Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

March 13, 2007 14:37 ET

Brampton Brick Reports Results for the Fourth Quarter and Year Ended December 31, 2006

BRAMPTON, ONTARIO--(CCNMatthews - March 13, 2007) - Brampton Brick Limited (TSX:BBL.A) today reported consolidated net income for the year ended December 31, 2006 of $13,971,000 or $1.29 per share, on a weighted average 10,823,000 Class A Subordinate Voting and Class B Multiple Voting shares outstanding compared to $5,734,000, or $0.53 per share, on a weighted average 10,845,000 Class A Subordinate Voting and Class B Multiple Voting shares outstanding for the year ended December 31, 2005.

Consolidated net income for 2005 was reduced by an aggregate of $9,013,000, or $0.83 per share, in respect of two non-cash charges.

First, the carrying value of goodwill was written down by $11,093,000 which, net of the reversal of previously recorded future income tax liabilities related thereto and after giving effect to the 30% non-controlling interest therein, resulted in a net reduction in consolidated net income of $7,013,000. Second, the Company also recorded a provision of $2,000,000 against its investment in Futureway Communications Inc.

Excluding these non-cash charges, consolidated net income for 2005 would have been $14,747,000, or $1.36 per share. Consequently, consolidated net income for 2006 of $13,971,000, or $1.29 per share, represented a decrease of $776,000, or $0.07 per share, from 2005 consolidated net income, excluding the non-cash charges.

Net sales for the year decreased by $6,708,000, or 6.0% in aggregate, as a result of lower shipments in both the clay brick and concrete products business segments. Brick shipments were affected primarily by a slowdown in residential construction activity in the Company's primary market areas. Sales volumes in the concrete products business segment were negatively impacted by a slowdown in the Michigan market. Net sales in the waste processing business segment increased by $3,355,000, primarily as a result of the contribution from the Nova Scotia operations which commenced in December 2005.

As a consequence of the decline in net sales, operating income before interest and other items decreased by $2,026,000 from $21,811,000 in 2005 to $19,785,000 in 2006.

Interest on long-term debt decreased by $506,000 due to the repayment in December 2005 of a $12,000,000 term bank loan. Net interest income increased as a result of higher average interest rates earned plus an increase in average cash balances available for investment.

The reduction in the equity income contribution from Richvale York Block Inc. ("Richvale") reflected the sale of this investment in April 2006. The Company realized a gain of $462,000 on the sale.

Fluctuations in the value of the Canadian dollar versus the U.S. dollar resulted in a foreign currency exchange gain of $28,000 in 2006 compared to a loss of $601,000 in 2005.

During the first quarter of 2006, the Company outsourced its trucking requirements previously carried on by a subsidiary company, Roxy Construction Co. Limited ("Roxy"). This transaction involved the sale of the entire fleet of trucks, trailers and mobile forklift equipment and, to facilitate the outsourcing, the acquisition of the remaining 20% non-controlling interest in Roxy for cash consideration of $893,000. The purchase price paid represented an excess of $484,000 over the fair value of the net assets acquired and, accordingly, the excess cost was written off. The loss on sale of assets and other incidental costs related to the outsourcing were not significant.

The provision for income taxes for 2006 included the effect of a decrease in future income tax liabilities in the amount of approximately $999,000 resulting from reductions in future income tax rates which were substantively enacted by Parliament in 2006 under Bill C-13.

For the fourth quarter ended December 31, 2006, consolidated net income was $3,047,000, or $0.28 per share. In the fourth quarter of 2005, the Company reported a loss of $5,152,000, or $0.47 per share, including the two non-cash charges referred to above. Excluding these non-cash charges, the Company would have reported consolidated net income of $3,861,000, or $0.36 per share. The weighted average number of Class A Subordinate Voting and Class B Multiple Voting shares outstanding during the fourth quarters ended December 31, 2006 and December 31, 2005 was 10,833,000 and 10,840,000, respectively.

Net sales for the quarter decreased by $2,953,000 for substantially the same reasons as outlined above for the annual results and caused a decrease of $1,774,000 in operating income before interest and other items. Generally unfavourable weather conditions in the fourth quarter of 2006 also affected sales volumes in both the clay brick and concrete products business segments.

Variances from 2005 in interest on long-term debt and net interest income also reflected the same factors as outlined above for the annual results. The Canadian dollar weakened against the U.S. dollar in the fourth quarter of 2006 which produced a foreign currency exchange gain of $915,000. In the fourth quarter of 2005, the Company reported a foreign currency exchange gain of $100,000.

The reduction in the provision for income taxes resulting from reductions in future income tax rates, as noted above, was recorded in the fourth quarter of 2006 and consolidated net income was impacted accordingly.

Cash flow provided by operations totaled $18,124,000 for the year ended December 31, 2006, a decrease of $7,015,000 from $25,139,000 for the year ended December 31, 2005. Higher inventory levels, due to lower shipments in both the clay brick and concrete products business segments in the fourth quarter, accounted for most of the decrease.

Purchases of property, plant and equipment for the year included the acquisition of land, building and manufacturing equipment from Richvale for cash consideration of $7,500,000. Other significant purchases included property in west Brampton, Ontario acquired for future shale reserves at a cost of $3,562,000 and the Company's 50% share of the cost of the acquisition of property by Universal Resource Recovery Inc. ("Universal").

During the second quarter of 2006, the Company acquired a 50% joint venture interest in Universal, a start-up business. In May 2006, Universal acquired a 65 acre property, including two industrial buildings totaling approximately 600,000 square feet in Welland, Ontario, for cash consideration of $3,150,000. To December 31, 2006, the Company has advanced $1,906,000 to fund its 50% share of the acquisition and other expenditures. For consolidated financial statement purposes the Company's interest is accounted for using the proportionate consolidation method. Subject to receipt of the necessary regulatory approvals, Universal intends to construct and operate a waste composting and material recycling facility on this site.

The acquisition in 2006 of property for a future shale quarry was funded, in part, by a one-year, interest free vendor-take-back mortgage. In 2005, the acquisition of a tumbling equipment system was funded, in part, by term financing. The non-cash portions of these transactions were not reflected in the Consolidated Statements of Cash Flows. Similarly, capital assets that were acquired under capitalized lease obligations whereby funds were paid directly by the lessor to the equipment vendor were not cash transactions and, consequently, were also not reflected in the Consolidated Statements of Cash Flows.

In December 2006 the Company acquired the remaining 30% non-controlling interest in Oaks Concrete Products Ltd. that it did not already own. The aggregate purchase price of $15,000,000, was satisfied by a cash payment of $4,000,000 on closing and issuance of a promissory note for $11,000,000 to be settled over a 3 year period. A shareholder advance from the non-controlling interest group in the amount of $1,500,000 was repaid on closing.

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.

The sale of the Company's 38.2% interest in Richvale in April 2006, produced cash proceeds of $9,033,000, net of expenses. No dividends were received from Richvale prior to the date of sale in 2006. Cash dividends of $1,679,000 were received in 2005.

Cash dividends of $0.10 per Class A share and $0.10 per Class B share were paid on June 30 and December 31 in both 2006 and 2005. Aggregate dividend payments amounted to $2,165,000 in both years.

In 2005, the Company repurchased and cancelled 50,400 Class A shares under a Normal Course Issuer Bid for aggregate consideration of $657,000. No Class A shares were repurchased in 2006.

For the fourth quarter of 2006, cash flow from operations amounted to $5,713,000 compared to $10,896,000 for the corresponding period of 2005. Lower collection of accounts receivable and higher inventory levels, both due to lower net sales, and an increase in cash disbursements for accounts payable accounted for most of the decrease.

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 2005 Annual Report, which may cause actual results, performance or achievements of the Company to be materially different from any future result, performance or achievements expressed or implied by such forwardlooking 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. Until February 24, 2006 a subsidiary company transported raw materials and finished products for the Company and provided trucking services to third parties. To April 6, 2006 the Company held a 38.2% interest in Richvale York Block Inc., the largest producer of concrete block in Ontario.



Selected Financial Information

(Thousands of dollars, except
per share amounts) (unaudited)
----------------------------------------------------------------------------

Three months ended Year ended
CONSOLIDATED STATEMENTS OF December 31 December 31
INCOME 2006 2005 2006 2005
----------------------------------------------------------------------------
Net sales $ 23,121 $ 26,074 $ 105,337 $ 112,045

Cost of sales, selling,
general and administrative
expenses 17,499 18,810 75,491 79,836

Amortization 2,581 2,449 10,061 10,398
---------------------------------------------
20,080 21,259 85,552 90,234
Operating income before the
undernoted items 3,041 4,815 19,785 21,811
Interest on long-term debt (147) (280) (511) (1,017)
Interest income (net) 223 135 574 141
Equity income (loss) from
Richvale York Block Inc. - 44 (70) 719
Foreign currency exchange gain
(loss) 915 100 28 (601)
Other expense (209) (166) (132) (238)
---------------------------------------------
782 (167) (111) (996)
---------------------------------------------
Income before the following
items 3,823 4,648 19,674 20,815

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 -

Goodwill Impairment - (11,093) - (11,093)

Impairment of investment in
Futureway Communications Inc. - (2,000) - (2,000)
---------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 3,823 (8,445) 19,652 7,722
(Provision for) recovery of
income taxes (690) 100 (5,865) (5,340)
---------------------------------------------
Income (loss) before
non-controlling interests 3,133 (8,345) 13,787 2,382

Non-controlling interests (86) 3,193 184 3,352
---------------------------------------------
Net income (loss) for the
period $ 3,047 $ (5,152) $ 13,971 $ 5,734
---------------------------------------------
Net income (loss) per Class A
and Class B share $ 0.28 $ (0.47) $ 1.29 $ 0.53
---------------------------------------------
Weighted average Class A and
Class B shares outstanding
(000's) 10,833 10,840 10,823 10,845
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(Thousands of dollars) (unaudited)
----------------------------------------------------------------------------
Three months ended Year ended
CONSOLIDATED STATEMENTS OF CASH December 31 December 31
FLOWS 2006 2005 2006 2005
----------------------------------------------------------------------------
Cash provided by (used for)

Operating activities

Net income (loss) for the period $ 3,047 $ (5,152) $ 13,971 $ 5,734
Items not affecting cash
Amortization and accretion 2,592 2,460 10,105 10,441
Future income taxes (731) (1,808) (2,690) (2,412)
Non-controlling interests 86 (3,193) (184) (3,352)
Equity (income) loss from
Richvale York Block Inc. - (44) 70 (719)
Unrealized foreign exchange loss
(gain) 10 (34) 116 (102)
Loss on disposal of property,
plant and equipment 34 217 118 245
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) -
Goodwill impairment - 11,093 - 11,093
Impairment of investment in
Futureway Communications Inc. - 2,000 - 2,000
------------------------------------------
5,038 5,539 21,528 22,928
Changes in non-cash operating
items

Accounts receivable 3,713 4,961 38 (2,757)
Inventories (1,837) (504) (4,371) 1,424
Accounts payable and accrued
liabilities (1,081) 937 331 3,862
Income taxes payable (net) (635) (281) 133 (218)
Other 515 244 465 (100)
------------------------------------------
675 5,357 (3,404) 2,211

Cash provided by operations 5,713 10,896 18,124 25,139

Investing activities
Purchase of property, plant and
equipment (562) (1,847) (13,900) (7,343)
Business acquisitions (4,133) - (5,026) -
Proceeds from disposal of
property, plant and equipment 43 160 3,282 595
Net proceeds on sale of
investment in Richvale York
Block Inc. 513 - 9,033 -
Dividends from Richvale York
Block Inc. - 916 - 1,679
------------------------------------------
Cash used for investment (4,139) (771) (6,611) (5,069)

Financing activities

Increase (decrease) in bank
operating advances 1,525 954 (2,173) 2,938
Repayment of term loans (294) (12,313) (801) (12,655)
Payments on obligations under
capital leases 124 (318) (1,345) (1,840)
Payment of dividends (1,083) (1,080) (2,165) (2,165)
Repayment of non-controlling
interests' advance (1,500) - - -
Proceeds from exercise of stock
options 2 41 111 58
Class A shares repurchased - (642) - (657)
------------------------------------------
Cash used for financing (1,226) (13,358) (6,373) (14,321)

Foreign exchange on cash held in
foreign currency 10 (16) (2) (12)
------------------------------------------
Increase (decrease) in cash and
cash equivalents 358 (3,249) 5,138 5,737

Cash and cash equivalents -
Beginning of year 24,088 22,557 19,308 13,571
------------------------------------------
Cash and cash equivalents - End
of year $ 24,446 $ 19,308 $ 24,446 $ 19,308
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(Thousands of dollars) (audited)
----------------------------------------------------------------------------
December 31 December 31
CONSOLIDATED BALANCE SHEETS 2006 2005
----------------------------------------------------------------------------
ASSETS

Current assets

Cash and cash equivalents $ 24,446 $ 19,308
Accounts receivable 11,850 11,925
Inventories 18,476 14,110
Income taxes recoverable 17 49
Future income taxes - 36
Other current assets 1,521 1,656
-------------------------
56,310 47,084

Property, plant and equipment (net) 103,082 101,063

Other assets
Goodwill 20,287 15,694
Future income taxes 3,960 2,538
Other 1,764 9,570
-------------------------
26,011 27,802
-------------------------
$ 185,403 $ 175,949
-------------------------
-------------------------
LIABILITIES

Current liabilities

Bank operating advances $ 3,205 $ 5,378
Accounts payable and accrued liabilities 12,719 12,916
Income taxes payable 433 331
Long-term debt, current portion 7,018 1,965
-------------------------
23,375 20,590

Long-term debt, less current portion 11,264 5,136

Future income taxes 9,339 10,675

Asset retirement obligation 1,001 957
-------------------------
44,979 37,358
Non-controlling interests 245 10,567

SHAREHOLDERS' EQUITY 140,179 128,024
-------------------------
$ 185,403 $ 175,949
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