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2 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
TABLE OF CONTENTS
TO OUR SHAREHOLDERS ................................................................................................................................ 3 MANAGEMENT'S DISCUSSION & ANALYSIS .................................................................................................... 4 STATEMENTS OF COMPREHENSIVE INCOME ............................................................................................... 21 STATEMENTS OF FINANCIAL POSITION ........................................................................................................ 23 STATEMENTS OF CHANGES IN EQUITY ......................................................................................................... 24 STATEMENTS OF CASH FLOWS ..................................................................................................................... 25 NOTES TO FINANCIAL STATEMENTS ............................................................................................................. 26
2 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
TABLE OF CONTENTS
TO OUR SHAREHOLDERS ................................................................................................................................ 3 MANAGEMENT'S DISCUSSION & ANALYSIS .................................................................................................... 4 STATEMENTS OF COMPREHENSIVE INCOME ............................................................................................... 21 STATEMENTS OF FINANCIAL POSITION ........................................................................................................ 23 STATEMENTS OF CHANGES IN EQUITY ......................................................................................................... 24 STATEMENTS OF CASH FLOWS ..................................................................................................................... 25 NOTES TO FINANCIAL STATEMENTS ............................................................................................................. 26
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 3
To Our Shareholders, I am pleased to present the financial results for the first quarter of fiscal 2016.
Our owner brand volume was flat in the first quarter, against a backdrop of approximately 2% volume decline for the overall category. Despite the impact of a long cold winter, Waterloo volume growth vs prior year was over 11% while Laker volume grew over 3%, both strong results in light of the category headwinds. Seagram volume was down approximately 27%, the result of fewer brand listings at LCBO and timing of new product launches set for Q2 in F16 vs Q1 in the prior year. We have recently launched attractive new flavors in Seagram malt based coolers, and as we move into summer we are looking for improved performance in Seagram coolers and cider.
Sound cost control, improved product mix and pricing all contributed to improvement in margins and EBITDA in the quarter. The business is performing very well, and we are seeing great execution against our plan. As we head into the key summer months, we believe we are well positioned for continued strong results. Our new product introductions are resonating with consumers, Kitchener expansion is on track, and the coming changes to the beer channel in Ontario, including the introduction of beer into grocery, all seem to be clear positives for Brick Brewing.
Financial highlights are as follows:
Highlights:
Ø Net revenue increased to $7.7 million, from $7.5 million in the prior year
Ø Gross margin improved to 27.1% from 21.7%
Ø Selling, Marketing and Administration (“SM&A”) expenses increased nominally to $1.8 million from $1.7 million.
Ø EBITDA improved to $0.9 million in the quarter, vs. $0.7 million.
Yours truly,
George H. Croft President and CEO, Brick Brewing Co. Limited
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 3
To Our Shareholders, I am pleased to present the financial results for the first quarter of fiscal 2016.
Our owner brand volume was flat in the first quarter, against a backdrop of approximately 2% volume decline for the overall category. Despite the impact of a long cold winter, Waterloo volume growth vs prior year was over 11% while Laker volume grew over 3%, both strong results in light of the category headwinds. Seagram volume was down approximately 27%, the result of fewer brand listings at LCBO and timing of new product launches set for Q2 in F16 vs Q1 in the prior year. We have recently launched attractive new flavors in Seagram malt based coolers, and as we move into summer we are looking for improved performance in Seagram coolers and cider.
Sound cost control, improved product mix and pricing all contributed to improvement in margins and EBITDA in the quarter. The business is performing very well, and we are seeing great execution against our plan. As we head into the key summer months, we believe we are well positioned for continued strong results. Our new product introductions are resonating with consumers, Kitchener expansion is on track, and the coming changes to the beer channel in Ontario, including the introduction of beer into grocery, all seem to be clear positives for Brick Brewing.
Financial highlights are as follows:
Highlights:
Ø Net revenue increased to $7.7 million, from $7.5 million in the prior year
Ø Gross margin improved to 27.1% from 21.7%
Ø Selling, Marketing and Administration (“SM&A”) expenses increased nominally to $1.8 million from $1.7 million.
Ø EBITDA improved to $0.9 million in the quarter, vs. $0.7 million.
Yours truly,
George H. Croft President and CEO, Brick Brewing Co. Limited
4 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
MANAGEMENT’S DISCUSSION & ANALYSIS
FIRST QUARTER FISCAL 2016
Quarter Ended April 26, 2015
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 5
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following management’s discussion and analysis (“MD&A”) provides a review of the activities, results of operations and financial condition of Brick Brewing Co. Limited (“Brick” or the “Company”) for the quarterly period ended April 26, 2015 (“the first quarter of fiscal 2016”) in comparison with the quarterly period ended April 27, 2014 (“the first quarter of fiscal 2015”). These comments should be read in conjunction with: (i) the unaudited condensed interim financial statements for the first quarters of fiscal 2016 and 2015 and accompanying notes included therein; and (ii) the annual report for the year ended January 31, 2015, including the sections on risks and uncertainties within the MD&A for fiscal 2015. The interim financial statements for the first quarter of fiscal 2016 have not been audited or reviewed by the Company’s auditors, KPMG LLP. The comments were prepared as of June 3, 2015. Additional information relating to the Company, including its annual information form, is available at www.sedar.com or in the investor relations section of the Company’s website at www.brickbeer.com. FORWARD-‐LOOKING STATEMENTS
Except for the historical information contained herein, the discussion in this MD&A contains certain forward-‐looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, strategies, expectations and intentions and include, for example, the statements concerning expected volumes, earnings before interest, taxes, depreciation and amortization and share based payments (“EBITDA*”), operating efficiencies and costs. Forward-‐looking statements generally can be identified by the use of forward-‐looking terminology such as “may”, “will”, “expect”, “intend”, “anticipate”, “seek”, “plan”, “believe” or “continue” or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations and assumptions reflected in these forward-‐looking statements are reasonable, undue reliance should not be placed on these forward-‐looking statements. These forward-‐looking statements are not guarantees and reflect the Company’s views as of June 3, 2015 with respect to future events. Future events are subject to certain risks, uncertainties and assumptions, which may cause actual performance and financial results to differ materially from such forward-‐looking statements. The forward-‐looking statements, including the statements regarding expected volumes, EBITDA*, operating efficiencies and costs are based on, among other things, the following material factors and assumptions: sales volumes in the fiscal year ending January 31, 2016 (“fiscal 2016”) will increase; no material changes in consumer preferences; brewing, blending, and packaging efficiencies will improve; the cost of input materials for brewing and blending will increase; the cost of packaging materials will decrease; competitive activity from other manufacturers will continue; no material change to the regulatory environment in which the Company operates and no material supply, cost or quality control issues with vendors. Readers are urged to consider the foregoing factors and assumptions when reading the forward-‐looking statements and for more information regarding the risks, uncertainties and assumptions that could cause the Company’s actual financial results to differ from the forward-‐looking statements, to also refer to the remainder of the discussion in this MD&A, the Company’s annual information form and various other public filings as and when released by the Company. The forward-‐looking statements included in this MD&A are made only as of June 3, 2015 and, except as required by applicable securities laws, the Company does not undertake to publicly update such forward-‐looking statements to reflect new information, future events or otherwise.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 5
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following management’s discussion and analysis (“MD&A”) provides a review of the activities, results of operations and financial condition of Brick Brewing Co. Limited (“Brick” or the “Company”) for the quarterly period ended April 26, 2015 (“the first quarter of fiscal 2016”) in comparison with the quarterly period ended April 27, 2014 (“the first quarter of fiscal 2015”). These comments should be read in conjunction with: (i) the unaudited condensed interim financial statements for the first quarters of fiscal 2016 and 2015 and accompanying notes included therein; and (ii) the annual report for the year ended January 31, 2015, including the sections on risks and uncertainties within the MD&A for fiscal 2015. The interim financial statements for the first quarter of fiscal 2016 have not been audited or reviewed by the Company’s auditors, KPMG LLP. The comments were prepared as of June 3, 2015. Additional information relating to the Company, including its annual information form, is available at www.sedar.com or in the investor relations section of the Company’s website at www.brickbeer.com. FORWARD-‐LOOKING STATEMENTS
Except for the historical information contained herein, the discussion in this MD&A contains certain forward-‐looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, strategies, expectations and intentions and include, for example, the statements concerning expected volumes, earnings before interest, taxes, depreciation and amortization and share based payments (“EBITDA*”), operating efficiencies and costs. Forward-‐looking statements generally can be identified by the use of forward-‐looking terminology such as “may”, “will”, “expect”, “intend”, “anticipate”, “seek”, “plan”, “believe” or “continue” or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations and assumptions reflected in these forward-‐looking statements are reasonable, undue reliance should not be placed on these forward-‐looking statements. These forward-‐looking statements are not guarantees and reflect the Company’s views as of June 3, 2015 with respect to future events. Future events are subject to certain risks, uncertainties and assumptions, which may cause actual performance and financial results to differ materially from such forward-‐looking statements. The forward-‐looking statements, including the statements regarding expected volumes, EBITDA*, operating efficiencies and costs are based on, among other things, the following material factors and assumptions: sales volumes in the fiscal year ending January 31, 2016 (“fiscal 2016”) will increase; no material changes in consumer preferences; brewing, blending, and packaging efficiencies will improve; the cost of input materials for brewing and blending will increase; the cost of packaging materials will decrease; competitive activity from other manufacturers will continue; no material change to the regulatory environment in which the Company operates and no material supply, cost or quality control issues with vendors. Readers are urged to consider the foregoing factors and assumptions when reading the forward-‐looking statements and for more information regarding the risks, uncertainties and assumptions that could cause the Company’s actual financial results to differ from the forward-‐looking statements, to also refer to the remainder of the discussion in this MD&A, the Company’s annual information form and various other public filings as and when released by the Company. The forward-‐looking statements included in this MD&A are made only as of June 3, 2015 and, except as required by applicable securities laws, the Company does not undertake to publicly update such forward-‐looking statements to reflect new information, future events or otherwise.
6 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
DESCRIPTION OF THE BUSINESS
Products The Company produces, sells, markets and distributes packaged and draft premium beer under the Waterloo brand name, and value beer under the Laker, Red Baron, Red Cap, and Formosa brand names (collectively, the “Brick Beer Brands”). The Company produces, sells, markets and distributes Seagram Coolers across Canada. The Seagram Coolers family consists of vodka-‐based coolers, malt-‐based coolers and ciders.
Under its co-‐packaging agreements, the Company produces, sells, markets and distributes various beer products on behalf of Loblaws Inc. (“Loblaws”) under the licensed President’s Choice® (“PC®”) trademark. The Company produces the Mott’s Caesar brand in bottles under a contract with Canada Dry Mott’s, Inc. (“CDMI”). In addition to production, the Company also acts as the sales agent in Ontario for CDMI. The Company also has brewing and co-‐packaging agreements with other beer manufacturers. These customers are not separately identified, as per the terms of those contracts.
Geographic Distribution
The Company’s products are sold primarily in Ontario. The Company’s Waterloo packaged beer is also sold in Atlantic Canada, Western Canada and the USA. Seagram Coolers are sold across Canada. Seagram Coolers are manufactured and distributed in Quebec under a licensing agreement with Blue Spike Beverages.
Distribution Channels
In Ontario, distribution of packaged beer occurs through The Beer Store (“TBS”) and the Liquor Control Board of Ontario (“LCBO”). Consumers can purchase the Company’s products through these channels as well as through licensed establishments (bars and restaurants) in Ontario. Seagram Coolers are sold through the provincial liquor boards and The Beer Store in Ontario.
Operating Facilities
The Company’s brewing facilities are located in Waterloo and Formosa, Ontario. The Company’s primary packaging and warehousing facility is located in Kitchener, Ontario. The Company has a blending and packaging facility in Formosa which is primarily dedicated to co-‐packing and production of Seagram Coolers. The Company’s head and registered office is in Kitchener, Ontario. During the third quarter of fiscal 2015, the Company sold its facility located in Waterloo, Ontario and began expanding its facility in Kitchener, Ontario. The Company will lease back the Waterloo location until the expansion is complete.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 7
SELECTED QUARTERLY INFORMATION
The following table summarizes certain financial information of the Company for the first quarters indicated below:
(in thousands of dollars, except per share amounts)
April 26, 2015 April 27, 2014 April 28, 2013
Income Statement Data
Gross Revenue 15,428$ 15,110$ 17,705$
Net Revenue (after production taxes and distribution fees) 7,707$ 7,537$ 8,785$
Earnings before interest, taxes, depreciation and amortization, and share-‐based payments 874$ 658$ 965$
Net income 31$ (207)$ 55$
Earnings per shareBasic -‐$ (0.01)$ -‐$ Diluted -‐$ (0.01)$ -‐$
Balance Sheet Data
Total Assets 49,116$ 47,488$ 48,317$
Total Term Debt and Obligation Under Finance Lease 7,797$ 5,611$ 8,213$
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 7
SELECTED QUARTERLY INFORMATION
The following table summarizes certain financial information of the Company for the first quarters indicated below:
(in thousands of dollars, except per share amounts)
April 26, 2015 April 27, 2014 April 28, 2013
Income Statement Data
Gross Revenue 15,428$ 15,110$ 17,705$
Net Revenue (after production taxes and distribution fees) 7,707$ 7,537$ 8,785$
Earnings before interest, taxes, depreciation and amortization, and share-‐based payments 874$ 658$ 965$
Net income 31$ (207)$ 55$
Earnings per shareBasic -‐$ (0.01)$ -‐$ Diluted -‐$ (0.01)$ -‐$
Balance Sheet Data
Total Assets 49,116$ 47,488$ 48,317$
Total Term Debt and Obligation Under Finance Lease 7,797$ 5,611$ 8,213$
8 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
RESULTS OF OPERATIONS
Results for the period ended:
(in thousands of dollars except per share amounts)April 26, 2015 April 27, 2014
Gross revenue 15,428$ 15,110$ Less: Production taxes and distribution fees 7,721 7,573 Net revenue 7,707 7,537
Cost of sales 5,615 5,898 Gross profit 2,092 1,639
27.1% 21.7%
Selling, marketing and administration 1,774 1,698
Income before the undernoted 318 (59)
Other expenses 157 97
Finance costs 112 120
Loss on disposal of property, plant and equipment -‐ 7
Income before tax 49 (283)
Income tax expense 18 (76) Net income 31 (207)
Earnings per shareBasic -‐$ (0.01)$ Diluted -‐$ (0.01)$
Net revenue increase (decrease) 2.3% (14.2%)
Net volume decrease (5.6%) (16.0%)
Consisting of:Increase (decrease) in Brick beer brand volume 1.9% (19.1%)Decrease in co-‐pack volume (1) (14.5%) (8.9%)Decrease in Seagram volume (2) (26.7%) (24.6%)
(1) Includes beer packaged under the licensed PC® trademark on behalf of Loblaws Inc. and Mott's Caesar packaged on behalf of CDMI.(2) Includes volume sold under the licensed Seagram Trademark by Blue Spike Beverages in Quebec.
Quarter ended
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 9
(in thousands of dollars) April 26, 2015 April 27, 2014
Net income 31$ (207)$
Add (deduct):Income tax expense (recovery) 18 (76) Depreciation and amortization 683 765 Loss on disposal of property, plant and equipment -‐ 7 Share-‐based payments 30 49 Finance costs 112 120
Subtotal 843 865
EBITDA* 874 658
Reconciliation of Net Earnings to Earnings Before Interest Taxes Depreciation and Amortization, and Share Based Payments (EBITDA)*
Quarter ended
NET REVENUE
Gross revenues were $15.4 million for the first quarter ended April 26, 2015 compared to $15.1 million in the same period ended April 27, 2014. Net revenues for the first quarter ended April 26, 2015 were $7.7 million compared to $7.5 million in the same period ended April 27, 2014. Net revenues are calculated by deducting from gross revenues the costs of distribution fees paid to TBS and provincial liquor boards and production taxes.
Gross and net revenue were positively impacted by the increase in sales of Brick Beer Brands as well as from favourable price increases on the Company’s beer brands.
In the first quarter of fiscal 2016, the Company’s overall branded sales volume was approximately 38,700 hectolitres, comprised of 36,200 hectolitres of Brick Beer Brands, and 2,500 hectolitres of Seagram Coolers sales volume.
(in hectolitres rounded to nearest 100) April 26, 2015 April 27, 2014Laker Brands 32,300 31,200 Waterloo Brands 2,500 2,300 Other Beer Brands 1,400 2,000 Total Brick Beer Brands 36,200 35,500 Seagram Coolers1 2,500 3,400 Total Brick Brand Volume 38,700 38,900
1 Inc ludes vo lume s o ld under the lic ens ed S eagram T rademark by B lue S pike B everages in Quebec .
Quarter ended
BRICK BEER BRANDS Sales volumes of Brick Beer Brands increased in the first quarter of fiscal 2016 by 1.9% from the first quarter of fiscal 2015’s sales volumes, largely driven by an increase in volume of the Laker brand and by volume growth of the Waterloo brands.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 9
(in thousands of dollars) April 26, 2015 April 27, 2014
Net income 31$ (207)$
Add (deduct):Income tax expense (recovery) 18 (76) Depreciation and amortization 683 765 Loss on disposal of property, plant and equipment -‐ 7 Share-‐based payments 30 49 Finance costs 112 120
Subtotal 843 865
EBITDA* 874 658
Reconciliation of Net Earnings to Earnings Before Interest Taxes Depreciation and Amortization, and Share Based Payments (EBITDA)*
Quarter ended
NET REVENUE
Gross revenues were $15.4 million for the first quarter ended April 26, 2015 compared to $15.1 million in the same period ended April 27, 2014. Net revenues for the first quarter ended April 26, 2015 were $7.7 million compared to $7.5 million in the same period ended April 27, 2014. Net revenues are calculated by deducting from gross revenues the costs of distribution fees paid to TBS and provincial liquor boards and production taxes.
Gross and net revenue were positively impacted by the increase in sales of Brick Beer Brands as well as from favourable price increases on the Company’s beer brands.
In the first quarter of fiscal 2016, the Company’s overall branded sales volume was approximately 38,700 hectolitres, comprised of 36,200 hectolitres of Brick Beer Brands, and 2,500 hectolitres of Seagram Coolers sales volume.
(in hectolitres rounded to nearest 100) April 26, 2015 April 27, 2014Laker Brands 32,300 31,200 Waterloo Brands 2,500 2,300 Other Beer Brands 1,400 2,000 Total Brick Beer Brands 36,200 35,500 Seagram Coolers1 2,500 3,400 Total Brick Brand Volume 38,700 38,900
1 Inc ludes vo lume s o ld under the lic ens ed S eagram T rademark by B lue S pike B everages in Quebec .
Quarter ended
BRICK BEER BRANDS Sales volumes of Brick Beer Brands increased in the first quarter of fiscal 2016 by 1.9% from the first quarter of fiscal 2015’s sales volumes, largely driven by an increase in volume of the Laker brand and by volume growth of the Waterloo brands.
10 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
During the quarter ended April 26, 2015, the Laker family brand sales volumes increased by 3.5% over the quarter ended April 27, 2014. In the first quarter of fiscal 2016, the Company launched Laker IPA 24-‐pack bottles. The industry beer volumes decreased by approximately 2% (based on counter sales through TBS) in the first quarter of fiscal 2016. Waterloo brand sales volumes continue to achieve double digit growth, increasing by 11.3% in the first quarter of fiscal 2016 compared to the same quarter in fiscal 2015. The increase is largely attributable to the Waterloo Grapefruit Radler, which was launched in second quarter of fiscal 2015. The Company launched Waterloo Lemonade Radler in the first quarter of fiscal 2016. In the quarter ended April 26, 2015, the Company’s beer volume consisted of 7.0% in the premium beer category which represents a 0.6% increase from the same period in fiscal 2015. The Company’s total market share by volume of TBS retail sales in Ontario was approximately 4% during the quarter-‐ended April 26, 2015, consistent with the same period in fiscal 2015.
SEAGRAM COOLERS During the quarter ended April 26, 2015, sales volumes of the Seagram Coolers decreased by 26.7% compared to the quarter ended April 27, 2014. The Seagram volumes have been negatively impacted by the LCBO discontinuing certain vodka-‐based coolers in the second quarter of fiscal 2015. Late in the first quarter of fiscal 2016, the Company launched new flavours of Seagram malt-‐based coolers, including Strawberry Daiquiri, Ocean Breeze, and Red Grapefruit. Also, the packaging of the Seagram Wildberry vodka-‐based bottles were completely redesigned and have since achieved double-‐digit growth in comparison to the same period in fiscal 2015. Sales volume on Seagram cider was down nominally in the quarter, as retailers reduced inventory levels in the seasonally smaller first quarter. Recent improvements in orders, shipments and consumer sales have made up the entire shortfall in the first quarter, and Seagram cider is on track for continued growth. PRODUCTION TAXES & DISTRIBUTION FEES During the first quarter of fiscal 2016, the Company’s production tax increased by 1.6% compared to first quarter of fiscal 2015 due to the increase in sales volume of the Company’s beer brands, as well as annual increases to the rate of beer tax. There was not a significant change in the rates for distribution fees during the first quarter of fiscal 2016 and therefore, the cost of distribution fees remained consistent with those in the same period of fiscal 2015 at approximately 16% of gross revenues.
COST OF SALES
Cost of sales was $5.6 million for the first quarter of fiscal 2016, a decrease of $0.3 million from the first quarter of fiscal 2015. Cost of sales represented 72.9% of net revenue in the first quarter of fiscal 2015 compared to 78.2% in the first quarter of fiscal 2015; a decrease of 5.3%. The decrease is largely attributable to the increased retail pricing compared to the same period in fiscal 2015. The Company’s gross profit percentage increased to 27.1% in the quarter-‐ended April 26, 2015 versus 21.7% in the same quarter of fiscal 2015.
SELLING, MARKETING AND ADMINISTRATION
In the first quarter of fiscal 2016, selling, marketing and administration (“SM&A”) expenses totalled $1.8 million which represents an increase of $0.1 million from the first quarter of fiscal 2015. The increase in SM&A is due to increased spending on advertising activities to support the Company’s core brands: Laker, Waterloo and Seagram coolers. As a percentage of net revenue, SM&A expenses were 23.0% in the first quarter of fiscal 2016 compared to 22.5% in the first quarter of fiscal 2015.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 11
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization expense for the quarter ended April 26, 2015 was $0.7 million compared to $0.8 million in the first quarter ended April 27, 2014. FINANCE COSTS
In the first quarter of fiscal 2016, finance costs were $0.1 million, consistent with the first quarter of fiscal 2015.
INCOME TAX EXPENSE
In the first quarter of fiscal 2016, the Company recorded an income tax expense of $18 thousand compared to a recovery of $0.1 million in the first quarter of fiscal 2015.
NET EARNINGS
The Company had net income of $31 thousand in the first quarter of fiscal 2016, compared to a loss of $0.2 million in the first quarter of fiscal 2015. The basic and diluted earnings per share for the quarter ended April 26, 2015 were both nil per share, compared with the basic and diluted loss per share of $0.01 per share for the quarter ended April 27, 2014.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL POSITION The Company has an operating line of credit and term debt outstanding at April 26, 2015. As at April 26, 2015, the Company is in compliance with all its covenants to its lenders. The Company expects to continue to be in compliance with these covenants at January 31, 2016.
The Company has an operating line of credit which provides for a maximum of $8.0 million credit (margined against accounts receivable and inventory of the Company) at an interest rate of prime plus 1.5%. At April 26, 2015, the Company had no bank indebtedness consistent with the balance at January 31, 2015.
The Company has a positive working capital position of $3.3 million at April 26, 2015 compared to a positive working capital position of $4.5 million at January 31, 2015.
Current assets of the Company were $11.8 million at April 26, 2015 compared to $10.8 million at January 31, 2015. At April 26, 2015, the Company had cash on hand of $0.4 million compared to a balance of 0.6 million at January 31, 2015. The decrease in cash is due to cash spent on the expansion of its Kitchener, Ontario facility.
At April 26, 2015, the Company’s balance of accounts receivable decreased by $0.4 million and inventory increased by $1.4 million compared to the balance at January 31, 2015.
Property, plant and equipment increased by $2.3 million at April 26, 2015 from January 31, 2015. The balance of property, plant and equipment included purchases of $0.6 million, and assets acquired under a finance lease of $2.4 million, which were offset by depreciation of $0.7 million.
Intangible assets increased by $0.3 million at April 26, 2015 from January 31, 2015. This is due to the purchase of new product listings.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 11
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization expense for the quarter ended April 26, 2015 was $0.7 million compared to $0.8 million in the first quarter ended April 27, 2014. FINANCE COSTS
In the first quarter of fiscal 2016, finance costs were $0.1 million, consistent with the first quarter of fiscal 2015.
INCOME TAX EXPENSE
In the first quarter of fiscal 2016, the Company recorded an income tax expense of $18 thousand compared to a recovery of $0.1 million in the first quarter of fiscal 2015.
NET EARNINGS
The Company had net income of $31 thousand in the first quarter of fiscal 2016, compared to a loss of $0.2 million in the first quarter of fiscal 2015. The basic and diluted earnings per share for the quarter ended April 26, 2015 were both nil per share, compared with the basic and diluted loss per share of $0.01 per share for the quarter ended April 27, 2014.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL POSITION The Company has an operating line of credit and term debt outstanding at April 26, 2015. As at April 26, 2015, the Company is in compliance with all its covenants to its lenders. The Company expects to continue to be in compliance with these covenants at January 31, 2016.
The Company has an operating line of credit which provides for a maximum of $8.0 million credit (margined against accounts receivable and inventory of the Company) at an interest rate of prime plus 1.5%. At April 26, 2015, the Company had no bank indebtedness consistent with the balance at January 31, 2015.
The Company has a positive working capital position of $3.3 million at April 26, 2015 compared to a positive working capital position of $4.5 million at January 31, 2015.
Current assets of the Company were $11.8 million at April 26, 2015 compared to $10.8 million at January 31, 2015. At April 26, 2015, the Company had cash on hand of $0.4 million compared to a balance of 0.6 million at January 31, 2015. The decrease in cash is due to cash spent on the expansion of its Kitchener, Ontario facility.
At April 26, 2015, the Company’s balance of accounts receivable decreased by $0.4 million and inventory increased by $1.4 million compared to the balance at January 31, 2015.
Property, plant and equipment increased by $2.3 million at April 26, 2015 from January 31, 2015. The balance of property, plant and equipment included purchases of $0.6 million, and assets acquired under a finance lease of $2.4 million, which were offset by depreciation of $0.7 million.
Intangible assets increased by $0.3 million at April 26, 2015 from January 31, 2015. This is due to the purchase of new product listings.
12 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
The balance of deferred income taxes at April 26, 2015 are consistent with the balance at January 31, 2015.
In the first quarter of fiscal 2016, the Company paid additional costs to the landlord of the Company’s Kitchener, Ontario facility towards the expansion of the building. This has been presented as a Construction Deposit on the balance sheet at April 26, 2015.
The Company’s current liabilities were $8.5 million at April 26, 2015 compared to $6.3 million at January 31, 2015; an increase of $2.2 million. The increase is primarily due to costs associated with the expansion of the Company’s Kitchener, Ontario facility.
At April 26, 2015, the Company had an obligation under a finance lease of $3.8 million. The Company entered into a finance lease agreement with HSBC Bank Canada for the installation of a new state-‐of-‐the-‐art brew house at its Kitchener, Ontario facility. Until the lease is fully implemented, the outstanding balance bears interest at the prime rate plus 1.5% after which it will be subject to interest at approximately 4.75% for 84 months. The Company anticipates that the lease term will commence during the third quarter of fiscal 2016.
Long-‐term debt (including the current portion) at April 26, 2015 decreased by $0.2 million from the balance at January 31, 2015 primarily due to principal repayments.
As at April 26, 2015, the Company had 34,919,291 common shares and 1,012,735 stock options outstanding. Each stock option is exercisable for one common share. During the first quarter of fiscal 2016, 10,000 options with an exercise price of $1.18 per option were granted pursuant to the Company’s stock option plan. Under the employee share purchase program, 5,500 common shares were issued in the first quarter of fiscal 2016.
CASH FLOW During the first quarter of fiscal 2016, the Company generated $1.5 million of cash from operations compared to a use of $1.0 million in the first quarter of fiscal 2015. In the first quarter of fiscal 2015, a one-‐time payment of approximately $1.3 million was made resulting from a correction for Ontario beer taxes payable on cans inserted into specially marked bottle packages during fiscal 2012, 2013, and 2014.
The amount of cash used in investing activities in the first quarter of fiscal 2016 was $1.5 million compared to $0.8 million in the first quarter of fiscal 2015. The spending on property, plant and equipment in the first quarter of fiscal 2016 amounts to approximately $1.2 million and includes construction deposits paid in connection with the expansion of the Company’s Kitchener, Ontario facility.
The amount of cash used in financing activities in the first quarter of fiscal 2016 was $0.2 million compared to $1.8 million of cash generated in the first quarter of fiscal 2015. In the first quarter of fiscal 2015, the Company utilized its operating line of credit to pay the beer taxes payable noted above. For the quarter ended April 26, 2015, principal repayments on outstanding long-‐term debt totalled $0.2 million.
The Company has an authorized operating line of credit of $8.0 million with interest at prime plus 1.5%. As at April 26, 2015, the Company was in compliance with the financial covenants required under the terms of the operating line of credit facility. At April 26, 2015, no amount was drawn on the operating line of credit.
COMMITMENTS The Company utilizes several operating leases to finance office and computer equipment and software, warehouse and manufacturing equipment, and vehicles. The Company also leases the building in Kitchener where it has its warehousing and packaging operations and the building in Waterloo where it has its brewing and retail operations. By entering into operating leases, the Company is able to update its equipment more frequently, not utilize its cash to invest in these assets and in so doing lower its overall average cost compared with purchasing the assets. All leases are evaluated at inception for appropriate accounting treatment. The total of the Company’s future lease payments can be found in note 21 to the Company’s condensed interim financial statements for the quarter ended April 26, 2015.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 13
The Company has other purchase commitments which include amounts for natural gas, syrup, malt, and packaging materials. A summary of the Company’s contractual obligations for future periods is as follows:
(in thousands of dollars) Long-‐term debt Operating leases Other purchase commitments Total
Due within one year 1,654 1,600 3,422 6,676 Due in one to five years 2,389 4,998 1,205 8,592 Due in over five years -‐ 6,004 256 6,260
4,043 12,602 4,883 21,528
The Company does not currently pay dividends on its common shares. At the present time, the Board of Directors of the Company believes that the cash flow of the Company should be reinvested to finance current activities.
RISK FACTORS, STRATEGIES AND OUTLOOK
Risk Factors
Licensing
The Company requires various permits, licenses, and approvals from several government agencies in order to operate in its market areas. The Alcohol and Gaming Commission of Ontario (“AGCO”) and the Canada Revenue Agency provide the necessary licensing approvals. Management believes that the Company is in compliance with all licenses, permits and approvals.
Consumer preference/trends
The beer industry is highly competitive and has experienced an overall decline in beer sales over the past several years. In Ontario, a recent trend has been towards canned beer. Prior to fiscal 2011, the Company was under-‐represented in cans. The installation of the canning line in fiscal 2010 has provided the Company with control over production and distribution and the result has been considerable growth in canned volume. A canning line upgrade was completed in fiscal 2014 to further expand capacity.
Pricing environment
Annual increases in the minimum retail price (“MRP”) have seen the price gap between value and mainstream brands reduced, creating increased competitive pressure. The MRP for beer was increased effective March 1, 2015. The Company’s key competitors have increased the price for value beer to a level above the legal minimum. The Company has historically positioned its brands at the same price point to achieve additional profit margin per unit. The Company expects future legislated price increases to erode the price gap between value brands and mainstream brands. Management believes that the Company will stay relevant and profitable by delivering a product that is consistently superior in look and taste to other domestic brands with comparable price. An example of the required innovation and differentiation is the Company’s launch of Laker Lager, Light, Ice, and IPA 24-‐bottle packs with a free tall can in every case. The Company will continue to mitigate ongoing pressure on beer volumes by actively pursuing co-‐packing contracts that provide incremental volume and gross margin. As required, profits from co-‐pack arrangements will be reinvested in selling and marketing initiatives to maintain brand loyalty.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 13
The Company has other purchase commitments which include amounts for natural gas, syrup, malt, and packaging materials. A summary of the Company’s contractual obligations for future periods is as follows:
(in thousands of dollars) Long-‐term debt Operating leases Other purchase commitments Total
Due within one year 1,654 1,600 3,422 6,676 Due in one to five years 2,389 4,998 1,205 8,592 Due in over five years -‐ 6,004 256 6,260
4,043 12,602 4,883 21,528
The Company does not currently pay dividends on its common shares. At the present time, the Board of Directors of the Company believes that the cash flow of the Company should be reinvested to finance current activities.
RISK FACTORS, STRATEGIES AND OUTLOOK
Risk Factors
Licensing
The Company requires various permits, licenses, and approvals from several government agencies in order to operate in its market areas. The Alcohol and Gaming Commission of Ontario (“AGCO”) and the Canada Revenue Agency provide the necessary licensing approvals. Management believes that the Company is in compliance with all licenses, permits and approvals.
Consumer preference/trends
The beer industry is highly competitive and has experienced an overall decline in beer sales over the past several years. In Ontario, a recent trend has been towards canned beer. Prior to fiscal 2011, the Company was under-‐represented in cans. The installation of the canning line in fiscal 2010 has provided the Company with control over production and distribution and the result has been considerable growth in canned volume. A canning line upgrade was completed in fiscal 2014 to further expand capacity.
Pricing environment
Annual increases in the minimum retail price (“MRP”) have seen the price gap between value and mainstream brands reduced, creating increased competitive pressure. The MRP for beer was increased effective March 1, 2015. The Company’s key competitors have increased the price for value beer to a level above the legal minimum. The Company has historically positioned its brands at the same price point to achieve additional profit margin per unit. The Company expects future legislated price increases to erode the price gap between value brands and mainstream brands. Management believes that the Company will stay relevant and profitable by delivering a product that is consistently superior in look and taste to other domestic brands with comparable price. An example of the required innovation and differentiation is the Company’s launch of Laker Lager, Light, Ice, and IPA 24-‐bottle packs with a free tall can in every case. The Company will continue to mitigate ongoing pressure on beer volumes by actively pursuing co-‐packing contracts that provide incremental volume and gross margin. As required, profits from co-‐pack arrangements will be reinvested in selling and marketing initiatives to maintain brand loyalty.
14 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Quality
With the backdrop of intense price competition driven by MRP changes, the quality of the Company’s product is more important than ever. The Company invests significantly to continually improve overall product quality. The Company continues to receive recognition for its brewing quality and brands through both local and international brewing communities and expert panels. In May 2015, the Company announced that its Waterloo brands received international recognition at the Monde Selection in Belgium. IPA, Amber, Oatmeal Porter, Vanilla Porter, and Grapefruit Radler were awarded gold level status. Waterloo Dark, Pilsner, and Seagram Cider received silver medal status. At the Ontario Brewing Awards, Laker Lager and Laker Light received a silver and bronze award, respectively, in the North American Lager and North American Light categories. The Company successfully completed its annual re-‐certification audit under the internationally recognized Global Food Safety Standard in the third quarter of fiscal 2015 and received an A-‐rating – the highest rating possible under the standard. Quality improvement resonates with existing and potential co-‐pack customers and will be a key factor in maintaining and growing co-‐pack business to utilize available capacity. The Beer Store/LCBO
TBS and LCBO are unionized organizations and a strike could have a significantly negative impact on the Company. The TBS union contract was ratified in March 2013 for a further three year period. The LCBO contract was ratified during the second quarter of fiscal 2014. There can be no assurance that a TBS or LCBO strike will not occur in the future.
The retail beer channel in Ontario is currently under review. The Premier’s Advisory Council, chaired by Ed Clark, released its report on its review of beverage alcohol retailing in the province. The final report recommends a number of changes including: permitting beer sales through grocery, changes to shelf space allocation, increases to beer taxes and updates to The Beer Store fee structure. The recommendations of the council, the public reaction to the work of the council, and the extent to which the council’s recommendations are adopted within the province, could impact the Company’s performance, either positively or negatively. Company management is closely monitoring the progress of the council, and will continue to share views and opinions for consideration by the council and the government of Ontario.
Availability of financing
The Company requires continued support from its lenders to maintain its financial condition. The loss of this support could limit expansion opportunities and put a strain on the Company’s continuing operations. The ability to maintain current arrangements and secure future financing will depend, in part, upon the prevailing capital market conditions as well as the Company’s business performance. There can be no assurance that the Company will be successful in its efforts to arrange additional financing on satisfactory terms.
Commodity price risk
The Company is exposed to commodity price risk with respect to agricultural and other raw materials used to produce the Company’s products, including malted barley, hops, corn syrup, water, and packaging materials (including glass, aluminum, cardboard and other paper products), where fluctuations in the market price or availability of these items could impact the Company’s cash flow and production. The supply and price can be affected by a number of factors beyond management’s control, including market demand, global events, frosts, droughts and other weather conditions, economic factors affecting growth decisions, plant diseases, and theft. To the extent any of the foregoing factors affect the prices of ingredients or packaging, the Company’s results of operations could be materially and adversely impacted. To minimize the impact of this risk, the Company enters into contracts which secure supply and set pricing to manage the exposure to availability and pricing.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 15
Exchange rate risk
Purchases of some key inputs are denominated in U.S. dollars. The recent weakening of the Canadian dollar versus the U.S. dollar has resulted in higher material costs. There can be no assurance that the Canadian dollar will strengthen, or that it will not weaken further.
Strategy & Outlook
The Company will continue to focus on growing the Waterloo and Seagram Coolers/Cider trademarks, both of which contribute a higher amount of profit per unit sold. The Laker family will require a sustained marketing investment to ensure retention of existing customers. Additionally, the Company will focus on filling excess capacity, lowering cost, and improving efficiency. The Company continues to offer a free can within its 24-‐pack bottles and expects to continue this promotional activity during fiscal 2016. While the Seagram Coolers declined in fiscal 2015 due to the delisting of products by the LCBO, management expects the volume of the Seagram malt-‐based Coolers and single serve cider tall cans to continue to grow by double digits. Early indicators suggest that the packaging redesign of the Seagram Wildberry vodka-‐based coolers has had a positive effect on the brand, with it posting volume growth at the LCBO compared to the prior year. The Company will continue to participate in LCBO programming which management expects will have a positive impact on raising awareness of the Seagram brands. In fiscal 2015, the Company commenced an expansion of its operations at its Kitchener, Ontario location to enable improved efficiency and lower costs. The Company is pleased to report that the expansion project is right on track in terms of both timing and capital investment. The new equipment has been delivered and the installation and commissioning is well underway. The expansion is expected to be substantially complete by the end of the third quarter of fiscal 2016. The expansion is anticipated to cost $9.0 million and management is targeting $1.0 million of recurring annual savings as a result of the expansion. In fiscal 2016, the Company will be focused on the following priorities: Organic growth Management is targeting organic growth. The Company is positioned well within its core Ontario beer business. Management continues to focus on growth of its premium brands, Waterloo and Seagram, driven by brand support and new products. The Company continues to expand its Cooler portfolio under the Seagram brand name, and recently launched Seagram Strawberry Daiquiri, Ocean Breeze, and Red Grapefruit malt-‐based products in a 355ml four-‐pack. The Waterloo brand family continues to introduce new varieties of beer, such as the launch of Waterloo Lemonade Radler to complement Waterloo Grapefruit Radler which was launched last year. The Company will continue to seek new co-‐packing relationships in fiscal 2016. Improvements in canning capabilities present further opportunities for the Company to expand its co-‐pack business with respect to canned products. Improving gross margin per unit The Laker brand margin has performed well despite the presence of many beer brands at the same or similar pricing. Laker’s fit and finish is comparable with mainstream brands. Management believes that this share performance in a highly competitive pricing environment is the result of brand support, a compelling value proposition, and significant quality improvements at Brick in recent years.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 15
Exchange rate risk
Purchases of some key inputs are denominated in U.S. dollars. The recent weakening of the Canadian dollar versus the U.S. dollar has resulted in higher material costs. There can be no assurance that the Canadian dollar will strengthen, or that it will not weaken further.
Strategy & Outlook
The Company will continue to focus on growing the Waterloo and Seagram Coolers/Cider trademarks, both of which contribute a higher amount of profit per unit sold. The Laker family will require a sustained marketing investment to ensure retention of existing customers. Additionally, the Company will focus on filling excess capacity, lowering cost, and improving efficiency. The Company continues to offer a free can within its 24-‐pack bottles and expects to continue this promotional activity during fiscal 2016. While the Seagram Coolers declined in fiscal 2015 due to the delisting of products by the LCBO, management expects the volume of the Seagram malt-‐based Coolers and single serve cider tall cans to continue to grow by double digits. Early indicators suggest that the packaging redesign of the Seagram Wildberry vodka-‐based coolers has had a positive effect on the brand, with it posting volume growth at the LCBO compared to the prior year. The Company will continue to participate in LCBO programming which management expects will have a positive impact on raising awareness of the Seagram brands. In fiscal 2015, the Company commenced an expansion of its operations at its Kitchener, Ontario location to enable improved efficiency and lower costs. The Company is pleased to report that the expansion project is right on track in terms of both timing and capital investment. The new equipment has been delivered and the installation and commissioning is well underway. The expansion is expected to be substantially complete by the end of the third quarter of fiscal 2016. The expansion is anticipated to cost $9.0 million and management is targeting $1.0 million of recurring annual savings as a result of the expansion. In fiscal 2016, the Company will be focused on the following priorities: Organic growth Management is targeting organic growth. The Company is positioned well within its core Ontario beer business. Management continues to focus on growth of its premium brands, Waterloo and Seagram, driven by brand support and new products. The Company continues to expand its Cooler portfolio under the Seagram brand name, and recently launched Seagram Strawberry Daiquiri, Ocean Breeze, and Red Grapefruit malt-‐based products in a 355ml four-‐pack. The Waterloo brand family continues to introduce new varieties of beer, such as the launch of Waterloo Lemonade Radler to complement Waterloo Grapefruit Radler which was launched last year. The Company will continue to seek new co-‐packing relationships in fiscal 2016. Improvements in canning capabilities present further opportunities for the Company to expand its co-‐pack business with respect to canned products. Improving gross margin per unit The Laker brand margin has performed well despite the presence of many beer brands at the same or similar pricing. Laker’s fit and finish is comparable with mainstream brands. Management believes that this share performance in a highly competitive pricing environment is the result of brand support, a compelling value proposition, and significant quality improvements at Brick in recent years.
16 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Growth of Seagram Coolers and Waterloo beer brands will also contribute to margin improvement due to higher revenue per unit. The Company will continue to maximize margin and minimize complexity within the organization by delisting underperforming brands. Cost reduction Management believes that cost reduction is an ongoing initiative and forms part of the culture at Brick. Cost reduction will be a continued focus throughout fiscal 2016. SUMMARY OF QUARTERLY RESULTS
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q22016 2015 2015 2015 2015 2014 2014 2014
Net Revenue $ 7,707 $ 9,117 $ 9,261 $ 10,417 $ 7,537 $ 7,955 $ 9,562 $ 11,372
1,774 1,661 1,896 2,308 1,698 1,338 1,772 2,741
EBITDA* 874 1,800 1,355 1,577 659 1,332 1,892 390
Net Income (loss) 31 546 609 445 (207) 245 683 (458)
EPS (Basic) $ -‐ $ 0.02 $ 0.02 $ 0.01 $ (0.01) $ 0.01 $ 0.02 $ (0.01)
EPS (Diluted) $ -‐ $ 0.02 $ 0.02 $ 0.01 $ (0.01) $ 0.01 $ 0.02 $ (0.01)
$000’s except per share amounts
Selling, marketing & administration
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Company's accounting policies, and future accounting pronouncements, are discussed in detail within note 5 and 6, respectively, to the Company’s annual audited financial statements for the year ended January 31, 2015.
RELATED PARTY TRANSACTIONS
The Company’s related party transactions are discussed in note 27 to the Company’s audited financial statements for the year ended January 31, 2015.
CRITICAL ACCOUNTING ESTIMATES
The Company prepares its financial statements in accordance with IFRS, which requires management to make estimates, judgments, and assumptions that it believes are reasonable, based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and other assumptions, which it believes to be reasonable under the circumstances. Management also evaluates its estimates on an ongoing basis. Actual results could differ from those estimates.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 17
Property, plant and equipment The accounting for property, plant and equipment requires that management make estimates involving the life of the assets, the selection of an appropriate method of depreciation and determining whether an impairment of assets exists. The Company reviews the residual values, useful lives of depreciable assets and depreciation method on an annual basis and where revisions are made the Company applies such changes in estimates on a prospective basis. The net carrying amounts of property, plant and equipment are reviewed for impairment either individually or at the cash-‐generating unit level at the end of each reporting period. If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less cost to sell and its value-‐in-‐use. To the extent that an asset’s carrying amount exceeds its recoverable amount, the excess is fully provided for in the period in which it is determined to be impaired. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods. There is uncertainty in these estimates as the related recoverable amounts are projected for future years based on underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. Should future results differ from management’s estimates, an impairment of these assets and a related write-‐down may result. As at the date of this report, the Company believes that its estimates are materially correct.
Returnable containers Returnable containers are recorded at cost net of deposit liabilities and are amortized over their useful lives. To estimate useful life, management uses historical trends and internal studies to obtain a reasonable estimate of the rates of return and usage. Actual results may vary from these estimates. As at the date of this report, the Company is not aware of any facts or circumstances that would cause it to believe that the estimates used are materially incorrect.
Intangible assets Indefinite life intangible assets consist of trademarks and listings. These assets are recorded at cost and are not amortized but instead are reviewed for impairment at the end of each reporting period. If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less cost to sell and its value-‐in-‐use. There is uncertainty in these estimates as the related recoverable amounts are projected for future years based on underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. Should future results differ from management’s estimates, an impairment of these assets and a related write-‐down may result. As at the date of this report, the Company believes that its estimates are materially correct.
Deferred income tax assets Deferred income tax assets are recognized for all deductible temporary differences, carry-‐forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-‐forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income tax assets are reviewed at each period end date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. There is uncertainty in management’s estimation of probable as it is based upon underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 17
Property, plant and equipment The accounting for property, plant and equipment requires that management make estimates involving the life of the assets, the selection of an appropriate method of depreciation and determining whether an impairment of assets exists. The Company reviews the residual values, useful lives of depreciable assets and depreciation method on an annual basis and where revisions are made the Company applies such changes in estimates on a prospective basis. The net carrying amounts of property, plant and equipment are reviewed for impairment either individually or at the cash-‐generating unit level at the end of each reporting period. If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less cost to sell and its value-‐in-‐use. To the extent that an asset’s carrying amount exceeds its recoverable amount, the excess is fully provided for in the period in which it is determined to be impaired. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods. There is uncertainty in these estimates as the related recoverable amounts are projected for future years based on underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. Should future results differ from management’s estimates, an impairment of these assets and a related write-‐down may result. As at the date of this report, the Company believes that its estimates are materially correct.
Returnable containers Returnable containers are recorded at cost net of deposit liabilities and are amortized over their useful lives. To estimate useful life, management uses historical trends and internal studies to obtain a reasonable estimate of the rates of return and usage. Actual results may vary from these estimates. As at the date of this report, the Company is not aware of any facts or circumstances that would cause it to believe that the estimates used are materially incorrect.
Intangible assets Indefinite life intangible assets consist of trademarks and listings. These assets are recorded at cost and are not amortized but instead are reviewed for impairment at the end of each reporting period. If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less cost to sell and its value-‐in-‐use. There is uncertainty in these estimates as the related recoverable amounts are projected for future years based on underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. Should future results differ from management’s estimates, an impairment of these assets and a related write-‐down may result. As at the date of this report, the Company believes that its estimates are materially correct.
Deferred income tax assets Deferred income tax assets are recognized for all deductible temporary differences, carry-‐forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-‐forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income tax assets are reviewed at each period end date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. There is uncertainty in management’s estimation of probable as it is based upon underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast
18 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
these amounts, but the actual amounts may vary from estimates. As at the date of this report, the Company believes that its estimates are materially correct. Share-‐based reserves: share-‐based payments The Company recognizes compensation expense when options with no cash settlement feature are granted to employees and directors under the option plan. Assumptions regarding expected stock volatility and risk free interest rates are required to calculate the fair value of the consideration received.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Given the uncertainty surrounding the nature of the underlying provision, actual results may vary from the estimates made by management. As at the date of this report, the Company believes that its estimates are materially correct. DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer (collectively, the “Officers”) are responsible for establishing and maintaining disclosure controls and procedures as defined under Multilateral Instrument 52-‐109 for the Company. Management has designed such disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that material information relating to the Company is made known to management by others within the Company. Management has evaluated the effectiveness of the Company’s disclosure controls and procedures as of April 26, 2015 and has concluded that such procedures were effective, subject to the matters identified below under “Internal Control Over Financial Reporting”, in providing such reasonable assurance as of such date and for the quarter then ended.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of its financial statements in accordance with IFRS.
The Company’s internal control over financial reporting includes those policies and procedures that:
• pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal controls over financial reporting, no matter how well designed have inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 19
Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of April 26, 2015, based on the criteria set forth in the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that internal control over financial reporting was effective as of April 26, 2015.
In the course of evaluating its ICFR as at April 26, 2015, the Officers identified a disclosable weakness in the area of segregation of duties, caused by limited staffing resources. Specifically, given the size of the Company’s staffing levels, certain duties within the accounting and finance department cannot be properly segregated. As a result there are identifiable instances where personnel had the ability to initiate transactions or accounting entries within certain financial reporting applications that may not be compatible with their other roles and responsibilities. However, none of the segregation of duty or access control deficiencies resulted in a misstatement to the financial statements as the Company relies on certain compensating controls, including periodic review of the financial statements by the Officers. This weakness is reported in accordance with National Instrument 52-‐109 and is considered to be a common area of deficiency for many smaller listed companies in Canada.
FINANCIAL INSTRUMENTS
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, foreign currency risk and interest rate risk. These risks are from exposures that occur in the normal course of business and are managed by the executive officers of the Company (the “Executive Team”). The responsibilities of the Executive Team include the recommendations of policies to manage financial instrument risk. The overall objective of the Executive Team is to effectively manage credit risk, liquidity risk and other market risks in accordance with the Company’s strategy. Other responsibilities of the Executive Team include management of the Company’s cash resources and debt funding programs, approval of counter-‐parties and relevant transaction limits and the monitoring of all significant treasury activities undertaken by the Company. The Company’s significant financial instruments comprise cash, bank indebtedness, finance leases, and long-‐term-‐debt. The main purpose of these financial instruments is to finance the Company’s growth and ongoing operations. The Company has various other financial assets and liabilities such as accounts receivables and accounts payables, which arise directly from its operations. The Company enters into contracts involving non-‐financial items for the purchase of raw materials and packaging supplies. These contracts are held for the purposes of the receipt or delivery of a non-‐financial item in accordance with the Company’s expected usage requirements.
A portion of the Company’s purchases are in U.S. dollars. The Company does not sell any of its products in U.S. dollars.
The Company uses significant quantities of malt and hops. The Company uses fixed price contracts of less than one year to reduce the price exposures on these commodities. The Company has secured its required supply of malt and hops for fiscal 2016 and has entered into fixed price contacts, the balance of which are disclosed in the commitments schedule included in this MD&A.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 19
Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of April 26, 2015, based on the criteria set forth in the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that internal control over financial reporting was effective as of April 26, 2015.
In the course of evaluating its ICFR as at April 26, 2015, the Officers identified a disclosable weakness in the area of segregation of duties, caused by limited staffing resources. Specifically, given the size of the Company’s staffing levels, certain duties within the accounting and finance department cannot be properly segregated. As a result there are identifiable instances where personnel had the ability to initiate transactions or accounting entries within certain financial reporting applications that may not be compatible with their other roles and responsibilities. However, none of the segregation of duty or access control deficiencies resulted in a misstatement to the financial statements as the Company relies on certain compensating controls, including periodic review of the financial statements by the Officers. This weakness is reported in accordance with National Instrument 52-‐109 and is considered to be a common area of deficiency for many smaller listed companies in Canada.
FINANCIAL INSTRUMENTS
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, foreign currency risk and interest rate risk. These risks are from exposures that occur in the normal course of business and are managed by the executive officers of the Company (the “Executive Team”). The responsibilities of the Executive Team include the recommendations of policies to manage financial instrument risk. The overall objective of the Executive Team is to effectively manage credit risk, liquidity risk and other market risks in accordance with the Company’s strategy. Other responsibilities of the Executive Team include management of the Company’s cash resources and debt funding programs, approval of counter-‐parties and relevant transaction limits and the monitoring of all significant treasury activities undertaken by the Company. The Company’s significant financial instruments comprise cash, bank indebtedness, finance leases, and long-‐term-‐debt. The main purpose of these financial instruments is to finance the Company’s growth and ongoing operations. The Company has various other financial assets and liabilities such as accounts receivables and accounts payables, which arise directly from its operations. The Company enters into contracts involving non-‐financial items for the purchase of raw materials and packaging supplies. These contracts are held for the purposes of the receipt or delivery of a non-‐financial item in accordance with the Company’s expected usage requirements.
A portion of the Company’s purchases are in U.S. dollars. The Company does not sell any of its products in U.S. dollars.
The Company uses significant quantities of malt and hops. The Company uses fixed price contracts of less than one year to reduce the price exposures on these commodities. The Company has secured its required supply of malt and hops for fiscal 2016 and has entered into fixed price contacts, the balance of which are disclosed in the commitments schedule included in this MD&A.
20 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
SHARE CAPITAL
The Company is authorized to issue an unlimited number of preferred shares. As at April 26, 2015, no preferred shares have been issued.
The Company has authorized an unlimited number of common shares.
The Company has issued stock options to certain officers and key employees pursuant to the Company’s stock option plan. The options may be exercised during periods of up to five years following the date of issue, at a price equal to the weighted average price at which the shares have traded during the five trading days immediately preceding the date of grant.
Each stock option outstanding is exercisable for one common share at prices ranging from $1.09 to $1.69.
The total number of common shares and stock options outstanding as of June 3, 2015 is as follows:
Number of shares Number of options
34,919,291 1,420,735
* EBITDA is a non-‐IFRS earnings measure, therefore it does not have any standardized meaning prescribed by International Financial Reporting Standards and may not be similar to measures presented by other companies. EBITDA represents earnings before interest, income taxes, depreciation and amortization, gain on disposal of property, plant, and equipment, and share-‐based payments. Management uses this measurement to evaluate the operating results of the Company. This measure is also important to management since it is used by the Company’s lenders to evaluate the ongoing cash generating capability of the Company and therefore the amounts those lenders are willing to lend to the Company. Investors find EBITDA to be useful information because it provides a measure of the Company’s operating performance.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 21
CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
FIRST QUARTER FISCAL 2016
Quarter Ended April 26, 2015
22 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
STATEMENTS OF COMPREHENSIVE INCOME For the quarters ended April 26, 2015 and April 27, 2014 (Not audited or reviewed by the Company’s external auditor)
Notes April 26, 2015 April 27, 2014
Revenue 5 7,706,933$ 7,537,407$ Cost of sales 6 5,615,177 5,897,603 Gross profit 2,091,756 1,639,804
Sell ing, marketing and administration expenses 6 1,774,445 1,698,461 Other expenses 6,7 157,121 96,789 Finance costs 8 111,602 120,443 Loss on disposal of property, plant and equipment 10 -‐ 7,345 Income (loss) before tax 48,588 (283,234)
Income tax expense (recovery) 9 17,810 (76,445) Net income (loss) and comprehensive income (loss) for the period 30,778$ (206,789)$
Basic earnings (loss) per share 16 -‐$ (0.01)$ Diluted earnings (loss) per share 16 -‐$ (0.01)$
Quarter ended
The accompanying notes are an integral part of these financial statements.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 23
STATEMENTS OF FINANCIAL POSITION As at April 26, 2015 and January 31, 2015 (Not audited or reviewed by the Company’s external auditor) Notes
April 26, 2015
January 31, 2015
ASSETSNon-‐current assets
Property, plant and equipment 10 17,896,184$ 15,582,051$ Intangible assets 11 15,386,974 15,114,247 Deferred income tax assets 9 1,903,351 1,921,161 Construction deposit 2,098,403 1,478,220
37,284,912 34,095,679 Current assets .
Cash 368,172 594,976 Accounts receivable 12 6,128,661 6,492,461 Inventories 13 4,844,629 3,400,821 Prepaid expenses 489,236 350,154
11,830,698 10,838,412
TOTAL ASSETS 49,115,610 44,934,091$
LIABILITIES AND EQUITY
EquityShare capital 14 39,400,380 39,413,636 Share-‐based payments reserves 15 1,105,080 1,075,554 Deficit (6,076,697) (6,107,475)
TOTAL EQUITY 34,428,763 34,381,715
Non-‐current liabilitiesProvisions 311,773 307,235 Obligation under finance lease 17 3,495,553 1,266,996 Long-‐term debt 18 2,389,312 2,642,676
6,196,638 4,216,907
Current liabilitiesAccounts payable and accrued liabil ities 6,578,547 4,665,784 Current portion of obligation under finance lease 17 257,424 46,925 Current portion of long-‐term debt 18 1,654,238 1,622,760
8,490,209 6,335,469
TOTAL LIABILITIES 14,686,847 10,552,376
COMMITMENTS 21,22
TOTAL LIABILITIES AND EQUITY 49,115,610$ 44,934,091$ The accompanying notes are an integral part of these financial statements. On behalf of the Board: “George H. Croft” Director “John H. Bowey” Director
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 23
STATEMENTS OF FINANCIAL POSITION As at April 26, 2015 and January 31, 2015 (Not audited or reviewed by the Company’s external auditor) Notes
April 26, 2015
January 31, 2015
ASSETSNon-‐current assets
Property, plant and equipment 10 17,896,184$ 15,582,051$ Intangible assets 11 15,386,974 15,114,247 Deferred income tax assets 9 1,903,351 1,921,161 Construction deposit 2,098,403 1,478,220
37,284,912 34,095,679 Current assets .
Cash 368,172 594,976 Accounts receivable 12 6,128,661 6,492,461 Inventories 13 4,844,629 3,400,821 Prepaid expenses 489,236 350,154
11,830,698 10,838,412
TOTAL ASSETS 49,115,610 44,934,091$
LIABILITIES AND EQUITY
EquityShare capital 14 39,400,380 39,413,636 Share-‐based payments reserves 15 1,105,080 1,075,554 Deficit (6,076,697) (6,107,475)
TOTAL EQUITY 34,428,763 34,381,715
Non-‐current liabilitiesProvisions 311,773 307,235 Obligation under finance lease 17 3,495,553 1,266,996 Long-‐term debt 18 2,389,312 2,642,676
6,196,638 4,216,907
Current liabilitiesAccounts payable and accrued liabil ities 6,578,547 4,665,784 Current portion of obligation under finance lease 17 257,424 46,925 Current portion of long-‐term debt 18 1,654,238 1,622,760
8,490,209 6,335,469
TOTAL LIABILITIES 14,686,847 10,552,376
COMMITMENTS 21,22
TOTAL LIABILITIES AND EQUITY 49,115,610$ 44,934,091$ The accompanying notes are an integral part of these financial statements. On behalf of the Board: “George H. Croft” Director “John H. Bowey” Director
STAT
EMEN
TS O
F CH
ANGES
IN E
QUIT
Y As
at A
pril
26, 2
015,
Janu
ary
31, 2
015
and
April
27,
201
4 (N
ot aud
ited or re
view
ed by the Co
mpa
ny’s externa
l aud
itor)
Not
es N
umbe
r of
Shar
es
Am
ount
($)
Sha
re b
ased
pa
ymen
ts
rese
rve
Ret
aine
d ea
rnin
gs/(
defic
it)
Tot
al e
quity
At Ja
nuar
y 31
, 201
434
,392
,610
$
3
8,95
5,23
6 $
1,0
60,5
33
$
(7
,502
,544
) $
3
2,51
3,22
5
Comprehensive in
come for the period
-‐
-‐
-‐
(2
06,789
) (2
06,789
)Shares issued
15 5,500
6,985
-‐
-‐
6,985
Share-‐ba
sed pa
yments
15 -‐
-‐
49,32
4 -‐
49,32
4 At
Apr
il 27
, 201
434
,398
,110
38
,962
,221
1,
109,
857
(7,7
09,3
33)
32
,362
,745
Comprehensive in
come for the re
maind
er of the year
-‐
-‐
-‐
1,601
,858
1,601
,858
Shares issued
15 15,68
1 19,91
5 -‐
-‐
19,91
5 Stock op
tions exercised
15 500
,000
431
,500
(1
06,500
) -‐
325
,000
Share-‐ba
sed pa
yments
15 -‐
-‐
72,19
7 -‐
72,19
7 At
Janu
ary
31, 2
015
34,9
13,7
91
39,4
13,6
36
1,07
5,55
4
(6
,107
,475
)
34,3
81,7
15
Comprehensive in
come for the period
-‐
-‐
-‐
30,77
8
30,
778
Share issues costs, net of tax
-‐
(18,48
1) -‐
-‐
(1
8,48
1)Shares issued
15 5,500
5,225
-‐
-‐
5,2
25
Share-‐ba
sed pa
yments
15 -‐
-‐
29,52
6 -‐
2
9,52
6 At
Apr
il 26
, 201
534
,919
,291
39
,400
,380
$
1,
105,
080
$
(6,0
76,6
97)
$
34
,428
,763
$
Sha
re C
apita
l
Th
e accompa
nying no
tes a
re an integral part o
f the
se fina
ncial statemen
ts.
24 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
STAT
EMEN
TS O
F CH
ANGES
IN E
QUIT
Y As
at A
pril
26, 2
015,
Janu
ary
31, 2
015
and
April
27,
201
4 (N
ot aud
ited or re
view
ed by the Co
mpa
ny’s externa
l aud
itor)
Not
es N
umbe
r of
Shar
es
Am
ount
($)
Sha
re b
ased
pa
ymen
ts
rese
rve
Ret
aine
d ea
rnin
gs/(
defic
it)
Tot
al e
quity
At Ja
nuar
y 31
, 201
434
,392
,610
$
3
8,95
5,23
6 $
1,0
60,5
33
$
(7
,502
,544
) $
3
2,51
3,22
5
Comprehensive in
come for the period
-‐
-‐
-‐
(2
06,789
) (2
06,789
)Shares issued
15 5,500
6,985
-‐
-‐
6,985
Share-‐ba
sed pa
yments
15 -‐
-‐
49,32
4 -‐
49,32
4 At
Apr
il 27
, 201
434
,398
,110
38
,962
,221
1,
109,
857
(7,7
09,3
33)
32
,362
,745
Comprehensive in
come for the re
maind
er of the year
-‐
-‐
-‐
1,601
,858
1,601
,858
Shares issued
15 15,68
1 19,91
5 -‐
-‐
19,91
5 Stock op
tions exercised
15 500
,000
431
,500
(1
06,500
) -‐
325
,000
Share-‐ba
sed pa
yments
15 -‐
-‐
72,19
7 -‐
72,19
7 At
Janu
ary
31, 2
015
34,9
13,7
91
39,4
13,6
36
1,07
5,55
4
(6
,107
,475
)
34,3
81,7
15
Comprehensive in
come for the period
-‐
-‐
-‐
30,77
8
30,
778
Share issues costs, net of tax
-‐
(18,48
1) -‐
-‐
(1
8,48
1)Shares issued
15 5,500
5,225
-‐
-‐
5,2
25
Share-‐ba
sed pa
yments
15 -‐
-‐
29,52
6 -‐
2
9,52
6 At
Apr
il 26
, 201
534
,919
,291
39
,400
,380
$
1,
105,
080
$
(6,0
76,6
97)
$
34
,428
,763
$
Sha
re C
apita
l
Th
e accompa
nying no
tes a
re an integral part o
f the
se fina
ncial statemen
ts.
24 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 25
STATEMENTS OF CASH FLOWS For the quarters ended April 26, 2015 and April 27, 2014 (Not audited or reviewed by the Company’s external auditor)
Notes April 26, 2015 April 27, 2014
Operating activitiesNet income (loss) 30,778$ (206,789)$ Adjustments for:
Income tax expense (recovery) 9 17,810 (76,445) Finance costs 8 111,602 120,443 Depreciation and amortization of property, plant and equipment and intangibles 6,10,11 682,684 764,527 Loss on disposal of property, plant and equipment 6 -‐ 7,345 Share-‐based payments 15 29,526 49,324 Change in non-‐cash working capital related to operations 681,674 (1,539,945)
Less:Interest paid (93,847) (94,047)
Cash provided by (used in) operating activities 1,460,225 (975,587)
Investing activitiesPurchase of property, plant and equipment(1) 10 (552,663) (657,688) Construction deposit paid (620,183) -‐ Purchase of intangible assets 11 (277,827) (145,789)
Cash used in investing activities (1,450,671) (803,477)
Financing activitiesIncrease in bank indebtedness 19 -‐ 1,983,675 Repayment of long-‐term debt 18 (223,102) (211,596) Issuance of shares, net of fees 15 (13,256) 6,985
Cash provided by (used in) financing activities (236,358) 1,779,064
Net increase/(decrease) in cash (226,804) -‐
Cash, beginning of period 594,976 -‐
Cash, end of period 368,172$ -‐$
Non-‐cash investing and financing activities:
Acquisition of assets under finance lease (note 17) 2,439,054$ -‐$
Quarter ended
1. The purchase of property, plant, and equipment excludes assets held under finance lease.
The accompanying notes are an integral part of these financial statements.
26 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
NOTES TO FINANCIAL STATEMENTS
1. CORPORATE INFORMATION 2. DATE OF AUTHORIZATION FOR ISSUE 3. BASIS OF PRESENTATION 4. USE OF ESTIMATES AND JUDGMENT 5. REVENUE 6. EXPENSES BY NATURE 7. OTHER EXPENSES 8. FINANCE COSTS 9. INCOME TAXES 10. PROPERTY, PLANT & EQUIPMENT 11. INTANGIBLE ASSETS 12. ACCOUNTS RECEIVABLE 13. INVENTORIES 14. SHARE CAPITAL 15. SHARE-‐BASED PAYMENTS 16. EARNINGS (LOSS) PER SHARE 17. OBLIGATION UNDER FINANCE LEASE 18. LONG-‐TERM DEBT 19. BANK INDEBTEDNESS 20. FINANCIAL INSTRUMENTS 21. OPERATING LEASES 22. COMMITMENTS
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 27
1. CORPORATE INFORMATION Brick Brewing Co. Limited (“Brick” or the “Company”) is a Canadian-‐owned and Canadian-‐based publicly held brewery incorporated in Canada. Brick’s shares are listed on the Toronto Stock Exchange under the symbol “BRB”. Brick’s head office is located in Kitchener, Ontario at 400 Bingemans Centre Drive, N2B 3X9. The Company’s primary business relates to the production and distribution of alcohol-‐based products. To this end, the Company operates three Ontario-‐based facilities and serves primarily the Ontario market. Brick’s products are distributed to end consumers primarily through The Beer Store and Provincial Liquor Boards in Canada. 2. DATE OF AUTHORIZATION FOR ISSUE The financial statements of the Company were authorized for issue on June 3, 2015 by the Company’s Board of Directors. 3. BASIS OF PRESENTATION
3.1. STATEMENT OF COMPLIANCE
These unaudited condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). The unaudited condensed interim financial statements do not include all of the information required for full annual financial statements. These unaudited condensed interim financial statements are based on consistent accounting policies and methods of computation as those of Brick’s annual financial statements for the year ended January 31, 2015.
3.2. BASIS OF MEASUREMENT
Depending on the applicable IFRS requirements, the measurement basis used in the preparation of these financial statements is cost, net realizable value, fair value or recoverable amount. These financial statements, except for the statements of cash flows are based on the accrual basis.
3.3. FUNCTIONAL AND PRESENTATION CURRENCY
These financial statements are presented in Canadian dollars, which is the Company’s functional and presentation currency. All values are presented in actual dollars unless otherwise stated. 3.4. SEASONALITY
The alcoholic beverage industry in Canada is seasonal in nature. Accordingly, Brick has historically experienced a seasonal pattern in its operating results, with the first and last quarters historically exhibiting lower revenues. Therefore, the results in any one quarter are not indicative of results in any other quarter, or for the year as a whole.
4. USE OF ESTIMATES AND JUDGMENT The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of revenue, expenses, assets, liabilities and disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and may result in a material adjustment to the related asset or liability.
28 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgments and estimates in applying accounting policies have the most significant effect on the following accounting balances: property, plant and equipment, intangible assets, deferred income taxes, and provisions. 5. REVENUE The Company’s revenue consists of the following streams:
April 26, 2015 April 27, 2014
Revenue from the sale of goods:Gross revenue 14,138,921$ 13,749,424$ Less: Production taxes and distribution fees 7,720,888 7,572,518 Revenue (net) 6,418,033 6,176,906
Revenue from the rendering of services:Gross revenue 1,288,900 1,360,501
Total revenue 7,706,933$ 7,537,407$
Quarter ended
Services revenue reflects contract manufacturing. Brick utilizes available equipment and resources to perform contract manufacturing services for customers in order to generate incremental returns. The company realizes average margins on contract manufacturing that approximate the margin on value beer.
6. EXPENSES BY NATURE
Expenses relating to depreciation, amortization, impairment and personnel expenses are included within the following line items on the statements of comprehensive income:
April 26, 2015 April 27, 2014
Depreciation of property, plant & equipment Cost of sales 590,075 $ 667,150 $ Other expenses 87,510 92,877
Amortization of intangible assets Other expenses 5,100 4,500
Salaries, benefits and other personnel-‐related expenses Cost of sales 1,467,997 1,398,902 Selling, marketing and administrative expenses 742,664 682,463 Other expenses 20,700 -‐
Quarter ended
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 29
7. OTHER EXPENSES The Company’s other expenses consist of the following amounts:
8. FINANCE COSTS The Company’s finance costs consist of the following amounts:
9. INCOME TAXES The operations of the Company and related tax interpretations, regulations and legislation are subject to change. The Company believes that the amounts reported as deferred income tax assets adequately reflect management’s current best estimate of its income tax exposure.
April 26, 2015 April 27, 2014
Interest on long-‐term debt 67,420 $ 93,327 $ Interest on finance leases 30,515 -‐ Interest on bank indebtedness 14,545 28,380 Other interest expense 728 1,501 Unwinding of discount on provisions 4,538 4,202 Fair value adjustments on financial instruments (6,144) (6,967)
111,602 $ 120,443 $
Quarter ended
April 26, 2015 April 27, 2014
Depreciation of property, plant & equipment 87,510 $ 92,877 $ Amortization of intangible assets 5,100 4,500 Other personnel-‐related expenses 20,700 -‐ Foreign exchange losses/(gains) 43,811 (588)
157,121 $ 96,789 $
Quarter ended
10
. PR
OPE
RTY, PLA
NT & EQUIPMEN
T
Lan
d
Buildings
and
leas
ehold
impr
ovem
ents
Ret
urna
ble
cont
aine
rs
Mac
hine
ry and
eq
uipm
ent
Com
pute
r eq
uipm
ent
Fur
nitu
re and
fix
ture
s V
ehicl
es
Major
spar
e pa
rts
Equ
ipm
ent
Cost or d
eem
ed co
stBa
lance at February 1, 201
442
1,48
8$
2,28
6,17
3$
6,38
9,19
7$
20,821
,763
$
1,10
8,82
6$
525,83
4$
235,77
5$
376,21
3$
336,30
1$
32,501
,570
$
Additio
ns-‐
147,49
8
146,62
4
1,56
0,00
4
58,467
31,800
18,725
5,25
5
1,31
3,92
1
3,28
2,29
4
Disposals
-‐
-‐
-‐
(24,45
9)
-‐
-‐
(18,72
5)
(21,84
6)
-‐
(65,03
0)
Balanc
e at
Janu
ary 31
, 201
542
1,48
8
2,43
3,67
1
6,53
5,82
1
22,357
,308
1,16
7,29
3
557,63
4
235,77
5
359,62
2
1,65
0,22
2
35,718
,834
Cum
ulat
ive de
prec
iatio
n an
d im
pairm
ent
Balance at February 1, 201
4-‐
(911
,379
)
(5,874
,379
)
(7,991
,660
)
(1,006
,567
)
(411
,384
)
(232
,788
)
(287
,864
)
(336
,301
)
(17,05
2,32
2)
Depreciatio
n charge fo
r the period
-‐
(271
,632
)
(256
,544
)
(2,437
,889
)
(76,18
5)
(36,69
4)
(2,987
)
(46,18
6)
(3,128
,117
)
Depreciatio
n on
:Disposals
-‐
-‐
-‐
17,114
-‐
-‐
2,10
7
24,435
-‐
43,656
Balanc
e at
Janu
ary 31
, 201
5-‐
(1,183
,011
)
(6,130
,923
)
(10,41
2,43
5)
(1,082
,752
)
(448
,078
)
(233
,668
)
(309
,615
)
(336
,301
)
(20,13
6,78
3)
Net
boo
k va
lue as
at J
anua
ry 31, 201
542
1,48
8$
1,25
0,66
0$
404,89
8$
11,944
,873
$
84,541
$
109,55
6$
2,10
7$
50,007
$
1,31
3,92
1$
15,582
,051
$
Cost or d
eem
ed co
stBa
lance at February 1, 201
542
1,48
8
2,43
3,67
1
6,53
5,82
1
22,357
,308
1,16
7,29
3
557,63
4
235,77
5
359,62
2
1,65
0,22
2
35,718
,834
Additio
ns-‐
5,37
0
-‐
542,19
4
5,09
9
-‐
-‐
-‐
2,43
9,05
4
2,99
1,71
7
Balanc
e at
Apr
il 26
, 201
542
1,48
8
2,43
9,04
1
6,53
5,82
1
22,899
,502
1,17
2,39
2
557,63
4
235,77
5
359,62
2
4,08
9,27
6
38,710
,551
Cum
ulat
ive de
prec
iatio
n an
d im
pairm
ent
Balance at February 1, 201
5-‐
(1,183
,011
)
(6,130
,923
)
(10,41
2,43
5)
(1,082
,752
)
(448
,078
)
(233
,668
)
(309
,615
)
(336
,301
)
(20,13
6,78
3)
Depreciatio
n charge fo
r the period
-‐
(64,31
5)
(47,23
5)
(535
,832
)
(13,83
1)
(9,362
)
-‐
(7,009
)
-‐
(677
,584
)
Balanc
e at
Apr
il 26
, 201
5-‐
(1,247
,326
)
(6,178
,158
)
(10,94
8,26
7)
(1,096
,583
)
(457
,440
)
(233
,668
)
(316
,624
)
(336
,301
)
(20,81
4,36
7)
Net
boo
k va
lue as
at A
pril 26
, 201
542
1,48
8$
1,19
1,71
5$
357,66
3$
11,951
,235
$
75,809
$
100,19
4$
2,10
7$
42,998
$
3,75
2,97
5$
17,896
,184
$
Tot
al pro
perty,
plan
t and
equ
ipm
ent
Asset
s held un
der
fina
nce leas
es
Asse
ts owne
d by
the Co
mpa
ny
30 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
10
. PR
OPE
RTY, PLA
NT & EQUIPMEN
T
Lan
d
Buildings
and
leas
ehold
impr
ovem
ents
Ret
urna
ble
cont
aine
rs
Mac
hine
ry and
eq
uipm
ent
Com
pute
r eq
uipm
ent
Fur
nitu
re and
fix
ture
s V
ehicl
es
Major
spar
e pa
rts
Equ
ipm
ent
Cost or d
eem
ed co
stBa
lance at February 1, 201
442
1,48
8$
2,28
6,17
3$
6,38
9,19
7$
20,821
,763
$
1,10
8,82
6$
525,83
4$
235,77
5$
376,21
3$
336,30
1$
32,501
,570
$
Additio
ns-‐
147,49
8
146,62
4
1,56
0,00
4
58,467
31,800
18,725
5,25
5
1,31
3,92
1
3,28
2,29
4
Disposals
-‐
-‐
-‐
(24,45
9)
-‐
-‐
(18,72
5)
(21,84
6)
-‐
(65,03
0)
Balanc
e at
Janu
ary 31
, 201
542
1,48
8
2,43
3,67
1
6,53
5,82
1
22,357
,308
1,16
7,29
3
557,63
4
235,77
5
359,62
2
1,65
0,22
2
35,718
,834
Cum
ulat
ive de
prec
iatio
n an
d im
pairm
ent
Balance at February 1, 201
4-‐
(911
,379
)
(5,874
,379
)
(7,991
,660
)
(1,006
,567
)
(411
,384
)
(232
,788
)
(287
,864
)
(336
,301
)
(17,05
2,32
2)
Depreciatio
n charge fo
r the period
-‐
(271
,632
)
(256
,544
)
(2,437
,889
)
(76,18
5)
(36,69
4)
(2,987
)
(46,18
6)
(3,128
,117
)
Depreciatio
n on
:Disposals
-‐
-‐
-‐
17,114
-‐
-‐
2,10
7
24,435
-‐
43,656
Balanc
e at
Janu
ary 31
, 201
5-‐
(1,183
,011
)
(6,130
,923
)
(10,41
2,43
5)
(1,082
,752
)
(448
,078
)
(233
,668
)
(309
,615
)
(336
,301
)
(20,13
6,78
3)
Net
boo
k va
lue as
at J
anua
ry 31, 201
542
1,48
8$
1,25
0,66
0$
404,89
8$
11,944
,873
$
84,541
$
109,55
6$
2,10
7$
50,007
$
1,31
3,92
1$
15,582
,051
$
Cost or d
eem
ed co
stBa
lance at February 1, 201
542
1,48
8
2,43
3,67
1
6,53
5,82
1
22,357
,308
1,16
7,29
3
557,63
4
235,77
5
359,62
2
1,65
0,22
2
35,718
,834
Additio
ns-‐
5,37
0
-‐
542,19
4
5,09
9
-‐
-‐
-‐
2,43
9,05
4
2,99
1,71
7
Balanc
e at
Apr
il 26
, 201
542
1,48
8
2,43
9,04
1
6,53
5,82
1
22,899
,502
1,17
2,39
2
557,63
4
235,77
5
359,62
2
4,08
9,27
6
38,710
,551
Cum
ulat
ive de
prec
iatio
n an
d im
pairm
ent
Balance at February 1, 201
5-‐
(1,183
,011
)
(6,130
,923
)
(10,41
2,43
5)
(1,082
,752
)
(448
,078
)
(233
,668
)
(309
,615
)
(336
,301
)
(20,13
6,78
3)
Depreciatio
n charge fo
r the period
-‐
(64,31
5)
(47,23
5)
(535
,832
)
(13,83
1)
(9,362
)
-‐
(7,009
)
-‐
(677
,584
)
Balanc
e at
Apr
il 26
, 201
5-‐
(1,247
,326
)
(6,178
,158
)
(10,94
8,26
7)
(1,096
,583
)
(457
,440
)
(233
,668
)
(316
,624
)
(336
,301
)
(20,81
4,36
7)
Net
boo
k va
lue as
at A
pril 26
, 201
542
1,48
8$
1,19
1,71
5$
357,66
3$
11,951
,235
$
75,809
$
100,19
4$
2,10
7$
42,998
$
3,75
2,97
5$
17,896
,184
$
Tot
al pro
perty,
plan
t and
equ
ipm
ent
Asset
s held un
der
fina
nce leas
es
Asse
ts owne
d by
the Co
mpa
ny
30 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
10
. PR
OPE
RTY, PLA
NT & EQUIPMEN
T
Lan
d
Buildings
and
leas
ehold
impr
ovem
ents
Ret
urna
ble
cont
aine
rs
Mac
hine
ry and
eq
uipm
ent
Com
pute
r eq
uipm
ent
Fur
nitu
re and
fix
ture
s V
ehicl
es
Major
spar
e pa
rts
Equ
ipm
ent
Cost or d
eem
ed co
stBa
lance at February 1, 201
442
1,48
8$
2,28
6,17
3$
6,38
9,19
7$
20,821
,763
$
1,10
8,82
6$
525,83
4$
235,77
5$
376,21
3$
336,30
1$
32,501
,570
$
Additio
ns-‐
147,49
8
146,62
4
1,56
0,00
4
58,467
31,800
18,725
5,25
5
1,31
3,92
1
3,28
2,29
4
Disposals
-‐
-‐
-‐
(24,45
9)
-‐
-‐
(18,72
5)
(21,84
6)
-‐
(65,03
0)
Balanc
e at
Janu
ary 31
, 201
542
1,48
8
2,43
3,67
1
6,53
5,82
1
22,357
,308
1,16
7,29
3
557,63
4
235,77
5
359,62
2
1,65
0,22
2
35,718
,834
Cum
ulat
ive de
prec
iatio
n an
d im
pairm
ent
Balance at February 1, 201
4-‐
(911
,379
)
(5,874
,379
)
(7,991
,660
)
(1,006
,567
)
(411
,384
)
(232
,788
)
(287
,864
)
(336
,301
)
(17,05
2,32
2)
Depreciatio
n charge fo
r the period
-‐
(271
,632
)
(256
,544
)
(2,437
,889
)
(76,18
5)
(36,69
4)
(2,987
)
(46,18
6)
(3,128
,117
)
Depreciatio
n on
:Disposals
-‐
-‐
-‐
17,114
-‐
-‐
2,10
7
24,435
-‐
43,656
Balanc
e at
Janu
ary 31
, 201
5-‐
(1,183
,011
)
(6,130
,923
)
(10,41
2,43
5)
(1,082
,752
)
(448
,078
)
(233
,668
)
(309
,615
)
(336
,301
)
(20,13
6,78
3)
Net
boo
k va
lue as
at J
anua
ry 31, 201
542
1,48
8$
1,25
0,66
0$
404,89
8$
11,944
,873
$
84,541
$
109,55
6$
2,10
7$
50,007
$
1,31
3,92
1$
15,582
,051
$
Cost or d
eem
ed co
stBa
lance at February 1, 201
542
1,48
8
2,43
3,67
1
6,53
5,82
1
22,357
,308
1,16
7,29
3
557,63
4
235,77
5
359,62
2
1,65
0,22
2
35,718
,834
Additio
ns-‐
5,37
0
-‐
542,19
4
5,09
9
-‐
-‐
-‐
2,43
9,05
4
2,99
1,71
7
Balanc
e at
Apr
il 26
, 201
542
1,48
8
2,43
9,04
1
6,53
5,82
1
22,899
,502
1,17
2,39
2
557,63
4
235,77
5
359,62
2
4,08
9,27
6
38,710
,551
Cum
ulat
ive de
prec
iatio
n an
d im
pairm
ent
Balance at February 1, 201
5-‐
(1,183
,011
)
(6,130
,923
)
(10,41
2,43
5)
(1,082
,752
)
(448
,078
)
(233
,668
)
(309
,615
)
(336
,301
)
(20,13
6,78
3)
Depreciatio
n charge fo
r the period
-‐
(64,31
5)
(47,23
5)
(535
,832
)
(13,83
1)
(9,362
)
-‐
(7,009
)
-‐
(677
,584
)
Balanc
e at
Apr
il 26
, 201
5-‐
(1,247
,326
)
(6,178
,158
)
(10,94
8,26
7)
(1,096
,583
)
(457
,440
)
(233
,668
)
(316
,624
)
(336
,301
)
(20,81
4,36
7)
Net
boo
k va
lue as
at A
pril 26
, 201
542
1,48
8$
1,19
1,71
5$
357,66
3$
11,951
,235
$
75,809
$
100,19
4$
2,10
7$
42,998
$
3,75
2,97
5$
17,896
,184
$
Tot
al pro
perty,
plan
t and
equ
ipm
ent
Asset
s held un
der
fina
nce leas
es
Asse
ts owne
d by
the Co
mpa
ny
30 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 31
Refer to note 18 and 19 for details on the Company’s property, plant and equipment that have been pledged as security for liabilities. Refer to note 17 for property, plant and equipment held under finance lease.
During the quarter-‐ended April 26, 2015, machinery and equipment was in process of being installed, with accumulated costs of $3,752,977. Depreciation of these assets will commence later in fiscal 2016 when the equipment is ready for use. 11. INTANGIBLE ASSETS The Company’s intangible assets are broken down as follows:
Listings Trademarks Other
Computer software and
licenses Total
CostBalance at February 1, 2014 3,018,097$ 11,642,014$ 11,744$ 90,000$ 14,761,855$ Acquired separately 370,792 -‐ -‐ 9,200 379,992 Balance at January 31, 2015 3,388,889 11,642,014 11,744 99,200 15,141,847
Cumulative amortization and impairmentBalance at February 1, 2014 -‐$ -‐ -‐ (9,000) (9,000) Amortization charge for the year -‐ -‐ -‐ (18,600) (18,600) Balance at January 31, 2015 -‐ -‐ -‐ (27,600) (27,600)
Net book value as at January 31, 2015 3,388,889$ 11,642,014$ 11,744$ 71,600$ 15,114,247$
CostBalance at February 1, 2015 3,388,889$ 11,642,014$ 11,744$ 99,200$ 15,141,847$ Acquired separately 277,827 -‐ -‐ -‐ 277,827 Balance at April 26, 2015 3,666,716 11,642,014 11,744 99,200 15,419,674
Cumulative amortization and impairmentBalance at February 1, 2015 -‐$ -‐$ -‐$ (27,600)$ (27,600)$ Amortization charge for the year -‐ -‐ -‐ (5,100) (5,100)
Balance at April 26, 2015 -‐ -‐ -‐ (32,700) (32,700)
Net book value as at April 26, 2015 3,666,716$ 11,642,014$ 11,744$ 66,500$ 15,386,974$ 12. ACCOUNTS RECEIVABLE The accounts receivable balance consists of the following:
April 26, 2015 January 31, 2015
Trade customers $ 4,901,306 $ 5,106,931 Mortgage Receivable 500,000 500,000 Other 727,616 885,530
6,128,922 6,492,461
Allowance (261) -‐
Net, accounts receivable $ 6,128,661 $ 6,492,461 The solvency of customers and their ability to repay receivables were considered in assessing the impairment of assets. No collateral is held in respect of impaired receivables or receivables that are past due but not impaired.
32 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Below is an aged analysis of the Company’s accounts receivable:
April 26, 2015 January 31, 2015
Not yet due, or less than 30 days past due $ 6,037,565 $ 6,119,361
Past the due date but not impaired:31-‐60 days 82,558 229,249 61-‐90 days 8,538 67,740 Over 90 days -‐ 76,111
$ 6,128,661 $ 6,492,461 13. INVENTORIES The inventories balance consists of the following:
April 26, 2015
January 31, 2015
Promotional items $ 66,514 $ 47,435 Raw materials and supplies 1,571,645 1,418,011 Work in progress and finished goods 3,206,470 1,935,375
$ 4,844,629 $ 3,400,821 As at April 26, 2015, a provision of $59,517 (January 31, 2015 -‐ $61,566) has been netted against inventory to account for obsolete materials. The cost of inventories recognized as cost of sales during the quarter ended April 26, 2015 is $4,592,878 (April 27, 2014 -‐ $4,789,824). 14. SHARE CAPITAL Preferred shares The Company is authorized to issue an unlimited number of preferred shares. As at April 26, 2015, no preferred shares have been issued. Common shares The Company is authorized to issue an unlimited number of common shares. As at April 26, 2015, 34,919,291 common shares were issued and outstanding. On April 22, 2015, the Company announced that it would be commencing a normal course issuer bid (“NCIB”) for up to 1,700,000 of its common shares, being approximately 5% of the 34,919,291 common shares outstanding as of April 21, 2015. The NCIB commenced on April 24, 2015 and terminates on April 23, 2016, and will be effected through the facilities of the TSX or other alternative Canadian platforms at the market price of the shares at the time of acquisition. Common shares purchased under the NCIB will be cancelled. As of April 26, 2015, the Company had purchased no shares under the NCIB.
32 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Below is an aged analysis of the Company’s accounts receivable:
April 26, 2015 January 31, 2015
Not yet due, or less than 30 days past due $ 6,037,565 $ 6,119,361
Past the due date but not impaired:31-‐60 days 82,558 229,249 61-‐90 days 8,538 67,740 Over 90 days -‐ 76,111
$ 6,128,661 $ 6,492,461 13. INVENTORIES The inventories balance consists of the following:
April 26, 2015
January 31, 2015
Promotional items $ 66,514 $ 47,435 Raw materials and supplies 1,571,645 1,418,011 Work in progress and finished goods 3,206,470 1,935,375
$ 4,844,629 $ 3,400,821 As at April 26, 2015, a provision of $59,517 (January 31, 2015 -‐ $61,566) has been netted against inventory to account for obsolete materials. The cost of inventories recognized as cost of sales during the quarter ended April 26, 2015 is $4,592,878 (April 27, 2014 -‐ $4,789,824). 14. SHARE CAPITAL Preferred shares The Company is authorized to issue an unlimited number of preferred shares. As at April 26, 2015, no preferred shares have been issued. Common shares The Company is authorized to issue an unlimited number of common shares. As at April 26, 2015, 34,919,291 common shares were issued and outstanding. On April 22, 2015, the Company announced that it would be commencing a normal course issuer bid (“NCIB”) for up to 1,700,000 of its common shares, being approximately 5% of the 34,919,291 common shares outstanding as of April 21, 2015. The NCIB commenced on April 24, 2015 and terminates on April 23, 2016, and will be effected through the facilities of the TSX or other alternative Canadian platforms at the market price of the shares at the time of acquisition. Common shares purchased under the NCIB will be cancelled. As of April 26, 2015, the Company had purchased no shares under the NCIB.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 33
15. SHARE-‐BASED PAYMENTS Stock option and share purchase plans The Company has issued stock options to certain executive officers and key employees pursuant to the Company’s stock option plan. The options may be exercised during periods of up to five years following the date of issue, at a price equal to the weighted average price at which the shares have traded during the five days immediately preceding the date granted, subject to a three-‐year vesting period. A summary of the status of the options outstanding under the Company's stock option plan as at April 26, 2015 and January 31, 2015 is presented below:
Number of share options
Weighted average exercise price
Number of share options
Weighted average exercise price
Balance outstanding at beginning of period 1,002,735 1.46$ 1,406,735 1.21$ Granted 10,000 1.18 196,000 1.30 Forfeited -‐ -‐ (100,000) 1.66 Exercised1 -‐ -‐ (500,000) 0.65 Balance outstanding at end of period 1,012,735 1.45$ 1,002,735 1.46$
1 During the fiscal year-‐to-‐date period ended April 26, 2015, no stock options were exercised on a cashless basis (January 31, 2015 -‐ nil). This resulted in the issuance of no common shares (January 31, 2015 -‐ nil).
Quarter endedApril 26, 2015
Year endedJanuary 31, 2015
A summary of options outstanding under the plan is presented below:
Exercise priceNumber outstanding
at April 26, 2015
Weighted average remaining
contractual l ifeNumber exercisable at
April 26, 2015
1.09 16,667 0.77 16,667 1.18 10,000 4.89 -‐ 1.29 166,000 4.02 -‐ 1.36 30,000 3.83 10,000 1.44 590,068 2.00 386,734 1.69 200,000 3.01 66,667 1.09 to 1.69 1,012,735 2.59 480,068
All options have a term of five years from the date of grant and vest on the anniversary date of the grant at a rate of one-‐third per annum of the total number of share options granted. For options granted, the fair value has been determined using the Black-‐Scholes fair value option pricing model and the following assumptions:
Quarter endedApril 26, 2015
Year endedJanuary 31, 2015
Weighted average fair value per option 0.35$ 0.37$ Weighted average share price 1.18$ 1.31$ Weighted average exercise price 1.18$ 1.30$ Expected volatil ity 27% 29%Dividend yield 0% 0%Risk free interest rate 1% 1%Weighted average expected life in years 5 5
The resulting fair value is charged to personnel expense over the vesting period of the options with a corresponding increase in the share-‐based payment reserves. As options are exercised, the corresponding values previously charged to share-‐based payments reserve are reclassified to share capital. Cash proceeds arising from the exercise of these options are credited to share capital.
34 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Employee share purchase plan: Pursuant to the Company’s Employee share purchase plan, employees are eligible to purchase an allotted number of common shares at a discount of 10% from the average closing market price during the five days immediately preceding the date of January 15, 2015. During the quarter ended April 26, 2015, 5,500 shares were issued under the plan (April 27, 2014 – 5,500) for net proceeds of $5,225 (April 27, 2014 – $6,985).
16. EARNINGS (LOSS) PER SHARE The computations for basic and diluted earnings (loss) per share are as follows:
April 26, 2015 April 27, 2014
Net income (loss) for the year 17,810$ (206,789)$
Average number of common shares outstanding 34,919,032 34,397,918 Effect of options and warrants 2,883 261,058 Average number of diluted common shares outstanding 34,921,915 34,658,976
Basic earnings (loss) per share -‐$ (0.01)$ Diluted earnings (loss) per share -‐$ (0.01)$
Quarter ended
17. OBLIGATION UNDER FINANCE LEASE The Company has a finance lease with HSBC Bank Canada for various items of equipment, secured by the equipment under lease. Assets under the finance lease are initially purchased by the Company as an agent for HSBC Bank Canada. The Company is reimbursed by HSBC Bank Canada in periodic draws to a maximum of $5,000,000. Until the lease term commences, the obligation under finance lease bears interest at the prime rate plus 1.5%. Once the lease term commences, it will be subject to interest at approximately 4.75% for 84 months. As at April 26, 2015, the Company has purchased $3,752,977 of assets under the finance lease, of which $3,603,923 has been fully reimbursed to the Company by HSBC Bank Canada. The lease term is expected to commence during the third quarter of fiscal 2016.
34 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Employee share purchase plan: Pursuant to the Company’s Employee share purchase plan, employees are eligible to purchase an allotted number of common shares at a discount of 10% from the average closing market price during the five days immediately preceding the date of January 15, 2015. During the quarter ended April 26, 2015, 5,500 shares were issued under the plan (April 27, 2014 – 5,500) for net proceeds of $5,225 (April 27, 2014 – $6,985).
16. EARNINGS (LOSS) PER SHARE The computations for basic and diluted earnings (loss) per share are as follows:
April 26, 2015 April 27, 2014
Net income (loss) for the year 17,810$ (206,789)$
Average number of common shares outstanding 34,919,032 34,397,918 Effect of options and warrants 2,883 261,058 Average number of diluted common shares outstanding 34,921,915 34,658,976
Basic earnings (loss) per share -‐$ (0.01)$ Diluted earnings (loss) per share -‐$ (0.01)$
Quarter ended
17. OBLIGATION UNDER FINANCE LEASE The Company has a finance lease with HSBC Bank Canada for various items of equipment, secured by the equipment under lease. Assets under the finance lease are initially purchased by the Company as an agent for HSBC Bank Canada. The Company is reimbursed by HSBC Bank Canada in periodic draws to a maximum of $5,000,000. Until the lease term commences, the obligation under finance lease bears interest at the prime rate plus 1.5%. Once the lease term commences, it will be subject to interest at approximately 4.75% for 84 months. As at April 26, 2015, the Company has purchased $3,752,977 of assets under the finance lease, of which $3,603,923 has been fully reimbursed to the Company by HSBC Bank Canada. The lease term is expected to commence during the third quarter of fiscal 2016.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 35
18. LONG-‐TERM DEBT
Long-‐term debt consists of the following:
April 26, 2015 January 31, 2015
Mortgage payable to HSBC (stated net of transaction costs of $75,740), bearing interest rate of Bankers Acceptance plus 4.50%, with monthly principal payments of $69,050 until October 1, 2016. 1,382,307 1,486,942
Term debt loan payable to HSBC , bearing interest rate of prime plus 2.25% with monthly principal payments of $8,333 until June 1, 2018. 316,674 341,673
Term debt loan payable to HSBC (stated net of transaction costs of $2,039), bearing interest rate of prime plus 2.25% with monthly principal payments of $7,000 until January 1, 2017. 144,961 165,655
Loan payable to GE Capital (stated net of transaction costs of $8,936), bearing interest at 6.26%, and monthly blended payments of $37,142 until March 28, 2020. 1,900,258 1,953,743
Loan payable to GE Capital, bearing interest at 6.12%, and monthly blended payments of $7,612 until December 17, 2018. 299,350 317,423
Total long-‐term debt $ 4,043,550 $ 4,265,436
Current $ 1,654,238 $ 1,622,760 Non-‐current $ 2,389,312 $ 2,642,676 The aggregate maturities of long-‐term debt obligations are summarized as follows:
April 26, 2015
Due within one year 1,654,238$ Due in one to five years 2,389,312 Due in over five years -‐
4,043,550$ 19. BANK INDEBTEDNESS The Company holds an operating line of credit from HSBC Bank Canada of $8,000,000 with interest at prime plus 1.5%. The net balance drawn on the operating line of credit as of April 26, 2015 is nil (April 27, 2014 -‐ $2,903,145). Bank indebtedness includes outstanding cheques. Interest expense for the quarter ended April 26, 2015 was $14,545 (April 27, 2014 -‐ $28,380). These charges have been included as part of finance costs in the statement of comprehensive income.
The operating line is secured by a general security agreement over all assets of the Company other than real property, and a general assignment of book debts creating a first priority assignment. The Company is in compliance with the financial covenants required under the terms of the bank operating line of credit.
20. FINANCIAL INSTRUMENTS
This note presents information relating to the Company’s exposure to financial instruments and summarizes the Company’s policies and processes that are in place for measuring and managing risk. Further qualitative disclosures are included throughout these financial statements.
36 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Principles of risk management The main risks arising from the Company’s financial instruments are credit and sales concentration risk, liquidity risk, foreign currency risk and interest rate risk. These risks are from exposures that occur in the normal course of business and are managed by the executive officers of the Company (the “Executive Team”). The responsibilities of the Executive Team include the recommendations of policies to manage financial instrument risk. The overall objective of the Executive Team is to effectively manage credit risk, liquidity risk and other market risks in accordance with the Company’s strategy. Other responsibilities of the Executive Team include management of the Company’s cash resources and debt funding programs, approval of counter-‐parties and relevant transaction limits and the monitoring of all significant treasury activities undertaken by the Company. The Company’s Finance Group prepares monthly reports which monitor all significant financial activities undertaken by the Company. These reports also monitor loan covenants to ensure continued compliance. The Executive Team reviews these reports to monitor the financial instrument risks of the Company and to ensure compliance with established Company policies and procedures. Categories of financial instruments The Company’s significant financial instruments comprise cash and cash equivalents, bank indebtedness, finance leases, and long-‐term debt. The main purpose of these financial instruments is to finance the Company’s growth and ongoing operations. The Company has various other financial assets and liabilities such as accounts receivables and accounts payables, which arise directly from its operations. The Company’s financial instruments and their designations are:
Designated as:
Cash and cash equivalents Held-‐for-‐trading Accounts receivable Loans and receivables Bank indebtedness Other financial liabilities Accounts payable and accrued liabilities Other financial liabilities Obligations under finance lease Other financial liabilities Long-‐term debt Other financial liabilities
All financial assets and financial liabilities are recorded at amounts which approximate their fair market value.
Accounts receivable, and accounts payable and accrued liabilities approximate their fair values on a discounted cash flow basis because of the short-‐term nature of these instruments. In general, investments with original maturities of less than three months are classified as cash and cash equivalents. The carrying amount of long-‐term debt and obligations under finance lease approximate their fair value on a discounted cash basis because these obligations bear interest at market rates.
Credit and sales concentration risk Exposure to credit risk arises as a result of transactions in the Company’s ordinary course of business and is applicable to all financial assets. Investments in cash, short-‐term deposits and similar assets are with approved counter party banks and other financial institutions. Counter-‐parties are assessed both prior to, during, and after the conclusion of transactions to ensure exposure to credit risk is limited to an acceptable level. The Company’s major exposure to credit risk is in respect of trade receivables. The Beer Store is the Company’s largest customer with accounts receivable totalling $4,732,554 at April 26, 2015 (January 31, 2015 -‐ $3,996,111).
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 37
The maximum exposure of credit risk is limited to the total carrying value of accounts receivable as at April 26, 2015, being an amount of $6,128,661 (January 31, 2015 -‐ $6,219,084). The credit quality of the Company’s significant customers is monitored on an on-‐going basis and allowances are provided for potential losses that have been incurred at the period end date. Receivables that are neither past due nor impaired are considered credit of high quality. Where concentrations of credit risk exist, management closely monitors the receivable and ensures appropriate controls are in place to ensure recovery. During the quarter ended April 26, 2015, approximately 76 percent (April 27, 2014 -‐ 72 percent) of the Company’s net revenue is attributable to sales transactions with a single customer. Liquidity risk Liquidity risk is the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price. The Company’s Executive Team is responsible for management of liquidity risk, including funding, settlements, related processes and policies. The operational, tax, capital and regulatory requirements and obligations of the Company are considered in the management of liquidity risk.
The Company manages its liquidity risk utilizing various sources of financing to maintain flexibility while ensuring access to cost-‐effective funds when required. The Company also manages liquidity risk through the use of its operating line of credit. In addition, management utilizes both short and long-‐term cash flow forecasts and other financial information to manage liquidity risk. Other than the scheduled repayments of long-‐term debt and obligations under finance lease in fiscal 2017 and beyond, all other financial liabilities are due within one year.
Currency risk The Company currently relies on only a few foreign suppliers providing certain goods and services and thus has limited exposure to risk due to variations in foreign exchange rates. The Company has not entered into any derivative instruments to manage foreign exchange fluctuations; however, management monitors foreign exchange exposure. The Company does not have any significant foreign currency denominated monetary liabilities. Interest rate risk The Company is exposed to interest rate risk to the extent that its bank indebtedness and long-‐term debt are based upon variable rates of interest. For the quarter ended April 26, 2015, if interest rates changed by 1%, the change in the Company’s net earnings and comprehensive income would not be significantly impacted. To manage its interest rate risk, the Company has entered into an interest rate swap agreement (“swap”) under the terms of its term loan from HSBC Bank Canada, whereby the Company fixed $2,900,000 of the original term loan at an interest rate of 7.2%. The swap expired in the quarter ended April 26, 2015.
36 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Principles of risk management The main risks arising from the Company’s financial instruments are credit and sales concentration risk, liquidity risk, foreign currency risk and interest rate risk. These risks are from exposures that occur in the normal course of business and are managed by the executive officers of the Company (the “Executive Team”). The responsibilities of the Executive Team include the recommendations of policies to manage financial instrument risk. The overall objective of the Executive Team is to effectively manage credit risk, liquidity risk and other market risks in accordance with the Company’s strategy. Other responsibilities of the Executive Team include management of the Company’s cash resources and debt funding programs, approval of counter-‐parties and relevant transaction limits and the monitoring of all significant treasury activities undertaken by the Company. The Company’s Finance Group prepares monthly reports which monitor all significant financial activities undertaken by the Company. These reports also monitor loan covenants to ensure continued compliance. The Executive Team reviews these reports to monitor the financial instrument risks of the Company and to ensure compliance with established Company policies and procedures. Categories of financial instruments The Company’s significant financial instruments comprise cash and cash equivalents, bank indebtedness, finance leases, and long-‐term debt. The main purpose of these financial instruments is to finance the Company’s growth and ongoing operations. The Company has various other financial assets and liabilities such as accounts receivables and accounts payables, which arise directly from its operations. The Company’s financial instruments and their designations are:
Designated as:
Cash and cash equivalents Held-‐for-‐trading Accounts receivable Loans and receivables Bank indebtedness Other financial liabilities Accounts payable and accrued liabilities Other financial liabilities Obligations under finance lease Other financial liabilities Long-‐term debt Other financial liabilities
All financial assets and financial liabilities are recorded at amounts which approximate their fair market value.
Accounts receivable, and accounts payable and accrued liabilities approximate their fair values on a discounted cash flow basis because of the short-‐term nature of these instruments. In general, investments with original maturities of less than three months are classified as cash and cash equivalents. The carrying amount of long-‐term debt and obligations under finance lease approximate their fair value on a discounted cash basis because these obligations bear interest at market rates.
Credit and sales concentration risk Exposure to credit risk arises as a result of transactions in the Company’s ordinary course of business and is applicable to all financial assets. Investments in cash, short-‐term deposits and similar assets are with approved counter party banks and other financial institutions. Counter-‐parties are assessed both prior to, during, and after the conclusion of transactions to ensure exposure to credit risk is limited to an acceptable level. The Company’s major exposure to credit risk is in respect of trade receivables. The Beer Store is the Company’s largest customer with accounts receivable totalling $4,732,554 at April 26, 2015 (January 31, 2015 -‐ $3,996,111).
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 37
The maximum exposure of credit risk is limited to the total carrying value of accounts receivable as at April 26, 2015, being an amount of $6,128,661 (January 31, 2015 -‐ $6,219,084). The credit quality of the Company’s significant customers is monitored on an on-‐going basis and allowances are provided for potential losses that have been incurred at the period end date. Receivables that are neither past due nor impaired are considered credit of high quality. Where concentrations of credit risk exist, management closely monitors the receivable and ensures appropriate controls are in place to ensure recovery. During the quarter ended April 26, 2015, approximately 76 percent (April 27, 2014 -‐ 72 percent) of the Company’s net revenue is attributable to sales transactions with a single customer. Liquidity risk Liquidity risk is the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price. The Company’s Executive Team is responsible for management of liquidity risk, including funding, settlements, related processes and policies. The operational, tax, capital and regulatory requirements and obligations of the Company are considered in the management of liquidity risk.
The Company manages its liquidity risk utilizing various sources of financing to maintain flexibility while ensuring access to cost-‐effective funds when required. The Company also manages liquidity risk through the use of its operating line of credit. In addition, management utilizes both short and long-‐term cash flow forecasts and other financial information to manage liquidity risk. Other than the scheduled repayments of long-‐term debt and obligations under finance lease in fiscal 2017 and beyond, all other financial liabilities are due within one year.
Currency risk The Company currently relies on only a few foreign suppliers providing certain goods and services and thus has limited exposure to risk due to variations in foreign exchange rates. The Company has not entered into any derivative instruments to manage foreign exchange fluctuations; however, management monitors foreign exchange exposure. The Company does not have any significant foreign currency denominated monetary liabilities. Interest rate risk The Company is exposed to interest rate risk to the extent that its bank indebtedness and long-‐term debt are based upon variable rates of interest. For the quarter ended April 26, 2015, if interest rates changed by 1%, the change in the Company’s net earnings and comprehensive income would not be significantly impacted. To manage its interest rate risk, the Company has entered into an interest rate swap agreement (“swap”) under the terms of its term loan from HSBC Bank Canada, whereby the Company fixed $2,900,000 of the original term loan at an interest rate of 7.2%. The swap expired in the quarter ended April 26, 2015.
38 BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016
Market risk The Company is exposed to commodity price risk with respect to some raw materials where fluctuations in the market price or availability of these items could impact the Company’s cash flow and production. To minimize the impact of this risk, the Company enters into contracts which secure supply and set pricing to manage the exposure to availability and pricing. The Company’s profitability depends on the selling price of its products to The Beer Store and provincial liquor boards. While these prices are controlled by the Company, they are subject to various legislation, regional supply and demand and general economic conditions. Capital management For capital management purposes, the Company defines capital as the aggregate of its equity and total debt less cash and cash equivalents. Debt includes bank indebtedness, the current and non-‐current portions of obligations under finance leases and the current and non-‐current portions of long-‐term debt. The Company’s principal objectives in managing capital are:
§ to ensure that it will continue to operate as a going concern; § to maintain a strong capital base so as to maintain client, investor, creditor and market confidence; and § to comply with financial covenants required under its various borrowing facilities.
The Company’s capital structure consists of the following:
April 26, 2015
January 31, 2015
Total debt 7,796,526 5,579,357 Net debt 7,796,526 5,579,357 Equity:
Share capital 39,400,380 39,413,636 Share-‐based payments reserves 1,105,080 1,075,554 Deficit (6,076,696) (6,107,475)
Total Equity 34,428,764 34,381,715 Total capitalization (net debt plus total equity) $ 42,225,290 $ 39,961,072 The Company manages its capital structure and adjusts it in the light of changes in economic conditions and in order to comply with externally imposed financial debt covenants. Financing decisions are generally made on a specific transaction basis and depend on the Company’s needs, capital markets and economic conditions at the time of the transaction. At April 26, 2015, the Company was in compliance with all of its financial debt covenants.
BRICK BREWING CO. LIMITED FIRST QUARTER FISCAL 2016 39
21. OPERATING LEASES At April 26, 2015, the Company’s commitments under non-‐cancellable operating leases are as follows:
Vehicles Buildings
Machinery and
equipment
Office equipment,
furniture and fixtures Total
Future minimum lease payments:Due within one year $ 516,549 $ 1,052,533 $ 18,000 $ 12,873 $ 1,599,955 Due in one to five years 699,111 4,252,380 21,000 25,963 4,998,454 Due in over five years -‐ 6,003,829 -‐ -‐ 6,003,829
$ 1,215,660 $ 11,308,742 $ 39,000 $ 38,836 $ 12,602,238 Operating lease expense recognized within cost of sales for quarter ended April 26, 2015 was $402,612 (April 27, 2014 -‐ $383,536). 22. COMMITMENTS The Company has the following non-‐cancellable purchase commitments relating to raw materials and supplies:
April 26, 2015 April 27, 2014
Due within one year $ 3,422,915 $ 4,056,287 Due in one to five years 1,204,567 780,381 Due in over five years 256,000 344,000
$ 4,883,482 $ 5,180,668 All other commitments have been otherwise noted within these financial statements.
INVESTOR & CONTACT INFORMATIONSTOCK EXCHANGE AND LISTED SECURITIESBrick Brewing Co. Limited is listed on the Toronto Stock Exchange (TSX) under the ticker symbol BRB.
INVESTOR AND ANALYST INQUIRIESSean Byrne, Chief Financial Officer
Brick Brewing Co. LimitedT: 519-742-2732F: [email protected]
SHARE REGISTRAR AND TRANSFER AGENTComputershare Investor Services Inc.
100 University Avenue, 8th FloorToronto, OntarioM5J 2Y1
EXTERNAL AUDITORKPMG LLP
115 King Street South, 2nd FloorWaterloo, OntarioN2J 5A3
CORPORATE COUNSELWildeboer Dellelce LLP Suite 800, Wildeboer Dellelce Place365 Bay StreetToronto, Ontario, M5H 2V1
LOCATIONSCorporate Office & Kitchener Distribution Centre
400 Bingemans Centre Drive, Kitchener, OntarioN2B 3X9T: 519-742-2732F: 519-742-9874 www.brickbeer.com
WATERLOO BREWING FACILITY181 King Street South, Waterloo, Ontario, N2J 1P7
FORMOSA BREWING FACILITY1 Old Brewery Lane, Formosa, Ontario, N0G 1W0
BOARD OF DIRECTORSPeter J. Schwartz, Chairman Stan G. DunfordEdward H. KernaghanDavid R. ShawPeter W. AndersonJohn H. BoweyGeorge H. Croft
OFFICERSGeorge H. Croft, President and Chief Executive Officer
Sean Byrne, Chief Financial Officer
Russell Tabata, Chief Operating Officer