BRC Brady Corp

Brady Corporation (NYSE: BRC), a world leader in identification solutions, today reported financial results for its fiscal 2011 second quarter ended January 31, 2011.

Second-quarter results:

Sales for the fiscal 2011 second quarter were up 11.2 percent to $329.0 million compared to $295.8 million in the second quarter of fiscal 2010. Organic sales growth was 9.8 percent, acquisitions net of divestitures contributed 1.8 percent to sales, and the impact of foreign currency translation decreased sales by 0.4 percent. By segment, organic sales increased 9.7 percent in the Americas, 12.4 percent in Europe and 6.9 percent in the Asia-Pacific region.

Net income in the fiscal 2011 second quarter was up 61.3 percent to $24.2 million compared to $15.0 million in the same quarter last year. Excluding $1.5 million of after-tax restructuring charges in the second quarter of fiscal 2011 and $2.6 million of after-tax restructuring charges in the same quarter last year, net income was up 46.0 percent to $25.7 million compared to $17.6 million in the same quarter last year.

Earnings per diluted Class A Common Share were up 64.3 percent to $0.46 in the second quarter of fiscal 2011 compared to $0.28 in the second quarter of fiscal 2010. Excluding after-tax restructuring charges, earnings per diluted Class A Common Share increased 45.5 percent to $0.48 in the second quarter of fiscal 2011 compared to $0.33 per share in the same quarter of fiscal 2010.

Six-month results:

Sales for the six-month period ended January 31, 2011 were up 7.2 percent to $658.6 million compared to $614.3 million in the same period last year.

Net income for the six months ended January 31, 2011 was up 37.7 percent to $50.5 million compared to $36.7 million in the same period in fiscal 2010. Excluding $4.2 million of after-tax restructuring charges in the six-month period ended January 31, 2011 and $5.2 million of after-tax restructuring charges in the same period last year, net income was up 30.4 percent to $54.6 million compared to $41.9 million in the same period last year.

Earnings per diluted Class A Common Share were up 37.7 percent to $0.95 for the six-month period ended January 31, 2011 compared to $0.69 in the same period of fiscal 2010. Excluding after-tax restructuring charges, earnings per diluted Class A Common Share increased 30.4 percent to $1.03 for the six-month period ended January 31, 2011 compared to $0.79 per share in the same period of fiscal 2010.

Commentary and Guidance:

“We are pleased to see strong organic sales growth in all our regions, and are encouraged by the substantial growth in earnings resulting from the increased organic sales and our on-going focus on improving profitability,” said Frank M. Jaehnert, Brady’s President and Chief Executive Officer.

“Cash generation remains a highlight for Brady as we delivered $41.4 million of cash flow from operating activities in the quarter, resulting in an increase in our cash balance to $362.3 million at January 31, 2011. Our strong cash position along with our untapped $200 million line of credit provides us with adequate flexibility to take advantage of future growth opportunities,” said Brady Chief Financial Officer Thomas J. Felmer. “As a result of our strong second quarter earnings, we are increasing our full year fiscal 2011 guidance range for earnings per diluted Class A Common share from between $2.05 and $2.25 to between $2.15 and $2.35, excluding pre-tax restructuring charges of $7 to $10 million, or $0.10 to $0.14 per share. We also expect mid-single digit organic sales growth for the balance of fiscal 2011 as sales comparisons become more challenging in the second half of fiscal 2011. Our guidance reflects all cost savings we expect to realize this year from restructuring activities as well as from our Brady Business Performance System initiatives for operational improvements.”

A webcast regarding fiscal 2011 second quarter results will be available at www.investor.bradycorp.com beginning at 9:30 a.m. Central Standard Time today.

Brady Corporation is an international manufacturer and marketer of complete solutions that identify and protect premises, products and people. Brady’s products help customers increase safety, security, productivity and performance and include high-performance labels and signs, safety devices, printing systems and software, and precision die-cut materials. Founded in 1914, the company has millions of customers in electronics, telecommunications, manufacturing, electrical, construction, education, medical and a variety of other industries. Brady is headquartered in Milwaukee, Wisconsin and employs approximately 6,600 people at operations in the Americas, Europe and Asia-Pacific. Brady’s fiscal 2010 sales were approximately $1.26 billion. Brady stock trades on the New York Stock Exchange under the symbol BRC. More information is available on the Internet at www.bradycorp.com.

Brady believes that certain statements in this news release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements related to future, not past, events included in this news release, including, without limitation, statements regarding Brady’s future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations are forward-looking statements. When used in this news release, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions and other factors, some of which are beyond Brady’s control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from the length or severity of the current worldwide economic downturn or timing or strength of a subsequent recovery; future financial performance of major markets Brady serves, which include, without limitation, telecommunications, manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, transportation; difficulties in making and integrating acquisitions; risks associated with newly acquired businesses; Brady’s ability to develop and successfully market new products; changes in the supply of, or price for, parts and components; increased price pressure from suppliers and customers; fluctuations in currency rates versus the US dollar; unforeseen tax consequences; potential write-offs of Brady’s substantial intangible assets; Brady’s ability to retain significant contracts and customers; risks associated with international operations; Brady’s ability to maintain compliance with its debt covenants; technology changes; business interruptions due to implementing business systems; environmental, health and safety compliance costs and liabilities; future competition; interruptions to sources of supply; Brady’s ability to realize cost savings from operating initiatives; difficulties associated with exports; risks associated with restructuring plans; risks associated with obtaining governmental approvals and maintaining regulatory compliance; and numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature contained from time to time in Brady’s U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section located in Item 1A of Part I of Brady’s Form 10-K for the year ended July 31, 2010. These uncertainties may cause Brady’s actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements.

BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME                 (Dollars in Thousands)   (Unaudited)   Three Months Ended January 31, Six Months Ended January 31, 2011 2010

PercentageChange

  2011 2010

PercentageChange

Net sales $ 329,009 $ 295,829 11.2 % $ 658,597 $ 614,315 7.2 % Cost of products sold 169,999   148,911   14.2 % 335,075   309,955   8.1 % Gross margin 159,010 146,918 8.2 % 323,522 304,360 6.3 %   Operating expenses: Research and development 11,732 10,632 10.3 % 21,676 20,241 7.1 % Selling, general and administrative 108,064 108,735 -0.6 % 217,388 217,411 0.0 % Restructuring charge 2,134   3,649   -41.5 % 5,775   7,250   -20.3 % Total operating expenses 121,930 123,016 -0.9 % 244,839 244,902 0.0 %   Operating income 37,080 23,902 55.1 % 78,683 59,458 32.3 %   Other income and (expense): Investment and other income 1,174 1,104 6.3 % 1,464 1,153 27.0 % Interest expense (5,850 ) (5,163 ) 13.3 % (11,537 ) (10,325 ) 11.7 %   Income before income taxes 32,404 19,843 63.3 % 68,610 50,286 36.4 %   Income taxes 8,205   4,842   69.5 % 18,130   13,617   33.1 %   Net income $ 24,199   $ 15,001   61.3 % $ 50,480   $ 36,669   37.7 %     Per Class A Nonvoting Common Share: Basic net income $ 0.46 $ 0.29 58.6 % $ 0.96 $ 0.70 37.1 % Diluted net income $ 0.46 $ 0.28 64.3 % $ 0.95 $ 0.69 37.7 % Dividends $ 0.18 $ 0.175 2.9 % $ 0.36 $ 0.35 2.9 %   Per Class B Voting Common Share: Basic net income $ 0.46 $ 0.29 58.6 % $ 0.94 $ 0.68 38.2 % Diluted net income $ 0.46 $ 0.28 64.3 % $ 0.94 $ 0.67 40.3 % Dividends $ 0.18 $ 0.175 2.9 % $ 0.34 $ 0.33 3.1 %   Weighted average common shares outstanding (in thousands): Basic 52,593 52,370 52,521 52,354 Diluted 53,053 53,096 52,932 53,020   BRADY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS   (IN THOUSANDS) (Unaudited) January 31, 2011 July 31, 2010  

ASSETS

  Current assets: Cash and cash equivalents $ 362,302 $ 314,840 Accounts receivable - Net 240,173 221,621 Inventories: Finished products 56,085 52,906 Work-in-process 14,614 13,146 Raw materials and supplies 28,129   28,620   Total inventories 98,828 94,672 Prepaid expenses and other current assets 36,233   37,839     Total current assets 737,536 668,972   Other assets: Goodwill 781,776 768,600 Other intangible assets, net 98,560 103,546 Deferred income taxes 45,087 39,103 Other 19,673 20,808   Property, plant and equipment: Cost: Land 6,331 6,265 Buildings and improvements 103,305 101,138 Machinery and equipment 294,414 289,727 Construction in progress 15,208   9,873   419,258 407,003   Less accumulated depreciation 278,710   261,501     Property, plant and equipment - net 140,548   145,502     Total $ 1,823,180   $ 1,746,531    

LIABILITIES AND STOCKHOLDERS' INVESTMENT

  Current liabilities: Accounts payable $ 92,696 $ 96,702 Wages and amounts withheld from employees 52,161 67,285 Taxes, other than income taxes 8,898 7,537 Accrued income taxes 16,603 10,138 Other current liabilities 60,105 50,862 Current maturities on long-term debt 61,265   61,264     Total current liabilities 291,728 293,788   Long-term obligations, less current maturities 387,875 382,940   Other liabilities 66,120   64,776     Total liabilities 745,723 741,504   Stockholders' investment: Common stock: Class A nonvoting common stock - Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 49,105,601 and 48,875,716 shares, respectively 513 513 Class B voting common stock - Issued and outstanding, 3,538,628 shares 35 35 Additional paid-in capital 308,002 304,205 Income retained in the business 750,038 718,512 Treasury stock - 1,845,886 and 2,175,771 shares, respectively of Class A nonvoting common stock, at cost (56,069 ) (66,314 ) Accumulated other comprehensive income 79,674 50,905 Other (4,736 ) (2,829 )   Total stockholders' investment 1,077,457   1,005,027     Total $ 1,823,180   $ 1,746,531     BRADY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)   (Unaudited) Six Months Ended January 31, 2011   2010 Operating activities: Net income $ 50,480 $ 36,669 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,502 27,366 Non-cash portion of restructuring charges 1,714 1,420 Non-cash portion of stock-based compensation expense 6,869 5,156 Gain on the sale of business (4,394 ) - Deferred income taxes (4,926 ) (4,398 ) Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures): Accounts receivable (11,938 ) (10,300 ) Inventories (879 ) (1,891 ) Prepaid expenses and other assets 2,384 (1,585 ) Accounts payable and accrued liabilities (13,792 ) 12,926 Income taxes 6,589   2,670   Net cash provided by operating activities 57,609 68,033   Investing activities: Acquisition of business, net of cash acquired (7,970 ) (20,299 ) Payments of contingent consideration (979 ) - Divestiture of business, net of cash retained in business 12,979 - Purchases of property, plant and equipment (9,045 ) (14,974 ) Other (494 ) (570 ) Net cash used in investing activities (5,509 ) (35,843 )   Financing activities: Payment of dividends (18,954 ) (18,344 ) Proceeds from issuance of common stock 4,909 1,672 Income tax benefit from the exercise of stock options and deferred compensation distribution 359   380   Net cash used in financing activities (13,686 ) (16,292 )   Effect of exchange rate changes on cash 9,048 1,530   Net increase in cash and cash equivalents 47,462 17,428 Cash and cash equivalents, beginning of period 314,840   188,156     Cash and cash equivalents, end of period $ 362,302   $ 205,584     Supplemental disclosures: Cash paid during the period for: Interest, net of capitalized interest $ 9,138 $ 10,313 Income taxes, net of refunds 17,398 10,817 Acquisitions: Fair value of assets acquired, net of cash $ 4,624 $ 8,829 Liabilities assumed (1,446 ) (2,678 ) Goodwill 4,792   14,148   Net cash paid for acquisitions $ 7,970   $ 20,299             Information by regional segment for the three and six months ended January 31, 2011 and 2010 is as follows:                         (in thousands) Americas   Europe  

Asia-Pacific

 

TotalRegion

 

CorporateandEliminations

  Total SALES TO EXTERNAL CUSTOMERS                       Three months ended:                       January 31, 2011 $136,011   $104,041   $88,957   $329,009   -   $329,009 January 31, 2010 $121,603   $96,614   $77,612   $295,829   -   $295,829                         Six months ended:                       January 31, 2011 $281,999   $196,091   $180,507   $658,597   -   $658,597 January 31, 2010 $257,842   $190,949   $165,524   $614,315   -   $614,315                         SALES GROWTH INFORMATION                       Three months ended January 31, 2011:                     Base 9.7%   12.4%   6.9%   9.8%   -   9.8% Currency 0.8%   -6.9%   5.6%   -0.4%   -   -0.4% Acquisitions/Divestitures 1.4%   2.2%   2.1%   1.8%   -   1.8% Total 11.9%   7.7%   14.6%   11.2%   -   11.2%                         Six months ended January 31, 2011:                       Base 6.8%   6.6%   3.1%   5.7%   -   5.7% Currency 0.8%   -6.9%   5.0%   -0.5%   -   -0.5% Acquisitions/Divestitures 1.8%   3.0%   1.0%   2.0%   -   2.0% Total 9.4%   2.7%   9.1%   7.2%   -   7.2%                         SEGMENT PROFIT                       Three months ended:                       January 31, 2011 $31,015   $29,165   $11,524   $71,704   ($5,088)   $66,616 January 31, 2010 $23,546   $25,947   $10,687   $60,180   ($3,683)   $56,497 Percentage increase 31.7%   12.4%   7.8%   19.1%       17.9%                         Six months ended:                       January 31, 2011 $70,374   $53,226   $28,353   $151,953   ($8,525)   $143,428 January 31, 2010 $56,347   $50,809   $25,814   $132,970   ($6,603)   $126,367 Percentage increase 24.9%   4.8%   9.8%   14.3%       13.5%           NET INCOME RECONCILIATION (in thousands)         Three months ended: Six months ended:  

January 31,2011

 

January 31,2010

January 31,2011

 

January 31,2010

Total profit for reportable segments $71,704   $60,180 $151,953   $ 132,970 Corporate and eliminations (5,088)   (3,683) ($8,525)   (6,603) Unallocated amounts:             Administrative costs (27,402)   (28,946) (58,970)   (59,659) Restructuring charge (2,134)   (3,649) (5,775)   (7,250) Investment and other income 1,174   1,104 1,464   1,153 Interest expense (5,850)   (5,163) (11,537)   (10,325) Income before income taxes 32,404   19,843 68,610   50,286 Income taxes (8,205)   (4,842) (18,130)   (13,617) Net income $ 24,199   $ 15,001 $ 50,480   $ 36,669     RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands)         Fiscal 2011   Q1   Q2   Q3   Q4   Total EBITDA (1) Net income $ 26,281 $ 24,199 $ 50,480 Interest expense 5,687 5,850 11,537 Income taxes 9,925 8,205 18,130 Depreciation and amortization   12,594     12,908             25,502   EBITDA (non-GAAP measure) $ 54,487   $ 51,162   $ -   $ -   $ 105,649   Fiscal 2010   Q1   Q2   Q3   Q4   Total EBITDA (1) Net income $ 21,668 $ 15,001 $ 23,695 $ 21,592 $ 81,956 Interest expense 5,162 5,163 5,147 5,750 21,222 Income taxes 8,775 4,842 7,193 6,636 27,446 Depreciation and amortization   13,817     13,549     12,910     12,746     53,022   EBITDA (non-GAAP measure) $ 49,422   $ 38,555   $ 48,945   $ 46,724   $ 183,646   (1) Brady is presenting EBITDA because it is used by many of our investors and lenders, and is presented as a convenience to them. EBITDA represents net income before interest expense, income taxes and depreciation and amortization. EBITDA is not a calculation based on generally accepted accounting principles (GAAP). The amounts included in the EBITDA calculation, however, are derived from amounts included in the Condensed Consolidated Statements of Income data. EBITDA should not be considered as an alternative to net income or operating income as an indicator of the company's operating performance, or as an alternative to operating cash flows as a measure of liquidity. The EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.