BRK Berkshire Hathaway CDR CAD Hedged

Strong financial performance leading into the March 28, 2013 acquisition by Leon's  

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EDMONTON, March 20, 2013 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its results for the three and twelve months ended December 31, 2012. Financial statements and Management's Discussion and Analysis are available at thebrick.com and on SEDAR.

Q4 2012 highlights include:

• Net income up 3.4% or $0.5 million to $13.7 million compared to $13.2 million in Q4 2011. Normalized for Leon's transaction costs and other non-recurring items, Q4 2012 net income would have been $16.9 million or 24.1% better than normalized net income of $13.6 million in Q4 2011.
  
  
• Normalized diluted earnings per share of $0.13 increased 30.0% compared to Q4 2011 at $0.10. Diluted earnings per share were $0.11 compared to $0.10 in Q4 2011.
  
  
• EBITDA of $29.3 million, down 12.7% or $4.3 million compared to Q4 2011. Normalized for Leon's transaction costs and other non-recurring items, Q4 2012 EBITDA would have been $33.7 million or 6.1% better than normalized EBITDA of $31.7 million in Q4 2011.
  
  
• Fourth-quarter consolidated operating expenses of $128.7 million were higher by $0.3 million, and as a percentage of sales, increased to 36.2% from 35.6% in Q4 2011. Excluding items not expected to recur, Q4 operating expenses as a percentage of sales would have been 35.0% for 2012 and 35.9% for 2011.
  
  
• On November 11, 2012, Leon's and The Brick announced that they had entered into a definitive agreement that provides for the acquisition of The Brick by Leon's by way of plan of arrangement for $5.40 per share, representing a premium of over 54% compared to the $3.50 closing price on Friday November 9, 2012.  As part of the closing requirements, The Brick will acquire all of the outstanding common share purchase warrants of The Brick for $4.40 per warrant. The total consideration payable to Brick shareholders and warrant holders is approximately $700 million. The transaction has received all required regulatory approval and remains subject only to customary closing conditions. The transaction is expected to close on March 28, 2013.

2012 full year highlights include:

• Income before finance costs related debentures redeemed and income taxes increased 25.8% to $66.3 million compared to 2011.
  
  
• Diluted earnings per share before finance costs related to debentures redeemed net of related impact to income tax expense of $0.31 increased by 10.7% compared to $0.28 in 2011.
  
  
• 2012 corporate same store sales increased 0.4%.
  
  
• EBITDA of $111.5 million was flat compared to 2011, after incurring $4.0 million of costs relating to the Leon's transaction in Q4 2012.
  
  
• Gross margin rate was maintained at 44.2%
  
  
• Operating expenses decreased $4.3 million or 0.9% and as a percentage of sales remained unchanged at 36.2%. The year-over-year comparison of operating expenses as a percentage of sales was not materially impacted by Leon's transaction costs or other non-recurring items.

"2012 proved to be another successful year for the Brick Group. Our Q4 results yet again demonstrate the Brick team's success in outperforming our retail sector, despite a challenging retail environment. Against this challenging backdrop, the Brick team has consistently gained market share, outperforming prior year market share results in each of the first 3 quarters of 2012, based on the most recent Statistics Canada market data available", commented Vi Konkle, President and CEO of the Brick.

"Our continued performance only promises to strengthen as we join the Leon's team on March 28, 2013. We believe that the combined capabilities and best practices of two great Canadian companies will not only result in better product, value and service for our customers, but more opportunities for our employees as we continue to operate as distinct but better equipped destinations for stylish home solutions, at exceptional value, backed by unbeatable end-to-end service and quality", added Ms. Konkle.

Segmented Results Summary:

For the Quarter

Sales

For the quarter ended December 31, 2012, consolidated sales of $355.1 million were lower by $7.2 million or 2.0% as compared to the same quarter of 2011.  In the retail segment, sales of $335.2 million decreased by $7.3 million or 2.1% and were partially impacted by store closures.  We ended the fourth quarter with 162 corporate stores compared to 172 corporate stores at the end of the same quarter in 2011.  Fourth-quarter same store sales decreased by 1.3% while in the same quarter of 2011 same store sales decreased by 1.8%.  Retail sales in the fourth quarter were below management's expectations causing year-end inventories to increase.  Inventory levels were also increased due to strategic purchases of electronics, primarily TVs, to support anticipated sales in the first quarter of 2013.  In the first quarter of 2013 to March 17, 2013, same store sales growth has been strong at 4.4%, and inventory levels have decreased from the December 31, 2012 level of $182.8 million to approximately $167.0 million which is in line with our normal inventory range.  In the financial services segment, fourth-quarter sales of $19.9 million were relatively flat as compared to the same quarter of 2011.

Franchise Sales

Compared to the same quarter a year ago, sales at franchise stores increased by 8.5% to $59.0 million due to the addition of new franchise locations.  We began the quarter with 66 franchise stores and ended with 69 franchise stores, while in 2011 we began and ended the quarter with 60 franchise stores.  Fourth-quarter 2012 same store sales for franchise stores decreased by 4.9% while in the same quarter of 2011 same store sales increased by 4.4%.

Gross Margin

Compared to the same quarter in 2011, consolidated gross margin rate decreased by 20 basis points from 44.5% to 44.3%.  The  decrease in consolidated gross margin rate combined with the 2.0% decrease in consolidated sales resulted in a decrease in gross margin earned of $4.1 million.  The decrease in consolidated gross margin was attributable primarily to the financial services segment as retail segment gross margin rate remained flat.  In the financial services segment, the decrease in gross margin rate reflected a reduced mix of warranty business and Brick Card insurance business which have gross margin rates that are higher than third-party insurance business.

Operating Expenses

Fourth-quarter operating expenses were higher by $0.3 million and as a percentage of sales were higher at 36.2% as compared to 35.6% in the same quarter of 2011.  The 2012 fourth-quarter operating expenses included $4.0 million of costs related to the Leon's Arrangement, and approximately $0.6 million of other expenses not expected to recur.  The 2011 fourth-quarter operating expenses included approximately $3.0 million of expenses not expected to recur, and were reduced by receipt of a $3.9 million property expropriation claim settlement.  After adjusting 2012 and 2011 fourth-quarter operating expenses for these items, operating expense as a percentage of sales would have been 35.0% and 35.9%, respectively.

EBITDA

The Brick's financial results for the quarter ended December 31, 2012 reflect continued strength in consolidated EBITDA performance.  2012 fourth-quarter consolidated EBITDA of $29.3 million included $4.0 million of costs related to the Leon's Arrangement, and approximately $0.4 million of other net expenses not expected to recur.  2011 fourth-quarter EBITDA of $33.6 million included approximately $2.1 million of net expenses not expected to recur, and was increased by receipt of a $3.9 million property expropriation claim settlement.  After adjusting for these items, 2012 EBITDA would have been $33.7 million and 2011 EBITDA would have been $31.7 million, reflecting an increase of $1.9 million, or 6.1%.

Retail segment EBITDA of $24.1 million included $4.0 million of costs related to the Leon's Arrangement, and approximately $0.9 million of other net expenses not expected to recur.  2011 fourth-quarter retail segment EBITDA of $27.9 million included approximately $3.0 million of net expenses not expected to recur, and was increased by receipt of a $3.9 million property expropriation claim settlement.  After adjusting for these items, 2012 retail segment EBITDA would have been $29.0 million and 2011 retail segment EBITDA would have been $27.0 million, reflecting an increase of $2.0 million, or 7.6%.  This improvement in EBITDA reflects reductions to operating expenses which more than offset the decrease in gross margin earned.

Financial services segment EBITDA of $5.2 million included $0.5 million of items reducing cost of sales and operating expenses that are not expected to recur.  2011 fourth-quarter retail segment EBITDA of $5.7 million included approximately $0.9 million of other income not expected to recur.  After adjusting for these items, 2012 financial services segment EBITDA would have been $4.7 million and 2011 financial services segment EBITDA would have been $4.8, reflecting a decrease of $0.1 million, or 2.6%.  The decrease in financial services EBITDA was driven primarily by reduced gross margin rate which resulted from a reduced mix of warranty business and Brick Card insurance business which have gross margin rates that are higher than third-party insurance business.

Finance Costs

Fourth-quarter finance costs of $3.4 million were lower by $3.7 million.  This $3.7 million reduction is attributable primarily to the reduced balance of Debentures outstanding subsequent to the Debenture redemption which occurred on April 12, 2012.  Substantially all of The Brick's finance costs relate to the Debentures and finance lease obligations.

Income Before Finance Costs Related to Debentures Redeemed and Income Taxes

For the quarter ended December 31, 2012, income before finance costs related to Debentures redeemed and income taxes of $19.1 million was lower by 0.2 million, or 1.0%, as compared to the same quarter of 2011.  2012 fourth-quarter operating results included $4.0 million of costs related to the Leon's Arrangement and approximately $0.4 million of net expenses not expected to recur.

2011 fourth-quarter operating results included approximately $2.1 million of expenses not expected to recur, and were increased by receipt of a $3.9 million property expropriation claim settlement.  After adjusting for these items, income before finance costs related to Debentures redeemed and income taxes would have been $23.4 million for 2012, and $17.4 million for 2011, reflecting an improvement of $6.0 million or 34.4%.  This improvement is attributable to reduced operating expenses and, subsequent to the April 12, 2012 Debenture redemption, reduced finance costs.

Net Income and Earnings per Share

For the quarter ended December 31, 2012, net income of $13.7 million increased by $0.5 million or 3.4% as compared to the same quarter of 2011.  2012 fourth-quarter net income included $4.0 million of costs related to the Leon's Arrangement and approximately $0.4 million of net expenses not expected to recur.  2011 fourth-quarter operating results included $2.3 million of finance costs related to the December 2, 2011 Debenture redemption, approximately $2.1 million of expenses not expected to recur, and was increased by receipt of a $3.9 million property expropriation claim settlement.  After adjusting for the after tax impact of these items, net income would have been $16.9 million for 2012, and $13.6 million for 2011, reflecting an improvement of $3.3 million or 24.1%.  This improvement is attributable to reduced operating expenses and, subsequent to the April 12, 2012 Debenture redemption, reduced finance costs.

Fourth-quarter basic and diluted earnings per share were 11 cents, compared to basic and diluted earnings per share of 11 and 10 cents, respectively, for the same quarter of 2011.  After adjusting for the after tax impact of the items discussed above, fourth-quarter 2012 basic and diluted earnings per share would have been 14 cents and 13 cents, respectively, and fourth-quarter 2011 basic and diluted earnings per share would have remained at 11 cents and 10 cents, respectively.

Cash Position

Subsequent to the April 12, 2012 Debenture redemption payment of $88.1 million, The Brick's cash and cash equivalents at December 31, 2012 were $85.5 million as compared to $141.1 million at December 31, 2011.  The Brick has not borrowed under the Asset-Based Credit Facility since the second quarter of 2010.  Borrowing capacity under The Brick's $100.0 million Asset-Based Credit Facility at December 31, 2012 was $100.0 million.

For the Year

Sales

For the year ended December 31, 2012, consolidated sales of $1,341.1 million decreased by $10.6 million or 0.8% as compared to 2011.  In the retail segment, sales of $1,261.7 million were lower by $7.2 million or 0.6% as the number of corporate stores decreased.  Same store sales growth for the year ended December 31, 2012 was positive 0.4% compared to negative 1.6% in 2011.  During 2012, the corporate store count has decreased from 172 to 162, while in 2011 the corporate store count decreased from 183 to 172.  In the financial services segment, sales of $79.4 million decreased by $3.4 million or 4.1% as growth in the insurance companies' Brick Card business was more than offset by decreases in their third-party insurance business.

Franchise Sales

2012 sales at franchise stores increased by 4.8% to $192.5 million due to the addition of new franchise stores.  We began the year with 60 franchise stores and ended with 69, while in 2011 we began the year with 54 franchise stores and ended with 60.  2012 same store sales for franchise stores decreased by 4.2% while in 2011 same store sales for franchise stores increased by 4.4%.

Gross Margin

Compared to 2011, consolidated gross margin rate remained flat at 44.2%.  Consolidated gross margin earned was lower by $4.6 million reflecting a $5.4 million decrease in the retail segment which was partially offset by a $0.8 million increase in the financial services segment.

In the retail segment, the $5.4 million decrease in gross margin earned reflected both slightly lower sales and gross margin rate.  Retail segment gross margin rate decreased from 43.0% to 42.8%.

In the financial services segment, the $0.8 million increase in gross margin earned was attributable to improvement in the gross margin rate as sales in this segment decreased by 4.1%.  Improvement in gross margin rate was attributable to reduced claims expenses in the warranty business, and also to a reduced sales mix of lower-margin third-party insurance sales and an increased sales mix of higher-margin Brick Card business in the insurance business.

Operating Expenses

2012 consolidated operating expenses were lower by $4.3 million or 0.9% and as a percentage of sales remained unchanged at 36.2% as compared 2011.  The year-over-year comparison of operating expenses as a percentage of sales was not skewed by non-recurring and unusual operating expenses as such items impacted 2012 and 2011 equally.  Essentially all of The Brick's SG&A expenses are incurred in the retail segment.

EBITDA

For the year ended December 31, 2012 consolidated EBITDA of $111.5 million was flat as compared to 2011.  By segment and compared to 2011, retail segment EBITDA of $89.6 million was lower by $0.1 million while financial services segment EBITDA increased by $0.1 million to $21.9 million.  The year-over-year comparison of EBITDA was not skewed by non-recurring and unusual items as such items impacted 2012 and 2011 equally.

The retail segment receives a license fee from the financial services segment as compensation for arranging the sale of warranty and insurance products to its customers.  For the year ended December 31, 2012, license fees payable by the financial services segment to the retail segment and included in retail segment EBITDA were $23.6 million as compared to $23.2 million in 2011.

Finance Costs and Finance Costs Related to Debentures Redeemed

2012 finance costs of $18.5 million were lower by $10.1 million as compared to 2011.  Substantially all of this $10.1 million reduction is attributable to the reduced balance of Debentures outstanding subsequent to the Debenture redemption which was settled on April 12, 2012.

The Debenture redemption is discussed further in the Brick's MD&A under the heading Financing Resources.

Finance costs incurred to redeem $77.3 million aggregate principal amount of Debentures on April 12, 2012 were $17.1 million and included a premium of $10.8 million reflecting the amount paid in excess of the principal value, and $6.3 million in respect of accelerated accretion, derecognition of deferred financing fees, and transaction fees.

Finance costs incurred to redeem $9.9 million aggregate principal amount of Debentures on December 2, 2011 were $2.3 million and included a premium of $1.5 million reflecting the amount paid in excess of the principal value, and $0.8 million in respect of accelerated accretion, derecognition of deferred financing fees, and transaction fees.

Substantially all of The Brick's finance costs relate to the Debentures and finance lease obligations.

Income Before Finance Costs Related to Debentures Redeemed and Income Taxes

2012 income before finance costs related to Debentures redeemed and income taxes increased by $13.6 million, or 25.8%, to $66.3 million, as compared to 2011.  This increase was primarily attributable to reduced finance costs subsequent to the April 12, 2012 Debenture redemption, and also attributable to reduced operating expenses and reduced depreciation and amortization.  The year-over-year comparison of income before finance costs related to Debentures redeemed and income taxes was not skewed by non-recurring and unusual items as such items impacted 2012 and 2011 equally.

Net Income and Earnings per Share

For the year ended December 31, 2012, net income of $34.0 million was lower by $1.9 million or 5.2% as compared to net income of $35.9 million in 2011.  2012 net income includes finance costs of $17.1 million related to the April 12, 2012 Debenture redemption, and 2011 net income includes finance costs of $2.3 million related to the December 2, 2011 Debenture redemption.  Normalized to exclude these amounts and the related impact on income tax expense, 2012 net income would have been $40.8 million and 2011 net income would have been $37.6 million, reflecting an improvement of $3.2 million or 8.4% as compared to 2011.

Apart from costs related to Debenture redemptions, the year-over-year comparison of net income was not skewed by other non-recurring and unusual items as such items impacted 2012 and 2011 equally.

As a result of the Debenture redemption settled on April 12, 2012, reductions to continuing Debenture related finance costs have amounted to $9.2 million for the year ended December 31, 2012.  The 2012 basic and diluted earnings per share were 28 cents and 26 cents, respectively, compared to basic earnings per share of 40 cents and diluted earnings per share of 27 cents for 2011.  Normalized to exclude the $17.1 million of finance costs related to the Debenture redemption and the related impact on income tax expense, 2012 basic and diluted earnings per share would have been 34 cents and 31 cents, respectively.  Normalized to exclude the $2.3 million of finance costs related to the December 2, 2011 Debenture redemption and the related impact on income tax expense, 2011 basic and diluted earnings per share would have been 42 cents and 28 cents, respectively.

Previous financial statements and Management's Discussion and Analysis are available on the investor relations page of Brick Group's website at www.thebrick.com.

About the Brick Group

The Brick Group, together with its subsidiaries, is one of Canada's largest volume retailers of household furniture, mattresses, appliances and home electronics, operating under four banners: The Brick, United Furniture Warehouse, The Brick Mattress Store, and Urban Brick. In addition, through its corporate sales division, the Brick Group services the subdivision, condominium, hospitality and high-rise builder market. The Brick Group's retail and franchise operations are located in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Prince Edward Island, Nova Scotia, New Brunswick, the Northwest Territories and Yukon.

Forward-Looking Statements

This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws, including (but not limited to) statements about the Brick's consolidated sales and operating revenue, consolidated EBITDA, consolidated net loss, sales and operating revenue in the financial services and retail segments, same store sales growth and goodwill and indefinite life intangible asset impairment charges, the financial flexibility and capital resources necessary to manage the business in the current economic environment, and similar statements concerning anticipated future events, results, circumstances, performance or expectations, that reflect management's current expectations and are based on information currently available to management of the Brick and its subsidiaries. The words "may", "will", "should", "believe", "expect", "plan", "anticipate", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms, or other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking matters. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Brick to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. The Brick undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.

www.thebrick.com

SOURCE The Brick Ltd.