BRAMPTON, ONTARIO--(CCNMatthews - Aug. 8, 2007) - Brampton Brick Limited (TSX:BBL.A) today reported net income of $6,512,000, or $0.60 per share, for the second quarter ended June 30, 2007 compared to $5,522,000, or $0.51 per share, for the same period last year. The weighted average number of Class A Subordinate Voting Shares and Class B Multiple Voting Shares outstanding was 10,834,000 and 10,817,000 during each period, respectively.
For the six months ended June 30, 2007 net income was $3,970,000, or $0.37 per share, compared to $6,685,000, or $0.62 per share, for the six months ended June 30, 2006. The weighted average number of Class A Subordinate Voting Shares and Class B Multiple Voting Shares outstanding for the periods was 10,834,000 and 10,813,000, respectively.
As a result of the acquisition of the 30% minority interest in Oaks Concrete Products Ltd. in December 2006 and subsequent changes to the management structure and financing of its businesses, including its U.S. subsidiary, effective January 1, 2007, the U.S. subsidiary was deemed to be an integrated foreign operation and, accordingly, is now accounted for under the temporal method for purposes of translating its U.S. dollar financial statements into Canadian dollars. Previously it was accounted for as a self-sustaining foreign operation. This change in accounting policy has been made on a prospective basis and has resulted in a reduction of $989,000 in the amount of the foreign currency exchange loss that would have otherwise been reported for the six months ended June 30, 2007. Consolidated net income has increased accordingly. The impact on consolidated net income for the three months ended March 31, 2007 was not significant.
Effective January 1, 2007, the Company completed a short-form amalgamation to combine the Canadian legal entities Oaks Concrete Products Ltd. and Roxy Construction Co. Limited with Brampton Brick Limited. Pursuant to the amalgamation and the realignment of the operating and management structure of the former clay brick and concrete products business segments, management considers that, for purposes of operating decision making and assessing performance, it operates within three business segments, namely; masonry products, landscape products, and waste processing.
Financial information by business segment is now reported in accordance with the new structure and prior period information has been restated for comparative purposes.
RESULTS OF OPERATIONS
Three months ended June 30
Net sales for the quarter were $32,490,000, an increase of $743,000, or 2.3%, over net sales of $31,747,000 in the second quarter of 2006. Higher clay brick shipments and an increase in waste volumes processed produced increases in net sales in the masonry products and waste processing business segments, respectively. In the landscape products business segment, net sales declined as a result of lower volumes.
In the masonry products business segment net sales for the quarter increased by 11.0% to $20,705,000 in 2007 from $18,660,000 in 2006 due, in part, to much lower first quarter shipments than last year as explained in greater detail under the six month results.
Higher waste volumes in both the Ontario and Nova Scotia operations and an increase in Sharpsmart(TM) container turns, produced an increase in net sales of $485,000 in the waste processing business segment to $3,240,000 in the second quarter of 2007, up from $2,755,000 for the same period in 2006.
Sales volumes in the landscape products business segment declined by 17.6% resulting in net sales of $8,545,000 for the quarter compared to $10,332,000 for the second quarter of 2006. The decline in sales volumes was the result of unfavourable weather conditions early in the quarter and the continued negative impact of economic factors affecting the Company's U.S. market, primarily Michigan.
Operating income before interest and other items amounted to $8,973,000 for the quarter compared to $8,744,000 for the second quarter of 2006.
Operating income for the quarter reflected an operating loss of $362,000 incurred at the manufacturing plant (the "Peel" plant) acquired from Richvale York Block Inc. ("Richvale") in April 2006. This operating loss has been incurred in connection with the shift of production of certain landscape products from other plants and commencement of production of new products. In 2006, there was no production or sales in the period immediately following the acquisition. Plant overheads and the other costs incurred during that period amounted to $148,000.
The Company's proportionate share of start-up costs related to the new waste composting and material recycling business to be conducted by Universal Resource Recovery Inc. ("Universal") totaled $108,000 for the second quarter ended June 30, 2007.
Interest on long-term debt increased by $117,000 to $237,000, primarily due to interest on the promissory note of $11,000,000 which was issued in connection with the acquisition by the Company of the remaining 30% interest in Oaks Concrete Products Ltd. in December 2006.
The strengthening in the relative value of the Canadian dollar versus the U.S. dollar produced a foreign currency exchange loss of $893,000 in the second quarter of 2007 compared to $915,000 for the same period in 2006. The exchange loss substantially relates to the significant U.S. cash balances held by the Company during the period as well as other U.S. dollar denominated net monetary working capital.
Other income included a gain of $533,000 on the disposal of certain equipment in connection with the outsourcing of the clay brick quarry operations in Brampton.
Pursuant to an amalgamation of Futureway Communications Inc. ("FCI") with a subsidiary of a Canadian communications company during the quarter, the Company disposed of its investment in common shares of FCI for cash proceeds of $688,000 which produced a gain for accounting purposes in the same amount.
In the second quarter of 2006, the Company reported a gain of $462,000 on the disposal of its investment in Richvale.
In 2006, 30% of the second quarter net income of Oaks Concrete Products Ltd. was attributable to the non-controlling interest therein, which amounted to $108,000. As a result of the acquisition by the Company of this 30% interest in December 2006, there was no comparable charge included in the computation of consolidated net income in 2007.
Six months ended June 30
Net sales for the period were $46,218,000 compared to net sales of $53,234,000 for the first six months of 2006. The decrease in net sales was primarily due to lower first quarter sales volumes in the seasonal masonry products and landscape products business segments.
Net sales in the masonry products business segment were $30,841,000 for the six months ended June 30, 2007 compared to $35,599,000 for the same period in 2006.
Sales volumes of masonry products were lower in the first quarter of 2007 than in 2006 due to lower sales to dealers under the Company's dealer stocking program and lower direct sales to new home builders. A decline in housing starts in the Company's primary market areas has resulted in a more balanced demand/supply situation for the Company's products. As a result, sales are now expected to more closely follow historical, seasonal patterns in which sales are greater in the second and third quarters of each year and considerably lower in the first and fourth quarters.
In addition, under these market conditions, weather tends to have a greater impact on the timing of shipments. Weather conditions in the first quarter of 2007 were generally less favourable than in the first quarter of 2006.
Shipments into the U.S. were also lower due to the significant decrease in new home construction in the Company's market area.
In the landscape products business segment, year-to-date net sales were $9,226,000 compared to $12,274,000 in 2006. In addition to the factors impacting second quarter sales this year, sales volumes in the first quarter of 2006 were unusually high, compared to historical volumes, due to stronger sales in the U.S. market under the Company's winter booking program and generally favourable weather conditions, which generated higher sales volumes in both the Canadian and U.S. markets.
In the waste processing business segment higher waste volumes processed and an increase in Sharpsmart(TM) container turns resulted in a $790,000 increase in net sales - $6,151,000 compared to $5,361,000.
Year-to-date operating results were negatively impacted by an extended, scheduled maintenance shutdown in the first quarter which affected two of the three brick kilns at the Company's clay brick plant in Brampton. Production volumes were 20.8% lower for the six month period ended June 30, 2007 compared to the same period in 2006 which resulted in a greater proportion of total manufacturing costs being charged against operations. The amount of the additional charge against operations for the six month period was estimated to be approximately $616,000.
The operating loss incurred by the Peel plant amounted to $999,000 for the six months ended June 30, 2007 and the Company's proportionate share of start-up costs incurred by Universal amounted to $178,000.
As a result of the decrease in net sales and the additional charges against operations as noted above, operating income before interest and other items declined by $4,562,000 to $5,742,000 for the six months ended June 30, 2007 compared to $10,304,000 for the six months ended June 30, 2006.
Interest on long-term debt increased by $250,000 to $499,000 for the same reason as noted above for the second quarter results.
Net interest income increased as a result of reduced operating borrowings and a higher rate of interest earned on surplus cash available for investment.
The impact of foreign exchange fluctuations on the translation of U.S. dollar denominated monetary assets and liabilities produced a foreign currency exchange loss of $1,247,000 for the six months ended June 30, 2007 compared to $910,000 for the same period in 2006.
Gains on the sale of equipment and on the disposal of the investment in FCI, as described above in connection with the second quarter operating results, had a positive impact on the year-to-date operating results.
In the first quarter of 2006, the Company wrote-off the excess cost of the consideration paid over the carrying value of the net assets acquired, in the amount of $484,000, incurred in connection with the acquisition of the 20% non-controlling interest of a subsidiary company.
In 2006, the 30% non-controlling interests' share of Oaks Concrete Products Ltd.'s loss to June 30, 2006 amounted to $354,000. There is no corresponding non-controlling interest in 2007.
FINANCIAL CONDITION
Cash flow provided by operations for the quarter ended June 30, 2007 totaled $336,000 compared to $6,972,000 for the same period last year. The primary reason for the negative variance was the timing of sales during the quarter. A high proportion of sales occurred in the latter part of the quarter which resulted in lower collections during the quarter. Collections of accounts receivable in the third quarter are expected to increase accordingly. An increase in accounts payable and accrued liabilities and a change in the composition of the provision for income taxes from predominantly current income taxes to predominantly future taxes partially offset the variance in collections of accounts receivable.
For the six month period, cash utilized in operations amounted to $3,141,000 compared to cash provided by operations of $3,863,000 in 2006. Lower collections of accounts receivables to June 30, as noted above, higher inventories and higher income tax payments resulted in a negative variance of $7,004,000 compared to last year.
Cash utilized in the purchase of property, plant and equipment totaled $4,249,000 for the quarter and $8,198,000 for the six month period compared to $9,709,000 and $10,853,000, respectively, for the same periods in 2006. Capital expenditures in 2007 included $2,890,000 in the second quarter and $5,530,000 for the year-to-date pertaining to the Company's new Indiana clay brick plant.
Purchases of property, plant and equipment for the second quarter and six month period ended June 30, 2006 include the acquisition of certain land, building and manufacturing equipment from Richvale for cash consideration of $7,500,000. The subsequent sale of the Company's 38.2% interest in Richvale produced net cash proceeds of $7,681,000 to June 30, 2006.
The purchase of property, plant and equipment in 2006 also included an amount of $1,621,000, being the Company's 50% share of the funds required by Universal to acquire land and buildings.
Following the amalgamation of Oaks Concrete Products Ltd. with Brampton Brick Limited on January 1, 2007, surplus cash of the parent company was utilized to repay the operating bank advances of this former subsidiary.
During the first quarter of 2006, the sale of trucks, trailers and mobile forklift equipment in connection with the outsourcing of transportation requirements generated cash proceeds of $3,175,000. Related capital lease obligations in the amount of $700,000 were paid out from the proceeds of the sale.
On January 1, 2007, the Company adopted the new accounting standards of the Canadian Institute of Chartered Accountants Handbook Section 1530, Comprehensive Income; Section 3855, Financial Instruments - Recognition and Measurement; Section 3865, Hedges; and Section 3251, Equity. These sections apply to fiscal years beginning on or after October 1, 2006 and provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities and non-financial derivatives, and describe when and how hedge accounting may be applied. Section 1530 provides standards for the reporting and presentation of comprehensive income, which represents the change in equity, from transactions and other events and circumstances from non-owner sources. Other comprehensive income is comprised of revenues, expenses, gains and losses that, in accordance with Canadian generally accepted accounting principles, are recognized in comprehensive income, but excluded from net income.
During the second quarter the Company entered into several foreign exchange forward contracts aggregating U.S. $30,000,000 to hedge its foreign currency exposure on anticipated U.S. dollar capital expenditures relating to the new brick plant in Indiana. These contracts have been designated as effective cash flow hedges for accounting purposes and have been accounted for in the consolidated financial statements in accordance with the above noted accounting standards.
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 2006 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 and enviro products under the Oaks Concrete Products trade name. 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. Medical Waste Management Inc., a 65% owned subsidiary, operates facilities for the destruction of biomedical and pharmaceutical waste in Ontario, including the only commercially operated medical waste incinerator in Ontario, and Nova Scotia.
(Unaudited) (thousands of dollars, except per share amounts)
---------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
CONSOLIDATED STATEMENTS OF INCOME 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net sales $32,490 $31,747 $46,218 $53,234
Cost of sales, selling, general and
administrative expenses 21,093 20,575 35,564 37,951
Amortization 2,424 2,428 4,912 4,979
-------- --------- ---------- --------
23,517 23,003 40,476 42,930
Operating income before the
undernoted items 8,973 8,744 5,742 10,304
Interest on long-term debt (237) (120) (499) (249)
Interest income (net) 79 83 251 156
Equity income (loss) from Richvale
York Block Inc. - 31 - (70)
Foreign currency exchange loss (893) (915) (1,247) (910)
Other income 567 57 594 18
-------- --------- ---------- --------
(484) (864) (901) (1,055)
-------- --------- ---------- --------
Income before the following items 8,489 7,880 4,841 9,249
Write-off of excess cost paid on
investment in Roxy
Construction Co. Limited - - - (484)
Gain on sale of investment in
Richvale York Block Inc. - 462 - 462
Gain on sale of investment in
Futureway Communications Inc. 688 - 688 -
-------- --------- ---------- --------
Income before income taxes and
non-controlling interests 9,177 8,342 5,529 9,227
(Provision for) recovery of income
taxes
Current (129) (2,583) (166) (4,758)
Future (2,407) (76) (1,219) 1,867
-------- --------- ---------- --------
(2,536) (2,659) (1,385) (2,891)
-------- --------- ---------- --------
-------- --------- ---------- --------
Income before non-controlling
interests 6,641 5,683 4,144 6,336
Non-controlling interests (129) (161) (174) 349
-------- --------- ---------- --------
Net income for the period $6,512 $5,522 $3,970 $6,685
--------------------------------------
--------------------------------------
Net income per Class A and Class B
share $0.60 $0.51 $0.37 $0.62
--------------------------------------
--------------------------------------
Weighted average Class A and Class B
shares outstanding (000's) 10,834 10,817 10,834 10,813
---------------------------------------------------------------------------
(Unaudited) (thousands of dollars)
---------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
CONSOLIDATED STATEMENTS OF CASH FLOWS 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash provided by (used for)
Operating activities
Net income for the period $6,512 $5,522 $3,970 $6,685
Items not affecting cash
Amortization and accretion 2,436 2,437 4,936 4,999
Future income taxes 2,407 76 1,219 (1,867)
Non-controlling interests 129 161 174 (349)
Equity (income) loss from
Richvale York Block Inc. - (31) - 70
Unrealized foreign currency
exchange (gain) loss (393) 76 (266) 113
Write-off of excess cost paid on
investment in Roxy
Construction Co. Limited - - - 484
Gain on sale of investment in
Richvale York Block Inc. - (462) - (462)
Gain on sale of investment in
Futureway Communciations Inc. (688) - (688) -
(Gain) loss on disposal of
property, plant and equipment (533) 21 (537) 110
Other 81 47 202 104
---------- ---------- -------- ---------
9,951 7,847 9,010 9,887
Changes in non-cash operating items
Accounts receivable (10,263) (1,589) (7,473) (4,999)
Inventories (582) (349) (2,694) (1,563)
Accounts payable and accrued
liabilities 2,808 633 1,411 1,093
Income taxes payable (net) (988) 459 (3,019) 225
Other (590) (29) (376) (780)
---------- ---------- -------- ---------
(9,615) (875) (12,151) (6,024)
Cash provided by (used for)
operations 336 6,972 (3,141) 3,863
Investing activities
Purchase of property, plant and
equipment (4,249) (9,709) (8,198) (10,853)
Proceeds from disposal of property,
plant and equipment 570 - 577 3,212
Net proceeds on sale of investment
in Richvale York Block Inc. - 7,681 - 7,681
Proceeds from sale of investment in
Futureway Communications Inc. 688 - 688 -
Business acquisitions - - - (893)
---------- ---------- -------- ---------
Cash used for investment (2,991) (2,028) (6,933) (853)
Financing activities
Decrease in bank operating advances (5) (4,426) (2,465) (1,277)
Repayment of term loans (345) (317) (466) (412)
Payments on obligations under
capital leases (167) (247) (382) (1,241)
Payment of dividend (1,084) (1,082) (1,084) (1,082)
Non-controlling interests' advance
to Oaks Concrete Products Ltd. - 1,500 - 1,500
Proceeds from exercise of stock
options 12 101 12 109
---------- ---------- -------- ---------
Cash used for financing (1,589) (4,471) (4,385) (2,403)
Foreign exchange on cash held in
foreign currency (22) (14) (25) (15)
---------- ---------- -------- ---------
Increase (decrease) in cash and
cash equivalents (4,266) 459 (14,484) 592
Cash and cash equivalents -
Beginning of the period 14,228 19,441 24,446 19,308
---------- ---------- -------- ---------
Cash and cash equivalents -
End of the period $9,962 $19,900 $9,962 $19,900
---------- ---------- -------- ---------
---------- ---------- -------- ---------
---------------------------------------------------------------------------
(thousands of dollars) (unaudited)
---------------------------------------------------------------------------
June 30 December 31
CONSOLIDATED BALANCE SHEETS 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $9,962 $24,446
Accounts receivable 19,324 11,850
Inventories 21,171 18,476
Income taxes recoverable 2,691 17
Future income taxes 2,395 -
Other current assets 1,899 1,521
----------- -----------
57,442 56,310
Property, plant and equipment (net) 106,819 103,082
Other assets
Goodwill 20,212 20,212
Future income taxes 2,081 3,960
Other 1,853 1,839
----------- -----------
24,146 26,011
----------- -----------
$188,407 $185,403
----------- -----------
----------- -----------
LIABILITIES
Current liabilities
Bank operating advances $740 $3,205
Accounts payable and accrued liabilities 14,049 12,719
Income taxes payable 87 433
Derivative financial instruments, current 873 -
Long-term debt, current portion 6,852 7,018
----------- -----------
22,601 23,375
Derivative financial instruments, non-current 302 -
Long-term debt, less current portion 10,692 11,264
Future income taxes 10,996 9,339
Asset retirement obligation 1,025 1,001
----------- -----------
----------- -----------
45,616 44,979
Non-controlling interests 419 245
SHAREHOLDERS' EQUITY 142,372 140,179
----------- -----------
$188,407 $185,403
----------- -----------
----------- -----------
---------------------------------------------------------------------------
(Unaudited) (thousands of dollars)
---------------------------------------------------------------------------
Six months ended Year ended
June 30 December 31
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balance at beginning of period $110,246 $98,440
Net income 3,970 13,971
Dividends (1,084) (2,165)
------------ -----------
Balance at end of period $113,132 $110,246
------------ -----------
---------------------------------------------------------------------------
(Unaudited) (thousands of dollars)
---------------------------------------------------------------------------
Three months ended Six months ended
CONSOLIDATED STATEMENT June 30 June 30
OF COMPREHENSIVE INCOME 2007 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income for the period $6,512 $3,970
Other comprehensive loss
Unrealized loss on cash flow hedges (860) (860)
----------- -----------
Total comprehensive income $5,652 $3,110
----------- -----------
----------- -----------
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
