BRAMPTON, ONTARIO--(Marketwire - Nov. 7, 2008) - Brampton Brick Limited (the "Company") (TSX:BBL.A) today reported net income of $2,851, or $0.26 per Class A Subordinate Voting share ("Class A share") and Class B Multiple Voting share ("Class B share"), for the third quarter ended September 30, 2008, on a weighted average 10,952,000 Class A shares and Class B shares outstanding. For the third quarter of 2007, net income was $4,597, or $0.42 per share, on a weighted average 10,835,000 Class A shares and Class B shares outstanding.
For the nine month period ended September 30, 2008, the Company reported net income of $2,022, or $0.19 per share, on a weighted average 10,925,000 Class A shares and Class B shares outstanding compared to net income of $8,568, or $0.79 per share, on a weighted average 10,834,000 Class A shares and Class B shares outstanding, for the corresponding period in 2007.
Effective October 2, 2007, the Company's 65% owned subsidiary, 1312082 Ontario Limited (formerly Medical Waste Management Inc.), completed the sale of substantially all of its business operations and assets, excluding its 50% joint venture interest in Sharpsmart Canada Limited ("Sharpsmart") which was sold on April 21, 2008 and its interest in certain small quantity generator accounts which were disposed of effective September 1, 2008. Accordingly, operating results and cash flows of these components of the business have been classified as discontinued operations, as applicable, and comparative amounts have been reclassified to conform with the current period financial statement presentation.
RESULTS OF OPERATIONS
Three months ended September 30
Net income of $2,851 for the quarter is comprised of net income from continuing operations of $2,810, or $0.26 per share, and a net income from discontinued operations of $41. For the comparable period in 2007, net income of $4,597 was comprised of net income from continuing operations of $4,513, or $0.42 per share, and net income from discontinued operations of $84.
Net sales from continuing operations for the quarter were $27,427 compared to $26,277 in 2007. Net sales in the Masonry Products business segment increased by $1,021 on the strength of higher shipments of new concrete masonry products. Net sales in the Landscape Products business segment were at similar levels to last year. The Company's proportionate share of net sales generated by the new waste composting business of Universal Resource Recovery Inc. ("Universal") amounted to $157.
Lower production volumes, primarily in the Masonry Products business segment, in the third quarter of 2008 compared to the third quarter of 2007 resulted in an increase in unabsorbed manufacturing expenses charged against operations. This variance accounted for most of the increase in cost of goods sold. Higher distribution costs, due to an increase in delivery expenses and higher personnel costs, also contributed to the increase in cost of goods sold.
Production volumes have been lowered in 2008 to reduce inventories to more closely match anticipated sales volumes which are expected to be negatively impacted by economic conditions affecting both Canada and the U.S.
As a result of the increase in cost of goods sold, operating income from continuing operations, before interest and other items, declined by $1,172 to $4,597 for the quarter ended September 30, 2008 from $5,769 for the same period in 2007.
Interest on long-term debt increased by $185 to $368 primarily due to the increase in term bank loans. Net interest income decreased marginally as the impact of lower surplus cash balances available for investment was substantially offset by interest income earned on the promissory note receivable.
The Company incurred a foreign currency exchange loss of $57 in the third quarter of 2008. The loss was primarily due to the impact of fluctuations in the rate of exchange between the Canadian and U.S. dollar during the quarter on foreign currency transactions and balances.
In the third quarter of 2007 the Company reported a foreign currency exchange loss of $381. The exchange loss was substantially related to U.S. cash balances held by the Company during the period.
The provision for income taxes for the third quarter of 2008 reflected an effective rate of 33.8% compared to an expected rate of approximately 33.5%.
For the comparable period in 2007, the impact of certain foreign currency exchange losses on intercompany balances, which are eliminated on consolidation but are tax deductible expenses in the respective legal entity financial statements, resulted in the effective rate of income taxes being lower than the expected rate.
Nine months ended September 30
Net income of $2,022 for the nine month period is comprised of net income from continuing operations of $2,377, or $0.22 per share, and a loss from discontinued operations of $355, or $0.03 per share. For the comparable period in 2007, net income from continuing operations was $8,158, or $0.75 per share, and net income from discontinued operations was $410, or $0.04 per share.
Net sales from continuing operations for the nine month period were $67,208, an increase of $864 from the same period in 2007. Higher sales in the Masonry Products business segment during the third quarter were driven largely by sales of new concrete masonry products which were offset, in part, by lower first quarter sales in the Masonry Products business segment and lower second quarter sales in the Landscape Products business segment.
Year-to-date operating results were also impacted by substantially lower production volumes, in both the Masonry Products and Landscape Products business segments, which resulted in a significant increase in unabsorbed manufacturing expenses charged against operations. Higher distribution costs also contributed to the increase in cost of goods sold for the same reasons as outlined above for the third quarter results.
Selling expenses incurred to September 30, 2008 were slightly higher than the corresponding period in 2007 primarily due to higher advertising and other marketing expenditures related to the introduction of new products.
Increases in the cost of goods sold and selling expenses resulted in a decrease in operating income, before interest and other items, of $5,137 to $5,484 for the nine months ended September 30, 2008 from $10,621 for the nine months ended September 30, 2007.
Interest on long-term debt increased by $247 to $832 primarily due to the increase in term bank loans. Net interest income decreased slightly for substantially the same reasons as outlined above for the third quarter results.
The foreign currency exchange loss for the nine months to September 30, 2008 amounted to $374 compared to $1,698 for the same period in 2007. The exchange loss in 2007 was primarily due to U.S. cash balances held during the period.
Other income in 2007 included a gain of $533 on the disposal of certain equipment in connection with the outsourcing of the clay brick quarry operations in Brampton.
During the second quarter of 2007, the Company disposed of its investment in common shares of Futureway Communications Inc. for cash proceeds of $688 which resulted in a gain for accounting purposes in the same amount.
During the first quarter of 2008, certain properties located in the province of Quebec, which are surplus to the Company's requirements, were sold resulting in a gain of $136. Sale of properties during the third quarter of 2007 resulted in a gain of $253.
The provision for income taxes of $2,335 for the nine months ended September 30, 2008 reflected an effective income tax rate of 48.7% compared to an expected rate of 33.5%. The difference was primarily due to valuation allowances of approximately $541 recorded against the recovery of income taxes that would have otherwise been reported with respect to losses incurred in 2008 in the Company's U.S. operations and in the start-up operations of Universal.
More detailed discussion with respect to each operating business segment follows:
MASONRY PRODUCTS
For the third quarter ended September 30, 2008 operating income decreased by $1,131 to $4,678 on net sales of $19,251 compared to operating income of $5,809 on net sales of $18,230 for the corresponding period in 2007.
The $1,021 increase in net sales for the quarter was due to increased sales volumes generated by the introduction of new concrete masonry products, such as stone veneer, window sills and concrete brick. Sales in the U.S. markets continued to be impacted by the downturn in the U.S. housing industry.
Significantly lower clay brick production volumes in the third quarter of 2008 compared to the third quarter of 2007 resulted in a large increase in unabsorbed manufacturing expenses charged against operations. Higher distribution costs, primarily due to higher trucking expenses and higher personnel costs, also contributed to an increase in cost of goods sold.
As noted earlier, production volumes have been lowered in 2008 to reduce inventories in anticipation of lower demand due to current economic conditions.
For the nine month period, operating income declined by $2,685, from $12,939 on net sales of $49,071 in 2007 to $10,254 on net sales of $50,198 in 2008, for substantially the same reasons as outlined above for the third quarter results.
LANDSCAPE PRODUCTS
Operating income in the Landscape Products business segment for the third quarter of 2008 was $118 on net sales of $8,019 compared to operating income of $45 on net sales of $8,047 for the third quarter of 2007.
For the nine months ended September 30, 2008 this business segment incurred an operating loss of $4,306 compared to $2,055 in 2007. Significantly lower production volumes in 2008, to reduce inventories, and higher distribution costs resulted in a substantial increase in cost of goods sold which, in turn, resulted in a higher operating loss in the current period.
The Da Vinci Stone Craft operations, which are reported under this business segment, incurred a small loss for the quarter and for the year-to-date in both 2008 and 2007.
OTHER OPERATIONS
Other operations include, among other things, the Company's 50% joint venture interest in Universal. This investment is accounted for using the proportionate consolidation method.
During the third quarter of 2008, net sales of $157 were generated from transportation of source separated organic waste to a third party disposal site. Operations at Universal's waste composting facility in Welland commenced in October.
The Company's proportionate share of the start-up loss incurred by Universal in the third quarter of 2008 amounted to $161 compared to $85 in 2007. For the nine month periods the Company's proportionate share of losses were $452 and $263, respectively.
DISCONTINUED OPERATIONS
Discontinued operations represent the Company's medical waste business operations previously operated by a 65% owned subsidiary, substantially all of which was sold in October 2007. It also includes this subsidiary's 50% joint venture interest in Sharpsmart, which was sold in April 2008, and this subsidiary's interest in certain small quantity generator accounts, which were disposed of effective September 1, 2008.
For the third quarter ended September 30, 2008, net income from discontinued operations amounted to $41 compared to $84 for the same period in 2007. For the nine month period discontinued operations incurred a loss of $355, or $0.03 per share, compared to net income of $410, or $0.04 per share, in 2007.
The loss of $355 in 2008 includes a reduction of $375 in the principal amount of the promissory note taken back on the sale of the medical waste assets and business operations in October 2007 to settle a dispute with the purchaser in such transaction and a provision of $625 with respect to certain other expenditures which are expected to be incurred. The net effect of these adjustments, after deducting income taxes and the non-controlling interest therein, resulted in an increase in the loss for the nine month period of approximately $473, or $0.04 per share. As part of the settlement, the interest in certain small quantity generator accounts which had been retained as part of the sale of the interest in Sharpsmart were also transferred to the purchaser.
CASH FLOWS
Cash flow provided by operating activities of continuing operations for the quarter ended September 30, 2008 totaled $11,251 compared to $10,053 for the same period last year.
The improvement of $1,198 resulted primarily from a lower investment in inventories due to lower production volumes and a decrease in net income taxes recoverable. These increases were partially offset by the decrease in net income from continuing operations.
Cash utilized for purchases of property, plant and equipment totaled $17,693 for the quarter compared to $5,734 for the same period in 2007. Capital expenditures incurred in connection with the construction of the Indiana clay brick plant were $11,868 in the third quarter of 2008 compared to $4,081 for the same period in 2007.
Purchases of property, plant and equipment in the third quarter of 2008 also included an amount of $4,511, compared to $72 for the same period in 2007, related to the Company's 50% share of capital expenditures incurred by Universal for building modifications and to acquire processing equipment.
During the quarter, operating bank advances decreased by $851 and term bank loans increased by $6,925. The increase in term bank loans was to finance capital expenditures.
In 2007, repayments of inter-company advances in the amount of $214 in the third quarter and $1,044 in the nine month period represented payments received from the medical waste business that was sold in October 2007.
For the nine month period ended September 30, 2008, cash provided by operating activities of continuing operations amounted to $10,024 compared to $5,385 for the same period in 2007. The factors contributing to this $4,639 improvement were substantially the same as those outlined above for the third quarter.
Cash utilized for purchases of property, plant and equipment totaled $42,197 for the nine month period compared to $13,762 in 2007. Capital expenditures relating to the Indiana clay brick plant were $30,168 compared to $9,612 in 2007. Capital expenditures relating to Universal were $7,725 compared to $248 in 2007.
Other cash inflows for the year-to-date period included proceeds of $216 from the sale of properties, a $715 repayment by Sharpsmart of an inter-company advance upon the sale of the Company's interest in this business and $634 from the issuance of Class A shares upon the exercise of stock options under the Company's Stock Option Incentive Plan.
Other cash outflows in 2008 included cash dividends to shareholders of $0.10 per Class A share and $0.10 per Class B share paid on June 30, 2008 to shareholders of record on June 15, 2008, $339 for the repurchase of 34,800 Class A shares under the Company's Normal Course Issuer Bid and $700 representing the non-controlling interests' share of cash dividends paid by a subsidiary. These dividends represent a further distribution of the cash proceeds from the sale of the medical waste assets and business operations in 2007.
OTHER
The Company's Masonry Products and Landscape Products business segments are cyclical. Demand for masonry products fluctuates in accordance with the level of new residential and commercial construction. Demand for landscape products fluctuates in accordance with the level of industrial, commercial and institutional construction and consumer spending.
Current economic conditions are likely to result in a lower overall level of construction activity and reduced consumer spending. The Company anticipates that demand for its products will be impacted accordingly. Consequently, operating plans and manpower requirements have been, and will continue to be, re-evaluated and adjusted, as required, in order to minimize the impact on operating results and cash flows.
Construction of the Company's new clay brick manufacturing plant in Indiana, which commenced in 2007, is substantially on schedule and is expected to be completed in the fourth quarter of 2008.
Construction of Universal's waste composting facility in Welland, Ontario has been substantially completed and operations commenced in October, 2008. During the second quarter of 2008 Universal finalized credit arrangements in an aggregate amount of $20,000, including both term loan and operating loan facilities, to fund its capital expenditure and operating requirements. The Company and the joint venture partner have each provided a guarantee of $6,500 as security for Universal's borrowings under this credit agreement. As at September 30, 2008 Universal's total borrowings under these facilities amounted to $14,350 and letters of credit in the amount of $874 had been issued.
The Company also announced today that the Board of Directors declared a dividend of $0.10 per Class A Subordinate Voting share and $0.10 per Class B Multiple Voting share outstanding, payable on December 31, 2008 to shareholders of record on December 15, 2008.
Dividends paid by the Company are designated as eligible dividends pursuant to Subsection 89(14) of the Income Tax Act (Canada). An eligible dividend received by a Canadian individual shareholder is entitled to the enhanced dividend tax credit.
Certain statements contained herein constitute "forward-looking statements". Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, those identified under "Risks and Uncertainties" in the Company's 2007 Annual Report, which may cause actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Brampton Brick is Canada's second largest manufacturer of clay brick and manufactures concrete paving stones, retaining walls, garden walls and enviro products in Canada and U.S. under the Oaks Concrete Products trade name. The Company also manufactures a range of concrete masonry products including stone veneer, window sills and concrete brick. Products are used for residential construction and for industrial, commercial, and institutional building projects. Da Vinci Stone Craft Ltd., a 75% owned subsidiary, manufactures fireplace surrounds and accessory products. The Company also holds a 50% joint-venture interest in Universal Resource Recovery Inc. which commenced operations at its newly constructed waste composting facility in Welland, Ontario in October, 2008.
(All amounts are stated in thousands of Canadian dollars, except per share amounts, unless otherwise indicated.)
Selected Financial Information
(unaudited) (in thousands of dollars, except per share amounts)
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Three months ended Nine months ended
September 30 September 30
CONSOLIDATED STATEMENTS OF INCOME 2008 2007 2008 2007
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Net sales from
continuing operations $ 27,427 $ 26,277 $ 67,208 $ 66,344
Cost of goods sold 17,708 15,253 45,270 39,461
Selling, general and
administrative expenses 3,019 3,232 10,026 9,780
Amortization 2,103 2,023 6,428 6,482
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22,830 20,508 61,724 55,723
Operating income from
continuing operations
before the undernoted items 4,597 5,769 5,484 10,621
Interest on long-term debt (368) (183) (832) (585)
Interest income (net) 87 99 330 349
Foreign currency exchange loss (57) (381) (374) (1,698)
Foreign currency exchange gain
(loss) on cash flow hedges (12) 106 (1) 176
Other income 20 56 48 663
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(330) (303) (829) (1,095)
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Income from continuing operations
before the following items 4,267 5,466 4,655 9,526
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Gain on sale
of property held for sale - 253 136 253
--------- ---------- -------- ---------
Gain on sale of investment in
Futureway Communications Inc. - - - 688
--------- ---------- -------- ---------
Income from continuing
operations before income
taxes and non-controlling
interests 4,267 5,719 4,791 10,467
Provision for income taxes
Current (1,365) (804) (2,261) (866)
Future (76) (414) (74) (1,455)
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(1,441) (1,218) (2,335) (2,321)
--------- ---------- -------- ---------
Income from continuing
operations before
non-controlling interests 2,826 4,501 2,456 8,146
--------- ---------- -------- ---------
Non-controlling interests (16) 12 (79) 12
--------- ---------- -------- ---------
Net income from continuing
operations 2,810 4,513 2,377 8,158
Net income (loss) from
discontinued operations 41 84 (355) 410
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Net income for the period $ 2,851 $ 4,597 $ 2,022 $ 8,568
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Net income
per Class A and Class B share
From continuing operations $ 0.26 $ 0.42 $ 0.22 $ 0.75
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--------- ---------- -------- ---------
For the period $ 0.26 $ 0.42 $ 0.19 $ 0.79
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Weighted average Class A and
Class B shares outstanding
(000's) 10,952 10,835 10,925 10,834
Selected Financial Information
(unaudited) (in thousands of dollars)
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Three months ended Nine months ended
CONSOLIDATED STATEMENTS September 30 September 30
OF CASH FLOWS 2008 2007 2008 2007
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Cash provided by (used for)
activities of continuing
operations
Operating activities
Net income from
continuing operations
for the period $ 2,810 $ 4,513 $ 2,377 $ 8,158
Items not affecting cash
Amortization and accretion 2,116 2,034 6,465 6,517
Future income taxes 76 414 74 1,455
Non-controlling interests 16 (12) 79 (12)
Unrealized foreign currency
exchange (gain) loss (17) 152 43 (114)
Gain on sale of property
held for sale - (253) (136) (253)
Gain on disposal of property,
plant and equipment - (24) (4) (563)
Gain on sale of investment in
Futureway Communications Inc. - - - (688)
Other 22 8 179 210
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5,023 6,832 9,077 14,710
Changes in non-cash
operating items
Accounts receivable 3,115 4,095 (7,620) (3,322)
Inventories 2,795 (595) 5,306 (3,322)
Accounts payable and
accrued liabilities (989) (70) 2,038 1,074
Income taxes payable (net) 2,169 (211) 2,248 (3,237)
Other (862) 2 (1,025) (518)
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6,228 3,221 947 (9,325)
Cash provided by operating
activities of continuing
operations 11,251 10,053 10,024 5,385
Investing activities
Purchase of property,
plant and equipment (17,693) (5,734) (42,197) (13,762)
Proceeds from disposal of
property, plant and equipment - 42 12 619
Proceeds from sale of investment
in Futureway Communications Inc. - - - 688
Net proceeds from sale of
property held for sale - 342 216 342
Inter-company advances
repaid by discontinued
operations - 214 715 1,044
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Cash used for investment
activities of continuing
operations (17,693) (5,136) (41,254) (11,069)
Financing activities
Increase (decrease)
in bank operating advances (851) 80 1,029 (2,385)
Increase in term bank loans 6,925 - 20,175 -
Repayment of term loans (17) (179) (289) (417)
Repayment of mortgage - (1,718) - (1,718)
Payments on obligations
under capital leases (70) (49) (180) (247)
Payment of dividends by
subsidiary to
non-controlling interests - - (700) -
Payment of dividends to
shareholders - - (1,096) (1,084)
Proceeds from exercise
of stock options - - 634 12
Class A shares repurchased (134) - (339) -
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Cash provided by (used for)
financing activities of
continuing operations 5,853 (1,866) 19,234 (5,839)
Net cash used for
discontinued operations (70) (291) (266) (201)
--------- ---------- -------- ---------
Increase (decrease)
in cash and cash equivalents (659) 2,760 (12,262) (11,724)
Cash and cash equivalents
at the beginning of the period 2,453 9,962 14,056 24,446
--------- ---------- -------- ---------
Cash and cash equivalents
at the end of the period $ 1,794 $ 12,722 $ 1,794 $ 12,722
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Selected Financial Information
(in thousands of dollars) (unaudited)
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September 30 December 31
CONSOLIDATED BALANCE SHEETS 2008 2007
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ASSETS
Current assets
Cash and cash equivalents $ 1,794 $ 13,860
Accounts receivable 14,926 7,433
Inventories 17,303 22,609
Income taxes recoverable 6 2,919
Future income taxes 664 294
Other current assets 1,910 988
Promissory note receivable, current 3,294 3,382
Assets of discontinued operations held for sale - 538
----------- ----------
39,897 52,023
Property, plant and equipment (net) 98,013 97,756
Construction in progress 53,650 14,851
----------- ----------
151,663 112,607
Other assets
Goodwill 6,711 6,711
Future income taxes 1,479 1,270
Promissory note receivable, long-term 6,520 6,449
Other 1,361 1,472
Assets of discontinued operations held for sale - 917
------------ ----------
16,071 16,819
------------ ----------
$ 207,631 $ 181,449
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LIABILITIES
Current liabilities
Bank operating advances $ 1,679 $ 650
Accounts payable and accrued liabilities 17,268 14,000
Income taxes payable 3,589 4,253
Long-term debt, current portion 5,082 4,684
Derivative financial instruments, current 588 1,606
Asset retirement obligation 50 375
Liabilities of discontinued operations held for
sale 730 822
28,986 26,390
Long-term debt, less current portion 23,625 3,744
Derivative financial instruments, non-current 840 809
Future income taxes 7,810 7,722
Asset retirement obligation 585 673
Liabilities of discontinued operations held for
sale - 14
----------- ----------
61,846 39,352
Non-controlling interests 3,553 4,366
SHAREHOLDERS' EQUITY 142,232 137,731
----------- ----------
$ 207,631 $ 181,449
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Selected Financial Information
(in thousands of dollars) (unaudited)
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Nine months
ended Year ended
September 30 December 31
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 2008 2007
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Balance at the beginning of the period $ 111,587 $ 110,246
Net income 2,022 3,519
Premiums paid on repurchase of capital stock (200) (8)
Dividends (1,096) (2,170)
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Balance at the end of the period $ 112,313 $ 111,587
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(unaudited) (in thousands of dollars)
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Three months ended Nine months ended
CONSOLIDATED STATEMENTS OF September 30 September 30
COMPREHENSIVE INCOME 2008 2007 2008 2007
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Net income for the period $ 2,851 $ 4,597 $ 2,022 $ 8,568
Other comprehensive income (loss)
Gain (loss) on cash flow hedges
net of taxes (104) (1,751) 54 (2,611)
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Total comprehensive income
for the period $ 2,747 $ 2,846 $ 2,076 $ 5,957
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FOR FURTHER INFORMATION PLEASE CONTACT:
Brampton Brick Limited
Ken Mondor
Vice-President, Finance
(905) 840-1011
(905) 840-1535 (FAX)
Email: investor.relations@bramptonbrick.com
