Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

May 08, 2009 17:45 ET

Brampton Brick Reports Results for the First Quarter Ended March 31, 2009

BRAMPTON, ONTARIO--(Marketwire - May 8, 2009) -

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

Brampton Brick Limited (the "Company") (TSX:BBL.A) today reported a loss of $6,256, or $0.57 per Class A Subordinate Voting share ("Class A share") and Class B Multiple Voting share ("Class B share"), for the first quarter ended March 31, 2009 on a weighted average 10,937,000 Class A shares and Class B shares outstanding. For the first quarter of 2008, the Company incurred a loss of $4,191, or $0.39 per share, on a weighted average 10,882,000 Class A shares and Class B shares outstanding.

Effective with the adoption of the new Canadian Institute of Chartered Accountants Handbook Section 3064, Goodwill and Intangible Assets, on January 1, 2009, operating costs in the amount of $1,832 pertaining to the pre-production period of the new Indiana clay brick plant and the Company's share of the unamortized balance of start-up costs related to Universal Resource Recovery Inc. ("Universal") in the amount of $179 were adjusted to opening retained earnings. As at December 31, 2008 these costs were included in the Consolidated Balance Sheet under Other assets. This change has been applied retroactively and the prior year comparative financial statements have been restated accordingly. Commencing in 2009 any such costs are charged to operations as incurred.

Prior period comparative financial information for the first quarter ended March 31, 2008 has also been restated to reflect as discontinued operations, the assets and liabilities, operating results and cash flows of the Company's joint venture interest in Sharpsmart Canada Limited, which was sold on April 21, 2008, and the Company's remaining interest in certain small quantity generator accounts, which were disposed of effective September 1, 2008.

RESULTS OF OPERATIONS

Net sales from continuing operations for the quarter were $7,457 compared to $9,986 in 2008. The net decrease of $2,529 was primarily due to lower clay brick shipments in the Masonry Products business segment. Net sales of the new waste composting operations of Universal, which commenced in the second half of 2008, amounted to $961 for the three months ended March 31, 2009.

The operating loss from continuing operations, before interest and other items, was $7,251, an increase of $1,488 over the same period last year. Included in cost of goods sold in the first quarter of 2009 were pre-production costs related to testing and commissioning of the new Indiana clay brick plant in the estimated amount of $1,278, as compared to $114 in the first quarter of 2008. Waste processing and transportation costs related to Universal's operations amounted to $1,018 in the first quarter of 2009 and were also included in cost of goods sold. No such costs were incurred in the first quarter of 2008.

Lower cost of goods sold, in total, and a significant decrease in selling, general and administrative expenses were partially offset by an increase in amortization charges. Selling, general and administrative expenses decreased by $898 from the comparative prior period primarily due to lower marketing expenditures and lower personnel costs.

Interest on long-term debt increased by $351 to $471 due to the increase in term bank loans. Net interest income decreased due to a decrease in the outstanding balance of the promissory note receivable and lower cash balances.

During the three month period ended March 31, 2009, the Company recorded a foreign currency exchange gain of $99 primarily as a result of the impact of fluctuations in the rate of exchange between the Canadian and U.S. dollar during the quarter on foreign currency denominated monetary items. For the same period in 2008, the Company reported a foreign currency exchange loss of $182.

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.

The recovery of income taxes in the first quarter of 2009 reflected an effective income tax rate of 17.5% compared to 28.5% for the same period in 2008. The Company has recorded valuation allowances against the future income tax benefit that would otherwise be recorded in the first quarter with respect to the noncapital losses incurred by its U.S. operations and the new Universal operations.

More detailed discussion with respect to each operating business segment follows:

MASONRY PRODUCTS

For the three months ended March 31, 2009, this business segment incurred an operating loss of $4,139 on net sales of $5,683 compared to an operating loss of $2,007 on net sales of $9,306 for the corresponding period in 2008.

The decrease in net sales was due to lower clay brick shipments. Sales in both the Canadian and U.S. markets continued to be impacted by the downturn in residential construction activity.

In addition to the impact of lower net sales, pre-production costs related to testing and commissioning of the new Indiana clay brick plant amounted to approximately $1,278 in the first quarter of 2009 compared to $114 in the first quarter of 2008. As such, this represented a significant portion of the increase in the operating loss.

Selling, general and administrative expenses applicable to this business segment decreased primarily due to lower personnel costs.

LANDSCAPE PRODUCTS

The Landscape Products business segment incurred an operating loss of $2,815 for the three month period ended March 31, 2009 compared to $3,610 in 2008. The improvement in operating results was due to significantly lower production volumes, which lowered total manufacturing expenses, and a reduction in selling, general and administrative expenses.

Net sales of this highly seasonal business amounted to $813 for the first quarter of 2009 compared to $680 last year.

OTHER OPERATIONS

Other operations include the Company's 50% joint venture interest in Universal. This investment is accounted for using the proportionate consolidation method.

For the three month period ended March 31, 2009, the Company's share of Universal's net sales amounted to $961. There were no sales in the first quarter of 2008.

The Company's share of Universal's operating loss for the first quarter of 2009 was $311 compared to $134 for the comparative prior period in 2008.

DISCONTINUED OPERATIONS

Discontinued operations represent the Company's joint venture interest in Sharpsmart, which was sold in April 2008 and its interest in certain small quantity generator accounts which were disposed of effective September 1, 2008.

For the three months ended March 31, 2008, the loss from discontinued operations amounted to $38.

CASH FLOWS

Cash flow used by operating activities of continuing operations for the period ended March 31, 2009 totaled $6,658 compared to $6,345 for the same period last year. The increase in the loss from continuing operations was substantially offset by the changes in noncash working capital items.

Cash utilized for purchases of property, plant and equipment totaled $4,458 for the first quarter of 2009, including $3,458 incurred in connection with the construction of the Indiana clay brick plant. Comparative amounts for the same period in 2008 were $10,757 and $8,038, respectively.

Purchases of property, plant and equipment in 2009 also included an amount of $567, compared to $1,100 in 2008, related to the Company's 50% share of capital expenditures incurred by Universal.

During the three months ended March 31, 2009, operating bank advances and term bank loans increased by $7,695 (2008 - $1,480) and $3,000 (2008 - $3,000), respectively.

Other cash inflows for the three months ended March 31, 2008 included proceeds of $216 from the sale of property held for sale and $489 from the issuance of Class A shares upon the exercise of stock options under the Company's Stock Option Incentive Plan.

Also in 2008, a portion of the cash proceeds received from the sale of the medical waste business operations and assets was distributed by way of a cash dividend. The noncontrolling interests' share was $700.

FINANCIAL CONDITION

The nature of the Company's products and primary markets dictates that its Masonry Products and Landscape Products business segments are seasonal. The Landscape Products business is affected to a greater degree than the Masonry Products business. As a result of this seasonality, bank operating advances are generally expected to increase through the first half of the year and decline through the second half of the year.

As at March 31, 2009, bank operating advances were $10,276. This represented an increase of $7,695 from the amount outstanding at December 31, 2008. Accounts payable and accrued liabilities totaled $9,037 at March 31, 2009 compared to $14,478 at December 31, 2008. The decrease was primarily due to lower outstanding accounts payable related to the Company's major capital expenditure projects.

The ratio of total liabilities to shareholders' equity was 0.52:1 at March 31, 2009 compared to 0.47:1 at December 31, 2008. The increase to March 31, 2009 was primarily due to the increase in operating bank loans and term bank loans and lower retained earnings resulting from the operating loss.

As at March 31, 2009, the Company had operating credit facilities totaling up to $17,450, of which $10,952 had been utilized, including $676 for outstanding letters of credit, and a term loan facility of $20,000 which had been fully utilized.

On April 9, 2009, the Company sold an undivided co-ownership interest, representing approximately 59.9%, in the promissory note receivable, including future interest payments, for cash proceeds of $3,793. The proceeds were utilized to reduce bank operating advances.

As at March 31, 2009, the Company was not in compliance with certain financial covenants under its credit agreement. Consequently, the $20,000 term bank loan due June 2012 has been reclassified as a current obligation. The bank has agreed to enter into a forbearance agreement to June 30, 2009 to allow the Company to complete its refinancing plan referred to below.

In April 2009, the Company executed a Commitment Letter with a third party lender to secure new longterm financing in the amount of $30,000. Proceeds of the new financing, which is expected to be completed by June 30, 2009, will be utilized to repay the $20,000 term bank loan and for general corporate purposes.

The term of the loan is seven years with interest only for the first two years, five payments totaling $2,500 each year commencing in July, 2011 and a final payment of $17,500 in June 2016. Interest is to be based on equivalent term Government of Canada bonds plus 5.25%, but not less than 7.50%.

The Company expects that future cash flows from operations, cash and cash equivalents on hand and the unutilized balances of its credit facilities, including the additional, new term financing referred to above, will be sufficient to satisfy its obligations as they become due.

Total capital expenditures to be incurred in connection with the construction of the new brick plant in Indiana are estimated to be approximately U.S. $53,000. A total of U.S. $48,842 had been expended to March 31, 2009. The balance is expected to be funded from future cash flows from operations and the Company's credit facilities, as required.

During the second quarter of 2008, Universal finalized credit arrangements in an aggregate amount of $20,000, including term, operating and letter of credit facilities, to fund its capital expenditure and operating requirements. As at March 31, 2009, the entire amount of the $15,000 term loan facility had been drawn and letters of credit in the amount of $1,123 had been issued. The Company's proportionate shares were $7,500 and $562, respectively. The Company and the joint venture partner have each provided a guarantee of $6,500 as security for Universal's borrowing under this credit agreement.

The failure by the Company to maintain compliance with all financial covenants under its credit agreement, has resulted in a crossdefault under the Universal credit agreement. However, Universal's lender has provided a waiver of this event of default and, based on the expected refinancing referred to above, Universal is expected to maintain compliance with its covenants throughout the coming year.

Universal anticipates that it will require approximately $2,600 to fund capital expenditures in 2009. This amount is expected to be funded by Universal from future cash flows from operations, cash advances from the joint venture partners and the unutilized balance of its operating credit facility.

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 activity. Demand for landscape products fluctuates in accordance with the level of industrial, commercial and institutional construction activity and consumer spending.

These business segments are also seasonal. Historically, sales are greatest in the second and third quarters of each year and are less in the first and fourth quarters. The Landscape Products business segment is affected to a greater extent than the Masonry Products business segment.

Economic conditions continue to impact upon residential and commercial construction activity and on consumer spending. Demand for the Company's products is expected to be affected accordingly. As a result, the Company continues to monitor sales forecasts and adjust operating plans, production levels, manpower requirements and discretionary expenditures, as required, in order to minimize the impact of the slowdown on operating results and cash flows.

Due to current economic conditions, the Board of Directors of the Company has determined to not declare a dividend in 2009. In each of the past four years the Company had paid semiannual dividends of $0.10 per Class A share and $0.10 per Class B share.

Construction of the Indiana clay brick manufacturing plant is substantially completed. Testing and commissioning of the production equipment was carried out throughout much of the first quarter. Commercial production began in April and the Company is now shipping products from this new facility.

Universal continues to make progress in its plan to address various issues which arose during the commissioning and start-up phase of these new operations.

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 2008 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 wholly owned subsidiary, manufactures fireplace surrounds and accessory products. The Company also holds a 50% joint-venture interest in Universal Resource Recovery Inc. which operates a waste composting facility in Welland, Ontario.



Selected Financial Information

(unaudited) (in thousands of dollars, except per share amounts)
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Three months ended
March 31
CONSOLIDATED STATEMENTS OF OPERATIONS 2009 2008
----------------------------------------------------------------------------
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Net sales from continuing operations $ 7,457 $ 9,986
Cost of goods sold 9,581 10,085
Selling, general and administrative expenses 2,709 3,607
Amortization 2,418 2,057
--------- ---------
14,708 15,749

Operating loss from continuing operations
before the undernoted items (7,251) (5,763)
Interest on long-term debt (471) (120)
Interest income (net) 22 123
Foreign currency exchange gain (loss) 99 (182)
Foreign currency exchange gain on cash flow
hedges - 32
Other income 33 16
--------- ---------
(317) (131)
--------- ---------
Loss from continuing operations
before the following items (7,568) (5,894)
Gain on sale of property held for sale - 136
--------- ---------
Loss from continuing operations before income
taxes and non-controlling interests (7,568) (5,758)
--------- ---------
Recovery of income taxes
Current 1,238 1,052
Future 87 587
--------- ---------
1,325 1,639
--------- ---------
Loss from continuing operations
before non-controlling interests (6,243) (4,119)
Non-controlling interests (13) (34)
--------- ---------
Loss from continuing operations (6,256) (4,153)
Loss from discontinued operations - (38)
--------- ---------
Loss for the period $ (6,256) $ (4,191)
--------- ---------
--------- ---------
Loss per Class A and Class B share
From continuing operations $ (0.57) $ (0.38)
--------- ---------
--------- ---------
For the period $ (0.57) $ (0.39)
--------- ---------
--------- ---------
Weighted average Class A and Class B shares
outstanding (000's) 10,937 10,882

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Selected Financial Information

(unaudited) (in thousands of dollars)
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Three months ended
March 31
CONSOLIDATED STATEMENTS OF CASH FLOWS 2009 2008
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Cash provided by (used for) activities of
continuing operations

Operating activities
Loss from continuing operations for the
period $ (6,256) $ (4,153)
Items not affecting cash and cash
equivalents
Amortization and accretion 2,429 2,070
Future income taxes (87) (587)
Non-controlling interests 13 34
Unrealized foreign currency exchange gain (115) (117)
Gain on sale of property held for sale - (136)
Other 47 103
--------- ---------
(3,969) (2,786)

Changes in non-cash operating items
Accounts receivable 214 (244)
Inventories 559 663
Accounts payable and accrued liabilities (1,828) (795)
Income taxes payable (net) (1,326) (3,263)
Other (308) 80
--------- ---------
(2,689) (3,559)
--------- ---------
Cash used for operating activities of
continuing operations (6,658) (6,345)

Investing activities
Purchase of property, plant and equipment (4,458) (10,757)
Proceeds from sale of property held for sale - 216
--------- ---------
Cash used for investment activities of
continuing operations (4,458) (10,541)

Financing activities
Increase in bank operating advances 7,695 1,480
Increase in term bank loans 3,000 3,000
Repayment of term loans (2) (14)
Payments on obligations under capital leases (98) (43)
Payment of dividends by subsidiary to
non-controlling interests - (700)
Proceeds from exercise of stock options - 489
Class A shares repurchased - (99)
--------- ---------

Cash provided by financing activities of
continuing operations 10,595 4,113

Net cash used for discontinued operations (62) (128)

Foreign exchange on cash held in foreign
currency 131 173
--------- ---------

Decrease in cash and cash equivalents (452) (12,728)

Cash and cash equivalents at the beginning
of the period 2,088 13,860
--------- ---------

Cash and cash equivalents at the end of
the period $ 1,636 $ 1,132
--------- ---------
--------- ---------

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Selected Financial Information

(in thousands of dollars) (unaudited)
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March 31 December 31
CONSOLIDATED BALANCE SHEETS 2009 2008
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ASSETS
Current assets
Cash and cash equivalents $ 1,636 $ 2,088
Accounts receivable 5,417 5,691
Inventories 17,503 18,062
Income taxes recoverable 367 10
Future income taxes 32 40
Other current assets 1,274 988
Promissory note receivable, current 3,427 3,358
--------- ---------
29,656 30,237

Property, plant and equipment (net) 105,807 107,158
Construction in progress 49,617 49,149
--------- ---------
155,424 156,307
Other assets
Promissory note receivable, long-term 3,256 3,244
Future income taxes 605 605
Other 1,047 1,738
--------- ---------
4,908 5,587
--------- ---------
$ 189,988 $ 192,131
--------- ---------
--------- ---------
LIABILITIES
Current liabilities
Bank operating advances $ 10,276 $ 2,581
Accounts payable and accrued liabilities 9,037 14,478
Liabilities related to discontinued operations 625 730
Income taxes payable 1,548 2,517
Long-term debt, current portion 24,368 4,137
Derivative financial instruments, current 913 834
Asset retirement obligation 249 245
--------- ---------
47,016 25,522
Long-term debt, less current portion 8,247 25,521
Derivative financial instruments, non-current 2,112 2,267
Future income taxes 6,477 6,552
Asset retirement obligation 503 496
--------- ---------
64,355 60,358
Non-controlling interests 2,539 2,526
SHAREHOLDERS' EQUITY 123,094 129,247
--------- ---------
$ 189,988 $ 192,131
--------- ---------
--------- ---------

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Selected Financial Information


(unaudited) (in thousands of dollars)
----------------------------------------------------------------------------

Three months ended
March 31
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at the beginning of the period as
previously reported $ 102,489 $ 111,587
Impact of accounting standard changes under
CICA Handbook Section 3064 applied
retroactively (2,011) (231)
--------- ---------
Balance at the beginning of the period
as restated $ 100,478 $ 111,356
--------- ---------
Loss for the period (6,256) (4,191)
Premiums paid on repurchase of capital stock - (61)
--------- ---------
Balance at the end of the period $ 94,222 $ 107,104
--------- ---------
--------- ---------

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(unaudited) (in thousands of dollars)
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Three months ended
March 31
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss for the period $ (6,256) $ (4,191)
Other comprehensive income
Loss on cash flow hedges, net of taxes 56 45
--------- ---------
Net comprehensive loss for the period $ (6,200) $ (4,146)
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