Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

March 04, 2008 15:37 ET

Brampton Brick Reports Results for the Fourth Quarter and Year Ended December 31, 2007

BRAMPTON, ONTARIO--(Marketwire - March 4, 2008) -

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

Brampton Brick Limited (TSX:BBL.A) today reported consolidated net income for the year ended December 31, 2007 of $3,519, or $0.32 per Class A Subordinate Voting Share ("Class A share") and Class B Multiple Voting Share ("Class B share") outstanding, compared to consolidated net income of $13,971, or $1.29 per Class A share and Class B share outstanding in 2006. The aggregate weighted average number of Class A shares and Class B shares outstanding was 10,836,000 in 2007 and 10,823,000 in 2006.

Net income for the year is comprised of a loss from continuing operations of $4,589, or $0.42 per share, and net income from discontinued operations of $8,108, or $0.74 per share. The major factor which impacted the decline in operating results from continuing operations was a non-cash charge of $13,500 to write down the carrying value of goodwill which, net of the related tax benefit recorded of $432, resulted in a net charge of $13,068, or $1.21 per share. Other factors which impacted results were lower sales in both the Masonry Products and Landscape Products business segments, as well as a foreign currency exchange loss of $1,306. In 2006, the Company recorded a small foreign currency exchange gain of $28. In its continuing operations, the Company recorded gains on the disposal of property, plant and equipment, on the sale of surplus properties in Quebec and on the sale of its investment in Futureway Communications Inc. ("FCI").

Net income from discontinued operations included a gain on the sale of the medical waste assets, which, net of income taxes and a 35% non-controlling interest therein, amounted to $7,942, or $0.73 per share. In 2006, net income from discontinued operations was $392, or $0.04 per share.

For the fourth quarter ended December 31, 2007, the Company reported a loss of $5,050, or $0.47 per share, on a weighted average 10,841,000 Class A shares and Class B shares outstanding, compared to net income of $3,047, or $0.28 per share, on a weighted average 10,833,000 Class A shares and Class B shares outstanding. Operating results for the fourth quarter of 2007 included the goodwill impairment charge as well as the gain on the sale of the medical waste assets as noted above.

Effective October 2, 2007, the Company's 65% owned subsidiary, Medical Waste Management Inc. ("MWM"), completed the sale of substantially all of its business operations and assets, excluding its 50% joint venture interest in Sharpsmart Canada Limited ("Sharpsmart"). 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.

Effective January 1, 2007, the Company completed a short-form amalgamation to combine the Canadian legal entities Oaks Concrete Products Ltd. ("Oaks") and Roxy Construction Co. Limited ("Roxy") 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 decrease of $133 in the foreign currency exchange loss that would have otherwise been reported for the year ended December 31, 2007.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2007

Net sales from continuing operations were $83,826 in 2007 compared to $95,264 in 2006. Net sales declined in the Masonry Products business segment by $7,369, or 10.8%, and in the Landscape Products business segment by $4,263, or 16.6%, due, in both instances, to lower volumes and a small decrease in average net selling prices. Net sales from other operations increased by $194.

Operating results for 2007 were also negatively affected by lower production volumes, corresponding to the decrease in sales volumes. The reduction in production volumes resulted in a greater proportion of fixed manufacturing overheads being charged against operations.

The Company also incurred additional costs in 2007 in connection with the realignment of production of certain landscape products between plants and the development and commencement of production of new products for both the Masonry Products and Landscape Products business segments. The majority of the restructuring and new product development activity took place at the Peel plant which was acquired from Richvale York Block Inc. ("Richvale") in April 2006. For the year ended December 31, 2007, this plant incurred an operating loss of $2,503 compared to an operating loss of $604 for the period of ownership in 2006.

As a result of the decrease in net sales, a reduction in margins due to lower average net selling prices, lower production volumes and the operating loss incurred by the Peel plant, operating income from continuing operations before interest and other items declined by $7,776 to $10,935 for the year ended December 31, 2007 from $18,711 in 2006.

Interest on long-term debt increased by $425 to $739 primarily due to the $11,000 promissory note issued in December 2006 in connection with the acquisition of the 30% non-controlling interest of Oaks.

The strengthening in the relative value of the Canadian dollar versus the U.S. dollar in 2007 produced a foreign currency exchange loss of $1,306 compared to a gain of $28 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.

Other income included a gain of $533 on the disposal of certain equipment in connection with the outsourcing of the clay brick quarry operations in Brampton.

The Company performed its annual test for impairment of goodwill as at December 31, 2007. As a result of this test, management determined there was a decline in the estimated fair value of goodwill related to the Landscape Products business segment and, accordingly, the Company recorded a write-down of $13,500, less the related tax benefit recorded of $432, which resulted in a net charge to the Consolidated Statement of Income of $13,068, or $1.21 per share. Excluding this impairment charge, net income from continuing operations for 2007 would have been $8,479, or $0.78 per share.

The Company owns properties in Quebec which are surplus to its requirements. Certain of the properties were sold in 2007 resulting in a total gain of $898. No such sales occurred in 2006.

The Company also disposed of its investment in common shares of Futureway Communications Inc. ("FCI") in June 2007 for cash proceeds of $688, which resulted in a gain in the same amount.

In 2006, the Company incurred a loss of $484 in connection with the sale and outsourcing of its trucking operation and also reported a gain of $462 on the disposal of its investment in Richvale York Block ("Richvale").

Operating results for 2007 reflect an income tax expense of $2,719 on a loss before income taxes of $1,765 primarily due to the fact that a future tax recovery of only $432 was recorded with respect to the $13,500 write-down of goodwill. No future tax recovery was recorded with respect to the write-down of goodwill applicable to the U.S. operations as these operations currently have substantial tax losses carried forward.

The income tax provision reflected the benefit of a reduction in future income tax liabilities in the amount of $1,039 resulting from changes in future income tax rates which were substantively enacted in 2007.

Effective October 2, 2007, the Company's 65% owned subsidiary, MWM, completed the sale of its medical waste business operations and assets, excluding its 50% joint venture interest in Sharpsmart, for aggregate proceeds of $20,500.

This asset sale resulted in a pre-tax gain for accounting purposes of $15,709. After deducting estimated income taxes and the non-controlling interests' 35% share of the net after-tax gain, the Company's share was $7,942, or $0.73 per share.

Operating activities of this business resulted in net income of $166, or $0.01 per share, for the period of operation prior to the sale in October 2007. For the full year 2006 net income was $392, or $0.04 per share.

In total, net income from discontinued operations amounted to $8,108, or $0.74 per share, in 2007.

THREE MONTHS ENDED DECEMBER 31, 2007

Net sales from continuing operations were $16,621, a decrease of $3,935 from net sales of $20,556 in the fourth quarter of 2006. Sales volumes were lower in both the Masonry Products and Landscape Products business segments.

Operating income from continuing operations before interest and other items was $8 for the fourth quarter of 2007 compared to operating income of $2,498 for the fourth quarter of 2006.

Foreign currency exchange fluctuations resulted in a gain of $216 in the quarter compared to a gain of $915 in the corresponding period in 2006.

The sale of property in Quebec in the fourth quarter of 2007 resulted in a gain of $645. There were no such sales in the corresponding period of 2006.

Net income from discontinued operations, including the gain on the sale of the medical waste assets, totaled $7,847, or $0.72 per share, for the fourth quarter of 2007.

In total, the loss for the quarter was $5,050, or $0.47 per share, compared to net income of $3,047, or $0.28 per share, in 2006.

CASH FLOW

Cash flow provided by operating activities of continuing operations for the fourth quarter ended December 31, 2007 totaled $6,565 compared to $5,418 for the same period last year. Higher collections of accounts receivable was the primary factor contributing to the increase of $1,147.

For the year ended December 31, 2007, cash flow provided by operating activities of continuing operations totaled $12,161, or a decrease of $4,786 from the $16,947 provided for the year ended December 31, 2006. Lower income from operations accounted for most of the decrease.

Cash utilized for purchases of property, plant and equipment totaled $19,736 in 2007 compared to $13,616 in 2006. Expenditures in 2007 included $14,001 pertaining to the Company's new clay brick plant under construction in Indiana.

Significant purchases of property, plant and equipment in 2006 included the acquisition of land, building and manufacturing equipment from Richvale for cash consideration of $7,500.

Disposals of property, plant and equipment in 2007 generated cash proceeds of $652. In 2006, the sale of trucks, trailers and mobile forklift equipment in connection with the outsourcing of transportation requirements generated cash proceeds of $3,175. Related capital lease obligations in the amount of $700 were paid out from the proceeds of the sale. Other disposals in 2006 generated cash proceeds of $89.

Proceeds from the sale of the investment in FCI and the sale of property held for sale were $688 and $1,304, respectively. In 2006, the sale of the investment in Richvale generated cash proceeds of $9,033.

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

Following the amalgamation of Oaks with Brampton Brick Limited on January 1, 2007, surplus cash of the Company was utilized to repay bank operating advances of this former subsidiary in the amount of $2,540.

The acquisition in 2006 of property for potential future shale reserves was funded, in part, by a one-year interest free vendor-take-back mortgage in the amount of $1,781 which was paid in 2007.

Cash dividends of $0.10 per Class A share and $0.10 per Class B share were paid to shareholders on June 30 and December 31 in both 2007 and 2006.

Following the sale of the medical waste business operations and assets by MWM, a portion of the cash proceeds was distributed by way of a dividend, of which $350 was paid to the non-controlling shareholders of MWM.

In 2007, the Company purchased and cancelled 1,300 Class A shares under a Normal Course Issuer Bid for aggregate consideration of $14. No Class A shares were purchased in 2006.

The sale of the medical waste operations and assets was satisfied by a cash payment on closing of $9,832, the assumption by the purchaser of net working capital liabilities in the estimated amount of $668 and receipt of a promissory note in the principal amount of $10,000.

A $1,835 term loan applicable to the discontinued medical waste operations was repaid in October 2007 out of the cash proceeds from the sale of this business. The loan facility was subsequently cancelled.

During 2007, discontinued operations repaid advances totaling $1,099 to the parent Company.

Net cash provided by discontinued operations included the $9,832 cash proceeds on closing of the sale of the medical waste assets and other cash flows of $88 less the $1,835 term loan and $1,099 advance repayments.

OTHER

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 purchase contracts aggregating U.S. $30,000 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 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. Two foreign exchange forward purchase contracts were terminated in October 2007 for a settlement amount of $1,747.

The Company's Masonry Products and Landscape Products business segments are cyclical and operating results for 2008 can be expected to reflect economic factors which affect these industries. However, with the initiatives undertaken in 2007, the addition of new products, innovative marketing programs and a continued focus on low-cost manufacturing, the Company is optimistic that overall financial performance in 2008 will remain positive.

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 any future result, 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 in Canada and the U.S. 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 is constructing and plans to operate a waste composting and material recycling facility in Welland, Ontario.



Selected Financial Information

(Thousands of dollars, except per share amounts) (unaudited)
----------------------------------------------------------------------------
Three months ended Year ended
CONSOLIDATED STATEMENTS December 31 December 31
OF INCOME (LOSS) 2007 2006 2007 2006
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Net sales from continuing
operations $ 16,621 $ 20,556 $ 83,826 $ 95,264

Cost of sales, selling,
general and administrative
expenses 14,531 15,667 64,222 67,223

Amortization 2,082 2,391 8,669 9,330
---------------------------------------------
16,613 18,058 72,891 76,553

Operating income from
continuing operations before
the undernoted items 8 2,498 10,935 18,711
Interest on long-term debt (153) (96) (739) (314)
Interest income (net) 242 226 591 595
Equity loss from Richvale
York Block Inc. - - - (70)
Foreign currency exchange
income (loss) 216 915 (1,306) 28
Other income (expense) 5 (204) 668 (130)
---------------------------------------------
310 841 (786) 109
---------------------------------------------

Income (loss) from
continuing operations
before the following
items 318 3,339 10,149 18,820
---------------------------------------------
Goodwill impairment (13,500) - (13,500) -

Gain on sale of property
held for sale 645 - 898 -

Gain on sale of investment
in Futureway Communications
Inc. - - 688 -

Gain on sale of investment in
Richvale York Block Inc. - - - 462

Write-off of excess cost
paid on investment in Roxy
Construction Co. Limited - - - (484)
---------------------------------------------
Income (loss) from
continuing operations
before income taxes and
non-controlling interests (12,537) 3,339 (1,765) 18,798

(Provision for) recovery
of income taxes
Current (126) (1,421) (1,076) (8,555)
Future (196) 849 (1,643) 2,941
---------------------------------------------
(322) (572) (2,719) (5,614)
---------------------------------------------
Income (loss) from
continuing operations
before non-controlling
interests (12,859) 2,767 (4,484) 13,184
---------------------------------------------
Non-controlling interests (38) 42 (105) 395
---------------------------------------------
Net income (loss) from
continuing operations (12,897) 2,809 (4,589) 13,579
Net income from
discontinued operations 7,847 238 8,108 392
---------------------------------------------
Net income (loss) for the
period $ (5,050) $ 3,047 $ 3,519 $ 13,971
---------------------------------------------
---------------------------------------------

Net income (loss) from
continuing operations per
Class A and Class B share $ (1.19) $ 0.26 $ (0.42) $ 1.25
---------------------------------------------
---------------------------------------------

Net income (loss) per
Class A and Class B share $ (0.47) $ 0.28 $ 0.32 $ 1.29
---------------------------------------------
---------------------------------------------

Weighted average Class A
and Class B shares
outstanding (000's) 10,841 10,833 10,836 10,823
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(Thousands of dollars) (unaudited)
----------------------------------------------------------------------------
Three months ended Year ended
CONSOLIDATED STATEMENTS December 31 December 31
OF CASH FLOWS 2007 2006 2007 2006
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Cash provided by (used
for) activities of
continuing operations

Operating activities
Net income (loss) from
continuing operations for
the period $ (12,897) $ 2,809 $ (4,589) $ 13,579
Items not affecting cash
Amortization and accretion 2,093 2,402 8,715 9,374
Future income taxes 196 (849) 1,643 (2,941)
Non-controlling interests 38 (42) 105 (395)
Equity loss from Richvale
York Block Inc. - - - 70
Unrealized foreign currency
exchange (gain) loss (109) 10 (223) 116
Goodwill impairment 13,500 - 13,500 -
Gain on sale of property
held for sale (645) - (898) -
Gain on sale of
investment in Futureway
Communications Inc. - - (688) -
Gain on sale of
investment in Richvale
York Block Inc. - - - (462)
Write-off of excess cost
paid on investment in
Roxy Construction Co.
Limited - - - 484
(Gain) loss on disposal
of property, plant and
equipment 73 34 (490) 124
Other (39) 24 234 175
---------------------------------------------
2,210 4,388 17,309 20,124

Changes in non-cash
operating items
Accounts receivable 5,954 3,764 2,481 337
Inventories (1,050) (1,845) (4,355) (4,399)
Accounts payable and
accrued liabilities (1,368) (696) (496) 546
Income taxes payable
(net) 77 (694) (3,157) 74
Other 742 501 379 265
---------------------------------------------
4,355 1,030 (5,148) (3,177)

Cash provided by operating
activities of continuing
operations 6,565 5,418 12,161 16,947

Investing activities
Purchase of property,
plant and equipment (5,768) (568) (19,736) (13,616)
Proceeds from disposal of
property, plant and equipment 33 43 652 3,264
Net proceeds on sale of
investment in Richvale
York Block Inc. - 513 - 9,033
Proceeds from sale of
investment in Futureway
Communications Inc. - - 688 -
Net proceeds from sale of
property held for sale 962 - 1,304 -
Business acquisitions - (4,133) - (5,026)
---------------------------------------------

Cash used for investment
activities of continuing
operations (4,773) (4,145) (17,092) (6,345)

Financing activities

Increase (decrease) in
bank operating advances (170) 1,971 (2,555) (1,847)
Inter-company advances
repaid by discontinued
operations 55 45 1,099 330
Repayment of note payable
and term loans (4,232) (234) (4,766) (561)
Repayment of mortgage - - (1,781) -
Settlement of foreign
currency forward contracts (1,747) - (1,747) -
Payments on obligations
under capital leases (39) (144) (288) (1,358)
Payment of dividends to
shareholders (1,086) (1,083) (2,170) (2,165)
Payment of dividends by
subsidiary to
non-controlling interests (350) - (350) -
Repayment of non-controlling
interests' advance - (1,500) - -
Proceeds from exercise of
stock options 115 2 127 111
Class A shares
repurchased (14) - (14) -
---------------------------------------------

Cash used for financing
activities of continuing
operations (7,468) (943) (12,445) (5,490)
Net cash provided by
discontinued operations 7,010 18 6,986 28
---------------------------------------------
Foreign exchange on cash
held in foreign currency - 10 - (2)
---------------------------------------------
Increase (decrease) in cash
and cash equivalents 1,334 358 (10,390) 5,138
Cash and cash equivalents at
the beginning of the year 12,722 24,088 24,446 19,308
---------------------------------------------
Cash and cash equivalents
at the end of the year $ 14,056 $ 24,446 $ 14,056 $ 24,446
---------------------------------------------
---------------------------------------------
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(Thousands of dollars) (audited)
----------------------------------------------------------------------------
December 31 December 31
CONSOLIDATED BALANCE SHEETS 2007 2006
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ASSETS

Current assets

Cash and cash equivalents $ 14,056 $ 24,446
Accounts receivable 7,725 10,562
Inventories 22,642 18,285
Income taxes recoverable 2,919 17
Future income taxes 294 -
Other current assets 1,005 1,264
Promissory note receivable, current 3,382 -
Assets of discontinued operations held for sale - 1,736
---------------------------
52,023 56,310

Property, plant and equipment (net) 113,475 98,504

Other assets

Goodwill 6,711 20,212
Future income taxes 1,319 3,960
Promissory note receivable, long-term 6,449 -
Other 1,472 1,839
Assets of discontinued operations held for sale - 4,578
---------------------------
15,951 30,589
---------------------------
$ 181,449 $ 185,403
---------------------------
---------------------------

LIABILITIES

Current liabilities

Bank operating advances $ 650 $ 3,205
Accounts payable and accrued liabilities 14,805 11,739
Income taxes payable 4,265 433
Long-term debt, current portion 4,689 6,668
Derivative financial instruments, current 1,606 -
Asset retirement obligation 375 -
Liabilities related to assets of discontinued
operations held for sale - 1,330
---------------------------
26,390 23,375

Long-term debt, less current portion 3,758 8,106

Derivative financial instruments, non-current 809 -

Future income taxes 7,722 9,339

Asset retirement obligation 673 1,001

Liabilities related to assets of discontinued
operations held for sale - 3,158
---------------------------
---------------------------
39,352 44,979

Non-controlling interests 4,366 245

SHAREHOLDERS' EQUITY 137,731 140,179
---------------------------
$ 181,449 $ 185,403
---------------------------
---------------------------
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(Thousands of dollars) (audited)
----------------------------------------------------------------------------
Year ended Year ended
December 31 December 31
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at the beginning of the year $ 110,246 $ 98,440
Net income 3,519 13,971
Premiums paid on repurchase of capital stock (8) -
Dividends (2,170) (2,165)
--------------------------

Balance at the end of the year $ 111,587 $ 110,246
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(Thousands of dollars) (unaudited)
----------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS 2007 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) for the period $ (5,050) $ 3,519

Other comprehensive loss
Unrealized loss on cash flow hedges
net of taxes (1,566) (4,177)
-------------------------------
Total comprehensive loss for the period $ (6,616) $ (658)
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