Brampton Brick Reports Results for the Second Quarter Ended June 30, 2014

BRAMPTON, ONTARIO--(Marketwired - Aug. 8, 2014) -

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

Brampton Brick Limited (TSX:BBL.A) today reported net income of $772, or $0.07 per Class A Subordinate Voting share and Class B Multiple Voting share, for the three month period ended June 30, 2014 compared to net income of $2,102 or $0.19 per share, for the same period in 2013. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the second quarter of each of 2014 and 2013 was 10,940,354.

DISCUSSION OF OPERATIONS

Three months ended June 30, 2014

Revenues for the second quarter of 2014 increased by 11% to $33,066 compared to $29,910 for the same period in 2013. Increases in revenues were due to expanded products portfolios in both the landscape and masonry market segments, the additional sales volume gained from new production facilities located in Hillsdale and Brockville, Ontario, and the catch-up of building projects that were delayed due to extreme winter conditions in the first quarter of this year.

For the quarter ended June 30, 2014, cost of sales amounted to $26,206, compared to $22,129 for the same period in 2013. The increase in cost of sales was due to the following:

• higher shipping volumes in the current quarter;
• natural gas costs, which represent one of the largest components in the cost of manufacturing, increased from the prior period by approximately 35%;
• start-up costs related to commissioning of the two concrete manufacturing plants located in Hillsdale and Brockville, Ontario. These plants operated well below capacity because of initial trial production runs associated with several new products, and consequently the low production volumes resulted in higher fixed costs per unit sold. These manufacturing plants are expected to be fully operational during the third quarter of the current year; and
• a number of one-time operating costs in the quarter related to improving plant efficiencies which contributed to the higher cost of sales. During the quarter, the Company began consolidating its concrete plants in order to improve capacity utilization levels and associated plant costs. This consolidation process is expected to be completed in the third quarter.

Selling expenses increased to $2,337 in the second quarter of 2014 from $1,996 in the same quarter of 2013. This increase was due to an increase in personnel costs and advertising expenses related to the additional plant facilities and expanded products' portfolios.

General and administrative expenses amounted to $1,641 for the second quarter ended June 30, 2014 compared to $1,646 for the corresponding quarter in 2013.

Loss on disposal of property, plant and equipment increased to $1,588 for the second quarter of 2014 compared to $354 for the corresponding period in 2013 due to the write-off of certain production equipment amounting to $1,600. This will permit the Company to reallocate production volumes throughout its plant network, improving capacity utilization levels at each plant and increasing logistics and production efficiencies.

Operating income for the quarter ended June 30, 2014, amounted to $1,508 compared to $3,799 for the second quarter of 2013.

The decrease in the provision for income taxes to $133 for the second quarter of 2014 compared to $981 for the same period in 2013 was a result of a decrease in operating results of the Canadian operations. The income tax provision in both periods relates to the pre-tax income of the Company's Canadian operations. The Company has not recorded a deferred tax asset with respect to the potential deferred tax benefit pertaining to losses incurred by its U.S. operations.

Six months ended June 30, 2014

For the six months ended June 30, 2014, the Company recorded a net loss of $7,083, or $0.65 per share, compared to a net loss of $472, or $0.04 per share, for the first half of 2013. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the six months ended June 30, of each of 2014 and 2013 was 10,940,354.

Revenues grew 7% to $45,678 for the six months ended June 30, 2014, compared to $42,799 for the same period in 2013 due to increases in shipments of both masonry concrete products and landscape products.

Cost of sales for the six months ended June 30, 2014, amounted to $40,625, compared to $33,903 for the same period in 2013. The increase in cost of sales was due to higher shipments, significantly lower production volumes in both the Masonry Products and Landscape Products business segments and the reasons noted above under the caption "Three months ended June 30, 2014". Additionally, the extreme winter conditions during the first quarter of 2014 significantly impacted operations at the Company's concrete products plants, resulting in higher costs and reduced production volumes.

Selling expenses for the six month period of 2014 increased to $4,487 from $3,781 for the same period of 2013. This increase is due to similar factors as discussed above under the caption "Three months ended June 30, 2014".

General and administrative expenses increased to $3,342 for the first half of 2014 from $3,204 for the corresponding period in 2013 due to an increase in the provision for bad debts.

The increase in loss on disposal of property, plant and equipment of $1,594 for the six month period in 2014 compared to $349 in the corresponding prior period was due to the write-off of certain production equipment as described above under the caption "Three months ended June 30, 2014".

As a result, for the six month period ended June 30, 2014, the operating loss increased to $4,269, compared to operating income of $1,415 for the same period in 2013.

On January 3, 2014, the Company finalized a new $40,000 demand revolving reducing term loan with its banker. The amount of $36,595 drawn down on this loan was utilized to finance the purchase of the Atlas Block assets, and to repay the outstanding balance of $22,500 on the then existing term loan and the associated prepayment of future interest in the amount of $3,305.

As a result, for the first six months of 2014, finance expense increased to $4,640 from $1,380 for the same period in 2013. Also included in the expense for the period were the remaining unamortized transaction costs in the amount of $200 related to the replaced term loan.

A recovery of income taxes of $1,826 was recorded for the first half of 2014 compared to a provision of $507 for the same period in 2013. The income tax recovery (provision) in both periods relates to the Company's Canadian operations. The Company has not recorded a deferred tax asset with respect to the potential deferred tax benefit pertaining to losses incurred by its U.S. operations.

A more detailed discussion with respect to each operating business segment follows:

MASONRY PRODUCTS

Revenues of the Masonry Products business segment increased to $21,987 for the quarter ended June 30, 2014 compared to $21,123 for the same period in 2013. Revenues increased because of higher shipments across most of the masonry product lines. Increases in costs were due to the commissioning of production equipment at the Hillsdale and Brockville plants which continued into the second quarter, certain one-time costs to improve plant efficiencies and higher energy costs. As a result, operating income amounted to $923 for the current quarter compared to $2,146 in the prior period.

For the six month period ended June 30, 2014, revenues increased to $34,009 from $33,435 in the corresponding period of 2013 due to an increase in sales of masonry products, as residential construction gained momentum in the second quarter, both from anticipated seasonal activity as well as the completion of building projects affected by the extreme winter conditions during the first quarter of 2014.

Cost of sales increased to $31,167 from $26,205 in the corresponding period in 2013. Due to the relatively high-fixed cost nature of the Company's manufacturing facilities, large fluctuations in production levels have a material impact on per unit manufacturing costs. As production volumes decrease, the average production cost per unit increases, because fixed plant overhead is apportioned over a lower number of production units, thus increasing cost of sales. In addition, higher energy costs, yard and delivery expenses, certain non-recurring expenses and commissioning costs associated with the Hillsdale and Brockville plants contributed to the unfavourable cost variances.

For the six month period ended June 30, 2014, the operating loss was $2,918 compared to operating income of $2,152 for the same period in 2013.

LANDSCAPE PRODUCTS

Revenues of the Landscape Products business segment for the three month period ended June 30, 2014, increased by 26% to $11,079 from $8,787 in the corresponding period of 2013 reflecting relatively favourable year over year weather conditions and, in part, the additional business generated at the Hillsdale and Brockville plants. For the second quarter of 2014, an operating income of $585 was recorded compared to $1,653 for the same period in 2013. The decrease was primarily due to recognition of a non-recurring loss on disposal of property, plant and equipment relating largely to this business segment as noted earlier. Additionally, commissioning costs of the new plants at Hillsdale and Brockville related to this business segment were incurred during the current quarter.

For the six month period ended June 30, 2014, revenues increased to $11,669 from $9,364 in the corresponding period of 2013. The operating loss increased to $1,351 from $579 for the same period in 2013. The increase in revenues for the six month period were largely from sales transactions recorded during the second quarter of 2014. Similarly, the increase in operating loss was due to the non-recurring loss on disposal of property, plant and equipment recorded in the second quarter of 2014. Additionally, commissioning costs of the new plants at Hillsdale and Brockville for the six month period in 2014 were higher than costs of equipment overhaul and new equipment commissioning costs incurred in the first half of 2013.

CASH FLOWS

Cash flow used for operating activities increased to $5,521 for the six month period ended June 30, 2014 compared to $3,097 for the same period in 2013 due to the decline in operating results.

Cash utilized for purchases of property, plant and equipment totaled $10,059 in the first half of 2014, compared to $1,646 for the corresponding period in 2013. On January 7, 2014, the Company acquired substantially all of the property, plant and equipment of Atlas Block, a concrete masonry and landscape products company for an aggregate purchase price of $11,366, including $2,494 by way of finance leases.

During the six months ended June 30, 2014, Universal Resource Recovery Inc. ('Universal'), the Company's 50% owned joint venture, generated sufficient cash inflows to meet its obligations as they became due and consequently, the Company made no advances to Universal. Loans advanced to Universal during the comparative period in 2013 were $1,375.

On January 3, 2014, the Company drew down an amount of $36,595 on the new $40,000 demand revolving reducing term loan as noted above under the caption "Discussion of Operations".

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 at June 30, 2014, bank operating advances were $17,931 compared to $11,641 as at December 31, 2013.

Trade payables totaled $15,426 at June 30, 2014 compared to $11,514 at December 31, 2013.

The ratio of total liabilities to shareholders' equity was 0.71:1 at June 30, 2014 compared to 0.49:1 at December 31, 2013. The increase in this ratio from December 2013 to June 2014 was primarily due to a higher debt balance outstanding and lower retained earnings resulting from a decline in operating results in the first six months of 2014.

As at June 30, 2014, excluding the new demand revolving reducing term loan classified as a current liability, the adjusted working capital¹⁾ was $10,985, representing an adjusted working capital ratio¹⁾ of 1.27:1 compared to working capital and a working capital ratio at December 31, 2013 of $7,766 and 1.25:1, respectively. The increase in adjusted working capital¹⁾ was due to an increase in inventories, primarily related to the Atlas Block acquisition as well as higher trade and other receivables offset, in part, by higher bank operating advances and trade payables. Cash and cash equivalents totaled $1,231 at June 30, 2014 compared to $1,200 at December 31, 2013.

1) "Adjusted working capital" and "adjusted working capital ratio" are non-IFRS financial measures. See the section "Non- IFRS Measures" below for a definition of such measures and for a quantitative reconciliation of such measures to the most directly comparable IFRS measures.

The Company's demand operating facility provides for borrowings of up to $22,000 based on margin formulae for trade receivables, certain other qualified receivables and inventories, less priority claims and the mark-to-market exposure on swap contracts, if applicable. It is a demand facility secured by a general security agreement over all assets. The agreement also contains certain financial covenants.

As at June 30, 2014, the borrowing limit was $22,000. The utilization was $17,234 and was comprised of a $15,000 banker's acceptance 90 day note, a current account balance of $1,969, and outstanding letters of credit of $265.

As previously discussed, on January 3, 2014, the Company finalized a new $40,000 demand revolving reducing term loan with its banker. The term of the new loan is nine years and requires monthly interest payments for the duration of the loan. Principal repayments of $500 per month will be paid from July 2015 to November 2022, but only during the months of July to November inclusive, for a total of $2,500 per annum, and a balloon payment of the then remaining principal will be paid in November 2022. The rate of interest is floating at the bank's prime rate plus a credit spread of 0.70% or at Banker's Acceptance rates plus a credit spread of up to 2.50%. The Company's credit spread is variable and determined by its fixed charge coverage ratio. This loan is secured primarily by real estate and production equipment of the Company's Masonry Products and Landscape Products business segments in both Canada and the U.S.

This liability has been classified as current on the condensed interim consolidated balance sheet. Notwithstanding the classification of the loan as a current liability, the Company's new debt affords it many benefits including a lower interest rate, flexibility to have interest rates at either floating or fixed and flexibility to accelerate principal repayments without any penalty. The Company is also permitted to redraw under the loan for the purchase of capital assets.

The Company was in compliance with all financial covenants under its term financing agreement and operating credit facility as at June 30, 2014 and anticipates that it will maintain compliance throughout the year.

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.

On January 7, 2014, the Company acquired substantially all of the property, plant and equipment from the court appointed receiver of Atlas Block, a concrete masonry and landscape products company located in the province of Ontario, for an aggregate purchase price of $11,366. Of the total assets purchased, $2,494 were acquired through a finance lease arrangement. These assets form part of two concrete masonry and landscape products manufacturing plants located in Hillsdale and Brockville, Ontario.

NON-IFRS MEASURES

In addition to the International Financial Reporting Standards ("IFRS") measures, this MD&A contains certain financial measures that do not have any standardized meaning prescribed by IFRS. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. These measures are listed and defined below.

The Company uses the non-IFRS measure "adjusted working capital" and "adjusted working capital ratio". "Adjusted working capital" is defined by management as current assets less adjusted current liabilities, where adjusted current liabilities are current liabilities excluding the new demand revolving reducing term loan classified as a current liability. Management believes adjusted working capital is more indicative of the Company's working capital position pending the outcome of on-going discussions to revise the terms of the demand loan. Adjusted working capital does not have a standardized meaning prescribed by IFRS. Readers are cautioned that adjusted working capital should not be construed as an alternative to working capital determined in accordance with IFRS as a measure of the Company's liquidity or cash flows. The Company's method of calculating adjusted working capital may differ from that of other issuers or companies operating in similar sectors and, accordingly, may not be comparable to similar measures presented by other issuers. Management's calculation of adjusted working capital is provided in the table below:

Adjusted working capital		June 30, 2014
Current assets		$	51,367
	Current liabilities		76,977
	Less: Demand revolving reducing term loan		(36,595	)
Less: Adjusted current liabilities		$	40,382
Adjusted working capital		$	10,985

FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute "forward-looking statements". All statements that are not historical facts are forward-looking statements, including, among others, statements regarding the expected repayment of the loan receivable from Universal and the expected self-sufficiency on a cash basis of Universal, forecasts of sufficient cash flows from operations and other sources of financing, anticipated compliance with financial covenants under debt agreements, anticipated sales of masonry and landscape products, and other statements regarding future plans, objectives, results, business outlook and financial performance. There can be no assurance that such forward-looking statements will prove to be accurate.

Such forward-looking statements are based on information currently available to management, and are based on assumptions and analyses made by management in light of its experience and its perception of historical trends, current conditions and expected future developments, including, among others, assumptions regarding pricing, weather and seasonal expectations, production efficiency, and there being no significant disruptions affecting operations or other material adverse changes.

Such forward-looking statements also involve known and unknown risks, uncertainties and other factors 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. Such risks and uncertainties include, among others: changes in economic conditions, including the demand for the Company's primary products and the level of new home, commercial and other construction; large fluctuations in production levels; fluctuations in energy prices and other production costs; changes in transportation costs; foreign currency exchange and interest rate fluctuations; legislative and regulatory developments; as well as those assumptions, risks, uncertainties and other factors identified and discussed under "Risks and Uncertainties" in the

2013 annual MD&A included in the Company's 2013 Annual Report and those identified and reported in the Company's other public filings (including the Annual Information Form for the year ended December 31, 2013), which may be accessed at www.sedar.com.

The forward-looking information contained herein is made as of the date hereof. Other than as specifically required by law, the Company undertakes no obligation to update or revise any forward- looking information, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements.

Brampton Brick Limited 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 concrete brick and block as well as stone veneer products. Concrete interlocking paving stones, retaining walls, garden walls and enviro products are manufactured in Markham, Milton, Hillsdale, Brockville and Brampton, Ontario and in Wixom, Michigan and sold to markets in Ontario, Quebec, Michigan, New York, Pennsylvania, Ohio, Kentucky, Illinois and Indiana under the Oaks^™ trade name. The Company's products are used for residential construction and for industrial, commercial, and institutional building projects.

SELECTED FINANCIAL INFORMATION
(unaudited) (in thousands of dollars)
		June 30				December 31
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS		2014				2013
ASSETS
Current assets
	Cash and cash equivalents	$	1,231		$	1,200
	Trade and other receivables		20,768			9,891
	Inventories		27,629			25,032
	Taxes recoverable		978			281
	Other assets		761			2,565
			51,367			38,969
Non-current assets
	Loan receivable		5,200			5,200
	Property, plant and equipment		175,275			168,095
Total assets		$	231,842		$	212,264
LIABILITIES
Current liabilities
	Bank operating advances	$	17,931		$	11,641
	Trade payables		15,426			11,514
	Current portion of debt		40,511			5,704
	Decommissioning provisions		50			50
	Other liabilities		3,059			2,294
			76,977			31,203
Non-current liabilities
	Non-current portion of debt		2,739			20,980
	Decommissioning provisions		2,347			2,315
	Deferred tax liabilities		13,886			15,016
Total liabilities		$	95,949		$	69,514
EQUITY
Equity attributable to shareholders of Brampton Brick Limited
	Share capital	$	33,711		$	33,711
	Contributed surplus		2,207			2,078
	Accumulated other comprehensive income		470			373
	Retained earnings		99,476			106,559
		$	135,864		$	142,721
Non-controlling interests			29			29
Total equity		$	135,893		$	142,750
Total liabilities and equity		$	231,842		$	212,264

SELECTED FINANCIAL INFORMATION
(unaudited) (in thousands of dollars, except per share amounts)
			Three months ended June 30								Six months ended June 30
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)			2014				2013				2014				2013
Revenues		$	33,066			$	29,910			$	45,678			$	42,799
Cost of sales			26,206				22,129				40,625				33,903
Selling expenses			2,337				1,996				4,487				3,781
General and administrative expenses			1,641				1,646				3,342				3,204
Loss on sale of property, plant and equipment			1,588				354				1,594				349
Other income			(214	)			(14	)			(101	)			(11	)
Impairment loss on loan receivable			-				-				-				158
			31,558				26,111				49,947				41,384
Operating income (loss)			1,508				3,799				(4,269	)			1,415
Finance expense			(603	)			(716	)			(4,640	)			(1,380	)
Income (loss) before income taxes			905				3,083				(8,909	)			35
(Provision for) recovery of income taxes
	Current		(457	)			(313	)			695				45
	Deferred		324				(668	)			1,131				(552	)
			(133	)			(981	)			1,826				(507	)
Net income (loss) for the period		$	772			$	2,102			$	(7,083	)		$	(472	)
Net income (loss) attributable to:
	Shareholders of Brampton Brick Limited	$	772			$	2,101			$	(7,083	)		$	(473	)
	Non-controlling interests		-				1				-				1
Net income (loss) for the period		$	772			$	2,102			$	(7,083	)		$	(472	)
Other comprehensive income (loss)
	Items that may be reclassified subsequently to profit or loss:
	Foreign currency translation income (loss)	$	(1,826	)		$	1,695			$	97			$	2,674
Total comprehensive income (loss) for the period		$	(1,054	)		$	3,797			$	(6,986	)		$	2,202
Total comprehensive income (loss) attributable to:
	Shareholders of Brampton Brick Limited	$	(1,054	)		$	3,796			$	(6,986	)		$	2,201
	Non-controlling interests		-				1				-				1
Total comprehensive income (loss) for the period		$	(1,054	)		$	3,797			$	(6,986	)		$	2,202
Net income (loss) per Class A Subordinate Voting share and Class B Multiple Voting share attributable to shareholders of Brampton Brick Limited		$	0.07			$	0.19			$	(0.65	)		$	(0.04	)
Weighted average Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding (000's)			10,940				10,940				10,940				10,940

SELECTED FINANCIAL INFORMATION
(unaudited) (in thousands of dollars)
CONDENSED INTERIM CONSOLIDATED STATEMENTS			Six months ended June 30
OF CASH FLOWS				2014				2013
Cash provided by (used for)
Operating activities
Net loss for the period			$	(7,083	)		$	(472	)
Items not affecting cash and cash equivalents
	Depreciation			4,072				3,611
	Current taxes			(695	)			(45	)
	Deferred taxes			(1,131	)			552
	Loss on disposal of property, plant and equipment			1,594				349
	Unrealized foreign currency exchange gain			(15	)			(96	)
	Impairment loss on loan receivable			-				158
	Net interest expense			4,640				1,380
	Other			129				110
				1,511				5,547
Changes in non-cash items
	Trade and other receivables			(10,918	)			(5,896	)
	Inventories			(2,624	)			(2,754	)
	Other assets			1,804				(203	)
	Trade payables			4,060				756
	Other liabilities			648				692
				(7,030	)			(7,405	)
Income tax payments				(2	)			(1,239	)
Cash used for operating activities				(5,521	)			(3,097	)
Investing activities
	Purchase of property, plant and equipment			(10,059	)			(1,646	)
	Loan advances to Universal Resource Recovery Inc.			-				(1,375	)
	Proceeds from disposal of property, plant and equipment			57				44
Cash used for investment activities				(10,002	)			(2,977	)
Financing activities
	Increase in bank operating advances			6,290				7,298
	Proceeds from issuance of the demand revolving reducing term loan			36,595				-
	Payment of term loans			(22,635	)			(41	)
	Interest paid			(4,322	)			(1,282	)
	Payments on obligations under finance leases			(369	)			(248	)
Cash provided by financing activities				15,559				5,727
Foreign exchange on cash held in foreign currency				(5	)			42
Increase (decrease) in cash and cash equivalents				31				(305	)
Cash and cash equivalents at the beginning of the period				1,200				1,412
Cash and cash equivalents at the end of the period			$	1,231			$	1,107

SELECTED FINANCIAL INFORMATION
(unaudited) (in thousands of dollars)

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
			Attributable to shareholders of Brampton Brick Limited
									Accumulated
										Other												Non-
			Share			Contributed			Comprehensive				Retained								controlling			Total
			Capital				Surplus		Income (Loss)				Earnings				Total					interest		Equity
Balance - January 1, 2013			$	33,711		$	1,895		$	(2,655	)		$	104,010			$	136,961			$	12		$	136,973
	Net (loss) income for the period						-			-				(473	)			(473	)			1			(472	)
	Other comprehensive income (net of taxes, $nil)			-			-			2,674				-				2,674				-			2,674
Comprehensive income (loss) for the period				-			-			2,674				(473	)			2,201				1			2,202
	Share-based compensation			-			110			-				-				110				-			110
Balance - June 30, 2013			$	33,711		$	2,005		$	19			$	103,537			$	139,272			$	13		$	139,285
Balance - January 1, 2014			$	33,711		$	2,078		$	373			$	106,559			$	142,721			$	29		$	142,750
	Net loss for the period			-			-			-				(7,083	)			(7,083	)			-			(7,083	)
	Other comprehensive income (net of taxes, $nil)			-			-			97				-				97				-			97
Comprehensive income (loss) for the period				-			-			97				(7,083	)			(6,986	)			-			(6,986	)
	Share-based compensation			-			129			-				-				129				-			129
Balance - June 30, 2014			$	33,711		$	2,207		$	470			$	99,476			$	135,864			$	29		$	135,893

Brampton Brick Limited
Jeffrey G. Kerbel
President and Chief Executive Officer
905-840-1011

Brampton Brick Limited
Trevor M. Sandler
Vice-President, Finance and Chief Financial Officer
905-840-1011
905-840-1535 (FAX)
[e-mail]