(All amounts are stated in thousands of Canadian dollars, except per share amounts.)
Brampton Brick Limited (TSX:BBL.A) today reported net income of $281, or $0.03
per share for the third quarter ended September 30, 2010, compared to a loss of
$77, or $0.01 per share, for the third quarter of 2009. The aggregate basic
weighted average number of Class A Subordinate Voting Shares ("Class A shares")
and Class B Multiple Voting Shares ("Class B shares") outstanding was 10,937,000
in both periods.
For the nine month period ended September 30, 2010, the Company incurred a loss
of $2,975, or $0.27 per share, compared to loss of $9,578, or $0.88 per share,
for the corresponding period in 2009. The aggregate weighted average number of
Class A Subordinate Voting Shares ("Class A shares") and Class B Multiple Voting
Shares ("Class B shares") outstanding was also 10,937,000 in both periods.
RESULTS OF OPERATIONS
Three months ended September 30
Net sales of $20,616 reflected an increase of $1,382 over net sales of $19,234
for the same period in 2009. The improvement in net sales was the result of a
19.0% increase in net sales in the Masonry Products business segment. This
increase was partially offset by a small decrease in net sales in the Landscape
Products business segment and in the Company's 50% share of net sales of the
waste composting operations of Universal Resource Recovery Inc. ("Universal").
Selling, general and administrative expenses increased due to higher advertising
and marketing costs related to the introduction of new products and higher
personnel costs.
Operating income for the quarter, before interest and other items, was $1,584,
representing an improvement of $466 over operating income of $1,118 reported in
the third quarter of 2009.
Interest on long-term debt increased by $255 to $1,032 due to higher term debt
outstanding during the third quarter of 2010 compared to the same period in
2009.
The Company recorded a foreign currency exchange gain of $37 for the third
quarter ended September 30, 2010. In 2009, a strengthening Canadian dollar and
higher net monetary liabilities denominated in a foreign currency produced a
gain of $161.
The provision for income taxes for the third quarter of 2010 reflected an
effective income tax rate of approximately 10.8%. In 2009 the recovery of income
taxes reflected an effective rate of 114.9%. Valuation allowances have been
recorded in both 2010 and 2009 against the future income tax benefit that would
otherwise have been recorded with respect to the non-capital losses incurred by
the Company's U.S. operations and by Universal. These valuation allowances have
caused the effective income tax rates to be significantly different from the
normalized rates of approximately 29.0% in 2010 and 31.0% in 2009.
Nine months ended September 30
Net sales for the nine month period were $57,792, an increase of $12,823 over
the same period in 2009. Significantly higher sales in the Masonry Products
business segment and a small increase in net sales in the Landscape Products
business accounted for the improvement over 2009. Net sales of Universal
declined compared to last year and the Company's 50% share decreased
accordingly.
Year-to-date operating results have been positively impacted by substantially
higher production volumes in both the Masonry Products and Landscape Products
business segments. The increase in production volumes has resulted in a
reduction in per unit manufacturing costs. The combination of higher net sales
and lower per unit manufacturing costs has led to a substantial improvement in
profit margins.
Variances in interest on long term debt, foreign currency exchange gain and the
provision for, or recovery of, income taxes reflect substantially the same
factors as outlined above for the three month period.
For the nine month period ended September 30, 2010, the Company reported
operating income, before interest and other items, of $967 compared to an
operating loss of $7,006 for the same period in 2009.
The loss for the nine month period to September 30, 2009 included the following
unusual charges:
1. A provision of $1,998 to record the unrealized loss on the interest rate
swap contract.
2. A loss of $269 on the sale of a portion of the promissory note
receivable.
3. A loss of $190 on the sale of surplus properties held for sale.
After recording a recovery of income taxes in the estimated amount of $807 in
respect of these items, the impact on the loss for the nine month period in 2009
was $1,650, or $0.15 per share.
On June 29, 2009, the Company entered into a new $30,000 fixed-rate, term
financing agreement with a new lender and repaid its previous term bank loan.
The Company holds an interest rate swap contract which was previously designated
as an effective cash flow hedge against the term bank loan. The repayment of
this term bank loan resulted in the swap contract no longer being an effective
cash flow hedge. Consequently, the Company recorded a charge against operations
to reflect the unrealized loss on the interest rate swap. As at September 30,
2009 this amount was $1,998.
In April 2009, the Company sold an undivided, co-ownership interest,
representing approximately 59.9%, in the proceeds of the promissory note
receivable, including future interest payments, for cash proceeds of $3,793
resulting in a loss of $269.
In June 2009, properties held for sale were sold for cash proceeds of $1,200,
resulting in a loss of $190.
More detailed discussion with respect to each operating business segment follows:
MASONRY PRODUCTS
Operating income increased by $533 to $1,068 in the third quarter of 2010
compared to operating income of $535 for the same period in 2009. For the nine
month period operating income was $2,936 in 2010 compared to an operating loss
of $4,198 in 2009.
Net sales for the quarter were $12,913, an increase of 19.0% over the third
quarter in 2009. For the nine month period ended September 30, 2010, net sales
increased by 50.2% to $39,654 from $26,396 last year.
Higher shipments of both clay brick and concrete masonry products in Canada
resulted from a significant increase in the level of residential construction
activity. Clay brick shipments from the Company's Indiana plant, which commenced
production in the second quarter of 2009, also showed substantial increases over
the last year for both the three and nine month periods.
Higher production volumes in 2010 resulted in lower per unit manufacturing costs
which also contributed to the improvement in operating income.
Increases in advertising and marketing expenses and higher personnel costs
partially offset the improvement in operating results noted above.
LANDSCAPE PRODUCTS
Operating income for the third quarter of 2010 was $1,180 on net sales of $7,597
compared to operating income of $1,039 on net sales of $8,042 in 2009.
For the nine month period to September 30, 2010, this business segment incurred
an operating loss of $79 on net sales of $16,817, compared to an operating loss
of $1,450 on net sales of $16,570 in 2009. Higher production volumes and
improved manufacturing efficiencies have resulted in an improvement in operating
results.
OTHER OPERATIONS
Other operations include the Company's 50% joint venture interest in Universal.
This investment is accounted for using the proportionate consolidation method.
Composting operations have operated at significantly reduced capacity in the
third quarter and throughout most of 2010 in order to address various
operational and processing issues. It is anticipated that normal operations will
resume shortly.
CASH FLOWS
Cash flow provided by operating activities of continuing operations totaled
$4,407 for the third quarter ended September 30, 2010 compared to $3,814 for the
same period last year. For the nine month period, cash provided by operating
activities was $3,837 compared to cash used in operations of $3,434 in 2009.
The $593 improvement in cash flow from operations for the quarter and the $7,271
improvement for the year-to-date were attributable to improved operating results
and the net change in non-cash working capital items.
Cash utilized for purchases of property, plant and equipment totaled $1,083 for
the quarter compared to $2,765 in 2009, including $2,115 incurred in connection
with the construction of the Indiana clay brick plant. For the nine month period
in 2010, purchases of property, plant and equipment totaled $2,568, compared to
$9,381 in 2009, including $7,012 related to the construction of the Indiana clay
brick plant. During the third quarter of 2010, property, plant and equipment
amounting to $621 was acquired by means of capital leases and $93 was acquired
through vendor financing.
On February 26, 2010, the Company completed a $9,000 subordinated secured
debenture financing. In connection therewith, the $3,000 unsecured promissory
note payable, which was due but not paid on December 7, 2009, was refinanced.
The new $1,900 promissory note payable was repaid on September 30, 2010.
The subordinated debenture was recorded for accounting purposes at its fair
value which, net of transaction costs incurred in the amount of $377, amounted
to $8,623 and is being carried at amortized cost. The transaction costs are
being amortized over the term of the loan resulting in an effective interest
rate of 11.89%. As at September 30, 2010 the unamortized transaction costs were
$302.
The final principal and interest payments due on October 2, 2010 under the
promissory note receivable were received on September 29, 2010.
The sale in April 2009 of an undivided, co-ownership interest, representing
approximately 59.9%, in the promissory note receivable, including future
interest payments, generated cash proceeds of $3,793.
In June 2009, the Company completed a new $30,000 term financing arrangement,
secured primarily by real estate and production equipment of the Company's
Masonry Products and Landscape Products business segments in both Canada and
U.S. Proceeds of the new financing were utilized to repay a $20,000 term bank
loan with the balance utilized to reduce bank operating advances.
The sale in June 2009 of the remaining properties held for sale generated cash
proceeds of $1,200.
FINANCIAL CONDITION
The Company's Masonry Products and Landscape Products business segments are
seasonal in nature. The Landscape Products business is affected 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 noted above, the Company completed a $9,000 subordinated secured debenture
financing on February 26, 2010. The new financing has enhanced the Company's
overall liquidity and cash availability.
The ratio of total liabilities to shareholders' equity was 0.62:1 at September
30, 2010 compared to 0.54:1 at December 31, 2009. The increase in this ratio
from December 31, 2009 was primarily due to the increase in long-term debt
resulting from the issuance of the subordinated debenture, as noted above, and
lower retained earnings resulting from the loss incurred for the nine months
ended September 30, 2010.
As at September 30, 2010, working capital was $21,884, representing a working
capital ratio of 2.12:1. Comparable figures for working capital and the working
capital ratio at December 31, 2009 were $13,272 and 1.71:1, respectively. Cash
and cash equivalents totaled $9,256 at September 30, 2010 compared to $2,868 at
December 31, 2009.
Excluding Universal, the Company has an operating credit facility of $12,000.
This is a demand facility which is secured primarily by accounts receivable and
inventories of the Company's Masonry Products and Landscape Products business
segments in both Canada and the U.S. The actual amount that the Company may
borrow under this facility is determined based on standard margin formulas for
accounts receivable and inventories. The borrowing limit is reduced by the
amount of the mark-to-market exposure on the interest rate swap contract.
Utilization at September 30, 2010 was $2,125, including $334 for outstanding
letters of credit and $1,791 for the mark-to-market exposure on the interest
rate swap contract.
During the second quarter, the Company cancelled a $700 credit facility of a
subsidiary company as it was no longer deemed to be required.
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 long-term
debt agreement as at September 30, 2010 and anticipates that it will maintain
compliance throughout the coming year.
Universal's credit agreement provides for a non-revolving term loan facility of
$15,000 which has been fully drawn. Monthly principal repayments which commenced
in January 2010 have been deferred for the period August 2010 until November
2010 and will re-commence in December 2010. The Company's proportionate share of
the principal balance outstanding at September 30, 2010 was $6,881.
Borrowings under Universal's demand operating facility are available by way of a
combination of overdrafts and letters of credit. As at September 30, 2010, the
Company's proportionate share was $562, all of which was represented by the
issuance of letters of credit.
Universal expects that future cash flows from operations, the unutilized balance
of its operating credit facility and, to the extent required, further advances
from the joint venture partners, will be sufficient to satisfy its obligations
as they become due.
Universal was in compliance with the financial covenants under its credit
agreement as at September 30, 2010 and anticipates that it will maintain
compliance throughout the coming year.
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.
Housing starts in the Company's Canadian markets have shown a substantial
increase for the nine month period to September 30, 2010 over the same period in
2009. Sales of masonry products have increased accordingly.
In the Company's U.S. markets, sales of masonry products have continued to
improve. However, as housing starts remain at historically low levels and
economic conditions are improving only at a very gradual pace, particularly with
respect to the housing industry, significant sales growth may not be achieved
until market conditions improve.
With respect to landscape products, sales in Canada and the U.S. in 2010 have
remained relatively stable. General economic conditions affecting the Canadian
markets have improved. Market conditions affecting the Michigan based U.S.
landscape business are expected to remain difficult.
Both the Masonry Products and Landscape Products business segments have achieved
good growth in sales volumes of new products. Further growth from these products
as well as additional new products is expected.
As noted earlier, it is anticipated that normal operations will resume shortly.
Effective July 1, 2010 the Ontario provincial government harmonized its retail
sales tax system with the Federal goods and services tax ("GST"). The tax base
and basic operational rules of the new harmonized sales tax ("HST") are
substantially the same as the GST.
The vast majority of goods purchased by the Company are used directly in the
manufacture of goods for sale. As such, these purchases were previously exempt
from provincial sales tax. Under the new HST, the Company is required to pay
provincial sales tax with respect to these purchases, but is also eligible to
claim an input tax credit for the taxes paid.
Similarly, most services provided to the Company by third parties (e.g. audit
and legal fees, consulting services) were previously exempt from provincial
sales tax. After July 1, these services are subject to the HST, but are also
eligible for an input tax credit.
Consequently, the impact of the HST on the Company should be tax neutral for
goods purchased for use in the manufacturing process or for services provided by
third parties.
Purchases of goods which are not used directly in the production of goods for
sale, and upon which the Company previously paid provincial sales tax, are now
eligible for an input tax credit. Previously there was no credit for the
provincial sales taxes paid with respect to these purchases. However, as the
Company has annual taxable sales in excess of $10,000, the provincial portion of
the HST is not recoverable, for the first five years, for certain costs,
including energy (except when used to produce goods for sale), telecommunication
services, automobiles (including fuel, parts and services) and food, beverages
and entertainment expenses. During the subsequent three year period, full input
tax credits are to be phased in for these items.
Overall, the net effect of the provincial portion of the new HST is not expected
to have a significant impact on the Company's operating results.
The imposition of the provincial portion of HST on goods sold by the Company,
and the expected pass-through to the ultimate consumer of those goods, may have
resulted in some work (e.g. new home construction, landscaping projects) being
moved forward into the first half of the year, to the extent possible, to avoid
the potential additional tax after July 1. While it is not possible to
accurately determine the magnitude of such a shift in timing, the Company
believes that it will not have a material impact on aggregate sales volumes for
the year.
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 2009 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, 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(TM) trade name and concrete window sills.
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(TM)
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 operates a
waste composting facility in Welland, Ontario.
Brampton Brick Limited
Selected Financial Information
(unaudited) (in thousands of dollars)
September 30 December 31
CONSOLIDATED BALANCE SHEETS 2010 2009
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 9,256 $ 2,868
Accounts receivable 9,431 6,678
Inventories 21,631 17,809
Income taxes recoverable 8 1,730
Future income taxes 133 896
Other current assets 1,005 737
Promissory note receivable, current - 1,335
------------- ---------------
41,464 32,053
Property, plant and equipment, at cost 254,588 251,138
Less: Accumulated amortization (104,852) (97,158)
------------- ---------------
149,736 153,980
Other assets
Future income taxes - 21
------------- ---------------
$ 191,200 $ 186,054
------------------------------
------------------------------
LIABILITIES
Current liabilities
Bank operating advances $ - $ 750
Accounts payable and accrued liabilities 14,888 10,866
Income taxes payable 845 1,572
Long-term debt, current portion 3,020 4,626
Derivative financial instrument, current 663 867
Asset retirement obligation 164 100
------------- ---------------
19,580 18,781
Long-term debt, less current portion 44,542 37,583
Derivative financial instrument, non-current 1,128 917
Future income taxes 6,628 6,701
Asset retirement obligation 849 827
------------- ---------------
72,727 64,809
Non-controlling interests 1,495 1,446
SHAREHOLDERS' EQUITY
Capital stock 33,689 33,689
Contributed surplus 1,513 1,359
Retained earnings 85,605 88,580
Accumulated other comprehensive loss (3,829) (3,829)
------------- ---------------
116,978 119,799
------------- ---------------
$ 191,200 $ 186,054
------------------------------
------------------------------
Brampton Brick Limited
Selected Financial Information
(unaudited)(in thousands of dollars, except per share amounts)
---------------------------------------------------------------------------
Nine months
Three months ended ended
September 30 September 30
CONSOLIDATED STATEMENTS OF
OPERATIONS 2010 2009 2010 2009
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net sales $ 20,616 $ 19,234 $ 57,792 $ 44,969
Cost of goods sold 13,314 12,481 40,070 35,312
Selling, general and
administrative expenses 3,143 2,620 9,033 8,186
Amortization 2,575 3,015 7,722 8,477
------------ --------- ------- --------
19,032 18,116 56,825 51,975
Operating income (loss) before the
undernoted items 1,584 1,118 967 (7,006)
Other (expense) income
Interest on long-term debt (1,032) (777) (2,898) (1,735)
Other interest expense (net) (195) (175) (669) (236)
Foreign currency exchange gain 37 161 106 452
Other income (expense) 11 (174) 41 (222)
------------ --------- ------- --------
(1,179) (965) (3,420) (1,741)
------------ --------- ------- --------
Income (loss) before the following
items 405 153 (2,453) (8,747)
(Loss) gain on derivative
financial instrument (71) 142 (7) (1,998)
Loss on sale of promissory note - - - (269)
Loss on sale of property held for
sale - - - (190)
------------ --------- ------- --------
Income (loss) before income taxes
and non-controlling interests 334 295 (2,460) (11,204)
(Provision for) recovery of income
taxes
Current (35) (344) (513) 742
Future (1) 5 47 880
------------ --------- ------- --------
(36) (339) (466) 1,622
------------ --------- ------- --------
Income (loss) before non-
controlling interests 298 (44) (2,926) (9,582)
Non-controlling interests (17) (33) (49) 4
------------ --------- ------- --------
Net income (loss) for the period $ 281 $ (77) $ (2,975) $(9,578)
-----------------------------------------
---------------------------------------
Net income (loss) per Class A and
Class B share $ 0.03 $ (0.01)$ (0.27)$ (0.88)
---------------------------------------
---------------------------------------
Weighted average Class A and Class
B shares outstanding (000's) 10,937 10,937 10,937 10,937
Brampton Brick Limited
Selected Financial Information
(unaudited) (in thousands of dollars)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
CONSOLIDATED STATEMENTS OF CASH FLOWS 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by (used for) activities of
continuing operations
Operating activities
Net income (loss) from continuing
operations for the period $ 281 $ (77) $(2,975) $ (9,578)
Items not affecting cash and cash
equivalents
Amortization and accretion 2,582 3,021 7,744 8,507
Future income taxes 1 (5) (47) (880)
Non-controlling interests 17 33 49 (4)
Unrealized foreign currency exchange
loss (gain) 37 26 (33) (270)
Loss (gain) on derivative financial
instruments 71 (142) 7 1,998
Loss on sale of promissory note - - - 269
Loss on sale of property held for
sale - - - 190
Loss on disposal of property, plant
and equipment - - 7 2
Other 93 61 295 167
---------- -------- ------- --------
3,082 2,917 5,047 401
Changes in non-cash operating items
Accounts receivable 2,250 1,130 (2,779) (3,417)
Inventories (3,030) (1,316) (3,823) 852
Accounts payable and accrued
liabilities 451 1,025 4,074 925
Income taxes payable (net) 1,892 393 1,751 (1,874)
Other (136) (276) (283) (68)
---------- -------- ------- --------
1,427 956 (1,060) (3,582)
Payments of asset retirement
obligation (102) (59) (150) (253)
---------- -------- ------- --------
Cash provided by (used for) operating
activities of continuing
operations 4,407 3,814 3,837 (3,434)
Investing activities
Purchase of property, plant and
equipment (1,083) (2,765) (2,568) (9,381)
Proceeds from promissory note 1,338 - 1,338 -
Proceeds from sale of promissory note - - - 3,793
Proceeds from sale of property held
for sale - - - 1,200
Proceeds from disposal of property,
plant and equipment 1 - 2 3
---------- -------- ------- --------
Cash provided by (used for) investment
Activities of continuing operations 256 (2,765) (1,228) (4,385)
Financing activities
Decrease in bank operating advances (1,160) (10) (750) (1,861)
Issuance of subordinated debentures - - 7,523 -
Repayment of promissory note (1,900) - (1,900) -
Increase in term loans - - - 32,388
Repayment of term loans (242) - (806) (20,264)
Payments on obligations under capital
leases (124) (85) (280) (286)
---------- -------- ------- --------
Cash provided by (used for) financing
activities
of continuing operations (3,426) (95) 3,787 9,977
Net cash used for discontinued
operations - - - (62)
Foreign exchange on cash held in
foreign currency (14) (40) (8) 218
---------- -------- ------- --------
Increase (decrease) in cash and cash
equivalents 1,223 914 6,388 2,314
Cash and cash equivalents at the
beginning of the period 8,033 3,488 2,868 2,088
---------- -------- ------- --------
Cash and cash equivalents at the end of
the period $ 9,256 $ 4,402 $ 9,256 $ 4,402
---------- ---------- -------- ---------
---------- ---------- -------- ---------
Brampton Brick Limited
Selected Financial Information
(unaudited) (in thousands of dollars)
----------------------------------------------------------------------------
Three months ended Nine months ended
CONSOLIDATED STATEMENTS September 30 September 30
OF RETAINED EARNINGS 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at the beginning of the
period $ 85,324 $ 90,977 $ 88,580 $100,478
Net income (loss) for the period 281 (77) (2,975) (9,578)
-------- ---------- -------- --------
Balance at the end of the period $ 85,605 $ 90,900 $ 85,605 $ 90,900
-------- ---------- -------- --------
-------- ---------- -------- --------
(unaudited) (in thousands of dollars)
---------------------------------------------------------------------------
Three months ended Nine months ended
CONSOLIDATED STATEMENTS September 30 September 30
OF COMPREHENSIVE income (LOSS) 2010 2009 2010 2009
----------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income (loss) for the period $ 281 $ (77) $ (2,975) $ (9,578)
Other comprehensive income
Gain on cash flow hedge, net of
taxes - - - 702
Cumulative losses on derivatives
designated
as cash flow hedges at June 29,
2009 transferred
to net income, net of taxes - - - 1,562
-------- ---------- -------- --------
Comprehensive income (loss) for the
period $ 281 $ (77) $ (2,975) $ (7,314)
----------------------------------------
----------------------------------------
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