Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

August 08, 2012 19:37 ET

Brampton Brick Reports Earnings for the Second Quarter Ended June 30, 2012

BRAMPTON, ONTARIO--(Marketwire - Aug. 8, 2012) -

(All amounts are stated in thousands of Canadian dollars, except per share amounts.)

Brampton Brick Limited (TSX:BBL.A) today reported net income of $3,771, or $0.35 per Class A Subordinate Voting share ("Class A share") and Class B Multiple Voting Share ("Class B share"), for the second quarter ended June 30, 2012 compared to a loss of $540, or $0.05 per share, in 2011. The aggregate weighted average number of Class A shares and Class B shares outstanding was 10,936,554 in both periods.

DISCUSSION OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2012

Revenues for the quarter were $31,054 compared to $23,495 in 2011. The net increase of $7,559, or 32%, was due to an increase in shipments in both the Masonry Products and Landscape Products business segments.

Cost of sales for the quarter increased by 16% from 2011 compared to a 32% increase in revenues for the same period. The improved gross margin was due to increased production volumes of both masonry and landscape products in the second quarter of 2012 compared to 2011. Due to the relatively high- fixed cost nature of the Company's manufacturing facilities, large fluctuations in production levels have a material impact on per unit manufacturing costs and gross margins. As production volumes increase, the average production cost per unit decreases since fixed plant overhead is shared over an increased number of production units resulting in an improved gross margin.

Selling expenses and general and administrative expenses declined slightly during the quarter compared to the second quarter of 2011.

Overall, the revenue increase combined with the increase in production volumes in the second quarter contributed to a significant increase in operating income from $1,842 in 2011 to $6,114 in 2012, an increase of 232%.

Finance costs of $981 for the second quarter of 2012 declined by $310 from 2011. The decline in interest expense was due to lower debt balances outstanding during the quarter ended June 30, 2012, combined with the impact of differential payments in 2011 on the interest rate swap. The Company settled the interest rate swap contract on October 3, 2011.

The provision for income taxes of $1,364 and $314 for the second quarter of 2012 and 2011 respectively, relates solely to the pre-tax income of the Company's Canadian operations. The Company did not record a deferred tax asset with respect to the potential future income tax benefit pertaining to the loss incurred by its U.S. operations.

On June 20, 2012, Ontario's budget bill 114, approving the provincial general corporate income tax rate freeze at 11.5% was substantively enacted. Previously enacted corporate income tax rate reductions for 2012 and 2013 to 11.0% and 10.0%, respectively, were repealed. However, there was no change to the current 10% income tax rate on income from manufacturing and processing. Consequently, for the Company's Canadian operations, the combined federal (15%) and provincial (10%) current and deferred income tax rate remains at 25%.

SIX MONTHS ENDED JUNE 30, 2012

For the six months ended June 30, 2012, the Company recorded net income of $978, or $0.09 per share, compared to a loss of $4,965, or $0.45 per share, for the same period in 2011. The aggregate weighted average number of Class A shares and Class B shares outstanding was 10,936,554 in both periods.

Revenues for the six month period were $47,049, an improvement of $12,938 from the same period in 2011. An increase in clay brick shipments and higher sales volumes of landscape products, which was partly attributable to relatively favourable weather conditions in the first part of this year together with the continued growth in sales of concrete masonry products, including concrete block, contributed to the increase in revenues.

Cost of sales for the six months increased by 25% from 2011 compared to a 38% increase in revenues for the same period. The reasons for the improved margins are as noted above under the caption 'Discussion of Operations' for the three months ended June 30, 2012.

Selling expenses for the six months decreased by $213 in 2012 from the comparative period in 2011. Selling expenses were higher in 2011 due to increased advertising and marketing expenditures incurred to support the introduction of a number of new products.

General and administrative expenses increased by $101 from the prior year due to non-recurring employment related expenses.

Operating income of $3,827 reflected the improvement in both revenues and contribution margins for the six month period ended June 30, 2012 compared to an operating loss of $1,719 for the same period in 2011.

Finance costs for the six month period in 2012 decreased by $317 for the same reasons noted above under the caption 'Discussion of Operations' for the three months ended June 30, 2012. Additionally, a gain of $163 on the interest rate swap recorded in 2011 partially offset the decrease in 2012.

As noted under 'Discussion of Operations' for the three months ended June 30, 2012, the Company recorded a tax provision for income taxes only with respect to its Canadian operations. In 2011, a current income tax recovery of $696 was recorded to recognize non-capital losses pertaining to the Company's Canadian operations which were carried back to prior taxation years.

The Company has not recorded a deferred tax asset with respect to the potential future income tax benefit pertaining to the losses incurred by its U.S. operations.

A more detailed discussion with respect to each operating business segment follows:

MASONRY PRODUCTS

For the three month period ended June 30, 2012, the Masonry Products business segment reported operating income of $4,292 on revenues of $20,635 compared to $559 on revenues of $15,480 for the same period in 2011.

For the six month period ended June 30, 2012, this business segment recorded an operating income of $3,893 compared to an operating loss of $437 in 2011. Revenues for the six month period increased to $35,428 from $25,220, representing a 40% increase over 2011.

Brick shipments into the Canadian market were higher than last year due in part to favourable weather conditions in both the first and second quarters of this year. In the U.S. market, brick shipments increased over 2011 levels, although this market continues to be impacted by a historically low level of residential construction activity. In addition, the sale of new products, including concrete block, which was introduced into the Ontario market in April 2011, generated incremental revenues in both the first and second quarters of 2012. In total for the six months ended in 2012, brick production volumes increased by 16% over the prior year. This increase in production volumes positively affected gross margin and overall operating income for the period.

LANDSCAPE PRODUCTS

For the three month period ended June 30, 2012, the Landscape Products business segment reported operating income of $2,184 on revenues of $10,419 compared to $1,283 on revenues of $8,015 for the same period in 2011.

For the six month period ended June 30, 2012, this business segment recorded an operating income of $296 compared to an operating loss of $1,282 in 2011. Revenues for the six month period increased to $11,621 from $8,891, or 31%, in 2011.

The higher sales volume through the first six months of the year was due to a number of factors. Favourable weather conditions led to an early start to the selling season. As well, the Company benefitted from a higher market share, due in part to an expanded product portfolio and an increase in geographical market coverage.

UNIVERSAL RESOURCE RECOVERY INC. ("UNIVERSAL")

Universal is a joint venture which is accounted for by the Company using the equity method of accounting. The carrying value of the investment in Universal on the consolidated balance sheet is increased by advances from the Company and is increased or decreased by the Company's share of profit or loss of Universal. If the Company's share of losses equals or exceeds the carrying value of the investment in Universal, the Company does not recognize further losses, unless it had incurred legal or constructive obligations or made payments on behalf of Universal, of which there were none as at December 31, 2011 and as at June 30, 2012.

Universal suspended its commercial operations in June 2011. As at December 31, 2011, the carrying value of the investment in Universal on the Company's consolidated balance sheet was reduced to zero due to losses incurred from Universal's operations. Consequently, losses totaling $1,791, which exceeded the carrying value of the Universal investment as at December 31, 2011, were not recognized by the Company.

For the six month period ended June 30, 2012, Universal continued to incur certain fixed costs, including interest on debt, and facility occupancy costs. The Company's share of Universal's loss totaling $359 for the 2012 six month period, increased the cumulative unrecognized losses to $2,150.

The following table summarizes changes in the Company's carrying value of its investment in Universal, as well as cumulative unrecognized losses for the periods shown below.

2011 2012
January 1 to July 1 to January 1 to
June 30 December 31 June 30
Company's investment in Universal
Opening balance $ 5,562 $ 5,930 $ -
Share of loss (1,507 ) (7,350* ) -
Shareholder advances 1,875 1,420 -
Ending balance $ 5,930 $ - $ -
Cumulative unrecognized losses
Opening balance $ - $ - $ (1,791 )
Losses unrecognized - (1,791 ) (359 )
Ending balance $ - $ (1,791 ) $ (2,150 )

*The share of loss was limited to $7,350, as the investment was reduced to zero.

Effective January 1, 2012, management of Universal committed to an active program to locate a buyer for the sale of assets held in Universal. For the six months ended June 30, 2012, the Company advanced to Universal a total of $1,340. These advances were classified as a short term loan receivable, as management believes the Company will be repaid from the sale proceeds of Universal's assets following the settlement of Universal's senior ranking claims. In relation to this short term loan receivable, the Company has registered a mortgage on Universal's property located in Welland, Ontario, as security behind the bank's security. This short term loan receivable was used by Universal primarily to fund its scheduled bank debt repayments, which amounted to $795, as well as for debt financing expenses and certain fixed facility occupancy costs.

At the same time, Universal's continuing financial difficulties indicated a potential impairment of the Company's short term loan receivable. An impairment analysis based on the present value of estimated future cash flows concluded that the carrying value exceeded the fair value of the short term loan receivable. Accordingly, an impairment loss of $362 was recorded by the Company, reducing the short term loan receivable to its fair value of $978 as at June 30, 2012.

The Company will continue to fund its share of Universal's cash requirements until proceeds from the sale of Universal's assets are realized.

CASH FLOWS

Cash flow provided by operating activities increased to $1,629 for the period ended June 30, 2012 compared to cash flow used for operating activities of $4,929 in 2011. The increase in cash flow provided by operations was primarily due to the improvement in the operating results for 2012.

Cash utilized for purchases of property, plant and equipment totaled $1,881 for the six month period in 2012, compared to $1,920 in 2011.

During the second quarter of 2012, sale proceeds relating primarily to the sale of certain obsolete production equipment, which is no longer supported by the Company's operational processes, totaled $461.

Cash advances to Universal for the six month period ended June 30, 2011 totaled $1,875. These advances increased the carrying value of the investment in Universal, as they were utilized by Universal to finance its operational activities and capital expenditures incurred during the start-up period of its waste composting facility located in Welland, Ontario.

Information and discussion with respect to the 2012 loan receivable in the amount of $1,340 is contained above under the caption "Universal Resource Recovery Inc."

FINANCIAL CONDITION

The Company's Masonry Products and Landscape Products business segments are seasonal in nature. The Landscape Products business is affected by seasonality to a greater degree than the Masonry Products business. As a result of this seasonality, operating results are impacted accordingly and cash requirements are generally expected to increase through the first half of the year and decline through the second half of the year.

As at June 30, 2012, bank operating advances were $8,427. This represented an increase of $3,280 from the amount outstanding at December 31, 2011. The increase in bank operating advances was utilized to meet working capital requirements, capital expenditures and repayments of debt and finance lease obligations in the first half of 2012. Trade payables totaled $9,424 at June 30, 2012 compared to $9,026 at December 31, 2011.

The ratio of total liabilities to shareholders' equity attributable to owners of the parent was 0.54:1 at June 30, 2012 compared to 0.51:1 at December 31, 2011. The increase in this ratio from December 2011 to June 2012 was primarily due to the increase in bank operating advances, as noted above.

As at June 30, 2012, working capital was $7,310, representing a working capital ratio of 1.22:1. Comparable figures for working capital and the working capital ratio at December 31, 2011 were $13,137 and 1.65:1, respectively. The decline from December 31, 2011 is due to the inclusion in current liabilities of the subordinated debentures amounting to $8,917 which mature in February 2013. Excluding the subordinated debentures from current liabilities, the working capital ratio would be 1.65:1. Cash and cash equivalents totaled $1,075 at June 30, 2012 compared to $1,180 at December 31, 2011.

On October 4, 2011, the Company concluded arrangements from a Canadian bank to provide its operating credit requirements. The new facility provides for borrowings up to $20,000 based on margin formulae for trade receivables and inventories, less priority claims and the mark-to-market exposure on swap contracts, if applicable. It is a demand facility secured primarily by trade receivables and inventories of the Company's Masonry Products and Landscape Products business segments in Canada and the U.S. The agreement also contains certain financial covenants. As at June 30, 2012 the borrowing base was $20,000 and the utilization was $8,679, including $8,427 for bank operating advances and $252 for outstanding letters of credit.

The Company expects that future cash flows from operations, cash and cash equivalents on hand and the unutilized balance of its operating credit facility will be sufficient to satisfy its obligations as they become due.

The Company was in compliance with all financial covenants under its debt agreements as at June 30, 2012 and anticipates that it will maintain compliance throughout the year.

Certain statements contained herein constitute "forward-looking statements". All statements that are not historical facts are forward-looking statements, including, among others, statements regarding the expected repayment of the short term loan receivable from Universal, forecasts of sufficient cash flows from operations and other sources of financing, anticipated compliance with financial covenants under debt agreements, anticipated sales of masonry and landscape products, and other statements regarding future plans, objectives, results, business outlook and financial performance. There can be no assurance that such forward-looking statements will prove to be accurate.

Such forward-looking statements are based on information currently available to management, and are based on assumptions and analyses made by management in light of its experience and its perception of historical trends, current conditions and expected future developments, including, among others, assumptions regarding pricing, weather and seasonal expectations, production efficiency, and there being no significant disruptions affecting operations or other material adverse changes.

Such forward-looking statements also involve known and unknown risks, uncertainties and other factors 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. Such risks and uncertainties include, among others: changes in economic conditions, including the demand for the Company's primary products and the level of new home, commercial and other construction; large fluctuations in production levels; fluctuations in energy prices and other production costs; changes in transportation costs; foreign currency exchange and interest rate fluctuations; legislative and regulatory developments; as well as those assumptions, risks, uncertainties and other factors identified and discussed under "Risks and Uncertainties" in the 2011 annual MD&A included in the Company's 2011 Annual Report and those identified and reported in the Company's other public filings (including the Annual Information Form for the year ended December 31, 2011), which may be accessed at www.sedar.com.

The forward-looking information contained herein is made as of the date hereof. Other than as specifically required by law, the Company undertakes no obligation to update or revise any forward- looking information, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements.

Brampton Brick is Canada's second largest manufacturer of clay brick, serving markets in Ontario, Quebec and the Northeast and Midwestern United States from its brick manufacturing plants located in Brampton, Ontario and near Terre Haute, Indiana. To complement the clay brick product line, the Company also manufactures a range of concrete masonry products, including stone veneer products marketed under the Stoneworks™ trade name and concrete brick and block. Concrete interlocking paving stones, retaining walls, garden walls and enviro products are manufactured in Markham, Milton and Brampton, Ontario and Wixom, Michigan. These products are sold to markets in Ontario, Quebec, Michigan, New York, Pennsylvania, Ohio, Kentucky, Illinois and Indiana under the Oaks™ trade name. Products are used for residential construction and for industrial, commercial, and institutional building projects. The Company also holds a 50% joint-venture interest in Universal Resource Recovery Inc., which is a waste composting facility located in Welland, Ontario.

Selected Financial Information
(unaudited) (in thousands of Canadian dollars)
June 30 December 31
CONDENSED INTERIM CONSOLIDATED BALANCE SHEET 2012 2011
ASSETS
Current assets
Cash and cash equivalents $ 1,075 $ 1,180
Trade and other receivables 17,151 9,964
Inventories 20,584 20,805
Income taxes recoverable 718 744
Loan receivable 978 -
Other assets 665 597
41,171 33,290
Non-current assets
Property, plant and equipment 170,818 172,629
Total assets $ 211,989 $ 205,919
LIABILITIES
Current liabilities
Bank operating advances $ 8,427 $ 5,147
Trade payables 9,424 9,026
Income taxes payable 1,454 829
Current portion of debt 12,018 3,091
Decommissioning provisions 78 50
Other liabilities 2,460 2,010
33,861 20,153
Non-current liabilities
Non-current portion of debt 26,131 35,166
Decommissioning provisions 956 950
Deferred income tax liabilities 13,464 13,163
Total liabilities $ 74,412 $ 69,432
EQUITY
Equity attributable to owners of the parent
Share capital $ 33,689 $ 33,689
Contributed surplus 1,871 1,801
Accumulated other comprehensive loss (1,498 ) (1,540 )
Retained earnings 103,504 102,527
$ 137,566 $ 136,477
Non-controlling interests 11 10
Total equity $ 137,577 $ 136,487
Total liabilities and equity $ 211,989 $ 205,919
(unaudited) (in thousands of Canadian dollars, except per share amounts)
Three months
ended June 30
Six months
ended June 30
CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
2012 2011 2012 2011
Revenues $ 31,054 $ 23,495 $ 47,049 $ 34,111
Cost of sales 21,287 18,299 36,130 29,014
Selling expenses 1,667 1,740 3,528 3,741
General and administrative expenses 1,584 1,626 3,158 3,057
Loss (gain) on sale of property, plant and equipment 55 (1 ) 55 (1 )
Other (income) expense (15 ) (11 ) (11 ) 19
Impairment loss on loan receivable 362 - 362 -
24,940 21,653 43,222 35,830
Operating income (loss) 6,114 1,842 3,827 (1,719 )
Finance (expense) income
Finance costs (981 ) (1,291 ) (1,893 ) (2,210 )
Finance income 2 16 4 18
(979 ) (1,275 ) (1,889 ) (2,192 )
Share of loss from investment in Universal Resource Recovery Inc. - (793
)
- (1,507
)
Income (loss) before income taxes 5,135 (226 ) 1,938 (5,418 )
(Provision for) recovery of income taxes
Current (658 ) (153 ) (658 ) 696
Deferred (706 ) (161 ) (302 ) (243 )
(1,364 ) (314 ) (960 ) 453
Net income (loss) for the period $ 3,771 $ (540 ) $ 978 $ (4,965 )
Net income (loss) attributable to:
Owners of the parent $ 3,771 $ (542 ) $ 977 $ (4,967 )
Non-controlling interests - 2 1 2
Net income (loss) for the period $ 3,771 $ (540 ) $ 978 $ (4,965 )
Other comprehensive income (loss)
Foreign currency translation $ 980 $ (390 ) $ 42 $ (1,540 )
Total comprehensive income (loss) for the period $ 4,751 $ (930 ) $ 1,020 $ (6,505 )
Total comprehensive income (loss) attributable to:
Owners of the parent $ 4,751 $ (932 ) $ 1,019 $ (6,507 )
Non-controlling interests - 2 1 2
Total comprehensive income (loss) for the period $ 4,751 $ (930 ) $ 1,020 $ (6,505 )
Net income (loss) per Class A and Class B share $ 0.35 $ (0.05 ) $ 0.09 $ (0.45 )
Weighted average Class A and Class B shares outstanding (000's) 10,937 10,937 10,937 10,937
(unaudited) (in thousands of Canadian dollars)
Six months ended June 30
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS 2012 2011
Cash provided by (used for)
Operating activities
Net income (loss) for the period $ 978 $ (4,965 )
Items not affecting cash and cash equivalents
Depreciation 3,489 3,433
Current income taxes 658 (696 )
Deferred income taxes 302 243
Loss (gain) on sale of property, plant and equipment 55 (1 )
Unrealized foreign currency exchange (gain) loss (16 ) 28
Impairment loss on loan receivable 362 -
Gain on derivative financial instrument - (163 )
Net interest expense 1,888 2,356
Share of loss in investment in Universal Resource Recovery Inc. - 1,507
Other 70 86
7,786 1,828
Changes in non-cash items
Trade and other receivables (7,167 ) (7,876 )
Inventories 218 (1,068 )
Other assets (67 ) (74 )
Trade payables 445 946
Income tax credits applied (4 ) 5
Other liabilities 460 1,369
(6,115 ) (6,698 )
Income tax payments (3 ) (5 )
Payments for decommissioning of assets (39 ) (54 )
Cash provided by (used for) operating activities 1,629 (4,929 )
Investing activities
Purchase of property, plant and equipment (1,881 ) (1,920 )
Advances to Universal Resource Recovery Inc. - (1,875 )
Loan receivable (1,340 ) -
Proceeds from sale of property, plant and equipment 461 1
Cash used for investment activities (2,760 ) (3,794 )
Financing activities
Increase in bank operating advances 3,280 9,473
Repayment of debt (152 ) (154 )
Interest paid (1,719 ) (2,229 )
Payments on obligations under finance leases (309 ) (196 )
Payment of dividends by subsidiary to non-controlling interests (75 ) -
Cash provided by financing activities 1,025 6,894
Foreign exchange on cash held in foreign currency 1 (11 )
Decrease in cash and cash equivalents (105 ) (1,840 )
Cash and cash equivalents at the beginning of the period 1,180 5,383
Cash and cash equivalents at the end of the period $ 1,075 $ 3,543
(unaudited) (in thousands of Canadian dollars)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent


Share
Capital


Contributed
Surplus
Accumulated
Other
Comprehensive
Income (loss)


Retained
Earnings



Total

Non-
controlling
interests


Total
Equity
Balance - January 1, 2011 $ 33,689 $ 1,658 $ (2,616 ) $ 112,506 $ 145,237 $ 112 145,349
(Loss) income for the period - - - (4,967 ) (4,967 ) 2 (4,965 )
Other comprehensive loss(net of taxes, $nil)
-

-

(1,540
)
-

(1,540
)
-

(1,540
)
Comprehensive (loss) income for the period
-

-

(1,540
)
(4,967
)
(6,507
)
2

(6,505
)
Share-based compensation - 86 - - 86 - 86
Balance - June 30, 2011 $ 33,689 $ 1,744 $ (4,156 ) $ 107,539 $ 138,816 $ 114 $ 138,930
Balance - January 1, 2012 $ 33,689 $ 1,801 $ (1,540 ) $ 102,527 $ 136,477 $ 10 136,487
Net income for the period - - - 977 977 1 978
Other comprehensive income (net of taxes, $nil)
-

-

42

-

42

-

42
Comprehensive income for the period
-

-

42

977

1,019

1

1,020
Share-based compensation - 70 - - 70 - 70
Balance - June 30, 2012 $ 33,689 $ 1,871 $ (1,498 ) $ 103,504 $ 137,566 $ 11 $ 137,577

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