Brady Corporation Reports Fiscal 2013 Fourth Quarter Results and Certain Non-Cash Charges

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Brady Corporation Reports Fiscal 2013 Fourth Quarter Results and Certain Non-Cash Charges

MILWAUKEE--(BUSINESS WIRE)-- Brady Corporation (NYS: BRC) ("Brady" or "Company"), a world leader in identification solutions, today reported its financial results for the fiscal 2013 fourth quarter ended July 31, 2013.

Effective May 1, 2013, the Company changed its reporting structure from geographically-based to an organization structured around three global business platforms: Identification Solutions, Workplace Safety and Die-Cut. The Identification Solutions business focuses on identification solutions for a broad range of applications including wire identification, product identification, safety and facility identification, people identification and healthcare identification. The Workplace Safety business focuses on workplace safety and compliance products, and is expanding its multi-channel direct-marketing model with an increased focus on e-business. The Die-Cut business continues to provide precision solutions primarily to the global electronics industry. In May 2013, the Company announced plans to sell its Die-Cut business. Accordingly, the Company has recast its prior-period financial statements to report the financial results of the Die-Cut business on a line item as discontinued operations in the accompanying consolidated statements of income.


Quarter Ended July 31, 2013 Financial Results:

Sales from continuing operations for the fiscal 2013 fourth quarter ended July 31, 2013 were up 14.9 percent to $309.1 million compared to $269.1 million in the fourth quarter of fiscal 2012. Organic sales were down 2.3 percent, the acquisition of Precision Dynamics Corporation ("PDC") added 16.9 percent to sales, and the impact of foreign currency translation increased sales by 0.3 percent. By segment, organic sales were up 2.1 percent in Identification Solutions and down 8.6 percent in Workplace Safety.

During the quarter ended July 31, 2013, the Company recorded non-cash impairment charges of $204.4 million related to the write-down of certain long-lived assets in Asia, the write-down of goodwill of the Company's North American Workplace Safety business, and the write down of certain other intangible assets. During the quarter, the Company also recorded restructuring charges of $15.6 million and non-cash tax charges of $4.0 million related to the funding of the PDC acquisition and the recording of certain tax valuation allowances.

Net earnings (loss) from continuing operations for the fiscal 2013 fourth quarter ended July 31, 2013, were a loss of $(176.2) million compared to earnings of $20.9 million in the same quarter last year. Non-GAAP net earnings from continuing operations* for the fiscal fourth quarter ended July 31, 2013, was $27.9 million compared to $29.3 million in the same quarter last year.

Earnings (loss) from continuing operations per diluted Class A Nonvoting Common Share was $(3.41) for the fourth quarter of fiscal 2013 compared to $0.40 in the same quarter last year. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* were $0.53 in the fourth quarter of fiscal 2013 and $0.56 per share in the same quarter of fiscal 2012.

Year Ended July 31, 2013 Financial Results:

Sales from continuing operations for the year ended July 31, 2013, were up 7.8 percent to $1.15 billion compared to $1.07 billion for the year ended July 31, 2012. Organic sales were down 2.6 percent; acquisitions increased sales by 11.3 percent; and the impact of foreign currency translation decreased sales by 0.9 percent. By segment, Identification Solutions' organic sales increased 0.3 percent and Workplace Safety's organic sales decreased 7.0 percent.

Earnings (loss) from continuing operations for the year ended July 31, 2013, was a loss of $(140.8) million compared to earnings of $102.5 million for the year ended July 31, 2012. Non-GAAP net earnings from continuing operations* was $99.9 million for the year ended July 31, 2013 compared to $112.2 million for the year ended July 31, 2012.

Earnings (loss) from continuing operations per diluted Class A Nonvoting Common Share were $(2.75) for the year ended July 31, 2013 compared to $1.94 for the year ended July 31, 2012. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* was $1.93 for the year-ended July 31, 2013, compared to $2.12 for the year-ended July 31, 2012.

Commentary and Guidance:

"Fiscal 2013 was a year of unprecedented change and transformation for Brady. In addition to reorganizing our businesses around global business platforms, we also engaged in a business simplification process that resulted in a structure that brings us closer to our customers and more effectively supports our growth," said Brady's President and Chief Executive Officer, Frank M. Jaehnert. "In fiscal 2013, we also made significant changes in our portfolio of companies. We sold several smaller non-core businesses and announced that we are seeking a buyer for our Die-Cut business. At the same time, we completed the acquisition of PDC, which was the largest acquisition in Brady's nearly 100-year history. PDC is a leader in healthcare identification and gives Brady a strong entrance into the healthcare identification space.

"We are committed to returning to organic sales growth in fiscal 2014. Our Identification Solutions business will continue to focus on industries such as healthcare, food and beverage, chemical, oil and gas, and aerospace and mass transit, as well as expanding into faster-growing geographies such as Central Europe, the Middle East, Africa and selected markets in Asia. We are accelerating investment in our Workplace Safety business to improve organic sales and profit by building a scalable multi-channel model that all of our global Workplace Safety businesses will use. This accelerated investment will be evident in our fiscal 2014 financial results and is included in our guidance for next year."

Brady's Chief Financial Officer, Thomas J. Felmer said, "Brady remains financially very strong. Cash provided by operating activities was $143.5 million during the year ended July 31, 2013, which is in line with the prior year and our debt balance is lower today than it was prior to the purchase of PDC.

"As we look ahead to fiscal 2014, we anticipate organic sales to range from a slight contraction to low single-digit growth, with organic sales strongest in our Identification Solutions business. We expect organic sales to be down in the first half of the year and return to positive organic sales in the second half of fiscal 2014 as our initiatives to improve our Workplace Safety business begin to produce results. For fiscal 2014, we expect earnings from continuing operations per diluted Class A Nonvoting Common Share of between $1.80 and $2.00, exclusive of restructuring charges. Included in this guidance are approximately $0.08 of benefits from the acquisition of PDC, $0.40 of benefits from business simplification activities, an incremental $(0.20) of investments into our Workplace Safety business, and $(0.25) of incremental expenses due to more normalized incentive compensation. This guidance is based on current exchange rates, a full-year income tax rate in the mid-to-upper 20 percent range, capital expenditures of approximately $40 million, and depreciation and amortization of approximately $50 million. We also anticipate approximately $30 million of restructuring charges in fiscal 2014, which will result in approximately $10 million of annualized operational savings beginning in fiscal 2015."

A webcast regarding Brady's fiscal 2013 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, signs, safety devices, printing systems and software, and precision die-cut materials. Founded in 1914, the company has a diverse customer base 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, 2013, employed approximately 7,400 people in its worldwide businesses. Brady's fiscal 2013 sales were approximately $1.15 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.

* See accompanying notes for non-GAAP measures.

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, 2012. 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
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
    
Three months ended July 31,Twelve Months Ended July 31,
2013201220132012
Net sales$309,097$269,089$1,152,109$1,068,688
Cost of products sold 152,086  121,636  546,029  479,118 
Gross margin157,011147,453606,080589,570
Operating expenses:
Research and development9,3908,99633,55234,528
Selling, general and administrative106,938100,283427,661392,526
Restructuring charges15,5734,10726,0466,084
Impairment charges 204,448    204,448   
Total operating expenses336,349113,386691,707433,138
 
Operating (loss) income(179,338)34,067(85,627)156,432
 
Other income and (expense):
Investment and other income1,0953623,5222,082
Interest expense (3,886) (4,375) (16,641) (19,090)
 
(Loss) earnings from continuing operations before income taxes(182,129)30,054(98,746)139,424
 
Income tax (benefit) expense (5,895) 9,185  42,070  36,953 
 
(Loss) earnings from continuing operations$(176,234)$20,869$(140,816)$102,471
 
(Loss) from discontinued operations, net of income taxes (1,037) (9,210) (13,719) (120,382)
 
Net (loss) earnings$(177,271)$11,659 $(154,535)$(17,911)
 
(Loss) earnings from continuing operations per Class A Nonvoting Common Share:
Basic$(3.41)$0.40$(2.75)$1.95
Diluted$(3.41)$0.40$(2.75)$1.94
 
(Loss) earnings from continuing operations per Class B Voting Common Share:
Basic$(3.41)$0.40$(2.76)$1.93
Diluted$(3.41)$0.40$(2.76)$1.92
 
(Loss) from discontinued operations per Class A Nonvoting Common Share:
Basic$(0.02)$(0.18)$(0.27)$(2.30)
Diluted$(0.02)$(0.18)$(0.27)$(2.29)
 
(Loss) from discontinued operations per Class B Voting Common Share:
Basic$(0.02)$(0.18)$(0.27)$(2.29)
Diluted$(0.02)$(0.18)$(0.27)$(2.28)
 
(Loss) earnings per Class A Nonvoting Common Share:
Basic$(3.43)$0.22$(3.02)$(0.35)
Diluted$(3.43)$0.22$(3.02)$(0.35)
Dividends$0.19$0.185$0.76$0.74
 
(Loss) earnings per Class B Voting Common Share:
Basic$(3.43)$0.22$(3.03)$(0.36)
Diluted$(3.43)$0.22$(3.03)$(0.36)
Dividends$0.19$0.185$0.74$0.72
 
Weighted average common shares outstanding (in thousands):
Basic51,68952,19651,33052,453
Diluted51,68952,44851,33052,821
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BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
  
July 31, 2013July 31, 2012

ASSETS

Current assets:
Cash and cash equivalents$91,058$305,900
Accounts receivable—net169,261199,006
Inventories:
Finished products64,54464,740
Work-in-process14,77615,377
Raw materials and supplies 15,387  25,407 
Total inventories94,707105,524
Assets held for sale119,864
Prepaid expenses and other current assets 37,600  40,424 
Total current assets512,490650,854
Other assets:
Goodwill617,236676,791
Other intangible assets156,85184,119
Deferred income taxes8,62345,356
Other21,32520,584
Property, plant and equipment:
Cost:
Land7,8618,651
Buildings and improvements91,471101,962
Machinery and equipment266,787292,130
Construction in progress 11,842  10,417 
377,961413,160
Less accumulated depreciation 255,803  283,145 
Property, plant and equipment—net 122,158  130,015 
Total$1,438,683 $1,607,719 

LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities:
Notes payable$50,613