Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

November 06, 2006 15:43 ET

Brampton Brick Reports Third Quarter Results

MAJOR U.S. EXPANSION PLAN ANNOUNCED SEMI-ANNUAL DIVIDEND DECLARED

BRAMPTON, ONTARIO--(CCNMatthews - Nov. 6, 2006) - Brampton Brick Limited (TSX:BBL.A) today reported net income of $4,239,000, or $0.39 per share, for the third quarter ended September 30, 2006 compared to $4,781,000, or $0.44 per share, for the same period last year. The weighted average number of Class A Subordinate Voting Shares and Class B Multiple Voting Shares outstanding was 10,832,000 and 10,847,000 during each period, respectively.

Lower sales volumes in both the clay brick and concrete products business segments resulted in a decline in net sales of $4,069,000, or 12.3%. 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 and generally poorer weather conditions than in the third quarter of 2005. The addition of the new Nova Scotia medical waste operations contributed significantly to the $962,000 increase in net sales in the waste processing business segment.

As a result of the above noted factors, operating income before interest and other items decreased by $1,328,000, from $7,768,000 in 2005 to $6,440,000 in 2006.

Interest on long-term debt decreased by $110,000 to $115,000 due to the repayment of a $12,000,000 term loan in December, 2005. Surplus cash available for short-term investments produced higher net interest income.

The value of the Canadian dollar versus the U.S. dollar remained relatively stable through the third quarter of 2006 resulting in a foreign currency exchange gain of $23,000. In the third quarter of 2005 the Company incurred a foreign currency exchange loss of $871,000.

As previously reported, on April 6, 2006 the Company sold its 38.2% interest in Richvale York Block Inc. ("Richvale"). This produced a gain of $462,000 which was recorded in the second quarter. Accordingly, no equity income was recorded for the third quarter of 2006. Equity income of $306,000 was recorded in the third quarter of 2005.

Net income for the nine months ended September 30, 2006 was $10,924,000, or $1.01 per share, on net sales of $82,216,000 compared to $10,886,000, or $1.00 per share, on net sales of $85,971,000 for the nine months ended September 30, 2005. The weighted average number of Class A Subordinate Voting Shares and Class B Multiple Voting Shares outstanding for the periods was 10,820,000 and 10,847,000, respectively.

Sales volumes and net sales for the nine month period were impacted by substantially the same factors as outlined above for the third quarter.

Improved margins in the clay brick business segment, a reduction in the loss incurred by the Da Vinci Stone Craft operations and the incremental operating income generated by the new Nova Scotia medical waste operations helped mitigate the negative impact of lower net sales.

As a result, operating income before interest and other items decreased only marginally to $16,744,000 in 2006 from $16,996,000 in 2005.

Interest expense on long-term debt decreased by $373,000 from $737,000 to $364,000 due to the repayment of a $12,000,000 term loan in December, 2005. Interest income was $351,000 compared to $6,000 in 2005 for the same reason as noted above for the third quarter results.

The foreign currency exchange loss for the nine month period in 2006 was $887,000 compared to $701,000 for the same period in 2005. Approximately two-thirds of the loss related to the concrete products business segment in both periods and resulted from the continued strengthening of the Canadian dollar versus the U.S. dollar.

During the first quarter of 2006, the Company outsourced its trucking requirements previously carried on by a subsidiary company, Roxy Construction Co. Limited ("Roxy"). The change in operating structure 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 in the current period. The loss on sale of assets and other incidental costs related to the outsourcing were not significant.

The sale of the Company's 38.2% interest in Richvale also impacted the results of operations for the nine months ended September 30, 2006. For the period of ownership to April 6, 2006, an equity loss of $70,000 was reported compared to equity income of $675,000 for the nine month period to September 30, 2005.

Cash provided by operations amounted to $8,548,000 for the third quarter ended September 30, 2006 compared to $15,630,000 for the same period last year. For the nine month period, cash provided by operations was $12,411,000 compared to $14,243,000 in 2005.

Cash utilized for the purchase of property, plant and equipment totaled $2,485,000 for the third quarter compared to $1,675,000 in 2005. For the nine months ended September 30, 2006, purchases of property, plant and equipment totaled $13,338,000 compared to $5,496,000 for the same period last year.

During the third quarter, the Company acquired additional property in west Brampton, Ontario for future shale reserves at a cost of $3,562,000. One-half was paid in cash and the remainder was financed by a one year, interest free, vendor-take-back mortgage. For the nine month period, purchases of property, plant and equipment also included the acquisition of certain land, building and manufacturing equipment from Richvale for cash consideration of $7,500,000.

The subsequent sale of the Company's 38.2% interest in Richvale for aggregate consideration of $9,046,000 produced net cash proceeds of $8,520,000 to September 30, 2006.

During the second quarter, the Company acquired a 50% joint venture interest in a start-up business called Universal Resource Recovery Inc. ("Universal"). On May 29, 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 September 30, 2006 the Company has advanced $1,806,000 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 the Welland site. Commercial operations are not expected to commence until 2007.

The sale of trucks, trailers and mobile forklift equipment in the first quarter 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 Company also announced today that the Board of Directors has approved a plan to expand the Company's clay brick operations through construction of a new manufacturing facility in the United States.

The Company has identified a 200 acre site located approximately 20 miles south of Terre Haute, Indiana which tests indicate contains sufficient high-quality clay reserves to sustain production at the proposed 100,000,000 modular brick plant for over 40 years. Options to acquire all of the properties which comprise the site have been secured.

"This represents an exciting opportunity for Brampton Brick to capitalize on its existing customer base in the north-central U.S. and to increase capacity in order to service new customers", said Jeffrey G. Kerbel, President and Chief Executive Officer. "The site is strategically located in a very attractive brick market. It will not only allow the Company to reach new customers but will also provide expanded coverage to existing customers through increased capacity and a wider array of products", he added.

Subject to completing the acquisition of the properties, finalization of construction contracts and receipt of all requisite approvals, including environmental approvals, construction is expected to commence in the second quarter of 2007 and is anticipated to take approximately 18 months to complete. Aggregate costs are estimated at U.S. $45 million.

The Company also announced today that the Board of Directors has declared a dividend of $0.10 per Class A Subordinate Voting Share and Class B Multiple Voting Share outstanding, payable on December 31, 2006 to shareholders of record on December 15, 2006.

Certain statements contained herein constitute "forward-looking statements". Such forward-looking statements involve known and unknown risks, uncertainties and other factors 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 forward-looking statements.

Brampton Brick is Canada's second largest manufacturer of clay brick. Products are used for residential construction and for industrial commercial, and institutional building projects. Oaks Concrete Products Ltd., a 70% owned subsidiary, manufactures concrete paving stones, retaining walls and enviro products and sells related accessory products for residential use and for industrial, commercial and institutional building projects. Da Vinci Stone Craft Ltd., a 75% owned subsidiary of Oaks Concrete Products Ltd., 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 in Nova Scotia. To February 24, 2006 Roxy Construction Co. Limited 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)


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Three months ended Nine months ended
September 30 September 30
CONSOLIDATED STATEMENTS OF INCOME 2006 2005 2006 2005
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Net sales $ 28,982 $ 33,051 $ 82,216 $ 85,971

Cost of sales, selling, general
and administrative expenses 20,041 22,703 57,992 61,026

Amortization 2,501 2,580 7,480 7,949
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22,542 25,283 65,472 68,975

Operating income before the
undernoted items 6,440 7,768 16,744 16,996

Interest on long-term debt (115) (225) (364) (737)
Interest income (net) 195 24 351 6
Equity income (loss) from Richvale
York Block Inc. - 306 (70) 675
Foreign currency exchange gain
(loss) 23 (871) (887) (701)
Other income (expense) 59 (43) 77 (72)
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162 (809) (893) (829)
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Income before the following items 6,602 6,959 15,851 16,167

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 -
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Income before income taxes and
non-controlling interests 6,602 6,959 15,829 16,167

Provision for income taxes (2,284) (2,220) (5,175) (5,440)
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Income before non-controlling
interests 4,318 4,739 10,654 10,727

Non-controlling interests (79) 42 270 159
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Net income for the period $ 4,239 $ 4,781 $ 10,924 $ 10,886
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Net income per Class A and Class
B share $ 0.39 $ 0.44 $ 1.01 $ 1.00
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Weighted average Class A and Class
B shares outstanding (000's) 10,832 10,847 10,820 10,847

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Selected Financial Information

(Thousands of dollars) (unaudited)

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Three months ended Nine months ended
CONSOLIDATED STATEMENTS OF September 30 September 30
CASH FLOWS 2006 2005 2006 2005
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Cash provided by (used for)

Operating activities

Net income for the period $ 4,239 $ 4,781 $ 10,924 $ 10,886
Items not affecting cash
Amortization and accretion 2,514 2,591 7,513 7,981
Future income taxes (92) (96) (1,959) (604)
Non-controlling interests 79 (42) (270) (159)
Equity (income) loss from
Richvale York Block Inc. - (306) 70 (675)
Unrealized foreign exchange
loss (gain) (7) (5) 106 (69)
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) -
Loss (gain) on disposal of
property, plant and equipment (26) 134 84 28
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6,707 7,057 16,490 17,388

Changes in non-cash operating items

Accounts receivable 1,324 5,688 (3,675) (7,718)
Inventories (971) 2,072 (2,534) 1,929
Accounts payable and accrued
liabilities 319 284 1,412 2,925
Income taxes payable (net) 543 521 768 63
Other 626 8 (50) (344)
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1,841 8,573 (4,079) (3,145)

Cash provided by operations 8,548 15,630 12,411 14,243

Investing activities

Purchase of property, plant and
equipment (2,485) (1,675) (13,338) (5,496)
Proceeds from disposal of property,
plant and equipment 27 132 3,239 435
Increase in investment in Roxy
Construction Co. Limited - - (893) -
Net proceeds on sale of investment
in Richvale York Block Inc. 839 - 8,520 -
Dividend from Richvale York
Block Inc. - - - 763
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Cash used for investment (1,619) (1,543) (2,472) (4,298)

Financing activities

Increase (decrease) in bank
operating advances (2,421) (4,145) (3,698) 1,985
Repayment of term loans (95) (274) (507) (342)
Payments on obligations under
capital leases (228) (508) (1,469) (1,523)
Payment of dividend - - (1,082) (1,085)
Non-controlling interests'
advance to Oaks Concrete
Products Ltd. - - 1,500 -
Proceeds from exercise of
stock options - 17 109 17
Class A Shares repurchased - (13) - (15)
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Cash used for financing (2,744) (4,923) (5,147) (963)

Foreign exchange on cash held in
foreign currency 3 11 (12) 4
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Increase in cash and cash
equivalents 4,188 9,175 4,780 8,986

Cash and cash equivalents -
Beginning of the period 19,900 13,382 19,308 13,571
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Cash and cash equivalents -
End of the period $ 24,088 $ 22,557 $ 24,088 $ 22,557
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Selected Financial Information

(Thousands of dollars) (unaudited)
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September 30 December 31
CONSOLIDATED BALANCE SHEETS 2006 2005
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ASSETS

Current assets

Cash and cash equivalents $ 24,088 $ 19,308
Accounts receivable 16,047 11,925
Inventories 16,491 14,110
Income taxes recoverable 17 49
Future income taxes - 36
Other current assets 1,848 1,656
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58,491 47,084

Property, plant and equipment (net) 103,710 101,063

Other assets

Goodwill 15,255 15,694
Future income taxes 3,694 2,538
Other 1,986 9,570
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20,935 27,802
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$ 183,136 175,949
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LIABILITIES

Current liabilities

Bank operating advances $ 1,680 $ 5,378
Accounts payable and accrued liabilities 12,905 12,916
Income taxes payable 1,066 331
Long-term debt, current portion 3,117 1,965
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18,768 20,590

Long-term debt, less current portion 4,684 5,136

Future income taxes 9,722 10,675

Asset retirement obligation 990 957
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34,164 37,358

Non-controlling interests 11,226 10,567

SHAREHOLDERS' EQUITY 137,746 128,024
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$ 183,136 $ 175,949
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