Brady Reports F'08 Third-Quarter Sales and Earnings

By: Brady Corporation via Business Wire News Releases

May 21, 2008 at 08:31 AM EDT

Brady Corporation (NYSE: BRC), a world leader in identification solutions, today announced record third quarter sales and earnings for its fiscal quarter ended April 30, 2008.

Sales for the quarter were $381.9 million, up 10.3 percent compared to sales of $346.3 million in the fiscal 2007 third quarter. Organic sales were down 1 percent compared to the prior year, acquisitions contributed 5 percent to sales growth, and currency exchange added 6 percent to sales results in the quarter. Regionally, sales increased 14 percent in Brady Americas, 20 percent in Europe, 1 percent in Asia/Pacific and remained flat in Direct Marketing & People Identification Americas.

Net income for the quarter was up 18.5 percent to $34.4 million compared to $29.0 million in the same quarter last year. Earnings per diluted Class A Common Share were up 18.9 percent to $0.63 compared to $0.53 in the prior year. Fiscal 2008 earnings per share calculations reflect the completed repurchase of approximately 944,000 shares in the quarter.

Sales for the nine months ended April 30, 2008, rose 12.6 percent to $1.126 billion compared to $999.9 million in the same period last year. Net income for the nine-month period was $97.4 million, up 17.2 percent compared to $83.1 million in the prior year. Nine-month earnings per share were $1.77, up 16.4 percent compared to $1.52 per share in the period last year.

“This has been a strong quarter for us with good improvement in both gross margin and earnings per share. Our year-to-date operating cash flow is up 91 percent to $152 million from $80 million last year. Our pro-active efforts to adjust our cost structure and control working capital to cope with a slowing economy have clearly paid off,” said Brady President and Chief Executive Officer Frank M. Jaehnert.

“Based on current trends and including the two acquisitions made earlier this year, we are increasing sales guidance from $1.43-$1.46 billion to $1.50-$1.52 billion. While we continue to be concerned about economic softness in some of our key markets, we believe that our operational improvements allow us to reconfirm our net income guidance of $129-$135 million. We are, however, increasing our earnings per share guidance by $0.02 to $2.33-$2.44 to account for shares repurchased in the quarter,” said Brady Chief Financial Officer Thomas J. Felmer.

A Web cast of a conference call regarding the company's fiscal 2008 third quarter results will be available at www.investor.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. Its 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 more than 500,000 customers in electronics, telecommunications, manufacturing, electrical, construction, education, medical and a variety of other industries. Brady is headquartered in Milwaukee and employs about 8,000 people at operations in the Americas, Europe and Asia/Pacific. Brady’s fiscal 2007 sales were approximately $1.363 billion.

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 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 retain significant contracts and customers; future competition; 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; interruptions to sources of supply; environmental, health and safety compliance costs and liabilities; Brady's ability to realize cost savings from operating initiatives; Brady's ability to attract and retain key talent; difficulties associated with exports; risks associated with international operations; fluctuations in currency rates versus the US dollar; technology changes; potential write-offs of Brady's substantial intangible assets; risks associated with obtaining governmental approvals and maintaining regulatory compliance for new and existing products; business interruptions due to implementing business systems; 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 II of Brady's Annual Report on Form 10-K for the period ended July 31, 2007. 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 April 30,								Nine Months Ended April 30,
							Percentage								Percentage
		2008			2007		Change			2008			2007		Change
Net sales	$	381,909		$	346,332		10.3	%	$	1,126,167		$	999,866		12.6	%
Cost of products sold		192,333			177,181		8.6	%		573,901			516,426		11.1	%
Gross margin		189,576			169,151		12.1	%		552,266			483,440		14.2	%

Operating expenses:
Research and development		10,274			8,739		17.6	%		29,323			26,353		11.3	%
Selling, general and administrative		126,720			114,109		11.1	%		369,579			326,119		13.3	%
Total operating expenses		136,994			122,848		11.5	%		398,902			352,472		13.2	%

Operating income		52,582			46,303		13.6	%		153,364			130,968		17.1	%

Other income and (expense):
Investment and other income		920			385		139.0	%		3,307			917		260.6	%
Interest expense		(6,962	)		(6,428	)	8.3	%		(20,429	)		(16,407	)	24.5	%

Income before income taxes		46,540			40,260		15.6	%		136,242			115,478		18.0	%

Income taxes		12,187			11,273		8.1	%		38,829			32,334		20.1	%

Net income	$	34,353		$	28,987		18.5	%	$	97,413		$	83,144		17.2	%


Per Class A Nonvoting Common Share:
Basic net income	$	0.64		$	0.54		18.5	%	$	1.79		$	1.54		16.2	%
Diluted net income	$	0.63		$	0.53		18.9	%	$	1.77		$	1.52		16.4	%
Dividends	$	0.15		$	0.14		7.1	%	$	0.45		$	0.42		7.1	%

Per Class B Voting Common Share:
Basic net income	$	0.64		$	0.54		18.5	%	$	1.78		$	1.53		16.3	%
Diluted net income	$	0.63		$	0.53		18.9	%	$	1.76		$	1.50		17.3	%
Dividends	$	0.15		$	0.14		7.1	%	$	0.43		$	0.40		7.5	%

Weighted average common shares outstanding (in Thousands):
Basic		54,021			53,953					54,294			53,860
Diluted		54,627			54,717					54,992			54,704


BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)
		(Unaudited)
		April 30, 2008			July 31, 2007

ASSETS

Current assets:
Cash and cash equivalents	$	227,359		$	142,846
Short term investments		-			19,200
Accounts receivable, less allowance for losses ($9,863 and $9,109, respectively)		252,982			239,569
Inventories:
Finished products		75,492			80,486
Work-in-process		21,351			21,309
Raw materials and supplies		38,714			37,983
Total inventories		135,557			139,778
Prepaid expenses and other current assets		43,731			42,020

Total current assets		659,629			583,413

Other assets:
Goodwill		786,480			737,450
Other intangible assets, net		145,563			149,761
Deferred income taxes		32,194			32,508
Other		21,037			21,111

Total other assets		985,274			940,830

Property, plant and equipment:
Cost:
Land		6,482			6,332
Buildings and improvements		96,009			90,688
Machinery and equipment		272,461			248,356
Construction in progress		12,392			18,107

		387,344			363,483
Less accumulated depreciation		214,116			188,869

Net property, plant and equipment		173,228			174,614

Total	$	1,818,131		$	1,698,857

LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities:
Accounts payable	$	104,123		$	91,596
Wages and amounts withheld from employees		70,190			73,622
Taxes, other than income taxes		9,720			8,461
Accrued income taxes		13,914			24,677
Other current liabilities		51,897			60,254
Current maturities on long-term debt		21,432			21,444

Total current liabilities		271,276			280,054

Long-term obligations, less current maturities		478,572			478,575

Other liabilities		60,517			49,216

Total liabilities		810,365			807,845

Stockholders' investment:
Common stock:
Class A nonvoting common stock - Issued 51,051,487 and 50,586,524 shares, respectively and outstanding 50,170,581 and 50,586,524 shares, respsectively		511			506
Class B voting common stock - Issued and outstanding, 3,538,628 shares		35			35
Additional paid-in capital		286,452			266,203
Income retained in the business		612,407			540,238
Treasury stock - 880,906 and 0 shares, respectively of Class A nonvoting common stock, at cost		(26,743	)		0
Accumulated other comprehensive income		134,417			83,376
Other		687			654

Total stockholders' investment		1,007,766			891,012

Total	$	1,818,131		$	1,698,857


BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)		(Unaudited)
		Nine Months Ended
		April 30,
		2008			2007
Operating activities:
Net income	$	97,413		$	83,144
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		45,682			40,403
Deferred income taxes		(1,288	)		(2,129	)
Loss (gain) on disposal of property, plant & equipment		1,054			(182	)
Non-cash portion of stock-based compensation expense		7,797			5,022
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable		4,014			(20,146	)
Inventories		15,012			(17,544	)
Prepaid expenses and other assets		(6,193	)		(14,634	)
Accounts payable and accrued liabilities		(6,175	)		(2,454	)
Income taxes		(6,358	)		4,008
Other liabilities		1,157			4,169
Net cash provided by operating activities		152,115			79,657

Investing activities:
Acquisition of businesses, net of cash acquired		(28,871	)		(157,943	)
Payments of contingent consideration		(5,798	)		(10,906	)
Purchases of short-term investments		(10,350	)		(47,100	)
Sales of short-term investments		29,550			57,400
Purchases of property, plant and equipment		(19,678	)		(42,107	)
Proceeds from sale of property, plant and equipment		649			1,703
Other		1,808			(8,978	)
Net cash used in investing activities		(32,690	)		(207,931	)

Financing activities:
Payment of dividends		(24,341	)		(22,073	)
Proceeds from issuance of common stock		9,517			4,144
Principal payments on debt		(14	)		(110,674	)
Proceeds from issuance of debt		-			259,300
Purchase of treasury stock		(28,531	)		-
Income tax benefit from the exercise of stock options		4,620			902
Net cash provided by financing activities		(38,749	)		131,599
Effect of exchange rate changes on cash		3,837			3,005

Net increase (decrease) in cash and cash equivalents		84,513			6,330
Cash and cash equivalents, beginning of period		142,846			113,008

Cash and cash equivalents, end of period		227,359			119,338

Supplemental disclosures:
Cash paid during the period for:
Interest, net of capitalized interest	$	22,450		$	16,003
Income taxes, net of refunds		39,505			33,268
Acquisitions:
Fair value of assets acquired, net of cash	$	18,547		$	87,224
Liabilities assumed		(6,566	)		(33,037	)
Goodwill		16,890			103,756
Net cash paid for acquisitions	$	28,871		$	157,943


Information by regional segment for the three and six months ended April 30, 2008 and 2007 is as follows:
				Direct
				Marketing &
	Brady			People ID												Corporate and
(in thousands)	Americas			Americas			Europe			Asia-Pacific			Subtotals			Eliminations		Total
SALES TO EXTERNAL CUSTOMERS
Three months ended:
April 30, 2008	$	100,425		$	65,982		$	133,422		$	82,080		$	381,909		-		$	381,909
April 30, 2007		88,077			65,784			111,266			81,205			346,332		-			346,332

Nine months ended:
April 30, 2008	$	300,963		$	196,840		$	364,951		$	263,413		$	1,126,167		-		$	1,126,167
April 30, 2007		251,346			189,446			302,477			256,597			999,866		-			999,866

SALES GROWTH INFORMATION
Three months ended April 30, 2008:
Base		3.6	%		-2.4	%		0.1	%		-7.4	%		-1.2	%	-			-1.2	%
Currency		2.8	%		1.7	%		11.3	%		7.9	%		6.5	%	-			6.5	%
Acquisitions		7.6	%		1.0	%		8.5	%		0.6	%		5.0	%	-			5.0	%
Total		14.0	%		0.3	%		19.9	%		1.1	%		10.3	%	-			10.3	%

Nine months ended April 30, 2008:
Base		4.6	%		-1.3	%		0.6	%		-5.0	%		-0.2	%	-			-0.2	%
Currency		2.4	%		1.6	%		10.5	%		7.3	%		6.0	%	-			6.0	%
Acquisitions		12.7	%		3.6	%		9.5	%		0.4	%		6.8	%	-			6.8	%
Total		19.7	%		3.9	%		20.6	%		2.7	%		12.6	%	-			12.6	%

SEGMENT PROFIT (LOSS)
Three months ended:
April 30, 2008	$	22,692		$	17,477		$	36,245		$	11,055		$	87,469		($1,816	)	$	85,653
April 30, 2007		20,245			17,768			29,370			11,861			79,244		(1,858	)		77,386
Percentage increase (decrease)		12.1	%		-1.6	%		23.4	%		-6.8	%		10.4	%	-2.3	%		10.7	%

Nine months ended:
April 30, 2008	$	66,667		$	49,645		$	97,212		$	43,105		$	256,629		($6,400	)	$	250,229
April 30, 2007		55,433			49,491			74,979			46,392			226,295		(7,496	)		218,799
Percentage increase (decrease)		20.3	%		0.3	%		29.7	%		-7.1	%		13.4	%	-14.6	%		14.4	%



NET INCOME RECONCILIATION (in thousands)
	Three months ended:												Nine months ended:
	April 30,						April 30,						April 30,					April 30,
	2008						2007						2008					2007
Total profit for reportable segments	$	87,469					$	79,244					$	256,629				$	226,295
Corporate and eliminations		(1,816	)					(1,858	)					($6,400	)				(7,496	)
Unallocated amounts:
Administrative costs		(33,071	)					(31,083	)					(96,865	)				(87,831	)
Investment and other income		920						385						3,307					917
Interest expense		(6,962	)					(6,428	)					(20,429	)				(16,407	)
Income before income taxes		46,540						40,260						136,242					115,478
Income taxes		(12,187	)					(11,273	)					(38,829	)				(32,334	)
Net income	$	34,353					$	28,987					$	97,413				$	83,144


RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(in thousands)

			Fiscal 2007

			Q1		Q2		Q3		Q4		Total
EBITDA (1)
	Net income		$	34,448	$	19,709	$	28,987			$	83,144
		Interest expense		4,735		5,244		6,428				16,407
		Income taxes		13,396		7,665		11,273				32,334
		Depreciation and amortization		12,927		13,169		14,307				40,403

	EBITDA (non-GAAP measure)		$	65,506	$	45,787	$	60,995	$	-	$	172,288

			Fiscal 2008

			Q1		Q2		Q3		Q4		Total
EBITDA (1)
	Net income		$	36,370	$	26,690	$	34,353			$	97,413
		Interest expense		6,720		6,747		6,962				20,429
		Income taxes		15,366		11,276		12,187				38,829
		Depreciation and amortization		14,168		15,501		16,013				45,682

	EBITDA (non-GAAP measure)		$	72,624	$	60,214	$	69,515	$	-	$	202,353


(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.

Contacts:

Brady Corporation
Investor contact:
Barbara Bolens, 414-438-6940
or
Media contact:
Carole Herbstreit, 414-438-6882