Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world
leader in identification solutions, today reported its financial
results for the fiscal 2012 second quarter ended January 31,
2012.
Quarter Ended January 31, 2012
Results:
Sales for the fiscal 2012 second quarter were down 2.6 percent
to $320.6 million compared to $329.0 million in the second quarter
of fiscal 2011. Organic sales declined by 1.8 percent, divestitures
net of acquisitions reduced sales by 0.4 percent, and the impact of
foreign currency translation decreased sales by 0.4 percent. By
segment, organic sales increased 2.9 percent in the Americas,
declined 5.7 percent in Europe and declined 4.4 percent in the
Asia-Pacific region.
During the second quarter ended January 31, 2012, the Company
recorded a non-cash impairment charge of $115.7 million for the
write down of goodwill in the Asia-Pacific region. Operating
results and financial forecasts in the Asia-Pacific region have
been impacted by reduced sales volumes to one of the Company’s
major mobile handset customers due to shifts in end market shares
and compressed gross profit margins caused primarily by increased
competition in the mobile handset industry. This non-cash
impairment charge does not impact the Company’s future cash flow,
profitability, liquidity, or compliance with debt covenants in its
various credit agreements.
Net income (loss) in the fiscal 2012 second quarter was $(90.0)
million compared to $24.2 million in the same quarter last year.
Excluding the impact of the non-cash goodwill impairment charge
outlined above and prior year restructuring charges, net income for
the quarter ended January 31, 2012 was flat at $25.7 million.
Earnings (loss) per diluted Class A Common Share in the fiscal
2012 second quarter were $(1.72) compared to $0.46 in the same
quarter last year. Excluding the impact of the non-cash goodwill
impairment charge and prior year restructuring charges, earnings
per diluted Class A Common Share were up 2.1 percent to $0.49 for
the quarter ended January 31, 2012 compared to $0.48 in the same
period in fiscal 2011.
Six Months Ended January 31, 2012
Results:
Sales for the six-month period ended January 31, 2012 were up
1.7 percent to $670.1 million compared to $658.6 million in the
same period last year.
Net income (loss) for the six months ended January 31, 2012 was
$(57.2) million compared to $50.5 million in the same period in
fiscal 2011. Excluding the impact of the non-cash goodwill
impairment charge and prior year restructuring charges, net income
for the six months ended January 31, 2012 was up 7.1 percent to
$58.5 million compared to $54.6 million in the same period in
fiscal 2011.
Earnings (loss) per diluted Class A Common Share were $(1.09)
for the six-month period ended January 31, 2012 compared to $0.95
in the same period of fiscal 2011. Excluding the impact of the
non-cash goodwill impairment charge and prior year restructuring
charges, earnings per diluted Class A Common Share for the six
months ended January 31, 2012 were up 8.7 percent to $1.12 compared
to $1.03 in the same period in fiscal 2011.
Commentary and
Guidance:
“Today we announced an impairment charge related to our Asian
business. As discussed earlier, reduced sales to our largest
customer and increasing competitive pressures have led to this
action. This month we began the process of splitting our Asia
business into two dedicated teams - one team to focus on our
die-cut business and the other team to focus on our MRO and
identification businesses. This change should help increase our
focus on both businesses as we work to accelerate the growth of our
MRO business and improve growth and profitability of our die-cut
business,” said Brady’s President and Chief Executive Officer Frank
M. Jaehnert.
“We are encouraged by the continued recovery of the American
economy and the strong profitability of our business in the
Americas, but remain concerned with the European economy. Our focus
going forward will be on expanding our business in emerging
economies and higher growth vertical markets, moving to more
digital business models and continuing to introduce innovative new
products,” continued Jaehnert.
“Our second quarter was challenging as we had difficult
comparables combined with certain headwinds this year, including
the flooding in Thailand. Even with these challenges, we were able
to increase net income as a percent of sales, excluding the
goodwill impairment charge and we finished with a cash balance of
$380 million at January 31, 2012,” said Brady Chief Financial
Officer Thomas J. Felmer. “The non-cash goodwill impairment charge
does not change our commitment to investing in core growth
opportunities, paying dividends, and growing through acquisition.
Given the uncertainties surrounding the European economy, the
compressed margins in the mobile handset industry, and the
depreciation of certain foreign currencies versus the U.S. dollar,
we have modified our full year fiscal 2012 guidance for earnings
per diluted Class A Common Share, exclusive of after-tax
restructuring charges and the Asia goodwill impairment outlined
above to between $2.20 and $2.40 from our previous guidance of
between $2.30 and $2.50. Our guidance includes low single-digit
organic sales growth in the Americas and Asia and approximately
flat organic sales in Europe.”
A webcast regarding Brady’s fiscal 2012 second quarter financial
results will be available at www.bradycorp.com beginning at 9:30 a.m. Central
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 as of July 31, 2011 employed approximately 6,500
people at operations in the Americas, Europe and Asia-Pacific.
Brady’s fiscal 2011 sales were approximately $1.34 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, 2011. 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, Except Per
Share Amounts) (Unaudited) Three Months Ended January
31, Six Months Ended January 31, Percentage Percentage 2012 2011
Change 2012 2011 Change Net sales $ 320,584 $ 329,009 -2.6 % $
670,092 $ 658,597 1.7 % Cost of products sold 167,279
169,999 -1.6 % 348,956 335,075 4.1 % Gross
margin 153,305 159,010 -3.6 % 321,136 323,522 -0.7 %
Operating expenses: Research and development 9,972 11,732 -15.0 %
19,781 21,676 -8.7 % Selling, general and administrative 104,843
108,064 -3.0 % 213,775 217,388 -1.7 % Restructuring charges - 2,134
-100.0 % - 5,775 -100.0 % Impairment charge 115,688 -
100.0 % 115,688 - 100.0 % Total operating
expenses 230,503 121,930 89.0 % 349,244 244,839 42.6 %
Operating (loss) income (77,198 ) 37,080 -308.2 % (28,108 ) 78,683
-135.7 % Other income and (expense): Investment and other
income 812 1,174 -30.8 % 610 1,464 -58.3 % Interest expense (4,933
) (5,850 ) -15.7 % (9,980 ) (11,537 ) -13.5 % (Loss) income
before income taxes (81,319 ) 32,404 -351.0 % (37,478 ) 68,610
-154.6 % Income taxes 8,635 8,205 5.2 % 19,744
18,130 8.9 % Net (loss) income $ (89,954 ) $
24,199 -471.7 % $ (57,222 ) $ 50,480 -213.4 %
Per Class A Nonvoting Common Share: Basic net (loss) income
$ (1.72 ) $ 0.46 -473.9 % $ (1.09 ) $ 0.96 -213.5 % Diluted net
(loss) income $ (1.72 ) $ 0.46 -473.9 % $ (1.09 ) $ 0.95 -214.7 %
Dividends $ 0.185 $ 0.18 2.8 % $ 0.37 $ 0.36 2.8 % Per Class
B Voting Common Share: Basic net (loss) income $ (1.72 ) $ 0.46
-473.9 % $ (1.11 ) $ 0.94 -218.1 % Diluted net (loss) income $
(1.72 ) $ 0.46 -473.9 % $ (1.11 ) $ 0.94 -218.1 % Dividends $ 0.185
$ 0.18 2.8 % $ 0.35 $ 0.34 2.9 % Weighted average common
shares outstanding (in thousands): Basic 52,447 52,593 52,552
52,521 Diluted 52,447 53,053 52,552 52,932
BRADY
CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE
SHEETS (Dollars in Thousands) (Unaudited)
January 31, 2012 July 31,
2011
ASSETS
Current assets: Cash and cash equivalents $ 380,331 $
389,971 Accounts receivable - net 215,929 228,483 Inventories:
Finished products 67,867 62,152 Work-in-process 16,343 14,550 Raw
materials and supplies 27,905 27,484 Total
inventories 112,115 104,186 Prepaid expenses and other current
assets 39,316 35,647
Total current
assets 747,691 758,287
Other assets: Goodwill
666,907 800,343 Other intangible assets 79,090 89,961 Deferred
income taxes 51,124 53,755 Other 19,205 19,244
Property,
plant and equipment: Cost: Land 6,132 6,406 Buildings and
improvements 101,452 104,644 Machinery and equipment 302,568
305,557 Construction in progress 14,418 11,226
424,570 427,833 Less accumulated depreciation 292,426
287,918
Property, plant and equipment - net
132,144 139,915
Total $ 1,696,161
$ 1,861,505
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
Current liabilities: Accounts payable $ 81,140 $
98,847 Wages and amounts withheld from employees 41,926 69,798
Taxes, other than income taxes 7,925 7,612 Accrued income taxes
16,599 9,954 Other current liabilities 51,744 54,406 Current
maturities on long-term debt 61,264 61,264
Total current liabilities 260,598 301,881
Long-term obligations, less current maturities 323,071
331,914
Other liabilities 65,550 71,518
Total liabilities 649,219 705,313
Stockholders' investment: Common stock: Class A nonvoting
common stock - Issued 51,261,487 and 51,261,487 shares,
respectively and outstanding 48,927,002 and 49,284,252 shares,
respectively 513 513 Class B voting common stock - Issued and
outstanding, 3,538,628 shares 35 35 Additional paid-in capital
311,677 307,527 Earnings retained in the business 712,425 789,100
Treasury stock - 2,024,485 and 1,667,235 shares, respectively of
Class A nonvoting common stock, at cost (58,869 ) (50,017 )
Accumulated other comprehensive income 85,259 113,898 Other (4,098
) (4,864 )
Total stockholders' investment 1,046,942
1,156,192
Total $ 1,696,161 $
1,861,505
BRADY CORPORATION AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Dollars in Thousands) (Unaudited) Six Months
Ended January 31, 2012 2011 Operating activities: Net (loss) income
$ (57,222 ) $ 50,480 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 22,176 25,502 Non-cash portion of restructuring
charges - 1,714 Non-cash portion of stock-based compensation
expense 5,506 6,869 Impairment charge 115,688 - Gain on divestiture
of business - (4,394 ) Deferred income taxes (4,831 ) (4,926 )
Changes in operating assets and liabilities (net of effects of
business acquisitions/divestitures): Accounts receivable 6,029
(11,938 ) Inventories (11,814 ) (879 ) Prepaid expenses and other
assets (5,155 ) 2,384 Accounts payable and accrued liabilities
(36,297 ) (13,792 ) Income taxes 9,221 6,589 Net cash
provided by operating activities 43,301 57,609 Investing
activities: Purchases of property, plant and equipment (11,100 )
(9,045 ) Payments of contingent consideration (2,580 ) (979 )
Settlement of net investment hedges (797 ) - Acquisition of
business, net of cash acquired - (7,970 ) Divestiture of business,
net of cash retained in business - 12,979 Other (128 ) (494 ) Net
cash used in investing activities (14,605 ) (5,509 )
Financing activities: Payment of dividends (19,452 ) (18,954 )
Proceeds from issuance of common stock 2,301 4,909 Purchase of
treasury stock (12,309 ) - Income tax benefit from the exercise of
stock options and deferred compensation distribution, and other 566
359 Net cash used in financing activities (28,894 )
(13,686 ) Effect of exchange rate changes on cash (9,442 )
9,048 Net (decrease) increase in cash and cash equivalents
(9,640 ) 47,462 Cash and cash equivalents, beginning of period
389,971 314,840 Cash and cash equivalents, end
of period $ 380,331 $ 362,302 Supplemental
disclosures: Cash paid during the period for: Interest, net of
capitalized interest $ 9,521 $ 9,138 Income taxes, net of refunds
16,189 17,398 Acquisitions: Fair value of assets acquired, net of
cash $ - $ 4,624 Liabilities assumed - (1,446 ) Goodwill -
4,792 Net cash paid for acquisitions $ - $ 7,970
Information by
regional segment for the three and six months ended January 31,
2012 and 2011 is as follows:
Corporate Asia- Total and (in
thousands)
Americas Europe
Pacific Region Eliminations
Total SALES TO EXTERNAL CUSTOMERS Three months
ended: January 31, 2012 $ 138,406 $ 95,593
$ 86,586 $ 320,585
- $ 320,585 January 31, 2011 $ 136,011
$ 104,041 $ 88,957 $
329,009 - $ 329,009
Six months ended: January 31, 2012
$ 292,267 $ 192,949 $ 184,876
$ 670,092 - $
670,092 January 31, 2011 $ 281,999 $
196,091 $ 180,507 $ 658,597
- $ 658,597
SALES INFORMATION Three months ended January 31,
2012: Organic 2.9 % -5.7 %
-4.4 % -1.8 % -
-1.8 % Currency -0.7 % -1.5 %
1.7 % -0.4 % -
-0.4 % Acquisitions/Divestitures -0.4 %
-0.9 % 0.0 % -0.4 %
- -0.4 % Total 1.8
% -8.1 % -2.7 % -2.6 %
- -2.6 %
Six months ended January 31, 2012: Organic 4.4
% -1.3 % -2.3 % 0.9 %
- 0.9 % Currency
-0.2 % 1.0 % 3.6 % 1.1 %
- 1.1 %
Acquisitions/Divestitures -0.5 % -1.3 %
1.1 % -0.3 % -
-0.3 %
Total
3.7 % -1.6 % 2.4 %
1.7 % - 1.7 %
SEGMENT PROFIT Three months ended:
January 31, 2012 $ 35,798 $ 26,562
$ 7,733 $ 70,093 ($2,359
) $ 67,734 January 31, 2011 $ 31,015
$ 29,165 $ 11,524 $ 71,704
($5,088 ) $ 66,616 Percentage
change 15.4 % -8.9 %
-32.9 % -2.2 % 1.7 %
Six months ended: January 31, 2012
$ 79,028 $ 52,861 $ 21,037
$ 152,926 ($5,622 ) $
147,304 January 31, 2011 $ 70,374 $
53,226 $ 28,353 $ 151,953
($8,525 ) $ 143,428 Percentage change
12.3 % -0.7 % -25.8 %
0.6 % 2.7 %
NET INCOME RECONCILIATION (in
thousands) Three months ended:
Six months ended: January 31, January 31, January 31, January 31,
2012 2011 2012 2011 Total profit for
reportable segments $ 70,093 $ 71,704 $
152,926 $ 151,953 Corporate and eliminations
(2,359 ) (5,088 ) (5,622 )
(8,525 ) Unallocated amounts:
Administrative costs
(29,244 ) (27,402 ) (59,724 )
(58,970 ) Restructuring charges -
(2,134 ) - (5,775 ) Impairment
charge (115,688 ) -
(115,688 ) - Investment and other income
812 1,174 610
1,464 Interest expense
(4,933 ) (5,850 ) (9,980 )
(11,537 ) (Loss) income before income taxes (81,319 )
32,404 (37,478 ) 68,610
Income taxes (8,635 ) (8,205 )
(19,744 ) (18,130 ) Net (loss) income $
(89,954 ) $ 24,199 $ (57,222 ) $ 50,480
NON-GAAP MEASURES (in
thousands) In accordance with the U.S.
Securities and Exchange Commission’s Regulation G, the following
provides definitions of the non-GAAP measures used in the earnings
release and the reconciliation to the most closely related GAAP
measure.
EBITDA: 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, depreciation and
amortization and non-cash impairment charges. 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. Fiscal 2012
Q1
Q2
Q3
Q4
Total
EBITDA: Net (loss) income $ 32,732 $ (89,954 ) $ (57,222 ) Interest
expense 5,047 4,933 9,980 Income taxes 11,109 8,635 19,744
Depreciation and amortization 11,241 10,935 22,176 Impairment
charge - 115,688
115,688 EBITDA (non-GAAP
measure) $ 60,129 $ 50,237 $ - $ -
$ 110,366 Fiscal 2011
Q1
Q2
Q3
Q4
Total
EBITDA: Net income $ 26,281 $ 24,199 $ 28,589 $ 29,583 $ 108,652
Interest expense 5,687 5,850 5,103 5,484 22,124 Income taxes 9,925
8,205 8,607 8,669 35,406 Depreciation and amortization
12,594 12,908 12,020
11,305 48,827 EBITDA
(non-GAAP measure) $ 54,487 $ 51,162 $ 54,319
$ 55,041 $ 215,009
Diluted Earnings Per Share Excluding Impairment and
Restructuring Charges: This is a measure of the Company’s
diluted net earnings per share excluding the current year Asia
non-cash goodwill impairment charge and prior year restructuring
charges. We do not view these items to be part of our sustainable
results. We believe this earnings per share measure provides an
important perspective of underlying business trends and results and
provides a more comparable measure of year-on-year earnings per
share growth. The table below provides a reconciliation of diluted
net earnings per share to diluted earnings per share excluding the
impairment and restructuring charges: Three Months Ended Six
Months Ended January 31, January 31, 2012 2011
2012 2011 Diluted (Loss) Earnings per Share $ (1.72 ) $ 0.46
$ (1.09 ) $ 0.95 Non-Cash Goodwill Impairment 2.21 - 2.21 -
Restructuring Charges - 0.02 - 0.08
Diluted Earnings per Share
Excluding
Impairment and Restructuring Charges $ 0.49
$ 0.48 $ 1.12
$ 1.03
Net Income Excluding Impairment and Restructuring Charges:
This is a measure of the Company’s net income excluding the current
year Asia non-cash goodwill impairment charge and prior year
restructuring charges. We do not view these items to be part of our
sustainable results. We believe this net income measure provides an
important perspective of underlying business trends and results and
provides a more comparable measure of year-on-year net income
growth. The table below provides a reconciliation of net income to
net income excluding the impairment charge and restructuring
charges: Three Months Ended Six Months Ended January 31,
January 31, 2012 2011 2012 2011 Net
(Loss) Income $ (89,954 ) $ 24,199 $ (57,222 ) $ 50,480 Non-Cash
Goodwill Impairment 115,688 - 115,688 - Restructuring Charges -
1,537 - 4,122
Net Income Excluding
Impairment and Restructuring
Charges $ 25,734 $
25,736 $ 58,466 $
54,602 All reconciling items are
presented net of tax. Tax effects are calculated consistent with
the nature of the underlying transaction.
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