Brady Corporation Reports Fiscal 2012 Fourth Quarter Results and Announces Share Buyback Program

MILWAUKEE--()--Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for the fiscal 2012 fourth quarter ended July 31, 2012. The Company also announced that its Board of Directors authorized a share buyback program for up to two million shares of the Company’s Class A Common Stock.

Quarter Ended July 31, 2012 Financial Results:

Sales for the fiscal 2012 fourth quarter ended July 31, 2012 were down 6.0 percent to $322.5 million compared to $343.1 million in the fourth quarter of fiscal 2011. Organic sales were down 2.6 percent, the impact of foreign currency translation decreased sales by 5.0 percent, and acquisitions added 1.6 percent. By segment, organic sales increased 3.0 percent in the Americas and 0.6 percent in EMEA, and decreased 14.6 percent in the Asia-Pacific region.

Net income in the fiscal 2012 fourth quarter was down 60.6 percent to $11.7 million compared to $29.6 million in the same quarter last year. Excluding $7.1 million of after-tax restructuring charges in the fourth quarter of fiscal 2012 and $1.6 million of after-tax restructuring charges in the same quarter last year, and a $5.6 million non-routine, non-cash tax charge in the fourth quarter of fiscal 2012, net income was down 21.7 percent to $24.4 million compared to $31.1 million in the same quarter last year.

Earnings per diluted Class A Common Share were down 60.0 percent to $0.22 in the fourth quarter of fiscal 2012 compared to $0.55 in the same quarter last year. Excluding the impacts from the after-tax restructuring charges and the non-routine tax charge, earnings per diluted Class A Common Share were down 19.0 percent to $0.47 in the fourth quarter of fiscal 2012, compared to $0.58 per share in the same quarter of fiscal 2011.

Year Ended July 31, 2012 Financial Results:

Sales for the year ended July 31, 2012 were down 1.1 percent to $1.32 billion compared to $1.34 billion for the year ended July 31, 2011. Organic sales were down 0.4 percent; acquisitions, net of divestitures increased sales by 0.3 percent; and the impact of foreign currency translation decreased sales by 1.0 percent. By segment, organic sales increased 3.4 percent in the Americas, and decreased 1.3 percent in EMEA and 5.3 percent in the Asia-Pacific region.

Net loss for the year ended July 31, 2012 was $17.9 million compared to net income of $108.7 million for the year ended July 31, 2011. Excluding the impact of the $115.7 million non-cash goodwill impairment charge incurred in fiscal 2012, after-tax restructuring charges of $9.6 million in fiscal 2012 and $6.5 million in fiscal 2011, and the $5.6 million non-routine tax charge in fiscal 2012, net income was down 1.9 percent to $113.0 million compared to $115.2 million in fiscal 2011.

The Company’s loss per diluted Class A Common Share was $0.35 for the year ended July 31, 2012 compared to earnings per diluted Class A Common Share of $2.04 for the year ended July 31, 2011. Excluding the impacts from the non-cash goodwill impairment charge, the after-tax restructuring charges, and the non-routine tax charge, earnings per diluted Class A Common Share were $2.14 for the year ended July 31, 2012 compared to $2.16 in fiscal 2011. In fiscal 2012, net cash provided by operating activities was $144.7 million.

Share Buyback Program:

On September 6, 2012, Brady’s Board of Directors authorized a share buyback program for up to two million shares of the Company’s common stock. The share buyback plan may be implemented from time to time on the open market or in privately negotiated transactions.

Commentary and Guidance:

“In the fourth quarter of fiscal 2012 we were pleased with our organic sales growth in the Americas and EMEA regions, despite a continued challenging economy. Our performance in Asia-Pacific was weaker than expected due to increased market competitiveness, particularly in the mobile handset industry. Throughout fiscal 2012, our focus has been on shifting resources to our highest growth opportunities. As a result, we have recently sold our medical die-cut business in the U.S. and our paper-label business, Etimark in Germany. We also continued to invest in developing and launching a number of proprietary new products and we made three acquisitions in EMEA that increased our market share and expanded our geographic presence,” said Brady’s President and Chief Executive Officer, Frank M. Jaehnert. “Looking forward, we expect continued moderate organic growth in the Americas, a challenging economic environment in Europe, and improving results in Asia-Pacific due to our restructuring activities and some recent customer wins there.”

“As we look to fiscal 2013, we see limited likelihood that the macro-economy will provide a tailwind,” said Brady’s Chief Financial Officer, Thomas J. Felmer. “As such, we anticipate low single-digit organic growth in fiscal 2013, with all of the growth driven by our initiatives. For fiscal 2013, we expect earnings per diluted Class A Common Share of between $2.20 and $2.40, exclusive of after-tax restructuring charges. This guidance is based on current exchange rates, a share count consistent with that as of July 31, 2012, a full-year income tax rate in the mid-to-upper 20 percent range, capital expenditures of approximately $35 million and depreciation and amortization of approximately $45 million.”

A webcast regarding Brady’s fiscal 2012 fourth 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, 2012 employed approximately 6,900 people at operations in the Americas, EMEA and Asia-Pacific. Brady’s fiscal 2012 sales were approximately $1.32 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 July 31, Twelve Months Ended July 31,
Percentage Percentage
2012 2011 Change 2012 2011 Change
Net sales $ 322,548 $ 343,104 -6.0 % $ 1,324,269 $ 1,339,597 -1.1 %
Cost of products sold 167,425   178,068   -6.0 % 687,963   683,401   0.7 %
Gross margin 155,123 165,036 -6.0 % 636,306 656,196 -3.0 %
 
Operating expenses:
Research and development 9,719 10,775 -9.8 % 38,440 43,001 -10.6 %
Selling, general and administrative 109,821 109,421 0.4 % 430,310 441,815 -2.6 %
Restructuring charges 8,670 2,202 293.7 % 12,110 9,188 31.8 %
Impairment charge -   -   N/A 115,688   -   N/A
Total operating expenses 128,210 122,398 4.7 % 596,548 494,004 20.8 %
 
Operating income 26,913 42,638 -36.9 % 39,758 162,192 -75.5 %
 
Other income and (expense):
Investment and other income 362 1,098 -67.0 % 2,082 3,990 -47.8 %
Interest expense (4,375 ) (5,484 ) -20.2 % (19,090 ) (22,124 ) -13.7 %
 
Income before income taxes 22,900 38,252 -40.1 % 22,750 144,058 -84.2 %
 
Income taxes 11,241   8,669   29.7 % 40,661   35,406   14.8 %
 
Net income (loss) $ 11,659   $ 29,583   -60.6 % $ (17,911 ) $ 108,652   -116.5 %
 
 
Per Class A Nonvoting Common Share:
Basic net income (loss) $ 0.22 $ 0.56 -60.7 % $ (0.35 ) $ 2.06 -117.0 %
Diluted net income (loss) $ 0.22 $ 0.55 -60.0 % $ (0.35 ) $ 2.04 -117.2 %
Dividends $ 0.185 $ 0.18 2.8 % $ 0.74 $ 0.72 2.8 %
 
Per Class B Voting Common Share:
Basic net income (loss) $ 0.22 $ 0.56 -60.7 % $ (0.36 ) $ 2.04 -117.6 %
Diluted net income (loss) $ 0.22 $ 0.55 -60.0 % $ (0.36 ) $ 2.03 -117.7 %
Dividends $ 0.185 $ 0.18 2.8 % $ 0.723 $ 0.70 2.8 %
 
Weighted average common shares outstanding (in thousands):
Basic 52,196 52,815 52,453 52,639
Diluted 52,448 53,333 52,453 53,133
   
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Dollars in Thousands)
(Unaudited)

July 31, 2012

July 31, 2011

 

ASSETS

 
Current assets:
Cash and cash equivalents $ 305,900 $ 389,971
Accounts receivable - net 199,006 228,483
Inventories:
Finished products 64,740 62,152
Work-in-process 15,377 14,550
Raw materials and supplies 25,407   27,484  
Total inventories 105,524 104,186
Prepaid expenses and other current assets 40,424   35,647  
 
Total current assets 650,854 758,287
 
Other assets:
Goodwill 676,791 800,343
Other intangible assets 84,119 89,961
Deferred income taxes 45,356 53,755
Other 20,584 19,244
 
Property, plant and equipment:
Cost:
Land 8,651 6,406
Buildings and improvements 101,962 104,644
Machinery and equipment 292,130 305,557
Construction in progress 10,417   11,226  
413,160 427,833
 
Less accumulated depreciation 283,145   287,918  
 
Property, plant and equipment - net 130,015   139,915  
 
Total $ 1,607,719   $ 1,861,505  
 

LIABILITIES AND STOCKHOLDERS' INVESTMENT

 
Current liabilities:
Accounts payable $ 86,646 $ 98,847
Wages and amounts withheld from employees 54,629 69,798
Taxes, other than income taxes 9,307 7,612
Accrued income taxes 14,357 9,954
Other current liabilities 40,815 54,406
Current maturities on long-term debt 61,264   61,264  
 
Total current liabilities 267,018 301,881
 
Long-term obligations, less current maturities 254,944 331,914
 
Other liabilities 76,404   71,518  
 
Total liabilities 598,366 705,313
 
Stockholders' investment:
Common stock:
Class A nonvoting common stock - Issued 51,261,487 and 51,261,487 shares, respectively
and outstanding 47,630,926 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 313,008 307,527
Income retained in the business 732,290 789,100
Treasury stock - 3,320,561 and 1,667,235 shares, respectively of Class A nonvoting common stock, at cost (92,600 ) (50,017 )
Accumulated other comprehensive income 59,411 113,898
Other (3,304 ) (4,864 )
 
Total stockholders' investment 1,009,353   1,156,192  
 
Total $ 1,607,719   $ 1,861,505  
   
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
Twelve Months Ended
July 31,
2012 2011
Operating activities:
Net (loss) income $ (17,911 ) $ 108,652
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 43,987 48,827
Non-cash portion of restructuring charges 458 2,155
Non-cash portion of stock-based compensation expense 9,735 9,830
Impairment charge 115,688 -
Loss (gain) on divestiture of business 204 (4,394 )
Deferred income taxes (9,679 ) (8,161 )
Changes in operating assets and liabilities
(net of effects of business acquisitions/divestitures):
Accounts receivable 18,089 7,680
Inventories (7,674 ) (2,886 )
Prepaid expenses and other assets (2,744 ) 5,624
Accounts payable and accrued liabilities (29,370 ) (3,365 )
Income taxes 23,922   3,388  
Net cash provided by operating activities 144,705 167,350
 
Investing activities:
Purchases of property, plant and equipment (24,147 ) (20,532 )
Payments of contingent consideration (2,580 ) (1,528 )
Settlement of net investment hedges (797 ) (5,542 )
Acquisition of business, net of cash acquired (37,649 ) (7,970 )
Divestiture of business, net of cash retained in business 856 12,980
Other (287 ) (39 )
Net cash used in investing activities (64,604 ) (22,631 )
 
Financing activities:
Payment of dividends (38,899 ) (38,064 )
Proceeds from issuance of common stock 3,864 8,193
Purchase of treasury stock (49,933 ) -
Principal payments on debt (62,687 ) (61,264 )
Debt issuance costs (961 ) -
Income tax benefit from the exercise of stock options and deferred
compensation distribution, and other 792   (439 )
Net cash used in financing activities (147,824 ) (91,574 )
 
Effect of exchange rate changes on cash (16,348 ) 21,986
 
Net (decrease) increase in cash and cash equivalents (84,071 ) 75,131
Cash and cash equivalents, beginning of period 389,971   314,840  
 
Cash and cash equivalents, end of period $ 305,900   $ 389,971  
 
Supplemental disclosures:
Cash paid during the period for:
Interest, net of capitalized interest $ 19,194 $ 21,298
Income taxes, net of refunds 35,292 35,851
Acquisitions:
Fair value of assets acquired, net of cash $ 23,792 $ 4,624
Liabilities assumed (8,987 ) (1,446 )
Goodwill 22,844   4,792  
Net cash paid for acquisitions $ 37,649   $ 7,970  
           
Information by regional segment for the three and twelve months ended July 31, 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:                        
July 31, 2012   $147,028     $98,270     $77,250     $322,548     -     $322,548  
July 31, 2011   $146,212     $102,970     $93,922     $343,104     -    

$343,104

 
July 31, 2010   $148,929     $91,020     $82,945     $322,894     -     $322,894  
                         
Twelve months ended:                        
July 31, 2012   $589,925     $389,156     $345,188     $1,324,269     -     $1,324,269  
July 31, 2011   $577,428     $404,955     $357,214     $1,339,597     -     $1,339,597  
July 31, 2010   $551,185     $380,121     $327,790     $1,259,096     -     $1,259,096  
                         
SALES INFORMATION                        
Three months ended July 31, 2012:                        
Base   3.0 %   0.6 %   -14.6 %   -2.6 %   -     -2.6 %
Currency   -2.4 %   -10.7 %   -3.2 %   -5.0 %   -     -5.0 %
Acquisitions/Divestitures   0.0 %   5.5 %   0.0 %   1.6 %   -     1.6 %
Total   0.6 %   -4.6 %   -17.8 %   -6.0 %   -     -6.0 %
                         
Twelve months ended July 31, 2012:                        
Base   3.4 %   -1.3 %   -5.3 %   -0.4 %   -     -0.4 %
Currency   -0.9 %   -3.5 %   1.4 %   -1.0 %   -     -1.0 %
Acquisitions/Divestitures   -0.3 %   0.9 %   0.5 %   0.3 %   -     0.3 %
Total   2.2 %   -3.9 %   -3.4 %   -1.1 %   -     -1.1 %
                         
SEGMENT PROFIT                        
Three months ended:                        
July 31, 2012   $37,743     $27,211     $4,069     $69,023     ($1,318 )   $67,705  
July 31, 2011   $36,850     $29,882     $11,775     $78,507     ($3,655 )   $74,852  
Percentage change   2.4 %   -8.9 %   -65.4 %   -12.1 %       -9.5 %
                         
Twelve months ended:                        
July 31, 2012   $155,657     $105,643     $31,704     $293,004     ($7,328 )   $285,676  
July 31, 2011   $145,516     $112,047     $50,105     $307,668     ($15,742 )   $291,926  
Percentage change   7.0 %   -5.7 %   -36.7 %   -4.8 %       -2.1 %
 
         
NET INCOME RECONCILIATION (in thousands)              
    Three months ended: Twelve months ended:
    July 31, 2012   July 31, 2011 July 31, 2012   July 31, 2011
Total profit for reportable segments   $69,023     $78,507   $293,004     $307,668  
Corporate and eliminations   (1,318 )   (3,655 ) (7,328 )   (15,742 )
Unallocated amounts:              
Administrative costs   (32,122 )   (30,012 ) (118,120 )   (120,546 )
Restructuring charges   (8,670 )   (2,202 ) (12,110 )   (9,188 )
Impairment charge   -     -   (115,688 )   -  
Investment and other income   362     1,098   2,082     3,990  
Interest expense   (4,375 )   (5,484 ) (19,090 )   (22,124 )
Income before income taxes   22,900     38,252   22,750     144,058  
Income taxes   (11,241 )   (8,669 ) (40,661 )   (35,406 )
Net income (loss)   $ 11,659     $ 29,583   $ (17,911 )   $ 108,652  
 
NON-GAAP MEASURES
(Dollars in Thousands, Except Per Share Amounts)
   
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 $ 11,659 $ (17,911 )
Interest expense 5,047 4,933 4,735 4,375 19,090
Income taxes 11,109 8,635 9,676 11,241 40,661
Depreciation and amortization 11,241 10,935 10,745 11,066 43,987
Impairment charge   -     115,688       -     -     115,688  
 
EBITDA (non-GAAP measure) $ 60,129   $ 50,237     $ 52,808   $ 38,341   $ 201,515  
 
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, Restructuring, & Non-Routine Tax Charge:
This is a measure of the Company’s diluted net earnings per share excluding the current year Asia non-cash goodwill impairment charge, current and prior year restructuring charges, and current year non-routine non-cash tax charges related to an internal reorganization. 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, restructuring charges, and non-routine tax charge:
       
Three Months Ended July 31,   Twelve Months Ended July 31,
2012   2011   2012   2011
Diluted Earnings (Loss) per Share $ 0.22   $ 0.55 $ (0.34 )   $ 2.04
Non-Cash Goodwill Impairment - - 2.19 -
Restructuring Charges 0.14 0.03 0.18 0.12
Non-Routine, Non-Cash Tax Charge 0.11 - 0.11 -
Diluted Earnings per Share Excluding
Impairment, Restructuring Charges,              
& Non-Routine Tax Charge $ 0.47   $ 0.58   $ 2.14     $ 2.16
 
All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction. Diluted loss per share and all reconciling items for the twelve months ended July 31, 2012, are presented using total diluted shares of 52,821 for the period.
 
 
Net Income Excluding Impairment, Restructuring, & Non-Routine Tax Charge:
This is a measure of the Company’s net income excluding the current year Asia non-cash goodwill impairment charge, current and prior year restructuring charges, and current year non-routine non-cash tax charges related to an internal reorganization. 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, restructuring charges, and non-routine tax charge:
       
Three Months Ended July 31,   Twelve Months Ended July 31,
2012   2011   2012   2011
Net Income (Loss) $ 11,659   $ 29,583 $ (17,911 )   $ 108,652
Non-Cash Goodwill Impairment - - 115,688 -
Restructuring Charges 7,109 1,563 9,567 6,523
Non-Routine, Non-Cash Tax Charge 5,616 - 5,616 -
Net Income Excluding
Impairment, Restructuring Charges,              
& Non-Routine Tax Charge $ 24,384   $ 31,146   $ 112,960     $ 115,175
 

All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.

Contacts

Brady Corporation
Investor contact:
Aaron Pearce, 414-438-6895
or
Media contact:
Carole Herbstreit, 414-438-6882

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Contacts

Brady Corporation
Investor contact:
Aaron Pearce, 414-438-6895
or
Media contact:
Carole Herbstreit, 414-438-6882