --------
<S>                                                                     <C>       <C>
Risk-free interest rate                                                     4.0%      4.0%
Dividend yield                                                              1.0%    0.768%
Volatility factor of the future expected market price of common shares       57%       60%
Weighted average expected life of the options                           5 years   5 years
</TABLE>

      For the purposes of pro forma disclosures, the estimated fair value of the
      options is amortized to expense over the options' vesting period on a
      straight-line basis.

10.   BASIC AND DILUTED EARNINGS PER SHARE

      Basic and diluted earnings per share have been calculated using the
      weighted average and maximum dilutive number of shares outstanding during
      the year which amounted to 56,588,815 shares (2003 - 55,628,006 shares)
      and 57,513,852 shares (2003 - 56,611,737 shares), respectively.

                                                    CINRAM ANNUAL REPORT 2004 45
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      The following table sets forth the computation of diluted earnings per
      share:

<TABLE>
<CAPTION>
                                                            2004         2003
                                                         ----------  -----------
<S>                                                      <C>         <C>
NUMERATOR

   Earnings available to common shareholders             $   75,824  $    53,020
                                                         ==========  ===========
DENOMINATOR (IN THOUSANDS)

   Weighted average shares outstanding - basic               56,589       55,628
   Effect of dilutive securities:
      Employee stock options                                    925          984
                                                         ----------  -----------
Weighted average number of shares outstanding - diluted      57,514       56,612
                                                         ==========  ===========
EARNINGS PER SHARE

   Basic                                                 $     1.34  $      0.95
   Diluted                                                     1.32         0.94
                                                         ==========  ===========
</TABLE>

      During the year ended December 31, 2004, there were no outstanding stock
      options excluded from the computation of diluted earnings per share as the
      exercise price was below the average market price of the common shares for
      the year. For the year ended December 31, 2003, stock options to purchase
      216,500 common shares were outstanding but were not included in the
      computation of diluted earnings per share because the exercise price was
      greater than the average market price of the common shares for the year.

11.   UNUSUAL ITEMS

<TABLE>
<CAPTION>
                                                      2004       2003
                                                    ---------  --------
<S>                                                 <C>        <C>
(Recovery of) provision for restructuring - France  $ (1,713)  $  2,726
</TABLE>

      During 2003, the Company closed a VHS duplication facility located in
      France. Management began to formulate an exit plan in April 2003
      concurrent with management's discussions with the employee works council,
      which was concluded in July 2003. The exit plan was finalized in November
      2003 and termination notices were given shortly thereafter to all 102
      employees. The duplication facility ceased production on December 17,
      2003, resulting in the incurrence of severance and other employee- related
      costs, lease cancellation and idle facility costs, asset write-downs, and
      certain other exit costs, totalling $2,726.

      In October 2004, the Company realized a gain of $2,187 on the sale of the
      owned facility. The Company also incurred an additional $474 in other exit
      costs relating to the closure of the facility. These costs were expensed
      and paid out in fiscal 2004.

      The following table details the activity of the accrued restructuring
      liability and related charges in France:

<TABLE>
<CAPTION>
                                                          Accrued                             ACCRUED
                                                         liability                           LIABILITY
                                                Cash    December 31,               CASH     DECEMBER 31,
                                   Provision  payments      2003      PROVISION  PAYMENTS       2004
                                   ---------  --------  ------------  ---------  --------   -----------
<S>                                <C>        <C>       <C>           <C>        <C>        <C>
TYPE OF COST

    Severance and other employee-
      related costs                $   2,206  $  (172)  $    2,034     $      -  $ (2,034)  $       -
    Lease cancellation
      and idle facilities                222       (8)         214            -      (214)          -
    Other exit costs                     117      (82)          35          474      (509)          -
                                   ---------  -------   ----------     --------  --------   ---------
                                       2,545  $  (262)  $    2,283     $    474  $ (2,757)  $       -
                                              =======   ==========     ========  ========   =========
Asset write-downs                        181
                                   ---------
                                   $   2,726
                                   =========
</TABLE>

46 CINRAM ANNUAL REPORT 2004
<PAGE>

12.   INCOME TAXES

      Income tax expense varies from the amounts that would be computed by
      applying the statutory income tax rate to earnings before income taxes as
      follows:

<TABLE>
<CAPTION>
                                                                            2004                 2003
                                                             -------------------   -------------------
<S>                                                          <C>           <C>     <C>          <C>
Basic rate applied to pretax earnings                        $    40,358   36.1%   $   28,659   36.6%
Increase (decrease) in taxes resulting from:
     Manufacturing and processing reduction                            -      -          (692)  (0.9)%
     Losses in foreign subsidiaries not tax-effected                   -      -           812    1.0%
     Losses utilized in the current period to
            reduce taxable income not previously recognized       (2,023)  (1.8)%        (414)  (0.5)%
     Tax rates in other jurisdictions                             (2,769)  (2.5)%      (2,872)  (3.7)%
     Other items                                                     343    0.3%         (212)  (0.2)%
                                                             -----------   ----    ----------   ----
                                                             $    35,909   32.1%   $   25,281   32.3%
                                                             ===========   ====    ==========   ====
</TABLE>

      The tax effects of temporary differences that give rise to significant
      portions of the future tax assets and future tax liabilities at December
      31, 2004, and 2003 are presented below:

<TABLE>
<CAPTION>
                                                                                       2004         2003
                                                                                     --------     --------
<S>                                                                                  <C>          <C>
FUTURE TAX ASSETS

    Non-capital income tax loss carryforwards                                        $  8,673     $  8,909
    Capital loss carryforwards                                                            293        3,235
    Accruals not deductible in the current period                                      33,272       18,357
    Capital assets - difference in net book value and undepreciated capital costs         511       10,325
    Goodwill and intangible assets                                                          -          214
                                                                                     --------     --------
                                                                                       42,749       41,040
     Less valuation allowance                                                           8,073       14,450
                                                                                     --------     --------
                                                                                       34,676       26,590
FUTURE TAX LIABILITIES

    Capital assets - difference in net book value and undepreciated capital           (59,667)     (25,664)
    Goodwill and intangible assets                                                    (33,402)      (3,985)
                                                                                     --------     --------
                                                                                      (93,069)     (29,649)
                                                                                     --------     --------
NET FUTURE TAX LIABILITIES                                                           $(58,393)    $ (3,059)
                                                                                     ========     ========
</TABLE>

      In assessing the realizability of future income tax assets, management
      considers whether it is more likely than not that some portion or all of
      the future income tax assets will be realized. The ultimate realization of
      future income tax assets is dependent upon the generation of future
      taxable income during the years in which the temporary differences are
      deductible. Management considers the scheduled reversals of future income
      tax liabilities, the character of the income tax assets and the tax
      planning strategies in place in making this assessment. To the extent that
      management believes that the realization of future income tax assets does
      not meet the more likely than not realization criterion, a valuation
      allowance is recorded against the future tax assets.

      At December 31, 2004, the Company has non-capital loss carryforwards in
      Europe. No benefit has been established in relation to these losses as it
      is not more likely than not that the Company will be able to utilize these
      losses in the future.

                                                    CINRAM ANNUAL REPORT 2004 47
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      The income tax losses in Europe expiring in the years ending December 31
      are as follows:

<TABLE>
<C>                  <C>
2005                 $   2,017
2009 and thereafter     23,900
                     ---------
                     $  25,917
                     =========
</TABLE>

13.   CONTINGENT LIABILITIES

      The Company is involved in various legal actions that are normal to the
      Company's business. In the opinion of the Company, any resulting liability
      is not expected to have a material adverse effect on the Company's
      financial position or its results of operations.

14.   RELATED PARTY TRANSACTIONS

      The Company entered into the following related party transactions:

      (a)   During 2004, the Company paid the following amounts to related
            parties: $1,484 (2003 - $2,279) to a law firm, including nil (2003 -
            $2,152) for acquisition-related work, where one of the Company's
            directors is a partner, and $193 (2003 - $180) to a director for
            consulting services.

      (b)   In September 2003, the Company purchased premises from three
            companies owned by certain shareholders of the Company and their
            families for $5,464, representing the fair market value of the land
            and building based on independent appraisals on the date of
            acquisition. Prior to the purchase of the land and building, the
            Company leased these premises on a month-to-month basis at an
            exchange amount as agreed to by the parties. Lease costs for 2003,
            up to the purchase of the premises, amounted to $398.

15.   PENSION AND NON-PENSION EMPLOYMENT BENEFIT PLANS

      As part of the Time Warner Inc. acquisition (NOTE 2), the Company assumed
      contributory and non-contributory defined benefit pension plans that cover
      certain of the acquired workforce in the United States and Germany.

      The plan assets and the benefit obligations were transferred over to the
      Company on October 24, 2003.

      UNITED STATES

      401(k) Plan

      Certain non-union employees also participate in the defined pretax
      contribution plan (the "401(k) Plan"). The Company's contributions under
      the 401(k) Plan are based upon a percentage of the employees' elected
      contributions. The Company's 401(k) Plan expense amounted to $8,646 for
      the year ended December 31, 2004 (2003 - $610).

      Graphic Communication Industry Union ("GCIU") Pension

      The GCIU Retirement Fund is a multi-employer plan covering direct labour
      employees in certain of the Company's printing facilities. The rate of
      contribution expense for this plan is 6% of the straight time wages. No
      significant changes have occurred in fiscal 2004 related to or affecting
      the GCIU plan.

      The Company's GCIU pension expense amounted to $692 for the year ended
      December 31, 2004 (2003 - $121).

      PACE Pension

      The PACE (Paper, Allied-Industrial, Chemical and Energy Workers
      International Union) pension is a multi-employer plan covering a portion
      of the direct labour in one of the Company's printing plant facilities.
      The rate of contribution was $0.792/hour based on total hours worked
      including vacation and holiday for fiscal 2003, and $0.867/hour for fiscal
      2004. No significant changes have occurred in fiscal 2004 related to or
      affecting the PACE plan.

48 CINRAM ANNUAL REPORT 2004

<PAGE>

      The Company's PACE pension expense amounted to $270 for the year ended
      December 31, 2004 (2003 - $36).

      Cinram Music Union Pension Plan

      Certain union employees of the Company also participate in the Cinram
      Music Union Pension Plan (the "Music Union Plan"). Pension benefits under
      the Music Union Plan are based on formulas that reflect the employees'
      years of service multiplied by a specified dollar amount negotiated in
      collective bargaining.

      Investment strategy and policy

      The Company has adopted a balanced growth objective, which balances risk
      and return. Under this investment strategy, the Company's long-term
      allocation for equity and debt securities is 25% and 75%, respectively.

      Asset allocation

      Pension fund assets consist of money market, fixed income and equity
      mutual funds, valued at market value. The percentages of the fair value of
      total plan assets by each major type of plan asset as of the December 31
      measurement date is as follows:

<TABLE>
<CAPTION>
                                                        Percentage of plan assets
                            -----------------------------------------------------
Asset category                                   2004                        2003
                            -------------------------   -------------------------
<S>                         <C>                         <C>
Cash and cash equivalents             0.10%                           -
Debt securities                      39.90%                       25.00%
Equity securities                    60.00%                       75.00%
                                    ------                       ------
                                    100.00%                      100.00%
                                    ======                       ======
</TABLE>

      Equity securities do not include any of the Company's common shares as at
      December 31, 2004 and 2003, respectively.

      Long-term rate-of-return on assets assumption

      Long-term historical returns for indexed equity and debt securities are
      used as the basis to determine the overall expected long-term rate of
      return on assets assumption for the mutual fund investments held in the
      Music Union Plan. The weighted average historical return for equity and
      debt securities is 8%.

      Total cash payments

      The Company does not anticipate making any cash contributions to the Music
      Union Plan in fiscal 2005.

      Estimated future benefit payments

      The benefits expected to be paid in each year from 2005 to 2009 are $110,
      $107, $118, $125, and $161, respectively. The aggregate benefits expected
      to be paid in the five years from 2010 to 2014 are $432. The expected
      benefits to be paid are based on the same assumptions used to measure the
      Company's benefit obligation at December 31, 2004 and include estimated
      future employee service.

      The most recent actuarial valuation was completed on January 1, 2004.

      GERMANY

      Cinram GmbH, Alsdorf defined benefit plan

      The Company's defined benefit pension plans cover certain existing and
      former employees who have signed specific agreements related to pension
      benefits, including members of senior and middle management. The pension
      plan contributions are based on German tax law requirements and,
      therefore, the plans remain unfunded.

      Estimated future benefit payments

      The benefits expected to be paid in each year from 2005 to 2009 are
      $1,250, $1,249, $1,238, $1,228, and $1,218, respectively. The aggregate
      benefits expected to be paid in the five years from 2010 to 2014 are
      $5,853.

                                                    CINRAM ANNUAL REPORT 2004 49
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      Early retirement plan

      The Company has an early retirement agreement with its employee works
      council as part of a labour contract, whereby eligible employees are able
      to receive certain benefits during a period of reduced work prior to
      attaining standard retirement age and German State pension benefits. A
      liability of approximately $2,039 has been recorded as at December 31,
      2004 (2003 - $809).

      The Company's early retirement pension expense amounted to $1,094 for the
      year ended December 31, 2004 (2003 - $144).

      Jubilee plan

      The Company also has an agreement with its employee works council as part
      of a labour contract, whereby employees receive years of service awards
      upon reaching their 10- and 25-year service anniversaries. Employment and
      income taxes associated with this award are paid by the Company and a
      total liability of approximately $426 has been recorded as at December 31,
      2004 (2003 - $1,789).

      The Company's Jubilee pension expense (recovery) amounted to $(1,400) for
      the year ended December 31, 2004 (2003 - recovery of $529).

      The most recent actuarial valuations were completed on December 31, 2004.

      A reconciliation of the funded status of the defined benefit plans to the
      amounts recorded in the consolidated financial statements follows:

<TABLE>
<CAPTION>
                                         United States                    Germany                    Total
                            --------------------------  -------------------------  -----------------------
                                   2004           2003          2004         2003         2004        2003
                            -----------    -----------  ------------  -----------  -----------  ----------
<S>                         <C>            <C>          <C>           <C>          <C>          <C>
Plan assets, at fair value  $    4,458     $    4,658   $         -   $        -   $    4,458   $   4,658
        Benefit obligation      (6,429)        (5,485)      (18,498)     (16,781)     (24,927)    (22,266)
                            ----------     ----------   -----------   ----------   ----------   ---------
 Deficiency of plan assets
 over
        benefit obligation      (1,971)          (827)      (18,498)     (16,781)     (20,469)    (17,608)
    Unrecognized actuarial
               loss (gain)         828            (53)          237         (260)       1,065        (313)
                            ----------     ----------   -----------   ----------   ----------   ---------
 Accrued benefit liability  $   (1,143)    $     (880)  $   (18,261)  $  (17,041)  $  (19,404)  $ (17,921)
                            ==========     ==========   ===========   ==========   ==========   =========
</TABLE>

      The accrued liability is included in the Company's consolidated balance
      sheet as follows:

<TABLE>
<CAPTION>
                                         United States                   Germany                    Total
                             -------------------------  ------------------------  -----------------------
                                   2004           2003         2004         2003         2004        2003
                             ----------     ----------  -----------  -----------  -----------  ----------
<S>                          <C>            <C>         <C>          <C>          <C>          <C>
Accrued liabilities          $  (1,143)     $    (880)  $   (1,250)  $   (1,189)  $   (2,393)  $  (2,069)
Other long-term liabilities          -              -      (17,011)     (15,852)     (17,011)    (15,852)
</TABLE>

      The following information is provided on pension fund assets:

<TABLE>
<CAPTION>
                                        United States         Germany                   Total
                              -----------------------  --------------  ----------------------
                                  2004           2003   2004     2003        2004        2003
                              --------  -------------  -----  -------  ----------  ----------
<S>                           <C>       <C>            <C>    <C>      <C>         <C>
Fair value of plan assets,
   December 31, 2003
   (2003 - October 24, 2003)  $ 4,658   $      4,668   $   -    $   -  $   4,658   $   4,668
Actual return on plan assets      359            114       -        -        359         114
Actual benefits paid             (559)          (124)      -        -       (559)       (124)
                              -------   ------------   -----    -----  ---------   ---------
Fair value of plan assets,
   December 31                $ 4,458   $      4,658   $   -    $   -  $   4,458   $   4,658
                              =======   ============   =====    =====  =========   =========
</TABLE>

50 CINRAM ANNUAL REPORT 2004

<PAGE>

 Benefit obligations are outlined below:

<TABLE>
<CAPTION>
                                                   United States                  Germany                    Total
                                        ------------------------  -----------------------  -----------------------
                                             2004           2003        2004         2003         2004        2003
                                        ---------  -------------  ----------  -----------  -----------  ----------
<S>                                     <C>        <C>            <C>         <C>          <C>          <C>
Benefit obligations, December 31, 2003
  (2003 - October 24, 2003)             $  5,485   $      5,517   $  16,781   $   17,051   $   22,266   $  22,568
Service cost                                 242             36         169           29          411          65
Interest cost                                389             56         920          160        1,309         216
Actual benefits paid                        (559)          (124)     (1,272)        (199)      (1,831)       (323)
Actuarial loss (gain)                        872              -         518         (260)       1,390        (260)
Impact of foreign exchange                     -              -       1,382            -        1,382           -
                                        --------   ------------   ---------   ----------   ----------   ---------
Benefit obligations, December 31        $  6,429   $      5,485   $  18,498   $   16,781   $   24,927   $  22,266
                                        ========   ============   =========   ==========   ==========   =========
</TABLE>

      Elements of defined benefit costs recognized in the year:

<TABLE>
<CAPTION>
                                                   United States                  Germany                    Total
                                        ------------------------  -----------------------  -----------------------
                                             2004           2003        2004         2003         2004        2003
                                        ---------  -------------  ----------  -----------  -----------  ----------
<S>                                     <C>        <C>            <C>         <C>          <C>          <C>
COMPONENTS OF NET PERIODIC

 BENEFIT COST:

   Service cost                         $    242   $         36   $     169   $       29   $      411   $      65
   Interest cost                             389             56         920          160        1,309         216
   Actual return on plan assets             (359)          (114)          -            -         (359)       (114)
   Actuarial loss                            872              -           -            -          872           -
                                        --------   ------------   ---------   ----------   ----------   ---------
   Costs                                   1,144            (22)      1,089          189        2,233         167
Adjustments to recognize the long-term
 nature of employee future benefit
  costs:
   Return on plan assets for period          (9)            54           -            -            (9)         54
   Actuarial gain                          (872)             -           -            -          (872)          -
                                        --------   ------------   ---------   ----------   ----------   ---------
Defined benefit costs recognized        $    263   $         32   $   1,089   $      189   $    1,352   $     221
                                        ========   ============   =========   ==========   ==========   =========
</TABLE>

      Actuarial assumptions for the years ended December 31:

<TABLE>
<CAPTION>
                                                           United States                  Germany
                                                ------------------------  -----------------------
                                                     2004           2003        2004         2003
                                                ---------  -------------  ----------  -----------
<S>                                             <C>        <C>            <C>         <C>
WEIGHTED AVERAGE ACTUARIAL ASSUMPTIONS USED TO
 DETERMINE BENEFIT COSTS:

    Discount rate                                 6.25%        6.25%         4.75%        5.25%
    Rate of compensation increase                 4.50%        4.50%         2.50%        3.50%
    Expected return on plan assets                8.00%        8.00%            -            -
WEIGHTED AVERAGE ACTUARIAL ASSUMPTIONS USED TO

 DETERMINE BENEFIT OBLIGATION:

    Discount rate                                 6.00%        6.25%         4.75%        5.25%
    Rate of compensation increase                 4.50%        4.50%         2.50%        2.50%
</TABLE>

                                                    CINRAM ANNUAL REPORT 2004 51
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

16. CHANGE IN NON-CASH OPERATING WORKING CAPITAL

<TABLE>
<CAPTION>
                                                                         2004         2003
                                                                 ------------  -----------
<S>                                                              <C>           <C>
(Increase) decrease in accounts receivable                       $  (133,342)  $   26,902
(Increase) in income taxes recoverable                                (9,365)           -
(Increase) decrease in inventories                                   (10,647)      54,880
(Increase) decrease in prepaid expenses                              (14,169)       7,773
(Decrease) increase in accounts payable and accrued liabilities       (1,436)     131,027
(Decrease) in income taxes payable                                    (2,102)      (6,733)
                                                                 -----------   ----------
                                                                 $  (171,061)  $  213,849
                                                                 ===========   ==========
</TABLE>

17.   SEGMENTED INFORMATION

      The Company's reportable business segments are Home Video
      replication/duplication, Audio/ROM replication/duplication, Printing and
      Distribution services.

      The Home Video replication/duplication segment manufactures DVDs and VHS
      video cassettes. The Audio/ROM replication/duplication segment
      manufactures CDs, CD ROM and video cassettes. The Printing segment
      provides design, printing and packaging services. The Other segment
      includes merchandising sales. The Distribution services segment
      distributes pre-recorded media products on behalf of its customers.

      For the year ended December 31, 2004, the Distribution services segment
      comprises 10% of consolidated revenue and has been disclosed as an
      industry segment. The segmented information for the year ended December
      31, 2003 has been restated to comply with the presentation adopted in
      2004.

      The accounting policies of the segments are the same as those described in
      the significant accounting policies. The Company evaluates segment
      performance based on earnings before interest expense, investment income,
      unusual items and income taxes.

      In 2004, the Company was dependent on two customers for approximately 36%
      and 14%, respectively, of consolidated revenue from the four main business
      segments. At December 31, 2004, these customers represented approximately
      30% and 16%, respectively, of consolidated accounts receivable.

      In 2003, the Company was dependent on two customers for approximately 30%
      and 19%, respectively, of consolidated revenue from the four main business
      segments. At December 31, 2003, these customers represented approximately
      21% and 28%, respectively, of consolidated accounts receivable.

52 CINRAM ANNUAL REPORT 2004

<PAGE>

(a) INDUSTRY SEGMENTS

<TABLE>
<CAPTION>
                                      HOME VIDEO     AUDIO/ROM
                                     REPLICATION/   REPLICATION/
              2004                   DUPLICATION    DUPLICATION    PRINTING   DISTRIBUTION     OTHER       TOTAL
----------------------------------  -------------  -------------  ----------  ------------  ----------  -----------
<S>                                 <C>            <C>            <C>         <C>           <C>         <C>
Revenue from external customers     $   1,090,543  $    324,326   $  225,388  $   207,302   $  179,079  $ 2,026,638
Earnings before interest expense,
  investment income, unusual
items and income taxes                    159,107        17,495       16,494      (33,785)       1,375      160,686
Total assets                            1,159,288       344,771      182,236      220,371      190,367    2,097,033
Amortization of capital assets and
  assets under capital leases             100,537        21,715        8,433       15,372          640      146,697
Amortization of intangible assets          57,438           669        8,800            -            -       66,907
Capital expenditures                      101,433         9,652        2,911       24,655        7,053      145,704
</TABLE>

<TABLE>
<CAPTION>
                                      Home Video    Audio/ROM
                                     replication/  replication/
              2003                   duplication   duplication   Printing  Distribution     Other       Total
----------------------------------  -------------  ------------  --------  ------------  ----------  -----------
<S>                                 <C>            <C>            <C>      <C>           <C>         <C>
Revenue from external customers       $ 495,302      $ 172,581   $ 46,626  $    71,302   $  41,082   $   826,893
Earnings before interest expense,
  investment income, unusual
  items and income taxes                 74,115          8,734      5,520       (8,270)     11,088        91,187
Total assets                          1,263,882        460,937    221,143       71,853      41,399     2,059,214
Amortization of capital assets and
  assets under capital leases            43,674         13,768      1,197        4,638         430        63,707
Amortization of intangible assets         9,164            107      1,404            -           -        10,675
Capital expenditures                     70,010          1,938      1,390        3,884       3,004        80,226
Additions to goodwill
  and intangible assets                 629,490          6,578     69,730        2,453           -       708,251
</TABLE>

                                                    CINRAM ANNUAL REPORT 2004 53
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      (b)   REVENUE FROM EXTERNAL CUSTOMERS IS COMPRISED OF THE FOLLOWING:

<TABLE>
<CAPTION>
                        2004            2003
                   --------------    ---------
<S>                <C>               <C>
DVD                $    1,025,389    $ 386,413
VHS                        65,154      108,889
Audio CD/CD-ROM           313,420      162,362
Audio cassette             10,906       10,219
Printing                  225,388       46,626
Distribution              207,302       71,302
Merchandising             143,368       20,320
Other                      35,711       20,762
                   --------------    ---------
                   $    2,026,638    $ 826,893
                   --------------    ---------
</TABLE>

      (c)   GEOGRAPHIC SEGMENTS

<TABLE>
<CAPTION>
                                    UNITED
          2004                      STATES       CANADA       FRANCE       GERMANY       OTHER        TOTAL
-------------------------------  ------------  -----------  -----------  -----------  ------------  -----------
<S>                              <C>           <C>          <C>          <C>          <C>           <C>
Revenue from external customers  $  1,386,265  $   133,363  $   107,805  $   337,607  $     61,598  $ 2,026,638
Capital assets, goodwill and
  intangible assets                 1,020,121       69,305       40,175      182,953        37,446    1,350,000
</TABLE>

<TABLE>
<CAPTION>
                                    United
          2003                      States       Canada       France      Germany        Other        Total
-------------------------------  ------------  -----------  -----------  -----------  ------------  -----------
<S>                              <C>           <C>          <C>          <C>          <C>           <C>
Revenue from external customers  $    497,658  $   130,263  $    83,724  $    72,183  $     43,065  $  826,893
Capital assets, goodwill and
  intangible assets                 1,045,692       74,178       29,793      143,659         9,060   1,302,382
</TABLE>

18.   FINANCIAL INSTRUMENTS

      The Company has determined the fair values of its financial instruments as
      follows:

      (a)   FAIR VALUES

            The carrying amounts in the consolidated balance sheets of cash and
            cash equivalents, accounts receivable and accounts payable and
            accrued liabilities approximate fair values because of the
            short-term nature of these instruments.

      (b)   LONG-TERM DEBT

            The carrying values of long-term debt and obligations under capital
            leases which have variable interest rates based on market rates
            approximate the fair values of those financial instruments. The fair
            values of the Company's long-term debt and obligations under capital
            leases were based on the amount of future cash flows associated with
            each instrument discounted using borrowing rates currently available
            for similar debt instruments with similar maturity.

            The aggregate carrying value and fair value of the Company's
            long-term debt and obligations under capital leases at December 31
            were:

<TABLE>
<CAPTION>
          Carrying value      Fair value
          --------------      ----------
<S>       <C>                 <C>
2004          863,796           864,256
2003        1,056,842         1,059,519
</TABLE>

 54 CINRAM ANNUAL REPORT 2004

<PAGE>

      (c)   DERIVATIVE INSTRUMENTS

            The fair values of the Company's interest rate exchange agreements
            and interest rate cap agreements are based on values quoted by the
            counterparties to the agreements. At December 31, 2004, the fair
            value of these agreements represents a liability of $514.

      Fair value estimates are made at a specific point in time, based on
      relevant market information and information about the financial
      instruments. These estimates are subjective in nature and involve
      uncertainties and matters of significant judgment and, therefore, cannot
      be determined with precision. Changes in assumptions could significantly
      affect the estimates.

19.   RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES

      The consolidated financial statements of the Company have been prepared in
      accordance with Canadian GAAP. These principles conform in all material
      respects to those in the United States, except for the following:

      Consolidated statements of earnings according to U.S. GAAP:

<TABLE>
<CAPTION>
                              Asset category                                   2004          2003
-------------------------------------------------------------------------   ----------    ----------
<S>                                                                         <C>           <C>
Net earnings in accordance with Canadian GAAP                               $   75,824    $   53,020
Description of items having the effect of
  increasing (decreasing) reported earnings:
     Customer payments (a)                                                       1,414         1,377
     Amortization of capitalized interest on construction in progress (b)         (400)         (312)
     Stock-based compensation (c)                                                1,269             -
     Income tax effect of above adjustments                                        160           125
                                                                            ----------    ----------
Net earnings according to U.S. GAAP                                             78,267        54,210
Other comprehensive income:
     Net loss on derivatives designated as hedges, net of tax (d)                 (314)            -
     Foreign currency translation                                               22,106        38,687

                                                                            ----------    ----------
                                                                                21,792        38,687
                                                                            ----------    ----------
Comprehensive earnings according to U.S. GAAP                               $  100,059    $   92,897
                                                                            ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                               2004          2003
                                                                            ----------    ----------
<S>                                                                         <C>           <C>
Earnings per share under U.S. GAAP:
     Basic                                                                  $     1.38    $     0.97
     Diluted                                                                      1.36          0.96
                                                                            ==========    ==========

Weighted average shares outstanding (in thousands):
     Basic                                                                      56,589        55,628
     Diluted                                                                    57,514        56,612
                                                                            ==========    ==========
</TABLE>

                                                    CINRAM ANNUAL REPORT 2004 55

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except common shares and per share information)
Years ended December 31, 2004 and 2003

      Consolidated shareholders' equity according to U.S. GAAP:

<TABLE>
<CAPTION>
                                                                                       2004          2003
                                                                                    ----------    ----------
<S>                                                                                 <C>           <C>
Shareholders' equity in accordance with Canadian GAAP                               $  486,191    $  385,283
Description of items having the effect of increasing (decreasing) reported
  shareholders' equity:
     Customer payments (a)                                                                   -        (1,414)
     Capitalized interest on construction in progress (b)                                3,536         3,536
     Accumulated amortization of capitalized interest on construction in
      progress (b)                                                                      (1,244)         (844)
     Loss on derivatives designated as hedges, net of tax (d)                             (314)            -
     Goodwill amortization (e)                                                          (3,325)       (3,325)
     Income tax effect of above adjustments                                               (921)       (1,081)
                                                                                    ----------    ----------
Shareholders' equity according to U.S. GAAP                                         $  483,923    $  382,155
                                                                                    ----------    ----------
</TABLE>

(a)   Under Canadian GAAP, contractual payments to acquire sales contracts are
      amortized against revenue over the term of the contracts. As of December
      31, 2004, $823 (2003 - $9,459) remained on the consolidated balance sheet
      as deferred charges, included in other assets. The amount relates to
      contractual payments made in the current and prior periods. Under U.S.
      GAAP, certain of the amounts incurred in prior periods would have been
      expensed as incurred. As a result, under U.S. GAAP, revenue would have
      increased by $1,414 for the year ended December 31, 2004 (2003 - $1,377)
      to reverse the impact of amortization recorded under Canadian GAAP.

(b)   Under U.S. GAAP, interest must be capitalized on construction in progress,
      whereas under Canadian GAAP, such capitalization is not mandatory. During
      a significant facility expansion which occurred in fiscal 2000 and 2001,
      the Company did not capitalize any interest under Canadian GAAP. Under
      U.S. GAAP, in 2004, net capital assets would have increased by $2,292
      (2003 - $2,692), amortization expense would have increased by $400 (2003 -
      $312), and income tax expense would have decreased by $160 (2003 - $125).

(c)   Under U.S. GAAP, the Company measures compensation costs related to stock
      options granted to employees using the intrinsic value method as
      prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
      Employees," as permitted by SFAS No. 123. Therefore, the stock-based
      compensation expense of $1,269 recorded under Canadian GAAP has been
      excluded from the consolidated statement of earnings under U.S. GAAP.

(d)   The Financial Accounting Standards Board (FASB) has issued SFAS 133,
      "Accounting for Derivative Instruments and Hedging Activities" and SFAS
      138, which amends SFAS 133. SFAS 133 establishes methods of accounting for
      derivative financial instruments and hedging activities related to those
      instruments, as well as other hedging activities. The standard requires
      that all derivatives be recorded on the balance sheet at fair value. The
      Company has implemented SFAS 133 effective for 2004 for the purposes of
      the U.S. GAAP reconciliation, as prior to 2004, the Company had not
      entered into any derivative financial instrument arrangements.

(e)   This difference relates to higher goodwill amortization prior to January
      1, 2002, when goodwill ceased being amortized, under Canadian GAAP arising
      from prior acquisitions.

(f)   RECENT UNITED STATES ACCOUNTING PRONOUNCEMENTS

      In December 2004, FASB issued SFAS 153, "Exchanges of Non-monetary Assets
      - an Amendment of APB Opinion 29." APB Opinion 29 is based on the
      principle that exchanges of non-monetary assets should be measured based
      on the fair value of assets exchanged. SFAS 153 amends Opinion 29 to
      eliminate the exception for non-monetary exchanges of similar productive
      assets and replaces it with a general exception for exchanges of
      non-monetary assets that do not have commercial substance. The standard is
      effective for non-monetary asset exchanges occurring in fiscal periods
      beginning after June 15, 2005 and will be applied prospectively. The
      Company is currently evaluating the impact of this revised standard.

56 CINRAM ANNUAL REPORT 2004

<PAGE>

In December 2004, FASB issued SFAS 151, "Inventory Costs," which clarifies the
accounting for abnormal amounts and the allocation of fixed production costs.
The standard is effective for 2006. The Company is currently evaluating the
impact of this standard.

In December 2004, FASB issued SFAS 123 (revised 2004), "Share-based Payments,"
which requires companies to recognize the grant-date fair value of stock options
and other equity-based compensation issued to employees in the statement of
earnings. The standard is effective as of the beginning of the Company's third
quarter of 2005 and applies to all unvested employee awards at the date of
adoption. The Company is currently evaluating the impact of this revised
standard.

In January 2003, FASB issued Interpretation No. 46,"Consolidation of Variable
Interest Entities" (VIEs) (FIN 46). In December 2003, FASB issued FIN 46R, which
superseded FIN 46 and contains numerous exemptions. FIN 46R applies to financial
statements of public entities that have or potentially have interests in
entities considered special purpose entities for periods ended after December
15, 2003, and, otherwise, to interests in VIEs for periods ending after March
15, 2004. VIEs are entities that have insufficient equity and/or their equity
investors lack one or more specified essential characteristics of a controlling
financial interest. The guideline provides specific guidance for determining
when an entity is a VIE and who, if anyone, should consolidate the VIE. The
adoption of this standard did not have an impact on the consolidated financial
statements as the Company did not have any VIEs in existence on the date of
adoption.

                                                    CINRAM ANNUAL REPORT 2004 57

<PAGE>

FINANCIAL HIGHLIGHTS
11 YEARS ENDING DECEMBER 31, 2004
(stated in thousands of U.S. dollars, except per share data)

<TABLE>
<CAPTION>
                                                         2004       2003       2002       2001
                                                      ---------    -------    -------    -------
<S>                                                   <C>          <C>        <C>        <C>
INCOME STATEMENT
Net sales                                             2,026,638    826,893    559,287    535,607

Sales growth in %                                           145%        48%         4%        22%

Cost of sales                                         1,615,542    655,374    457,322    459,210

Gross profit before amortization                        557,793    235,226    149,731    119,450

Gross profit % before amortization                           28%        28%        27%        22%

Amortization of capital assets                          146,697     63,707     47,766     43,053

Gross profit                                            411,096    171,519    101,965     76,397

Gross profit as a % of sales                                 20%        21%        18%        14%

Selling, general and administrative expenses            177,372     68,883     51,537     50,744

Selling, general and administrative
  expenses as a % of net sales                                9%         8%         9%         9%

Amortization of intangible assets and deferred
  financing fees                                         73,038     11,449          -          -

Goodwill amortization                                         -          -          -      1,336

Research and development expenses                             -          -          -         64

Unusual items                                            (1,713)     2,726      1,449     (2,563)

EBITA (earnings before interest expense,
  investment income, income taxes and amortization)     382,134    163,617     96,745     69,869

EBITA %                                                      19%        20%        17%        13%

EBIT (earnings before interest expense,
  investment income and income taxes)                   162,399     88,461     48,979     26,816

EBIT %                                                        8%        11%         9%         5%

Interest expense                                         53,102     13,742      3,305      6,209

Investment income                                         2,436      3,583      2,888      2,836

Write-down of marketable securities                           -          -                     -

Income tax expense                                       35,909     25,282     13,891      8,172

Net earnings                                             75,824     53,020     34,671     15,271

Basic EPS* (after unusual items)                           1.34       0.95       0.63       0.28

Diluted EPS* (after unusual items)                         1.32       0.94       0.63       0.28
</TABLE>

* per share data based on 3 for 1 stock split July 1987, 2 for 1 stock split
June 1993 and 2 for 1 stock split February 1998

58 CINRAM ANNUAL REPORT 2004
<PAGE>

<TABLE>
<CAPTION>
                                                   2000         1999       1998        1997         1996       1995        1994
                                                ---------    ---------   ---------   ---------   ---------   ---------   ---------
<S>                                             <C>          <C>         <C>         <C>         <C>         <C>         <C>
INCOME STATEMENT
Net sales                                         438,756      435,742     431,789     369,608     249,905     197,485     105,224

Sales growth in %                                       1%           1%         17%         48%         27%         88%         28%

Cost of sales                                     371,387      324,905     327,228     280,327     187,849     150,299      75,520

Gross profit before amortization                  106,221      150,375     143,646     119,256      75,718      59,499      36,565

Gross profit % before amortization                     24%          35%         33%         32%         30%         30%         35%

Amortization of capital assets                     38,852       39,538      39,085      29,975      13,662      12,313       6,861

Gross profit                                       67,369      110,837     104,561      89,281      62,056      47,186      29,704

Gross profit as a % of sales                           15%          25%         24%         24%         25%         24%         28%

Selling, general and administrative expenses       51,761       48,468      49,864      41,920      24,530      20,690      13,109

Selling, general and administrative
  expenses as a % of net sales                         12%          11%         12%         11%         10%         10%         12%

Amortization of intangible assets and deferred
  financing fees                                        -            -           -           -           -           -           -

Goodwill amortization                               3,406        5,904       3,483       2,109         922         559

Research and development expenses                   1,144        1,056       3,016       1,442       1,689       1,428       1,423

Unusual items                                      34,760       20,622           -           -           -           -           -

EBITA (earnings before interest expense,
  investment income, income taxes and
  amortization)                                    15,150       74,325      87,283      73,785      48,577      36,822      22,033

EBITA %                                                 3%          17%         20%         20%         19%         19%         21%

EBIT (earnings before interest expense,
  investment income and income taxes)             (23,702)      34,787      48,198      43,810      34,915      24,509      15,172

EBIT %                                                 (5)%          8%         11%         12%         14%         12%         14%

Interest expense                                   12,237       10,818      11,078       6,292       2,270       1,550           -

Investment income                                  11,214       11,308      11,723       7,471       2,883       2,736       1,678

Write-down of marketable securities                     -        2,241       4,132           -           -           -           -

Income tax expense                                 (5,816)      19,979      16,291      14,646      12,651       8,883       3,770

Net earnings                                      (18,909)      13,057      28,420      30,343      22,877      16,812      13,080

Basic EPS* (after unusual items)                    (0.34)        0.22        0.48        0.53        0.48        0.37        0.29

Diluted EPS* (after unusual items)                  (0.34)        0.22        0.47        0.53        0.46        0.36        0.29
</TABLE>

                                                    CINRAM ANNUAL REPORT 2004 59

<PAGE>

COMPARATIVE BALANCE SHEETS
11 YEARS ENDING DECEMBER 31, 2004
(stated in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                      2004     2003     2002     2001     2000    1999     1998     1997     1996     1995     1994
                                      ----     ----     ----     ----     ----    ----     ----     ----     ----     ----     ----
<S>                                   <C>      <C>      <C>      <C>      <C>    <C>      <C>       <C>      <C>      <C>      <C>
BALANCE SHEET

Current ratio                         1.02     1.05     1.65     1.45     1.30    1.61     1.61     2.65     3.14     1.49     2.32

Debt to equity ratio (1)              3.31     4.34     0.80     0.84     1.11    1.04     0.98     1.01     0.37     0.85     0.42

Debt to assets ratio (1)              0.77     0.81     0.45     0.46     0.53    0.51     0.49     0.50     0.27     0.46     0.29

Equity to assets ratio                0.23     0.19     0.55     0.54     0.47    0.49     0.51     0.50     0.73     0.54     0.71

Accounts receivable
  turnover (2)                           5        3        4        4        3       4        5        5        5        6        7

Days sales in
  accounts receivable (2)               80      111       97      103      107      86       80       75       78       63       50

Inventory turnover (3)                  32       15       14       17       13      12       12       13       11       13       13

Days sales in inventory (3)             11       24       26       21       27      31       31       29       32       27       28

Asset turnover (4)                    1.39     0.64     1.07     1.13     0.87    0.78     0.79     0.71     0.73     1.09     1.06

Return on equity (5)
  (after unusual item)                  17%      15%      13%       6%     n/a       5%      10%      12%      13%      19%      20%

Return on total assets (6)
  (after unusual item)                   4%       4%       7%       3%     n/a       2%       5%       7%       9%      12%      14%
</TABLE>

(1) consists of current and long-term liabilities including future income taxes

(2) two year average accounts receivable

(3) two year average inventory

(4) total assets excluding intangible assets

(5) two year average equity

(6) two year average total assets

60 CINRAM ANNUAL REPORT 2004

<PAGE>

TRADING OF COMMON SHARES: CRW

<TABLE>
<CAPTION>
For years ended December 31
(in Canadian dollars, except volume)     Quarter      High         Low       Closing     Volume ('000)
------------------------------------     -------    --------    --------    ---------    -------------
<S>                                      <C>        <C>         <C>         <C>          <C>
2004                                     FIRST      $  29.75    $  24.00    $   26.18       33,960
                                         SECOND        26.80       22.30        25.00       22,513
                                         THIRD         25.03       19.70        21.20       18,675
                                         FOURTH        24.95       15.88        22.13       34,722
                                         -------    --------    --------    ---------      -------
                                         YEAR       $  29.75    $  15.88    $   22.13      109,871
                                         -------    --------    --------    ---------      -------

2003                                     First      $  11.25    $   8.36    $   11.00       12,988
                                         Second        16.85       10.80        16.43       21,626
                                         Third         29.60       15.51        24.95       38,905
                                         Fourth        28.59       25.34        28.35       21,488
                                         -------    --------    --------    ---------      -------
                                         Year       $  29.60    $   8.36    $   28.35       95,006
                                         -------    --------    --------    ---------      -------

2002                                     First      $   8.45    $   4.62    $    7.95       23,505
                                         Second        11.25        7.52        10.35       14,313
                                         Third         10.20        6.10         7.00       12,570
                                         Fourth        10.29        5.31         9.89       15,989
                                         -------    --------    --------    ---------      -------
                                         Year       $  11.25    $   4.62    $    9.89       66,377
                                         -------    --------    --------    ---------      -------

2001                                     First      $   3.50    $   2.00    $    2.75        7,836
                                         Second         4.75        2.50         4.25        6,773
                                         Third          4.55        3.50         3.79        4,793
                                         Fourth         5.15        3.06         4.60        8,364
                                         -------    --------    --------    ---------      -------
                                         Year       $   5.15    $   2.00    $    4.60       27,765
                                         -------    --------    --------    ---------      -------

2000*                                    First      $  11.30    $   7.55    $    7.55       11,583
                                         Second        10.80        7.50         9.40       15,807
                                         Third          9.75        4.85         5.75       10,318
                                         Fourth         6.05        2.56         2.85       15,051
                                         -------    --------    --------    ---------      -------
                                         Year       $  11.30    $   2.56    $    2.85       52,759
                                         -------    --------    --------    ---------      -------
</TABLE>

* TSX and Nasdaq

COMMON SHARES OUTSTANDING AT DECEMBER 31, 2004 - 56,803,086

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AT DECEMBER 31, 2004

<TABLE>
<S>                      <C>
Basic:                   56,588,815
Diluted:                 57,513,852
</TABLE>

                                                    CINRAM ANNUAL REPORT 2004 61

<PAGE>

BOARD OF DIRECTORS

HENRI A. ABOUTBOUL (3)

Non-Executive
Chairman of the Board

NORMAN MAY, Q.C. (2)

Director

Partner,
Fogler, Rubinoff LLP

NADIR H. MOHAMED, CA (1, 3)*

Director

President and Chief Executive Officer,
Rogers Wireless Communications Inc.

ISIDORE PHILOSOPHE

Director

Chief Executive Officer,
Cinram International Inc.

JOHN R. PRESTON, CPA (1, 2)*

Director

Vice-President,
Finance and Administration,
Southern Wine & Spirits of
America, Inc.

LEWIS RITCHIE, CA

Director

Chief Financial Officer and Secretary
Executive Vice-President,
Finance and Administration,
Cinram International Inc.

DAVID RUBENSTEIN

Director

President and Chief Operating Officer,
Cinram International Inc.

PETER G. WHITE (1*, 3)

Director

Vice-President, Operations and
Secretary,
Hollinger Inc.

(1) Audit committee

(2) Corporate governance and nominations committee

(3) Compensation committee

 *  Committee chair

OFFICERS

ISIDORE PHILOSOPHE

Chief Executive Officer

LEWIS RITCHIE, CA

Chief Financial Officer and Secretary
Executive Vice-President,
Finance and Administration

DAVID RUBENSTEIN

President and Chief Operating Officer

DAVID LOCKSLEY

Chief Information Officer

JAIME OVADIA

President,
U.S. and Latin America

Executive Vice-President,
World Wide Theatrical Home Video

JACQUES PHILOSOPHE

Executive Vice-President

MONIQUE RABIDEAU

Assistant Secretary,
Cinram International Inc.

Partner,
Fogler, Rubinoff LLP

JOHN TINO, CA

Director,
Financial Reporting and Treasurer

MARCEL TUCHNER

Executive Vice-President,
Manufacturing and Engineering

62 CINRAM ANNUAL REPORT 2004

<PAGE>

CORPORATE INFORMATION

CORPORATE HEADQUARTERS

Cinram International Inc.
2255 Markham Road
Toronto, Ontario
M1B 2W3
Telephone: (416) 298-8190
Fax: (416) 298-0612

INVESTOR RELATIONS

2255 Markham Road
Toronto, Ontario
M1B 2W3
Telephone: (416) 298-8190
E-mail: investorrelations@cinram.com

TRANSFER AGENT

Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario
M5J 2Y1
Telephone: 1-800-564-6253
Fax: 1-888-453-0330
E-mail: CARegistryInfo@computershare.com

AUDITORS

KPMG LLP
4100 Yonge Street
Suite 200
Toronto, Ontario
M2P 2H3

DIVIDEND POLICY AND PAYMENT

Cinram's long-term strategic objective is to secure above average capital growth
for its shareholders. The Company retains most of its earnings to maximize
expansion opportunities.

Cinram declares dividends on a quarterly basis. In March 2005, the Company
declared a quarterly dividend of $0.03 per common share, payable on March 31,
2005.

ANNUAL MEETING

Cinram's Annual General Meeting of Shareholders will be held at 4 p.m. on April
25, 2005, at the TSX Conference Centre (130 King Street West,Toronto, Ontario,
M5X 1E1). Shareholders are invited to attend this meeting.

                                                    CINRAM ANNUAL REPORT 2004 63

<PAGE>

CORPORATE DIRECTORY

CANADA

Cinram International Inc. -
Corporate Headquarters
2255 Markham Road
Toronto, Ontario
M1B 2W3
Telephone: (416) 298-8190
Fax: (416) 298-0612

5590 Finch Avenue East
Toronto, Ontario
Canada M1B 1T1
Telephone: (416) 298-8190
Fax: (416) 332-9022

601 Milner Avenue
Toronto, Ontario
Canada M1B 1M8
Telephone: (416) 298-8190

UNITED STATES

Cinram Inc. U.S. - Head Office
1600 Rich Road
Richmond, Indiana
USA 47374
Telephone: (765) 962-9511
Fax: (765) 962-1564

4950 Moores Mill Road
Huntsville, Alabama
USA 35811
Telephone: (256) 859-9042
Fax: (256) 859-9932

Cinram Manufacturing Inc.
1400 East Lackawanna Avenue
Olyphant, Pennsylvania
USA 18448
Telephone: (570) 383-2471
Fax: (570) 383-6722

6110 Peachtree Street
Commerce, California
USA 90040
Telephone: (323) 832-2600
Fax: (323) 725-8763

400 Sanford Road
LaVergne, TN
USA 37086
Telephone: (615) 287-3900
Fax: (615) 287-3810

437 Sanford Road
LaVergne, TN
USA 37086
Telephone: (615) 287-3800
Fax: (615) 287-3866

Ivy Hill - Head office
619 West 54th Street
New York, New York
USA 11019
Telephone: (646) 834-1500
Fax: (646) 834-1576

7000 New Horizons Blvd.
Amityville, New York
USA 11701
Telephone: (631) 842-6800
Fax: (631) 842-6827

4325 Shepherdsville Road
Louisville, Kentucky
USA 40218
Telephone: (502) 458-5303
Fax: (502) 458-2125

4025 Third Parkway
Terre Haute, Indiana
USA 47804
Telephone: (812) 466-9851
Fax: (812) 466-4676

1275 Los Angeles Street
Glendale, California
USA 91204
Telephone: (818) 552-1000
Fax: (818) 638-0477

4800 Santa Fe Avenue
Los Angeles, California
USA 90058
Telephone: (323) 277-4800
Fax: (323) 277-4890

Giant Merchandising Inc.
5655 Union Pacific Avenue
Commerce, California
USA 90022
Telephone: (323) 887-3300
Fax: (323) 887-3341

EUROPE

Cinram Europe - Head office
3 Shortlands
Hammersmith, London
United Kingdom, W6 8RX
Telephone: (44) 208 741 3388
Fax: (44) 208 735 9450

Cinram U.K. Ltd.
2 Central Avenue, Ransomes(Europark)
Ipswich, Suffolk
United Kingdom, 1P3 9SL
Telephone: (44) 1473 271 010
Fax: (44) 1473 271 040

The Entertainment Network
Rabans Lane
Aylesbury
Buckinghamshire
United Kingdom HP19 8TS
Telephone: (44) 1296 426 151
Fax: (44) 1296 481 009

Cinram France
Les Granges
B.P. 48
Champenard
27608 Gaillon Cedex
France
Telephone: (33) 2 32 21 47 00
Fax: (33) 2 32 21 47 04

Cinram Optical Discs SAS
26 Avenue Winston Churchill
B.P. 615
27406 Louviers Cedex
France
Telephone: (33)2 32 25 72 00
Fax: (33) 2 32 25 72 22

Cinram GmbH
Max-Planck-Strasse 1-9
52477 Alsdorf
Germany
Telephone: (49) 2404 58-0
Fax: (49) 2404 58-111

LATIN AMERICA

Cinram Latinamericana S.A. de C.V.
Av. Tlahuac no. 6828-4
Col. San fco.Tlatenco 13400 Mexico, D.F.
Telephone: (5255) 58 62 32 00
Fax: (5255) 841-2819

64 CINRAM ANNUAL REPORT 2004

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