Brady Corporation reports sales and earnings for fiscal 2008 first quarter

Brady Corporation (NYSE:BRC) reports record sales and earnings for its fiscal 2008 first quarter ended October 31, 2007. Sales for the quarter rose 14.4 percent to $380.1 million compared to $332.3 million in the first quarter of fiscal 2007. Sales growth was comprised of 1.7 percent organic growth, 7.5 percent from acquisitions and 5.2 percent from currency exchange. By segment, sales were up 27.2 percent in Brady Americas, 8.3 percent in Direct Marketing & People Identification Americas, 17.9 percent in Europe, and 3.7 percent in Asia/Pacific. Net income increased 5.6 percent in the fiscal 2008 first quarter to $36.4 million compared to $34.4 million in the same quarter last year. Earnings per diluted Class A Common share were $0.66 in the first quarter of fiscal 2008, up 4.8 percent compared to $0.63 per diluted share in the prior year’s quarter. "We are encouraged that the significant global cost-reduction activities taken in fiscal 2007 are now showing positive results. In addition, we have strengthened our position with the major players in the mobile-handset market as well as in the smaller hard-disk-drive and consumer-electronics markets,” said Frank M. Jaehnert, Brady’s president and chief executive officer. "While we are pleased with our first quarter results, we are cautious about the economy going forward. We also announced the acquisition of Transposafe last week with annual sales of $26 million. "Our guidance remains unchanged for the year, with sales from $1.430 to $1.460 billion, and net income and diluted earnings per share at between $129 and $135 million, and $2.31 and $2.42, respectively.” "Beginning with this quarter, we are changing our segment reporting from three to four segments to better reflect our current operational structure in the Americas by splitting results into Brady Americas and Direct Marketing & People Identification Americas. Reporting for Europe and Asia Pacific remains unchanged,” said David Mathieson, Brady’s senior vice president and chief financial officer. A web cast regarding fiscal 2008 first quarter results will be available at www.investor.bradycorp.com. 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 more than 8,600 people at operations in the Americas, Europe and Asia/Pacific. Brady’s fiscal 2007 sales were approximately $1.363 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, which includes an on-line version of the 2007 Annual Report to Shareholders. 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 I of Brady's Form 10-K for the year 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. Information by regional segment for the three months ended October 31, 2007 and 2006 is as follows: (in thousands)   BradyAmericas   DirectMarketing &People IDAmericas   Europe   Asia   Subtotals   CorporateandEliminations   Total SALES TO EXTERNAL CUSTOMERS Three months ended: October 31, 2007 $105,235 $69,540 $108,914 $96,445 $380,134 - $380,134 October 31, 2006 82,759 64,184 92,365 92,951 332,259 - 332,259   SALES GROWTH INFORMATION Three months ended October 31, 2007: Base 8.2 % 2.4 % 0.3 % -3.3 % 1.7 % - 1.7 % Currency 1.8 % 1.2 % 9.6 % 6.7 % 5.2 % - 5.2 % Acquisitions 17.2 % 4.7 % 8.0 % 0.3 % 7.5 % - 7.5 % Total 27.2 % 8.3 % 17.9 % 3.7 % 14.4 % - 14.4 %   SEGMENT PROFIT (LOSS) Three months ended: October 31, 2007 $24,459 $19,648 $29,900 $19,390 $93,397 ($2,237 ) $91,160 October 31, 2006 20,715 16,803 23,005 22,137 82,660 (2,810 ) 79,850 Percentage increase (decrease) 18.1 % 16.9 % 30.0 % -12.4 % 13.0 % -20.4 % 14.2 % NET INCOME RECONCILIATION (in thousands) Three months ended: October 31,2007   October 31,2006 Total profit for reportable segments $ 93,397 $ 82,660 Corporate and eliminations (2,237) (2,810) Unallocated amounts: Administrative costs (32,822) (27,909) Investment and other income 118 638 Interest expense (6,720)   (4,735) Income before income taxes 51,736 47,844 Income taxes (15,366)   (13,396) Net income $ 36,370   $ 34,448 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME     (Dollars in Thousands)   (Unaudited)   Three Months Ended October 31, 2007 2006 Percentage Change Net sales $ 380,134 $ 332,259 14.4 % Cost of products sold 192,467   168,131   14.5 % Gross margin 187,667 164,128 14.3 %   Operating expenses: Research and development 8,978 8,532 5.2 % Selling, general and administrative 120,351   103,655   16.1 % Total operating expenses 129,329 112,187 15.3 %   Operating income 58,338 51,941 12.3 %   Other income and (expense): Investment and other income 118 638 -81.5 % Interest expense (6,720 ) (4,735 ) 41.9 %   Income before income taxes 51,736 47,844 8.1 %   Income taxes 15,366   13,396   14.7 %   Net income $ 36,370   $ 34,448   5.6 %     Per Class A Nonvoting Common Share: Basic net income $ 0.67 $ 0.64 4.7 % Diluted net income $ 0.66 $ 0.63 4.8 % Dividends $ 0.15 $ 0.14 7.1 %   Per Class B Voting Common Share: Basic net income $ 0.65 $ 0.63 3.2 % Diluted net income $ 0.64 $ 0.62 3.2 % Dividends $ 0.13 $ 0.12 8.3 %   Weighted average common shares outstanding (in thousands): Basic 54,350 53,734 Diluted 55,121 54,605 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS   (IN THOUSANDS) (Unaudited) October 31, 2007 July 31, 2007 ASSETS   Current assets: Cash and cash equivalents $ 170,599 $ 142,846 Short term investments 16,490 19,200 Accounts receivable, less allowance for losses ($9,583 and 256,558 239,569 $9,109, respectively) Inventories: Finished products 78,793 80,486 Work-in-process 22,710 21,309 Raw materials and supplies 39,853 37,983 Total inventories 141,356 139,778 Prepaid expenses and other current assets 44,289 42,020   Total current assets 629,292 583,413   Other assets: Goodwill 753,908 737,450 Other intangible assets, net 146,439 149,761 Deferred income taxes 30,379 32,508 Other 23,156 21,111   Total other assets 953,882 940,830   Property, plant and equipment: Cost: Land 6,388 6,332 Buildings and improvements 92,735 90,688 Machinery and equipment 254,703 248,356 Construction in progress 18,585 18,107   372,411 363,483 Less accumulated depreciation 197,073 188,869   Net property, plant and equipment 175,338 174,614   Total $ 1,758,512 $ 1,698,857   LIABILITIES AND STOCKHOLDERS' INVESTMENT   Current liabilities: Accounts payable $ 97,171 $ 91,596 Wages and amounts withheld from employees 55,073 73,622 Taxes, other than income taxes 9,592 8,461 Accrued income taxes 18,513 24,677 Other current liabilities 62,156 60,254 Short-term borrowings and current maturities on long-term debt 21,440 21,444 Total current liabilities 263,945 280,054   Long-term obligations, less current maturities 478,573 478,575   Other liabilities 62,850 49,216   Total liabilities 805,368 807,845   Stockholders' investment: Common stock: Class A Nonvoting common stock - Issued and outstanding 50,847,654 and 508 506 50,586,524 shares, respectively Class B Voting common stock - Issued and outstanding, 3,538,628 shares 35 35 Additional paid-in capital 276,304 266,203 Earnings retained in the business 567,605 540,238 Accumulated other comprehensive income 108,050 83,376 Other 642 654   Total stockholders' investment 953,144 891,012   Total $ 1,758,512 $ 1,698,857 BRADY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Three Months Ended October 31 2007   2006 Operating activities: Net income $ 36,370 $ 34,448 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,168 12,927 Deferred income taxes (666 ) (542 ) Loss on disposal of property, plant & equipment 712 204 Non-cash portion of stock-based compensation expense 3,257 1,559 Changes in operating assets and liabilities (net of effects of business acquisitions): Accounts receivable (10,880 ) (21,119 ) Inventories 1,337 (6,539 ) Prepaid expenses and other assets (4,417 ) (4,818 ) Accounts payable and accrued liabilities (13,278 ) (9,638 ) Income taxes 6,086 4,437 Other liabilities 1,201   1,443   Net cash provided by operating activities 33,890 12,362   Investing activities: Acquisition of businesses, net of cash acquired - (45,173 ) Payments of contingent consideration (1,200 ) (7,500 ) Purchases of short-term investments (5,150 ) - Sales of short-term investments 7,860 11,500 Purchases of property, plant and equipment (7,395 ) (14,420 ) Other (1,375 ) (663 ) Net cash used in investing activities (7,260 ) (56,256 )   Financing activities: Payment of dividends (8,100 ) (7,463 ) Proceeds from issuance of common stock 4,134 531 Principal payments on debt (5 ) (23,226 ) Proceeds from issuance of debt - 48,220 Income tax benefit from the exercise of stock options and deferred compensation distributions 2,712   162   Net cash (used in) provided by financing activities (1,259 ) 18,224 Effect of exchange rate changes on cash 2,382 171   Net increase (decrease) in cash and cash equivalents 27,753 (25,499 ) Cash and cash equivalents, beginning of period 142,846   113,008     Cash and cash equivalents, end of period 170,599   87,509     Supplemental disclosures: Cash paid during the period for: Interest, net of capitalized interest $ 9,298 $ 5,368 Income taxes, net of refunds 3,275 9,393 Acquisitions: Fair value of asset acquired, net of cash $ - $ 27,589 Liabilities assumed - (6,610 ) Goodwill -   24,194   Net cash paid for acquisitions $ -   $ 45,173   RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands)           Fiscal 2007   Q1 Q2 Q3 Q4 Total EBITDA (1) Net income $ 34,448 $ 34,448 Interest expense 4,735 4,735 Income taxes 13,396 13,396 Depreciation and amortization 12,927               12,927   EBITDA (non-GAAP measure) $ 65,506 $ - $ - $ - $ 65,506   Fiscal 2008   Q1 Q2 Q3 Q4 Total EBITDA (1) Net income $ 36,370 $ 36,370 Interest expense 6,720 6,720 Income taxes 15,366 15,366 Depreciation and amortization 14,168               14,168   EBITDA (non-GAAP measure) $ 72,624 $ - $ - $ - $ 72,624     (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.