BRAMPTON, ONTARIO--(Marketwire - Nov. 5, 2007) - Brampton Brick Limited (the "Company") (TSX:BBL.A) reported today net income from continuing operations for the third quarter ended September 30, 2007, of $4,577,000, or $0.42 per share, on a weighted average 10,835,000 Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding, compared to net income from continuing operations of $4,173,000, or $0.39 per share, on a weighted average 10,832,000 Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the same period in 2006.
For the nine months ended September 30, 2007, net income from continuing operations was $8,308,000, or $0.77 per share, compared to $10,770,000, or $1.00 per share, for the nine months ended September 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 10,820,000, respectively.
Effective October 2, 2007, the Company's 65% owned subsidiary, Medical Waste Management Inc., completed the sale announced on September 14, 2007 of substantially all of its business operations and assets, excluding its 50% joint venture interest in Sharpsmart Canada Limited. Accordingly, related assets and liabilities have been classified as held for sale and operating results and cash flows of this component of the business have been classified as discontinued operations. Comparative amounts have been reclassified to conform with the current period financial statement presentation.
Including the results of discontinued operations, net income for the third quarter of 2007 was $4,597,000, or $0.42 per share, compared to $4,239,000 or $0.39 per share, for the third quarter of 2006. For the nine month period, net income was $8,568,000, or $0.79 per share, compared to $10,924,000, or $1.01 per share, last year.
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 and, as a result of the sale of substantially all of the Company's medical waste business operations and assets, management considers that, for purposes of operating decision making and assessing performance, it operates within two dominant business segments, namely; masonry products and landscape products.
Effective January 1, 2007, the Company's wholly-owned, U.S. subsidiary, Oaks Concrete Products Inc., previously accounted for as a self-sustaining foreign operation, was deemed to be a fully 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. This change in accounting policy has been made on a prospective basis.
Under this method, non-monetary assets and liabilities are translated into Canadian dollars at the historical exchange rates and monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting unrealized gains or losses are included in the determination of net income. The impact of the change is a reduction of the foreign currency exchange loss that would have otherwise been reported in the amount of $261,000 for the three month period ended September 30, 2007 and $1,250,000 for the nine month period.
RESULTS OF OPERATIONS
Three months ended September 30
As noted above, net income from continuing operations for the third quarter ended September 30, 2007, amounted to $4,577,000, or $0.42 per share, compared to net income from continuing operations of $4,173,000, or $0.39 per share, for the same period in 2006.
Net sales from continuing operations for the quarter were $26,578,000, an increase of $224,000 over net sales of $26,354,000 in the third quarter of 2006. Higher clay brick shipments produced an increase in net sales of $748,000 in the masonry products business segment. In the landscape products business segment, net sales declined by $581,000 as a result of lower volumes.
Operating income from continuing operations before interest and other items was $5,869,000 for the quarter compared to $6,222,000 for the third quarter of 2006. The decrease of $353,000 was attributable to increases in manufacturing costs, including unabsorbed manufacturing expenses incurred at the plant acquired from Richvale York Block Inc. ("Richvale") in 2006 (the "Peel plant") in connection with the shift of production of certain landscape products from other plants and commencement of production of new products in 2007. The increase in manufacturing costs was partially offset by lower selling, general and administrative expenses.
Interest on long-term debt increased by $118,000 to $183,000, 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. ("Oaks") in December 2006.
Net interest income decreased as a result of lower surplus cash balances available for investment.
The continued strengthening in the relative value of the Canadian dollar versus the U.S. dollar produced a foreign currency exchange loss of $275,000 in the third quarter of 2007 compared to a gain of $23,000 for the same period in 2006. The exchange loss substantially relates to the U.S. cash balances held by the Company during the period as well as other U.S. dollar denominated net monetary working capital.
During the third quarter of 2007 certain properties which are surplus to the Company's requirements were sold resulting in a gain of $253,000.
The decrease in the effective rate of income taxes and the resulting impact on the provision for income taxes was primarily due to foreign currency exchange losses on intercompany balances which are eliminated on consolidation but are treated as tax deductible expenses in the respective legal entity financial statements.
Net income from the discontinued medical waste operations amounted to $20,000 for the third quarter ended September 30, 2007 compared to $66,000 for the same period in 2006.
Nine months ended September 30
Net income from continuing operations for the nine months ended September 30, 2007 was $8,308,000, or $0.77 per share, compared to $10,770,000, or $1.00 per share, for the nine months ended September 30, 2006.
Net sales from continuing operations were $67,204,000 for the nine month period compared to $74,708,000 for the comparable period in 2006. The $7,504,000 decrease in net sales was primarily due to lower first quarter sales volumes in the masonry products business segment and lower sales volumes in the landscape products business segment for the nine month period.
Net sales in the masonry products business segment were $49,071,000 compared to $53,081,000 last year due to the decline in new home construction activity in the Company's primary market areas. Sales volumes 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.
In the landscape products business segment sales volumes declined by 17.5% resulting in net sales of $17,273,000 compared to $20,902,000 in 2006. The decline in sales volumes was largely due to the negative impact of economic factors affecting the Company's U.S. market, primarily Michigan. Generally unfavourable weather conditions throughout much of the first half of 2007 in both the Canadian and U.S. markets also had a negative impact on year-to-date sales volumes.
In addition, in the first quarter of 2006, sales volumes of landscape products were unusually high, compared to historical volumes, due to strong 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.
Year-to-date operating results were also 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 13.8% lower for the nine month period ended September 30, 2007 compared to the same period in 2006 which resulted in a greater proportion of total manufacturing costs being charged against operations.
In addition, for the nine months ended September 30, 2007 an operating loss of $1,822,000 was incurred at the Peel plant compared to an operating loss of $390,000 for the period of ownership in 2006.
As a result of the decrease in net sales and the additional charges against operations as noted above, operating income from continuing operations before interest and other items declined by $5,285,000 to $10,927,000 for the nine months ended September 30, 2007 compared to $16,212,000 for the nine months ended September 30, 2006.
Interest on long-term debt increased by $368,000 to $586,000 primarily due to the additional debt incurred to finance the acquisition of the non-controlling interest in Oaks as discussed above.
Net interest income decreased marginally as a result of a decrease in surplus cash balances available for investment.
A foreign currency exchange loss of $1,522,000 was incurred for the nine month period ended September 30, 2007 compared to $887,000 for the same period in 2006. The reasons for the loss and the increase over the prior year are substantially the same as outlined above for the third quarter results.
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.
During the second quarter, the Company disposed of its investment in common shares of Futureway Communications Inc. ("FCI") for cash proceeds of $688,000 which resulted in a gain for accounting purposes in the same amount.
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 the second quarter of 2006, the Company reported a gain of $462,000 on the disposal of its investment in Richvale.
The effective rate of income taxes and the provision for income taxes are much lower than the prior year for the same reason as outlined above for the third quarter results. In addition, no income tax provisions were required to be recorded with respect to the gain on sale of investment in FCI and the gain on sale of property held for sale as the cost of these assets for income tax purposes exceeded the proceeds of sale.
In 2006, the 30% non-controlling interests' share of Oaks' loss to September 30, 2006 amounted to $324,000. There is no corresponding non-controlling interest in 2007.
Net income from the discontinued medical waste operations amounted to $260,000 for the nine months ended September 30, 2007 compared to $154,000 for the same period in 2006.
FINANCIAL CONDITION
Cash flow provided by operating activities of continuing operations for the quarter ended September 30, 2007 totaled $10,121,000 compared to $8,296,000 for the same period last year. Higher collections of accounts receivable was the primary factor contributing to the increase of $1,825,000.
For the nine month period, cash flow provided by operating activities of continuing operations amounted to $5,533,000 compared to $11,529,000 in 2006. Lower earnings and higher inventories were the primary factors which caused the decrease of $5,996,000.
Cash utilized for purchases of property, plant and equipment totaled $5,831,000 for the quarter and $13,934,000 for the nine month period compared to $2,446,000 and $13,048,000, respectively, for the same periods in 2006. Capital expenditures in 2007 included $4,081,000 in the third quarter and $9,611,000 for the year-to-date pertaining to the Company's new Indiana clay brick plant.
During the third quarter in 2006, the Company acquired additional property in west Brampton for future shale reserves at a cost of $3,562,000. One-half was paid in cash and the remainder was financed by a one year, interest free, vendor-take-back mortgage. The mortgage was settled during the third quarter of 2007.
Purchases of property, plant and equipment for the nine month period ended September 30, 2006 included 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 $8,520,000 to September 30, 2006.
Purchases of property, plant and equipment in 2006 also included an amount of $1,787,000, being the Company's 50% share of the funds required by Universal Resource Recovery Inc. to acquire land and buildings and for other capitalized costs.
Following the amalgamation of Oaks 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 of 2007 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 cash outflows. During the third quarter of 2007 the Company entered into a delayed-start interest rate swap contract to fix the rate of interest on an aggregate of $20,000,000 of anticipated future borrowings. The foreign exchange forward contracts and the interest rate swap contract 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.
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, 2007 to shareholders of record on December 15, 2007.
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.
The Board of Directors also approved the filing of a Notice of Intention to Make a Normal Course Issuer Bid with the Toronto Stock Exchange which, conditional upon approval being received, would allow the Company to buy back up to approximately 420,000 of its outstanding Class A Subordinate Voting shares over the ensuing twelve month period. The Company believes that its shares have been trading in a price range which does not reflect fair value in relation to current earnings and future business prospects.
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. The Company also holds 50% joint-venture interests in Sharpsmart Canada Limited, which provides a proprietary reusable sharps containment system to hospitals in Ontario, and in Universal Resource Recovery Inc., which plans to construct and operate a waste composting and material recycling facility in Welland, Ontario.
Selected Financial Information
(Unaudited) (thousands of dollars, except per share amounts)
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Three months ended Nine months ended
CONSOLIDATED STATEMENTS OF September 30 September 30
INCOME 2007 2006 2007 2006
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Net sales $ 26,578 $ 26,354 $ 67,204 $ 74,708
Cost of sales, selling, general
and administrative expenses 18,647 17,821 49,690 51,557
Amortization 2,062 2,311 6,587 6,939
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20,709 20,132 56,277 58,496
Operating income from
continuing operations before
the undernoted items 5,869 6,222 10,927 16,212
Interest on long-term debt (183) (65) (586) (218)
Interest income (net) 98 200 349 369
Equity loss from Richvale York
Block Inc. - - - (70)
Foreign currency exchange gain
(loss) (275) 23 (1,522) (887)
Other income 59 63 663 74
------------------------------------------
(301) 221 (1,096) (732)
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Income from continuing
operations before the
following items 5,568 6,443 9,831 15,480
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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
Gain on sale of investment in
Futureway Communications Inc. - - 688 -
Gain in sale of property held
for sale 253 - 253 -
Income from continuing
operations before income
taxes and non-controlling
interests 5,821 6,443 10,772 15,458
(Provision for) recovery of
income taxes
Current (825) (2,376) (950) (7,134)
Future (396) 150 (1,447) 2,093
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(1,221) (2,226) (2,397) (5,041)
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Income from continuing
operations before
non-controlling interests 4,600 4,217 8,375 10,417
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Non-controlling interests (23) (44) (67) 353
------------------------------------------
Net income from continuing
operations 4,577 4,173 8,308 10,770
Net income from discontinued
operations 20 66 260 154
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Net income for the period $ 4,597 $ 4,239 $ 8,568 $ 10,924
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Net income from continuing
operations per Class A and
Class B share $ 0.42 $ 0.39 $ 0.77 $ 1.00
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Net income per Class A and
Class B share $ 0.42 $ 0.39 $ 0.79 $ 1.01
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Weighted average Class A and
Class B shares outstanding
(000's) 10,835 10,832 10,834 10,820
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(Unaudited) (thousands of dollars)
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Three months ended Nine months ended
CONSOLIDATED STATEMENTS OF September 30 September 30
CASH FLOWS 2007 2006 2007 2006
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Cash provided by (used for)
Operating activities
Net income from continuing
operations for the period $ 4,577 $ 4,173 $ 8,308 $ 10,770
Items not affecting cash
Amortization and accretion 2,073 2,321 6,622 6,972
Future income taxes 396 (150) 1,447 (2,093)
Non-controlling interests 23 44 67 (353)
Equity loss from Richvale York
Block Inc. - - - 70
Unrealized foreign currency
exchange (gain) loss 152 (7) (114) 106
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)
Gain on sale of investment in
Futureway Communications Inc. - - (688) -
Gain on sale of property
held for sale (253) - (253) -
(Gain) loss on disposal of
property, plant and equipment (24) (26) (563) 90
Other 8 47 210 151
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6,952 6,402 15,036 15,735
Changes in non-cash operating
items
Accounts receivable 4,055 1,393 (3,473) (3,427)
Inventories (591) (971) (3,305) (2,554)
Accounts payable and accrued
liabilities (90) 427 872 1,243
Income taxes payable (net) (202) 542 (3,234) 768
Other (3) 503 (363) (236)
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3,169 1,894 (9,503) (4,206)
Cash provided by operating
activities of continuing
operations 10,121 8,296 5,533 11,529
Investing activities
Purchases of property, plant
and equipment (5,831) (2,446) (13,934) (13,048)
Proceeds from disposal of
property, plant and equipment 42 25 619 3,221
Net proceeds on sale of
investment in Richvale York
Block Inc. - 839 - 8,520
Proceeds from sale of
investment in Futureway
Communications Inc. - - 688 -
Net proceeds from sale of
property held for sale 342 - 342 -
Business acquisitions - - - (893)
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Cash used for investment
activities of continuing
operations (5,447) (1,582) (12,285) (2,200)
Financing activities
Increase (decrease) in bank
operating advances 80 (2,496) (2,385) (3,818)
Repayment of inter-company
advances by discontinued
operations 214 135 1,044 285
Repayment of term loans (218) (35) (534) (327)
Repayment of mortgage (1,718) - (1,718) -
Payments on obligations
under capital leases (49) (142) (249) (1,214)
Payment of dividend - - (1,084) (1,082)
Non-controlling interests'
advance to Oaks Concrete
Products Ltd. - - - 1,500
Proceeds from exercise of
stock options - - 12 109
-----------------------------------------
Cash used for financing
activities of continuing
operations (1,691) (2,538) (4,914) (4,547)
Net cash provided by (used
for) discontinued operations (214) 9 (24) 10
Foreign exchange on cash
held in foreign currency (9) 3 (34) (12)
-----------------------------------------
Increase (decrease) in cash
and cash equivalents 2,760 4,188 (11,724) 4,780
Cash and cash equivalents -
Beginning of period 9,962 19,900 24,446 19,308
-----------------------------------------
Cash and cash equivalents -
End of period $ 12,722 $ 24,088 $ 12,722 $ 24,088
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(thousands of dollars) (unaudited)
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September 30 December 31
CONSOLIDATED BALANCE SHEETS 2007 2006
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ASSETS
Current assets
Cash and cash equivalents $ 12,722 $ 24,446
Accounts receivable 13,655 10,562
Inventories 21,920 18,285
Income taxes recoverable 2,928 17
Future income taxes 1,265 -
Other current assets 1,785 1,264
Assets of discontinued operations held for sale 1,887 1,735
----------------------
56,162 56,309
Property, plant and equipment (net) 109,147 98,504
Other assets
Goodwill 20,212 20,212
Future income taxes 3,295 3,960
Other 1,766 1,839
Assets of discontinued operations held for sale 4,276 4,579
----------------------
29,549 30,590
----------------------
$194,858 $185,403
----------------------
----------------------
LIABILITIES
Current liabilities
Bank operating advances $ 905 $ 3,205
Accounts payable and accrued liabilities 15,307 11,739
Income taxes payable 184 433
Derivative financial instruments, current 3,047 -
Long-term debt, current portion 4,747 6,668
Liabilities related to assets of
discontinued operations held for sale 3,353 1,330
----------------------
27,543 23,375
Derivative financial instruments, non-current 559 -
Long-term debt, less current portion 7,986 8,106
Future income taxes 11,075 9,339
Asset retirement obligation 1,037 1,001
Liabilities related to assets of discontinued
operations held for sale 932 3,158
----------------------
----------------------
49,132 44,979
Non-controlling interests 452 245
SHAREHOLDERS' EQUITY 145,274 140,179
----------------------
$194,858 $185,403
----------------------
----------------------
(Unaudited) (thousands of dollars)
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Nine months ended Year ended
CONSOLIDATED STATEMENTS OF RETAINED September 30 December 31
EARNINGS 2007 2006
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Balance at beginning of period $ 110,246 $ 98,440
Net income 8,568 13,971
Dividends (1,084) (2,165)
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Balance at end of period $ 117,730 $ 110,246
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(Unaudited) (thousands of dollars)
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Three months ended Nine months ended
CONSOLIDATED STATEMENTS September 30 September 30
OF COMPREHENSIVE INCOME 2007 2007
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Net income for the period $ 4,597 $ 8,568
Other comprehensive loss
Unrealized loss on cash flow hedges (1,751) (2,611)
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Total comprehensive income $ 2,846 $ 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
