BRC Brady Corp

Brady Corporation (NYSE: BRC) (“Brady”), a world leader in identification solutions, today reported its financial results for the fiscal 2012 third quarter ended April 30, 2012.

Quarter Ended April 30, 2012 Results:

Sales for the fiscal 2012 third quarter were down 1.9 percent to $331.6 million compared to $337.9 million in the third quarter of fiscal 2011. Organic sales were down 0.5 percent, acquisitions added 0.2 percent, and the impact of foreign currency translation decreased sales by 1.6 percent. By segment, organic sales increased 1.9 percent in the Americas, decreased 1.2 percent in the Asia-Pacific region, and decreased 3.3 percent in EMEA.

Net income in the fiscal 2012 third quarter was $27.7 million compared to $28.6 million in the same quarter last year. Excluding $2.7 million of after-tax restructuring charges in the third quarter of fiscal 2012 and $0.9 million of after-tax restructuring charges in the same quarter last year, net income was up 3.0 percent to $30.3 million compared to $29.5 million in the same quarter last year.

Earnings per diluted Class A Common Share were down 3.7 percent to $0.52 in the third quarter of fiscal 2012 compared to $0.54 in the same quarter last year. Excluding after-tax restructuring charges, earnings per diluted Class A Common Share increased 3.6 percent to $0.57 in the third quarter of fiscal 2012, compared to $0.55 per share in the same quarter of fiscal 2011.

Nine Months Ended April 30, 2012 Results:

Sales for the nine-month period ended April 30, 2012 were up 0.5 percent to $1.002 billion compared to $0.996 billion in the same period last year. Organic sales growth was 0.4 percent; divestitures, net of acquisitions reduced sales by 0.2 percent; and the impact of foreign currency translation increased sales by 0.3 percent. By segment, organic sales increased 3.5 percent in the Americas, decreased 2.0 percent in EMEA, and decreased 1.9 percent in the Asia-Pacific region.

Net income (loss) for the nine months ended April 30, 2012 was $(29.6) million compared to $79.1 million in the same period in fiscal 2011. Excluding the impact of the $115.7 million non-cash goodwill impairment charge incurred in the second quarter of fiscal 2012 and $2.7 million of after-tax restructuring charges during the nine-month period ended April 30, 2012 and $5.0 million of after-tax restructuring charges in the same period last year, net income was up 5.6 percent to $88.8 million compared to $84.1 million in the same period last year.

Earnings (loss) per diluted Class A Common Share were $(0.57) for the nine-month period ended April 30, 2012 compared to $1.49 in the same period of fiscal 2011. Excluding the impact of the non-cash goodwill impairment charge and the after-tax restructuring charges, earnings per diluted Class A Common Share increased 7.0 percent to $1.69 for the nine-month period ended April 30, 2012 compared to $1.58 in the same period of fiscal 2011.

Commentary and Guidance:

“Our Americas region is performing well, fueled by strength in our U.S. business. In EMEA, our growth initiatives and reallocation of resources to the stronger sub-regions are partially counter balancing the weak macro-economy, enabling our EMEA revenues to be down only slightly when compared with the prior year. During the quarter, our revenues were below our internal expectation, but profitability was maintained through reductions in selling, general, and administrative expenses, including reduced incentive compensation,” said Brady’s President and Chief Executive Officer, Frank M. Jaehnert. “After quarter-end, we completed two acquisitions for a purchase price of approximately $36 million. These two acquisitions, Pervaco AS in Norway and Runelandhs F�rsäljnings AB in Sweden expand our presence in the Scandanavian region, which is an under-penetrated market for Brady. We also announced the acquisition of Grafo Wiremarkers Africa (Pty) Ltd in South Africa during the third quarter, which is our first acquisition on the African continent.”

“Our balance sheet is strong with $374.4 million of cash and $342.1 million of debt as of April 30, 2012 and our acquisition pipeline is robust,” said Brady’s Chief Financial Officer, Thomas J. Felmer. “In Asia, we are working to improve the profitability of the business as the changes that we announced last quarter related to the separation of our die-cut business and our MRO and identification businesses into two distinct and separate operations are starting to take hold. Our new management team is in place in Asia and driving hard to deliver results. Because of the ongoing weaknesses in our Asian die-cut business and the weak macro-environment in Europe, we are modifying our full year fiscal 2012 guidance range for earnings per diluted Class A Common Share, exclusive of after-tax restructuring charges and the Asia goodwill impairment to between $2.15 and $2.25; down from our previous guidance range of $2.20 to $2.40 per diluted Class A Common Share.”

A webcast regarding Brady’s fiscal 2012 third 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, EMEA 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 April 30, Nine Months Ended April 30, Percentage Percentage 2012 2011 Change 2012 2011 Change Net sales $ 331,629 $ 337,896 -1.9 % $ 1,001,721 $ 996,493 0.5 % Cost of products sold 171,582   170,258   0.8 % 520,538   505,333   3.0 % Gross margin 160,047 167,638 -4.5 % 481,183 491,160 -2.0 %   Operating expenses: Research and development 8,940 10,550 -15.3 % 28,721 32,226 -10.9 % Selling, general and administrative 106,714 115,006 -7.2 % 320,489 332,394 -3.6 % Restructuring charges 3,440 1,211 184.1 % 3,440 6,986 -50.8 % Impairment charge -   -   N/A 115,688   -   N/A Total operating expenses 119,094 126,767 -6.1 % 468,338 371,606 26.0 %   Operating income 40,953 40,871 0.2 % 12,845 119,554 -89.3 %   Other income and (expense): Investment and other income 1,110 1,428 -22.3 % 1,720 2,892 -40.5 % Interest expense (4,735 ) (5,103 ) -7.2 % (14,715 ) (16,640 ) -11.6 %   Income (loss) before income taxes 37,328 37,196 0.4 % (150 ) 105,806 -100.1 %   Income taxes 9,676   8,607   12.4 % 29,420   26,737   10.0 %   Net income (loss) $ 27,652   $ 28,589   -3.3 % $ (29,570 ) $ 79,069   -137.4 %     Per Class A Nonvoting Common Share: Basic net income (loss) $ 0.53 $ 0.54 -1.9 % $ (0.57 ) $ 1.50 -138.0 % Diluted net income (loss) $ 0.52 $ 0.54 -3.7 % $ (0.57 ) $ 1.49 -138.3 % Dividends $ 0.185 $ 0.18 2.8 % $ 0.555 $ 0.54 2.8 %   Per Class B Voting Common Share: Basic net income (loss) $ 0.53 $ 0.54 -1.9 % $ (0.58 ) $ 1.48 -139.2 % Diluted net income (loss) $ 0.52 $ 0.54 -3.7 % $ (0.58 ) $ 1.47 -139.5 % Dividends $ 0.185 $ 0.18 2.8 % $ 0.538 $ 0.523 2.8 %   Weighted average common shares outstanding (in thousands): Basic 52,513 52,701 52,539 52,581 Diluted 53,003 53,337 52,539 53,067     BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS   (Dollars in Thousands) (Unaudited)

April 30, 2012

July 31, 2011

 

ASSETS

  Current assets: Cash and cash equivalents $ 374,425 $ 389,971 Accounts receivable - net 210,694 228,483 Inventories: Finished products 65,322 62,152 Work-in-process 15,045 14,550 Raw materials and supplies 25,749   27,484   Total inventories 106,116 104,186 Prepaid expenses and other current assets 40,267   35,647     Total current assets 731,502 758,287   Other assets: Goodwill 666,423 800,343 Other intangible assets 76,260 89,961 Deferred income taxes 48,578 53,755 Other 20,760 19,244   Property, plant and equipment: Cost: Land 6,119 6,406 Buildings and improvements 100,569 104,644 Machinery and equipment 303,666 305,557 Construction in progress 12,280   11,226   422,634 427,833   Less accumulated depreciation 295,017   287,918     Property, plant and equipment - net 127,617   139,915     Total $ 1,671,140   $ 1,861,505    

LIABILITIES AND STOCKHOLDERS' INVESTMENT

  Current liabilities: Accounts payable $ 75,303 $ 98,847 Wages and amounts withheld from employees 48,954 69,798 Taxes, other than income taxes 10,169 7,612 Accrued income taxes 20,939 9,954 Other current liabilities 41,926 54,406 Current maturities on long-term debt 61,264   61,264     Total current liabilities 258,555 301,881   Long-term obligations, less current maturities 280,812 331,914   Other liabilities 68,191   71,518     Total liabilities 607,558 705,313   Stockholders' investment: Common stock: Class A nonvoting common stock - Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 49,031,625 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 311,369 307,527 Income retained in the business 730,295 789,100 Treasury stock - 1,919,862 and 1,667,235 shares, respectively of Class A nonvoting common stock, at cost (55,354 ) (50,017 ) Accumulated other comprehensive income 80,432 113,898 Other (3,708 ) (4,864 )   Total stockholders' investment 1,063,582   1,156,192     Total $ 1,671,140   $ 1,861,505       BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended April 30, 2012 2011 Operating activities: Net (loss) income $ (29,570 ) $ 79,069 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,921 37,522 Non-cash portion of restructuring charges 458 2,155 Non-cash portion of stock-based compensation expense 7,592 9,396 Impairment charge 115,688 - Gain on divestiture of business - (4,394 ) Deferred income taxes (3,192 ) (9,018 ) Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures): Accounts receivable 11,050 211 Inventories (5,595 ) (1,491 ) Prepaid expenses and other assets (4,386 ) 772 Accounts payable and accrued liabilities (39,472 ) (8,355 ) Income taxes 15,101   4,579   Net cash provided by operating activities 100,595 110,446   Investing activities: Purchases of property, plant and equipment (14,498 ) (13,671 ) Payments of contingent consideration (2,580 ) (979 ) Settlement of net investment hedges (797 ) - Acquisition of business, net of cash acquired (3,039 ) (7,970 ) Divestiture of business, net of cash retained in business - 12,979 Other (1,536 ) (379 ) Net cash used in investing activities (22,450 ) (10,020 )   Financing activities: Payment of dividends (29,235 ) (28,500 ) Proceeds from issuance of common stock 3,624 7,154 Purchase of treasury stock (12,309 ) - Principal payments on debt (42,514 ) (42,514 ) Debt issuance costs (961 ) - Income tax benefit from the exercise of stock options and deferred compensation distribution, and other 754   1,075   Net cash used in financing activities (80,641 ) (62,785 )   Effect of exchange rate changes on cash (13,050 ) 21,497   Net (decrease) increase in cash and cash equivalents (15,546 ) 59,138 Cash and cash equivalents, beginning of period 389,971   314,840     Cash and cash equivalents, end of period $ 374,425   $ 373,978     Supplemental disclosures: Cash paid during the period for: Interest, net of capitalized interest $ 15,746 $ 16,349 Income taxes, net of refunds 19,959 26,695 Acquisitions: Fair value of assets acquired, net of cash $ 2,395 $ 4,624 Liabilities assumed (583 ) (1,446 ) Goodwill 1,227   4,792   Net cash paid for acquisitions $ 3,039   $ 7,970     Information by regional segment for the three and nine months ended April 30, 2012 and 2011 is as follows:                                     Corporate   Asia- Total and (in thousands)   Americas   EMEA   Pacific   Region   Eliminations   Total SALES TO EXTERNAL CUSTOMERS                         Three months ended:                         April 30, 2012   $150,629     $97,938     $83,062     $331,629     -     $331,629   April 30, 2011   $149,217     $105,894     $82,785     $337,896     -     $337,896                             Nine months ended:                         April 30, 2012   $442,896     $290,887     $267,938     $1,001,721     -     1,001,721   April 30, 2011   $431,216     $301,985     $263,292     $996,493     -     $996,493                             SALES INFORMATION                         Three months ended April 30, 2012:                         Base   1.9 %   -3.3 %   -1.2 %   -0.5 %   -     -0.5 % Currency   -0.9 %   -4.7 %   1.5 %   -1.6 %   -     -1.6 % Acquisitions/Divestitures   0.0 %   0.5 %   0.0 %   0.2 %   -     0.2 % Total   1.0 %   -7.5 %   0.3 %   -1.9 %   -     -1.9 %                           Nine months ended April 30, 2012:                         Base   3.5 %   -2.0 %   -1.9 %   0.4 %   -     0.4 % Currency   -0.5 %   -1.1 %   3.0 %   0.3 %   -     0.3 % Acquisitions/Divestitures   -0.3 %   -0.6 %   0.7 %   -0.2 %   -     -0.2 % Total   2.7 %   -3.7 %   1.8 %   0.5 %   -     0.5 %                           SEGMENT PROFIT                         Three months ended:                         April 30, 2012   $38,887     $25,571     $6,598     $71,056     ($388 )   $70,668   April 30, 2011   $38,292     $28,938     $9,976     $77,206     ($3,561 )   $73,645   Percentage change   1.6 %   -11.6 %   -33.9 %   -8.0 %       -4.0 %                           Nine months ended:                         April 30, 2012   $117,914     $78,432     $27,635     $223,981     ($6,009 )   $217,972   April 30, 2011   $108,666     $82,165     $38,330     $229,161     ($12,087 )   $217,074   Percentage change   8.5 %   -4.5 %   -27.9 %   -2.3 %       0.4 %               NET INCOME RECONCILIATION (in thousands)                   Three months ended: Nine months ended: April 30, April 30, April 30, April 30,     2012   2011 2012   2011 Total profit for reportable segments   $71,056     $77,206   $223,981     $229,161   Corporate and eliminations   (388 )   (3,561 ) (6,009 )   (12,087 ) Unallocated amounts:               Administrative costs   (26,275 )   (31,563 ) (85,999 )   (90,534 ) Restructuring charges   (3,440 )   (1,211 ) (3,440 )   (6,986 ) Impairment charge   -     -   (115,688 )   -   Investment and other income   1,110     1,428   1,720     2,892   Interest expense   (4,735 )   (5,103 ) (14,715 )   (16,640 ) Income (loss) before income taxes   37,328     37,196   (150 )   105,806   Income taxes   (9,676 )   (8,607 ) (29,420 )   (26,737 ) Net income (loss)   $ 27,652     $ 28,589   $ (29,570 )   $ 79,069     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 income (loss) $ 32,732 $ (89,954 ) $ 27,652 $ (29,570 ) Interest expense 5,047 4,933 4,735 14,715 Income taxes 11,109 8,635 9,676 29,420 Depreciation and amortization 11,241 10,935 10,745 32,921 Impairment charge   -     115,688       -         115,688     EBITDA (non-GAAP measure) $ 60,129   $ 50,237     $ 52,808   $ -   $ 163,174     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 charge and restructuring charges:         Three Months Ended Nine Months Ended April 30,   April 30, 2012   2011   2012   2011 Diluted Earnings (Loss) per Share $ 0.52   $ 0.54 $ (0.57 )   $ 1.49 Non-Cash Goodwill Impairment - - 2.21 - Restructuring Charges 0.05 0.01 0.05 0.09 Diluted Earnings per Share Excluding               Impairment and Restructuring Charges $ 0.57   $ 0.55   $ 1.69     $ 1.58  

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 Nine Months Ended April 30,   April 30, 2012   2011   2012   2011 Net Income (Loss) $ 27,652   $ 28,589 $ (29,570 )   $ 79,069 Non-Cash Goodwill Impairment - - 115,688 - Restructuring Charges 2,683 872 2,683 4,994 Net Income Excluding               Impairment and Restructuring Charges $ 30,335   $ 29,461   $ 88,801     $ 84,063   All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.