FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended April 30, 2008
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 1-14959
BRADY CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
Wisconsin
|
|
39-0178960 |
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification No.) |
6555 West Good Hope Road, Milwaukee, Wisconsin 53223
(Address of principal executive offices)
(Zip Code)
(414) 358-6600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
þ |
|
Accelerated filer
o |
|
Non-accelerated filer o |
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
As of June 2, 2008, there were outstanding 50,312,341 shares of Class A Nonvoting Common Stock
and 3,538,628 shares of Class B Voting Common Stock. The Class B Common Stock, all of which is
held by affiliates of the Registrant, is the only voting stock.
FORM 10-Q
BRADY CORPORATION
INDEX
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
Certification |
|
|
|
|
|
|
|
|
|
Certification |
|
|
|
|
|
|
|
|
|
Section 1350 Certification |
|
|
|
|
|
|
|
|
|
Section 1350 Certification |
|
|
|
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008 |
|
|
July 31, 2007 |
|
|
|
(Unaudited) |
|
|
|
|
|
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 |
|
|
145,563 |
|
|
|
149,761 |
|
Deferred income taxes |
|
|
32,194 |
|
|
|
32,508 |
|
Other |
|
|
21,037 |
|
|
|
21,111 |
|
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 obligations |
|
|
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: |
|
|
|
|
|
|
|
|
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, respectively |
|
|
511 |
|
|
|
506 |
|
Class B voting common stock Issued and outstanding 3,538,628 shares |
|
|
35 |
|
|
|
35 |
|
Additional paid-in capital |
|
|
286,452 |
|
|
|
266,203 |
|
Earnings retained in the business |
|
|
612,407 |
|
|
|
540,238 |
|
Treasury stock 880,906 and 0 shares, of Class A nonvoting common stock, at cost |
|
|
(26,743 |
) |
|
|
|
|
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 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Nine Months Ended April 30, |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
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 (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income net |
|
|
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 |
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
April 30, |
|
|
|
(Unaudited) |
|
|
|
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 (used in) provided by financing activities |
|
|
(38,749 |
) |
|
|
131,599 |
|
Effect of exchange rate changes on cash |
|
|
3,837 |
|
|
|
3,005 |
|
|
|
|
|
|
|
|
Net increase 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 of cash flow information: |
|
|
|
|
|
|
|
|
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 and goodwill |
|
$ |
18,547 |
|
|
$ |
87,224 |
|
Liabilities assumed |
|
|
(6,566 |
) |
|
|
(33,037 |
) |
Goodwill |
|
|
16,890 |
|
|
|
103,756 |
|
|
|
|
|
|
|
|
Net cash paid for acquisitions |
|
$ |
28,871 |
|
|
$ |
157,943 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5
BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended April 30, 2008
(Unaudited)
(In thousands, except share and per share amounts)
NOTE A Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Brady
Corporation and subsidiaries (the Company or Brady) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing
statements contain all adjustments, consisting only of normal recurring adjustments and the impact
of adopting Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48) (see Note K for further information) as of August 1, 2007,
necessary to present fairly the financial position of the Company as of April 30, 2008 and July 3l,
2007, its results of operations for the three and nine months ended April 30, 2008 and 2007, and
its cash flows for the nine months ended April 30, 2008 and 2007. The condensed consolidated
balance sheet as of July 31, 2007, has been derived from the audited consolidated financial
statements of that date. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make
estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty
involved in making estimates, actual results in future periods may differ from the estimates.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been omitted pursuant to rules and regulations of the
Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements
do not include all of the information and footnotes required by GAAP for complete financial
statement presentation. It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes thereto included in
the Companys latest annual report on Form 10-K for the year ended July 31, 2007.
NOTE B Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended April 30, 2008, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
Brady |
|
|
& People ID |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
Americas |
|
|
Europe |
|
|
Asia-Pacific |
|
|
Total |
|
Balance as of July 31, 2007 |
|
$ |
143,775 |
|
|
$ |
260,299 |
|
|
$ |
163,699 |
|
|
$ |
169,677 |
|
|
$ |
737,450 |
|
Goodwill acquired during the period |
|
|
|
|
|
|
3,156 |
|
|
|
13,734 |
|
|
|
|
|
|
|
16,890 |
|
Adjustments for prior year acquisitions |
|
|
3,755 |
|
|
|
(1,192 |
) |
|
|
(2,914 |
) |
|
|
3,765 |
|
|
|
3,414 |
|
Translation adjustments |
|
|
1,521 |
|
|
|
465 |
|
|
|
15,785 |
|
|
|
10,955 |
|
|
|
28,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2008 |
|
$ |
149,051 |
|
|
$ |
262,728 |
|
|
$ |
190,304 |
|
|
$ |
184,397 |
|
|
$ |
786,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill increased $49,030 during the nine months ended April 30, 2008. A portion of the
increase related to the November 2007 acquisitions of Transposafe Systems B.V. and Holland
Mounting Systems B.V. (collectively Transposafe) and the March 2008 acquisition of DAWG, Inc.
(DAWG), which added $13,734 and $3,156, respectively.
Goodwill also increased as a result of adjustments to the preliminary allocation of purchase
price for the acquisitions completed in fiscal 2007, of which the largest adjustment related to
the final purchase price adjustments for Comprehensive Identification Products, Inc (CIPI) which
added $3,668. Of the $3,668 increase in goodwill attributed to the allocation of the purchase
price for CIPI, $1,609 related to the adoption of FIN 48 (see Note K), $1,250 related to the
accrual for employee termination costs, and the remaining $809 related to various exit costs
associated with the closure of a facility. Goodwill increased $1,479 related to the fiscal 2007
acquisition of Sorbent Products Co., Inc. (SPC), primarily due to an adjustment in taxes. The
increase in goodwill related to the acquisitions of CIPI and SPC was partially offset by a tax
adjustment of $1,893 associated with the fiscal 2006 acquisition of Identicam Systems relating to
a deferred tax asset existing at the time of acquisition.
Additionally, during the nine months ended April 30, 2008, goodwill increased by $28,726 due
to the effects of foreign currency translation.
6
Other intangible assets include patents, trademarks, customer relationships, purchased
software, non-compete agreements and other intangible assets with finite lives being amortized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. The net book value of these assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008 |
|
|
July 31, 2007 |
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
Gross |
|
|
|
|
|
|
|
|
|
Period |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
Period |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
Amortized other
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
15 |
|
|
$ |
8,556 |
|
|
$ |
(6,407 |
) |
|
$ |
2,149 |
|
|
|
15 |
|
|
$ |
8,392 |
|
|
$ |
(5,913 |
) |
|
$ |
2,479 |
|
Trademarks and
other |
|
|
4 |
|
|
|
6,441 |
|
|
|
(4,503 |
) |
|
|
1,938 |
|
|
|
5 |
|
|
|
4,510 |
|
|
|
(3,250 |
) |
|
|
1,260 |
|
Customer
relationships |
|
|
7 |
|
|
|
148,253 |
|
|
|
(53,854 |
) |
|
|
94,399 |
|
|
|
7 |
|
|
|
134,125 |
|
|
|
(36,674 |
) |
|
|
97,451 |
|
Non-compete
agreements |
|
|
4 |
|
|
|
12,242 |
|
|
|
(8,040 |
) |
|
|
4,202 |
|
|
|
4 |
|
|
|
11,364 |
|
|
|
(6,294 |
) |
|
|
5,070 |
|
Other |
|
|
4 |
|
|
|
3,298 |
|
|
|
(3,294 |
) |
|
|
4 |
|
|
|
5 |
|
|
|
3,297 |
|
|
|
(2,554 |
) |
|
|
743 |
|
Unamortized other
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
N/A |
|
|
|
42,871 |
|
|
|
|
|
|
|
42,871 |
|
|
|
N/A |
|
|
|
42,758 |
|
|
|
|
|
|
|
42,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
221,661 |
|
|
$ |
(76,098 |
) |
|
$ |
145,563 |
|
|
|
|
|
|
$ |
204,446 |
|
|
$ |
(54,685 |
) |
|
$ |
149,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisitions completed during the nine months ended April 30, 2008, contributed to the
increases in the other amortized intangible assets listed in the table above. A portion of the
increase in customer relationships relates to the fiscal 2008 acquisitions of Transposafe and DAWG
which added $8,236 and $432 respectively. A significant component of the increase in amortizable
trademarks relates to the acquisition of Transposafe, which added $1,287.
The value of goodwill and other intangible assets in the Condensed Consolidated Balance Sheet
at April 30, 2008, differs from the value assigned to them in the allocation of purchase price due
to the effect of fluctuations in the exchange rates used to translate financial statements into the
United States Dollar between the date of acquisition and April 30, 2008.
Amortization expense on intangible assets was $7,260 and $5,673 for the three-month periods
ended April 30, 2008 and 2007, respectively and $20,003 and $16,634 for the nine-month periods
ended April 30, 2008 and 2007, respectively. Annual amortization is projected to be $27,682,
$25,456, $24,515, $20,722 and $11,485 for the years ending July 31, 2008, 2009, 2010, 2011 and
2012, respectively.
7
NOTE C Comprehensive Income
Total comprehensive income, which was comprised of net income, foreign currency adjustments,
net unrealized gains and losses from cash flow hedges and other investments, the unrealized gain
on the post-retirement medical, dental, and vision plans, and their related tax effects amounted
to $61,735 and $49,365 for the three months ended April 30, 2008 and 2007, respectively and
$148,454 and $116,868 for the nine months ended April 30, 2008 and 2007, respectively. The
components of accumulated other comprehensive income are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Nine Months Ended April 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Net Income |
|
$ |
34,353 |
|
|
$ |
28,987 |
|
|
$ |
97,413 |
|
|
$ |
83,144 |
|
Cumulative translation adjustments |
|
|
27,452 |
|
|
|
20,423 |
|
|
|
51,352 |
|
|
|
33,523 |
|
Unamortized gain on post-retirement medical,
dental, and vision plans, net of tax |
|
|
(82 |
) |
|
|
|
|
|
|
(246 |
) |
|
|
|
|
Unrealized gain on cash flow hedges and
securities
in deferred compensation plans, net of tax |
|
|
12 |
|
|
|
(45 |
) |
|
|
(65 |
) |
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
61,735 |
|
|
$ |
49,365 |
|
|
$ |
148,454 |
|
|
$ |
116,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE D Net Income Per Common Share
Reconciliations of the numerator and denominator of the basic and diluted per share
computations for the Companys Class A and Class B common stock are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
Nine Months Ended April 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (numerator for basic and
diluted Class A net income per share) |
|
$ |
34,353 |
|
|
$ |
28,987 |
|
|
$ |
97,413 |
|
|
$ |
83,144 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferential dividends |
|
|
|
|
|
|
|
|
|
|
(847 |
) |
|
|
(836 |
) |
Preferential dividends on
dilutive stock options |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted Class
B net income per share |
|
$ |
34,353 |
|
|
$ |
28,987 |
|
|
$ |
96,553 |
|
|
$ |
82,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per
share for both Class A and Class B |
|
|
54,021,000 |
|
|
|
53,953,000 |
|
|
|
54,294,000 |
|
|
|
53,860,000 |
|
Plus: Effect of dilutive stock options |
|
|
606,000 |
|
|
|
764,000 |
|
|
|
698,000 |
|
|
|
844,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income
per share for both Class A and Class
B |
|
|
54,627,000 |
|
|
|
54,717,000 |
|
|
|
54,992,000 |
|
|
|
54,704,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Nonvoting Common Stock net income
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.64 |
|
|
$ |
0.54 |
|
|
$ |
1.79 |
|
|
$ |
1.54 |
|
Diluted |
|
$ |
0.63 |
|
|
$ |
0.53 |
|
|
$ |
1.77 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Voting Common Stock net income per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.64 |
|
|
$ |
0.54 |
|
|
$ |
1.78 |
|
|
$ |
1.53 |
|
Diluted |
|
$ |
0.63 |
|
|
$ |
0.53 |
|
|
$ |
1.76 |
|
|
$ |
1.50 |
|
Options to purchase 2,171,000 and 1,874,200 shares of Class A Nonvoting Common Stock for the
three and nine months ended April 30, 2008, respectively, and 1,259,500 and 1,052,833 shares of
Class A Nonvoting Common Stock for the three and nine months ended April 30, 2007, respectively,
were not included in the computations of diluted net income per share because the option exercise
price was greater than the average market price of the common shares and, therefore, the effect
would be anti-dilutive.
8
NOTE E Acquisitions
During the nine months ended April 30, 2008, the Company acquired two companies for a total
combined purchase, net of cash acquired, of $28,871. Transposafe is headquartered near Amsterdam
with operations in Belgium, Germany, and Poland. Transposafe specializes in security sealing and
identification solutions for protecting assets during transport. Transposafe was acquired in
November 2007. DAWG is headquartered in Terryville, Connecticut. DAWG is a direct marketer of
sorbents, spill-containment products, safety-storage cabinets, first aid kits, and other products
that help keep facilities safe and clean. DAWG was acquired in March 2008.
The purchase agreement of Transposafe includes a provision for contingent payments based upon
meeting certain performance conditions over a two-year period of time subsequent to the
acquisition. The total maximum contingent payment of approximately $3,000 has been placed in an
escrow account for the acquisition of Transposafe. The Company has
recorded the contingent payment that has been placed in an escrow
account as an other asset on the condensed consolidated balance sheet.
Payments of approximately $4,400, $1,200, and $200 were made during the nine months ended
April 30, 2008 to satisfy the earnout and holdback liabilities of the Daewon Industry Corporation,
STOPware, Inc., and Asterisco acquisitions, respectively.
9
NOTE F Segment Information
Effective August 1, 2007, the Company revised its reportable segments as a result of
organizational changes within the executive leadership team, and has restated the corresponding
segment information from its previous geographical based structure for the prior year. The
Company has four reportable segments: Brady Americas, Direct Marketing & People ID Americas,
Europe and Asia-Pacific. The Brady Americas reportable segment includes businesses that focus on
MRO and OEM market products sold to customers in North and South America through distributors or a
direct sales force. The Direct Marketing & People ID Americas reportable segment includes
businesses that market their products through business-to-business direct mail, catalogs, and
telemarketing, distribution and a direct sales force in North and South America. The Europe and
Asia-Pacific reportable segments have not changed from prior year disclosures. Following is a
summary of segment information for the three and nine months ended April 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
Brady |
|
People ID |
|
|
|
|
|
|
|
|
|
|
|
|
|
And |
|
|
|
|
Americas |
|
Americas |
|
Europe |
|
Asia-Pacific |
|
Sub-Totals |
|
Eliminations |
|
Totals |
Three months ended
April 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from
external customers |
|
$ |
100,425 |
|
|
$ |
65,982 |
|
|
$ |
133,422 |
|
|
$ |
82,080 |
|
|
$ |
381,909 |
|
|
$ |
|
|
|
$ |
381,909 |
|
Intersegment revenues |
|
|
14,166 |
|
|
|
669 |
|
|
|
1,732 |
|
|
|
6,194 |
|
|
|
22,761 |
|
|
|
(22,761 |
) |
|
|
|
|
Segment profit |
|
|
22,692 |
|
|
|
17,477 |
|
|
|
36,245 |
|
|
|
11,055 |
|
|
|
87,469 |
|
|
|
(1,816 |
) |
|
|
85,653 |
|
|
Three months ended
April 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from
external customers |
|
$ |
88,077 |
|
|
$ |
65,784 |
|
|
$ |
111,266 |
|
|
$ |
81,205 |
|
|
$ |
346,332 |
|
|
$ |
|
|
|
$ |
346,332 |
|
Intersegment revenues |
|
|
13,710 |
|
|
|
984 |
|
|
|
1,954 |
|
|
|
6,131 |
|
|
|
22,779 |
|
|
|
(22,779 |
) |
|
|
|
|
Segment profit |
|
|
20,245 |
|
|
|
17,768 |
|
|
|
29,370 |
|
|
|
11,861 |
|
|
|
79,244 |
|
|
|
(1,858 |
) |
|
|
77,386 |
|
|
Nine months ended
April 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from
external customers |
|
$ |
300,963 |
|
|
$ |
196,840 |
|
|
$ |
364,951 |
|
|
$ |
263,413 |
|
|
$ |
1,126,167 |
|
|
$ |
|
|
|
$ |
1,126,167 |
|
Intersegment revenues |
|
|
44,067 |
|
|
|
1,862 |
|
|
|
6,985 |
|
|
|
18,655 |
|
|
|
71,569 |
|
|
|
(71,569 |
) |
|
|
|
|
Segment profit |
|
|
66,667 |
|
|
|
49,645 |
|
|
|
97,212 |
|
|
|
43,105 |
|
|
|
256,629 |
|
|
|
(6,400 |
) |
|
|
250,229 |
|
|
Nine months ended
April 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from
external customers |
|
$ |
251,346 |
|
|
$ |
189,446 |
|
|
$ |
302,477 |
|
|
$ |
256,597 |
|
|
$ |
999,866 |
|
|
$ |
|
|
|
$ |
999,866 |
|
Intersegment revenues |
|
|
39,052 |
|
|
|
2,476 |
|
|
|
4,404 |
|
|
|
16,824 |
|
|
|
62,756 |
|
|
|
(62,756 |
) |
|
|
|
|
Segment profit |
|
|
55,433 |
|
|
|
49,491 |
|
|
|
74,979 |
|
|
|
46,392 |
|
|
|
226,295 |
|
|
|
(7,496 |
) |
|
|
218,799 |
|
Following is a reconciliation of segment profit to net income for the three months and nine months
ended April 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended: |
|
|
Nine months ended: |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Total profit from 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTE G Stock-Based Compensation
The Company has an incentive stock plan under which the Board of Directors may grant
nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted
shares of Class A Nonvoting Common Stock to employees. Additionally, the Company has a nonqualified
stock option plan for non-employee directors under which stock options to purchase shares of Class
A Nonvoting Common Stock are available for grant. The options have an exercise price equal to the
fair market value of the underlying stock at the date of grant and generally vest ratably over a
three-year period, with one-third becoming exercisable one year after the grant date and one-third
additional in each of the succeeding two years. Options issued under these plans, referred to
herein as service-based options, generally expire 10 years from the date of grant. The Company
also grants stock options to certain executives and key management employees that vest upon meeting
certain financial performance conditions over the vesting schedule described above. These options
are referred to herein as performance-based options. Performance-based options granted in fiscal
2007 and forward expire 10 years from the date of grant. Restricted shares have an issuance price
equal to the fair market value of the underlying stock at the date of grant. They vest at the end
of a five-year period and upon meeting certain financial performance conditions. These shares are
referred to herein as performance-based restricted shares.
As of April 30, 2008, the Company has reserved 4,488,112 shares of Class A Nonvoting Common
Stock for outstanding stock options and restricted shares and 968,833 shares of Class A Nonvoting
Common Stock for future issuance of stock options and restricted shares under the various plans.
The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares
under these plans.
The Company accounts for share-based compensation awards in accordance with SFAS No. 123(R),
Share Based Payment. In accordance with this standard, the Company recognizes the compensation
cost of all share-based awards on a straight-line basis over the vesting period of the award. Total
stock compensation expense recognized by the Company during the three months ended April 30, 2008
and 2007 was $1,415 ($863 net of taxes) and $1,353 ($825 net of taxes), respectively, and expense
recognized during the nine months ended April 30, 2008 and 2007 was $7,797 ($4,756 net of taxes)
and $5,022 ($3,063 net of taxes), respectively. As of April 30, 2008, total unrecognized
compensation cost related to share-based compensation awards was approximately $20,331 pre-tax, net
of estimated forfeitures, which the Company expects to recognize over a weighted-average period of
approximately 2.7 years.
The Company has estimated the fair value of its service-based and performance-based option
awards granted during the nine months ended April 30, 2008 and 2007 using the Black-Scholes option
valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are
reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Nine Months Ended |
|
|
April 30, 2008 |
|
April 30, 2007 |
|
|
|
|
|
|
Performance- |
|
|
|
|
|
Performance- |
|
|
Service-Based |
|
Based Option |
|
Service-Based |
|
Based Option |
Black-Scholes Option Valuation Assumptions |
|
Option Awards |
|
Awards |
|
Option Awards |
|
Awards |
Expected term (in years) |
|
|
6.04 |
|
|
|
6.57 |
|
|
|
6.07 |
|
|
|
6.57 |
|
Expected volatility |
|
|
32.05 |
% |
|
|
33.68 |
% |
|
|
34.01 |
% |
|
|
34.66 |
% |
Expected dividend yield |
|
|
1.62 |
% |
|
|
1.58 |
% |
|
|
1.46 |
% |
|
|
1.51 |
% |
Risk-free interest rate |
|
|
3.44 |
% |
|
|
4.66 |
% |
|
|
4.52 |
% |
|
|
4.90 |
% |
Weighted-average market value of underlying stock at grant date |
|
$ |
38.22 |
|
|
$ |
35.35 |
|
|
$ |
38.19 |
|
|
$ |
33.32 |
|
Weighted-average exercise price |
|
$ |
38.22 |
|
|
$ |
35.35 |
|
|
$ |
38.19 |
|
|
$ |
33.32 |
|
Weighted-average fair value of options
granted during the period |
|
$ |
11.94 |
|
|
$ |
12.83 |
|
|
$ |
13.57 |
|
|
$ |
12.57 |
|
The Company uses historical data regarding stock option exercise behaviors to estimate the
expected term of options granted based on the period of time that options granted are expected to
be outstanding. Expected volatilities are based on the historical volatility of the Companys
stock. The expected dividend yield is based on the Companys historical dividend payments and
historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
on the grant date for the length of time corresponding to the expected term of the option. The
market value is obtained by taking the average of the high and the low stock price on the date of
the grant.
The Company granted 210,000 performance-based restricted shares during the nine months ended
April 30, 2008, with a grant price and fair value of $32.83. As of April 30, 2008, 210,000
performance-based restricted shares were outstanding.
11
A summary of stock option activity under the Companys share-based compensation plans for the
nine months ended April 30, 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted |
|
Remaining |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Contractual |
|
Intrinsic |
Options |
|
Shares |
|
Exercise Price |
|
Term |
|
Value |
|
Outstanding at July 31, 2007 |
|
|
4,182,739 |
|
|
$ |
26.36 |
|
|
|
|
|
|
|
|
|
New grants |
|
|
954,500 |
|
|
$ |
37.44 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(527,853 |
) |
|
$ |
18.22 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(331,274 |
) |
|
$ |
36.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2008 |
|
|
4,278,112 |
|
|
$ |
29.06 |
|
|
|
6.7 |
|
|
$ |
27,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2008 |
|
|
2,466,275 |
|
|
$ |
25.15 |
|
|
|
5.4 |
|
|
$ |
23,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the nine months ended April 30, 2008 and
2007, based upon the average market price during the period, was $10,725 and $5,016, respectively.
The total fair value of stock options vested during the nine months ended April 30, 2008 and 2007,
was $6,484 and $4,592, respectively.
NOTE H Debt
On March 18, 2008, the Company entered into an amendment to the Companys revolving loan
agreement with the various lenders under the loan agreement. The amendment extended the maturity
date of the revolving loan from October 5, 2011 to March 18, 2013. All other terms of the
revolving loan agreement remained the same.
NOTE I Shareholders Equity
In September 2007, the Company announced that the Board of Directors of the Company authorized
a share repurchase plan for up to one million shares of the Companys Class A Nonvoting Common
Stock. The share repurchase plan may be implemented by purchasing shares on the open market or in
privately negotiated transactions, with repurchased shares available for use in connection with the
Companys stock-based plans and for other corporate purposes. During the nine months ended April
30, 2008, the Company reacquired approximately 944,000 shares of its Class A Nonvoting Common Stock
for approximately $28,500.
In March 2008, the Company announced that the Board of Directors of the Company authorized a
share repurchase plan for up to an additional one million shares of the Companys Class A Nonvoting
Common Stock. The share repurchase plan may be implemented by purchasing shares on the open market
or in privately negotiated transactions, with repurchased shares available for use in connection
with the Companys stock-based plans and for other corporate purposes. During the nine months
ended April 30, 2008, the Company did not reacquire any shares under this repurchase plan.
12
NOTE J Employee Benefit Plans
The Company provides postretirement medical, dental and vision benefits for eligible regular
full and part-time domestic employees (including spouses) outlined by the plan. Postretirement
benefits are provided only if the employee was hired prior to April 1, 2008, and retires on or
after attainment of age 55 with 15 years of credited service. Credited service begins accruing at
the later of age 40 or date of hire. All active employees first eligible to retire after July 31,
1992, are covered by an unfunded, contributory postretirement healthcare plan where employer
contributions will not exceed a defined dollar benefit amount, regardless of the cost of the
program. Employer contributions to the plan are based on the employees age and service at
retirement.
The Company accounts for postretirement benefits other than pensions in accordance with SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. The
Company funds benefit costs on a pay-as-you-go basis. There have been no changes to the components
of net periodic benefit cost or the amount that the Company expects to fund in fiscal 2008 from
those reported in Note 3 to the consolidated financial statements included in the Companys latest
annual report on Form 10-K for the year ended July 31, 2007.
NOTE K Income Taxes
On August 1, 2007, the Company adopted FIN 48. FIN 48 prescribes a recognition threshold that
a tax position is required to meet before being recognized in the financial statements and provides
guidance on derecognition, measurement, classification, interest and penalties, accounting in
interim periods, and disclosure and transition issues.
The adoption of FIN 48 resulted in a $900 charge to earnings retained in the business as of
August 1, 2007 and a change in the classification of the liability on the balance sheet from
accrued income taxes to other liabilities. As of August 1, 2007, the Companys liability for
uncertain tax positions was $15,900. Unrecognized tax benefits of $10,500 would affect the
Companys effective tax rate if recognized. As of April 30, 2008, the Companys liability for
uncertain tax positions was $15,600.
The Company recognizes accrued interest related to unrecognized tax benefits in income taxes
on the accompanying condensed consolidated statements of income. At August 1, 2007, the Company
had accrued $2,200 for the potential payment of interest which was included in the $15,900
liability for uncertain tax positions. During the nine months ended April 30, 2008, the Company
recognized $200 in potential interest associated with uncertain tax positions. The total accrual
for potential payment of interest was $2,400 as of April 30, 2008. During the third quarter of
fiscal 2008, approximately $2,000 of tax benefits were recognized due to expiring statutes of
limitation.
The Company and its subsidiaries file income tax returns in the US federal jurisdiction, and
various state and foreign jurisdictions. The following table summarizes the open tax years for the
Companys major jurisdictions:
|
|
|
|
|
Jurisdiction |
|
Open Tax Years |
|
United States Federal |
|
|
F05 F07 |
|
France |
|
|
F05 F07 |
|
Germany |
|
|
F03 F07 |
|
United Kingdom |
|
|
F05 F07 |
|
13
NOTE L New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement
provides guidance on how to measure the fair value of assets and liabilities utilizing a fair value
hierarchy to classify the sources of information used in the measurement calculation. SFAS No. 157
also provides new disclosure rules for assets and liabilities measured at fair value based on their
level in the fair value hierarchy. This new statement will be effective for fiscal years beginning
after November 15, 2007. The Company is in the process of evaluating the impact that will result
from adopting SFAS No. 157 and therefore is unable to disclose the impact SFAS No. 157 will have on
its financial position and results of operations when such statement is adopted.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. This statement permits entities to choose the fair value option to
measure many financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting. This
new statement will be effective for fiscal years beginning after November 15, 2007. The Company is
in the process of evaluating the impact that will result from adopting SFAS No. 159 and therefore
is unable to disclose the impact SFAS No. 159 will have on its financial position and results of
operations when such statement is adopted.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R)
requires acquiring entities to recognize all the assets and liabilities assumed in a transaction at
fair values as of the acquisition date, but changes the accounting treatment for certain items,
including:
|
a) |
|
Acquisition costs will generally be expensed as incurred; |
|
|
b) |
|
Noncontrolling interests will be valued at fair value at the acquisition date; |
|
|
c) |
|
Liabilities related to contingent consideration will be re-measured at fair value in each
subsequent reporting period; |
|
|
d) |
|
Restructuring costs associated with a business combination will generally be expensed
after the acquisition date; and |
|
|
e) |
|
In-process research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date. |
SFAS No. 141(R) applies to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. The Company
is in the process of evaluating the impact that will result from adopting SFAS No.141(R), and
therefore, the Company is unable to disclose the impact SFAS No. 141(R) will have on its financial
position and results of operations when such statement is adopted.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements. SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary. This statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement. This new
statement will be effective for fiscal years beginning after December 15, 2008. The Company
expects that the adoption of SFAS No. 160 will not have a material effect on its consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and
Hedging Activities. SFAS No. 161 requires expanded quantitative, qualitative, and credit-risk
disclosures about an entitys derivative instruments and hedging activities. This new statement
will be effective for fiscal years and interim periods beginning after November 15, 2008. The
Company expects that the adoption of SFAS No. 161 will not have a material impact on its financial
position and results of operations. The Company is in the process of evaluating the impact that
will result from adopting SFAS No. 161 on the Companys financial disclosures when such statement
is adopted.
14
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Brady is an international manufacturer and marketer of identification solutions and specialty
materials that identify and protect premises, products, and people. Its products include
high-performance labels and signs, printing systems and software, safety devices, precision die-cut
materials, and label-application and data-collection systems. Founded in 1914, the Company serves
customers in manufacturing, electrical, telecommunications, electronics, construction, laboratory,
education, governmental, public utility, computer, transportation and a variety of other
industries. The Company manufactures and sells products domestically and internationally through
multiple channels including distributor sales, direct sales, mail-order catalogs, telemarketing,
retail and electronic access through the Internet. The Company believes that its reputation for
innovation, commitment to quality and service, and dedicated employees have made it a world leader
in the markets it serves. The Company operates manufacturing or distribution facilities in
Australia, Belgium, Brazil, Canada, China, Denmark, France, Germany, Hong Kong, India, Italy,
Japan, Korea, Malaysia, Mexico, the Netherlands, Norway, Poland, Singapore, Slovakia, Sweden,
Thailand, the United Kingdom and the United States. Brady sells through subsidiaries or sales
offices in these countries, with additional sales through a dedicated team of international sales
representatives in the Philippines, Spain, Taiwan, Turkey, and the United Arab Emirates and further
markets its products to parts of Eastern Europe, the Middle East, Africa and Russia.
Sales for the quarter ended April 30, 2008, increased 10.3% to $381.9 million, compared to
$346.3 million in the same period of fiscal 2007. Of the increase in sales, organic sales declined
1.2%, acquisitions added 5.0% and the effects of fluctuations in the exchange rates used to
translate financial results into the United States dollar added 6.5%. Net income for the quarter
ended April 30, 2008, was $34.4 million or $0.63 per diluted Class A Nonvoting Common Share, up
18.5% and 18.9%, respectively, from $29.0 million or $0.53 per diluted Class A Nonvoting Common
Share reported in the third quarter of last fiscal year.
Sales for the nine months ended April 30, 2008, increased 12.6% to $1,126.2 million, compared
to $999.9 million in the same period of fiscal 2007. Of the increase in sales, organic sales
declined 0.2%, acquisitions added 6.8% and the effects of fluctuations in the exchange rates used
to translate financial results into the United States dollar added 6.0%. Net income for the nine
months ended April 30, 2008, was $97.4 million or $1.77 per diluted Class A Nonvoting Common
Share, up 17.2% and 16.4%, respectively, from $83.1 million or $1.52 per diluted Class A Nonvoting
Common Share reported in the same period of the prior fiscal year.
Results of Operations
The comparability of the operating results for the three and nine months ended April 30,
2008, to the same periods of the prior year has been significantly impacted by the following
acquisitions completed in fiscal 2008 and fiscal 2007.
|
|
|
|
|
Acquisitions |
|
Segment |
|
Date Completed |
Comprehensive Identification Products, Inc. (CIPI)
|
|
Direct Marketing &
People ID Americas,
Europe, &
Asia-Pacific
|
|
August 2006 |
Precision Converters, L.P. (Precision Converters)
|
|
Brady Americas
|
|
October 2006 |
Scafftag, Ltd., Safetrak, Ltd. and Scafftag Pty., Ltd. (collectively Scafftag)
|
|
Brady Americas,
Europe, &
Asia-Pacific
|
|
December 2006 |
Asterisco Artes Graficas Ltda. (Asterisco)
|
|
Brady Americas
|
|
December 2006 |
Modernotecnica SpA (Moderno)
|
|
Europe
|
|
December 2006 |
Clement Communications, Inc. (Clement)
|
|
Direct Marketing &
People ID Americas
|
|
February 2007 |
Sorbent Products Co., Inc. (SPC)
|
|
Brady Americas,
Europe &
Asia-Pacific
|
|
April 2007 |
Transposafe Systems B.V. and Holland Mounting Systems B.V.
(collectively Transposafe)
|
|
Europe
|
|
November 2007 |
DAWG, Inc. (DAWG)
|
|
Direct Marketing &
People ID Americas
|
|
March 2008 |
15
Sales for the three months ended April 30, 2008, increased 10.3% compared to the same period
in fiscal 2007. The increase was comprised of a decline in organic sales of 1.2%, an increase of
5.0% due to the acquisitions listed in the above table, and an increase of 6.5% due to the effect
of currencies on sales. Declining organic sales for the quarter were the result of a 2.4% and
7.4% decline in the organic sales in the Direct Marketing Americas and Asia-Pacific segments,
respectively, partially offset by 3.6% growth in the Brady Americas segment and 0.1% growth in
Europe. Organic sales in the Brady Americas segment were driven by solid results in the education
and industrial OEM markets. The declines in the Direct Marketing Americas segment were the result
of slowing in the construction and manufacturing markets. The Asia-Pacific segment experienced
decreases in organic sales resulting from weakness in certain segments of the mobile handset
market, the Companys decision to deemphasize low-margin business in the mobile handset space, and
continued pricing pressures in the mobile handset market.
Sales for the nine months ended April 30, 2008, increased 12.6% compared to the same period
in fiscal 2007. The increase was comprised of a slight decline in organic sales of 0.2%, an
increase of 6.8% due to the acquisitions listed above, and an increase of 6.0% due to the effect
of currencies on sales. The solid organic growth in the Brady Americas segment of 4.6%, in
addition to the slight increase in organic sales in Europe of 0.6%, was offset by a decrease in
the Direct Marketing Americas segment of 1.3% and a decline of 5.0% in the Asia-Pacific segment.
On a year-to-date basis, solid organic growth in the Brady Americas segment was driven by positive
results across multiple markets, including safety and industrial identification, laboratory, and
education. The decline in organic sales in the Asia-Pacific segment on a year-to-date basis was
due to factors mentioned above.
Gross margin as a percentage of sales increased to 49.6% from 48.8% for the quarter and to
49.0% from 48.4% for the nine months ended April 30, 2008, compared to the same periods of the
previous year. The increase in gross margin as a percentage of sales was primarily the result of
cost reduction actions taken during fiscal 2007 and fiscal 2008.
Research and development (R&D) expenses increased 17.6% to $10.3 million for the quarter
and 11.3% to $29.3 million for the nine months ended April 30, 2008, compared to $8.7 million and
$26.4 million for the same periods in the prior year, respectively. As a percentage of sales, R&D
expenses represented a slightly higher percentage of sales, increasing to 2.7% in the third
quarter of fiscal 2008 from 2.5% in the third quarter of fiscal 2007, and remained at 2.6% in the
first nine months of fiscal 2008 compared to 2.6% in the first nine months of fiscal 2007,
reflecting the Companys continuing commitment to investing in new product development.
Selling, general and administrative (SG&A) expenses increased 11.1% to $126.7 million for
the three months ended April 30, 2008, compared to $114.1 million for the same period in the prior
year and 13.3% to $369.6 million for the nine months ended April 30, 2008, compared to $326.1
million for the same period in the prior year. The increase in SG&A expenses was primarily the
result of the effect of currencies and acquisitions made during fiscal 2007 and 2008. As a
percentage of sales, SG&A expenses increased to 33.2% from 32.9% for the quarter and to 32.8% from
32.6% for the nine months ended April 30, 2008, compared to the same periods in the prior year.
Interest expense increased to $7.0 million from $6.4 million for the quarter and to $20.4
million from $16.4 million for the three and nine months ended April 30, 2008, compared to the same periods
in the prior year. The increase in interest expense for the three and nine months ended April 30, 2008 was
due to interest on the $150 million private placement of senior notes that the Company completed
in the third quarter of fiscal 2007.
Other income and expense increased to $0.9 million of income for the quarter and to $3.3
million of income for the nine months ended April 30, 2008, compared to $0.4 million of
income and $0.9 million of income for the same periods in the prior year, respectively. Of the
$0.9 million in other income for the three months ended April 30, 2008, $1.4 million was the result
of interest income generated from investments of excess cash, partially offset by $0.7 million of
foreign exchange losses. Other income and expense for the three months ended April 30, 2007
consisted primarily of $0.6 million of interest income, partially offset by $0.4 million of foreign
exchange losses. For the nine months ended April 30, 2008, of the $3.3 million of other income,
$4.3 million was related to interest income generated from investments, partially offset by $1.3
million in foreign exchange losses. Other income for the nine months ended April 30, 2007,
consisted primarily of $1.4 million was related to interest income, partially offset by $0.8
million of foreign exchange losses.
The Companys effective tax rate was 26.2% for the quarter, and 28.5% for the nine months
ended April 30, 2008, compared to 28.0% for the three and nine months ended April 30, 2007. The
Company recognized approximately $2 million in income tax benefits due to the expiration of various
statutes of limitations, resulting in an effective tax rate of 26.2% during the third quarter of
fiscal 2008. On a year-to-date basis, the increased tax rate in fiscal 2008 is primarily due to
increased profits in higher tax countries. The Company expects the full year effective tax rate
for fiscal 2008 to be approximately 29%.
Net income for the three months ended April 30, 2008, increased 18.5% to $34.4 million,
compared to $29.0 million for the same quarter of the previous year. Net income as a percentage
of sales increased to 9.0% from 8.4% for the quarter ended April 30, 2008, compared to the same
period in the prior year, due to the factors noted above. For the nine months ended April 30,
2008, net income increased 17.2% to $97.4 million, compared to $83.1 million for the same period
in the previous year. As a percentage of sales, net income increased to 8.6% from 8.3% for the
nine months ended April 30, 2008, compared to the same period in the previous year.
16
Business Segment Operating Results
Effective August 1, 2007, the Company revised its reportable segments as a result of
organizational changes within the executive leadership team. Management of the Company now
evaluates results based on the following businesses: Brady Americas, Direct Marketing & People ID
Americas, Europe, and Asia-Pacific.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
Brady |
|
People ID |
|
|
|
|
|
Asia- |
|
|
|
|
|
and |
|
|
(Dollars in thousands) |
|
Americas |
|
Americas |
|
Europe |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
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 |
|
|
20.3 |
% |
|
|
0.3 |
% |
|
|
29.7 |
% |
|
|
-7.1 |
% |
|
|
13.4 |
% |
|
|
-14.6 |
% |
|
|
14.4 |
% |
NET INCOME RECONCILIATION (Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended: |
|
|
Nine months ended: |
|
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Total profit from 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company evaluates performance of the businesses using sales and segment profit. Segment
profit or loss does not include certain administrative costs, such as the cost of finance, stock
options, information technology and human resources, which are managed as global functions.
Corporate research and development, interest, investment and other income and income taxes are
also excluded when evaluating performance.
17
Brady Americas:
Brady Americas sales increased 14.0% for the quarter and 19.7% for the nine months ended
April 30, 2008, compared to the same periods in the prior year. Organic growth accounted for 3.6%
and 4.6% in the quarter and year-to-date, respectively, as compared to the same periods in the
previous year. For the quarter, the organic growth was driven by strong performance in the
education market resulting from the fiscal 2007 launch of the VariQuest suite of products as well
as solid results in the industrial OEM markets, partially offset by a softening in the
manufacturing and utility markets. Fluctuations in the exchange rates used to translate financial
results into the United States dollar increased sales by 2.8% in the quarter and 2.4% for the
nine-month period. Sales in the segment were increased by the fiscal year 2007 acquisitions of
Precision Converters, Scafftag, Asterisco, and SPC, which increased sales by 7.6% for the quarter
and 12.7% for the nine-month period.
Segment profit for the region increased 12.1% to $22.7 million from $20.2 million for the
quarter and 20.3% to $66.7 million from $55.4 million for the nine months ended April 30, 2008,
compared to the same periods in the prior year. As a percentage of sales, segment profit
decreased to 22.6% from 23.0% in the third quarter of fiscal 2008 and increased slightly to 22.2%
from 22.1% in the nine months ended April 30, 2008, compared to the same periods in the prior
year. The slight decline for the third quarter in segment profit as a percentage of sales was due
primarily to the one-time cost of consolidating two medical die cut businesses. The consolidation
of these businesses will allow the Company to leverage resources and drive future profit
improvements.
Direct Marketing and People ID Americas:
Direct Marketing and People ID Americas sales increased 0.3% for the quarter and 3.9% for the
nine months ended April 30, 2008, compared to the same periods in the prior year. Organic sales
for the segment declined 2.4% and 1.3% in the quarter and year-to-date, respectively, as compared
to the same periods in the previous year. The decline in the organic sales for the third quarter
and nine-month period was due primarily to softness in the manufacturing and construction sectors.
Fluctuations in the exchange rates used to translate financial results into the United States
dollar increased sales by 1.7% in the quarter and 1.6% for the nine-month period. Sales in the
segment were increased by the fiscal year 2008 acquisition of DAWG and the fiscal year 2007
acquisitions of CIPI and Clement, which increased sales by 1.0% for the quarter and 3.6% for the
nine-month period.
Segment profit for the region decreased 1.6% to $17.5 million from $17.8 million for the
quarter and increased 0.3% to $49.6 million from $49.5 million for the nine months ended April 30,
2008, compared to the same periods in the prior year. As a percentage of sales, segment profit
decreased to 26.5% from 27.0% in the third quarter of fiscal 2008 and to 25.2% from 26.1% in the
nine months ended April 30, 2008, compared to the same periods in the prior year. The decline in
segment profit as a percentage of sales compared to the prior year was due to the decline in
organic sales during the quarter and on a year-to-date basis.
Europe:
Europe sales increased 19.9% for the quarter and 20.6% for the nine months ended April 30,
2008, compared to the same periods in the prior year. Organic growth accounted for 0.1% and 0.6%
in the quarter and year-to-date, respectively, compared to the same periods in the previous year.
Prior year sales relating to the implementation of No Smoking legislation in the U.K. and
France, created tough comparables for organic sales in the segment, as these sales did not recur
in fiscal 2008. Sales were positively affected by fluctuations in the exchange rates used to
translate financial results into the United States dollar, which increased sales within the region
by 11.3% in the quarter and 10.5% for the nine-month period. The fiscal 2008 acquisition of
Transposafe and the fiscal 2007 acquisitions of CIPI, Scafftag, Moderno, and SPC increased sales
by 8.5% for the quarter and 9.5% for the nine-month period.
Segment profit for the region increased 23.4% to $36.2 million from $29.4 million for the
quarter and 29.7% to $97.2 million from $75.0 million for the nine months ended April 30, 2008,
compared to the same periods in the prior year. As a percentage of sales, segment profit
increased to 27.2% from 26.4% in the third quarter of fiscal 2008 and to 26.6% from 24.8% in the
nine months ended April 30, 2008, compared to the same periods in the prior year. The increase in
segment profit was driven by the sales results noted above, as well as the realization of benefits
from cost reduction activities taken at the end of fiscal 2007.
18
Asia-Pacific:
Asia-Pacific sales increased 1.1% for the quarter and 2.7% for the nine months ended April 30,
2008, compared to the same periods in the prior year. Organic sales in local currency decreased
7.4% in the quarter and 5.0% year-to-date, compared to the same periods in the previous year.
Although the segment saw gains with certain OEM customers, these were offset by a drop in sales to
OEM customers who lost significant market share, as well as competitive, commodity business the
Company chose to deemphasize. Pricing pressures remained steady during the quarter. Sales were
positively affected by fluctuations in the exchange rates used to translate financial results into
the United States dollar, which increased sales within the region by 7.9% in the quarter and 7.3%
for the nine-month period. The fiscal 2007 acquisitions of CIPI, Scafftag, and SPC increased sales
by 0.6% for the quarter and 0.4% for the nine-month period.
Segment profit for the region decreased 6.8% to $11.1 million from $11.9 million for the
quarter and declined 7.1% to $43.1 million from $46.4 million for the nine months ended April 30,
2008, compared to the same periods in the prior year. As a percentage of sales, segment profit
decreased to 13.5% from 14.6% in the third quarter of fiscal 2008 and to 16.4% from 18.1% in the
nine months ended April 30, 2008, compared to the same periods in the prior year. The decline in
segment profit as a percentage of sales was due to the industry mix shift from high-end, feature
rich mobile phones to low-end basic mobile phones and continued pricing pressures within the mobile
handset supply chain, partially offset by cost reduction activities initiated in fiscal 2007.
Financial Condition
The Companys current ratio as of April 30, 2008, was 2.4 compared to 2.1 at July 31, 2007.
Cash and cash equivalents were $227.4 million at April 30, 2008, compared to $142.8 million at July
31, 2007. There were no short-term investments outstanding at April 30, 2008, compared to $19.2
million outstanding at July 31, 2007. Accounts receivable increased $13.4 million for the nine
months ended April 30, 2008, due to the acquisitions of Transposafe and DAWG and foreign currency
translation, partially offset by a lower receivable balance at April 30, 2008. Inventories
decreased $4.2 million for the nine months ended April 30, 2008, to $135.6 from $139.8 million.
The decline in inventory due to working capital initiatives was partially offset by the
acquisitions of Transposafe and DAWG, as well as foreign currency translation. The net decrease in
current liabilities was $8.8 million for the current fiscal year. The decrease was composed of a
decline in accrued income taxes as the adoption of FIN 48 required a reclassification of a portion
of the current payable recorded at July 31, 2007 to long-term liabilities, and a decline in other
current liabilities partially offset by an increase in accounts payable due to foreign currency
translation.
Cash flow from operating activities totaled $152.1 million for the nine months ended April 30,
2008, compared to $79.7 million for the same period last year. The increase was the result of the
impact of working capital initiatives on accounts receivable and inventory balances as compared to
the changes reported for the nine months ended April 30, 2007, an increase in net income of $14.3
million, and a $5.3 million increase in depreciation and amortization on the intangible assets
acquired in fiscal 2007.
The acquisitions of businesses used $28.9 million of cash for the nine months ended April 30,
2008, compared to $157.9 million for the same period in the prior year. Payments of $4.4 million,
$1.2 million, and $0.2 million were made during the nine months ended April 30, 2008 to satisfy the
earnout and holdback liabilities of the Daewon Industry Corporation, STOPware, Inc., and Asterisco
acquisitions, respectively. Capital expenditures were $19.7 million for the nine months ended
April 30, 2008, compared to $42.1 million in the same period last year. Fiscal 2007 capital
expenditures included the implementation of SAP and expansions in China, Canada, India, Slovakia,
and other locations which were not repeated in fiscal 2008. Net cash used in financing activities
was $38.7 million for the nine months ended April 30, 2008, due to the payment of dividends and the
repurchase of outstanding stock, partially offset by the proceeds from the exercise of stock
options. Net cash provided by financing activities for the same period last year was $131.6
million due to proceeds from the private placement of $150 million of senior notes in the third
quarter, partially offset by the payment of dividends.
On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan
agreement with a group of five banks that replaced the Companys previous credit agreement. At the
Companys option, and subject to certain standard conditions, the available amount under the new
credit facility may be increased from $200 million up to $300 million. On March 18, 2008, the
Company entered into an amendment to the revolving loan agreement which extended the maturity date
from October 5, 2011 to March 18, 2013. All other terms of the revolving loan agreement remained
the same.
Under the credit agreement, the Company has the option to select either a base interest rate
(based upon the higher of the federal funds rate plus one-half of 1% or the prime rate of Bank of
America) or a Eurocurrency interest rate (at the LIBOR rate plus a margin based on the Companys
consolidated leverage ratio). A commitment fee is payable on the unused amount of the facility. The
agreement requires the Company to maintain two financial covenants. As of April 30, 2008, the
Company was in compliance with the covenants of the agreement.
The credit agreement restricts the amount of certain types of payments, including dividends,
which can be made annually to $50 million plus an amount equal to 75% of consolidated net income
for the prior fiscal year. The Company believes that based on historic dividend practice, this
restriction would not impede the Company in following a similar dividend practice in the future.
During the nine months ended April 30, 2008, the Company did not borrow or repay any amounts under
the credit agreement. As of April 30, 2008, there were no outstanding borrowings under the credit
agreement.
19
On March 23, 2007, the Company completed the private placement of $150 million in ten-year
fixed notes at 5.3% interest to institutional investors. The notes will be amortized in equal
installments over seven years, beginning in 2011 with interest payable on the notes semiannually on
September 23 and March 23, beginning in September 2007. The notes have been fully and
unconditionally guaranteed on an unsecured basis by the Companys domestic subsidiaries. The
Company used the net proceeds of the offering to reduce outstanding indebtedness under the
Companys revolving loan agreement and fund its ongoing strategic growth plan. This private
placement was exempt from the registration requirements of the Securities Act of 1933. The notes
were not registered for resale and may not be resold absent such registration or an applicable
exemption from the registration requirements of the Securities Act of 1933 and applicable state
securities laws. The notes have certain prepayment penalties for repaying them prior to the
maturity date. The agreement also requires the Company to maintain a financial covenant. As of
April 30, 2008, the Company was in compliance with this covenant.
On February 14, 2006, the Company completed the private placement of $200 million in ten-year
fixed notes at 5.3% interest to institutional investors. The notes will be amortized in equal
installments over seven years, beginning in 2010 with interest payable on the notes semiannually on
August 14 and February 14, beginning in August 2006. The notes have been fully and unconditionally
guaranteed on an unsecured basis by the Companys domestic subsidiaries. The Company used the net
proceeds of the offering to finance acquisitions completed in fiscal 2006 and fiscal 2007. This
private placement was exempt from the registration requirements of the Securities Act of 1933. The
notes were not registered for resale and may not be resold absent such registration or an
applicable exemption from the registration requirements of the Securities Act of 1933 and
applicable state securities laws. The notes have certain prepayment penalties for repaying them
prior to the maturity date. The agreement also requires the Company to maintain a financial
covenant. As of April 30, 2008, the Company was in compliance with this covenant.
On June 30, 2004, the Company finalized a debt offering of $150 million of 5.14% unsecured
senior notes due in 2014 in an offering exempt from the registration requirements of the Securities
Act of 1933. The debt offering was in conjunction with the Companys acquisition of EMED. The notes
amortize over seven years beginning in 2008, with interest payable on the notes semiannually on
June 28 and December 28, beginning in December 2004. The Company used the proceeds of the offering
to reduce outstanding indebtedness under the Companys revolving credit facilities used to
initially fund the EMED acquisition. The debt has certain prepayment penalties for repaying the
debt prior to its maturity date. The agreement also requires the Company to maintain a financial
covenant. As of April 30, 2008, the Company was in compliance with this covenant.
On May 20, 2008, the Board of Directors declared a quarterly cash dividend to shareholders of
the Companys Class A Common Stock of $0.15 per share payable on July 31, 2008 to shareholders of
record at the close of business on July 10, 2008.
Off-Balance Sheet Arrangements The Company does not have material off-balance sheet
arrangements or related-party transactions. The Company is not aware of factors that are reasonably
likely to adversely affect liquidity trends, other than the risk factors described in this and
other Company filings. However, the following additional information is provided to assist those
reviewing the Companys financial statements.
Operating Leases These leases generally are entered into for investments in facilities, such
as manufacturing facilities, warehouses and office buildings, computer equipment and Company
vehicles, for which the economic profile is favorable.
Purchase Commitments The Company has purchase commitments for materials, supplies, services,
and property, plant and equipment as part of the ordinary conduct of its business. In the
aggregate, such commitments are not in excess of current market prices and are not material to the
financial position of the Company. Due to the proprietary nature of many of the Companys materials
and processes, certain supply contracts contain penalty provisions for early termination. The
Company does not believe a material amount of penalties will be incurred under these contracts
based upon historical experience and current expectations.
Other Contractual Obligations The Company does not have material financial guarantees or
other contractual commitments that are reasonably likely to adversely affect liquidity. In
connection with the adoption of FIN 48 as of August 1, 2007, the Company is unable to determine the
period in which the cash settlement of the liability associated with FIN 48 will occur with the
respective taxing authority.
Related-Party Transactions The Company does not have any related-party transactions that
materially affect the results of operations, cash flow or financial condition.
20
Forward-Looking Statements
Brady believes that certain statements in this Form 10-Q 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 Form 10-Q, including, without limitation, statements
regarding Bradys 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 Form 10-Q, 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
Bradys 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,
consumer electronics, mobile handset, manufacturing, electrical, construction, laboratory,
education, governmental, public utility, computer, transportation; difficulties in making and
integrating acquisitions; risks associated with newly acquired businesses; Bradys ability to
retain significant contracts and customers; future competition; Bradys 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; Bradys ability to realize cost
savings from operating initiatives; Bradys 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 Bradys 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 Bradys U.S. Securities and Exchange Commission filings, including, but not limited to,
those factors listed in the Risk Factors in Item 1A of Part I of Bradys Form 10-K for the year
ended July 31, 2007. These uncertainties may cause Bradys 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.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys business operations give rise to market risk exposure due to changes in foreign
exchange rates. To manage that risk effectively, the Company enters into hedging transactions,
according to established guidelines and policies that enable it to mitigate the adverse effects of
this financial market risk.
The global nature of the Companys business requires active participation in the foreign
exchange markets. As a result of investments, production facilities and other operations on a
global scale, the Company has assets, liabilities and cash flows in currencies other than the U.S.
Dollar. The primary objective of the Companys foreign currency exchange risk management is to
minimize the impact of currency movements on intercompany transactions and foreign raw-material
imports. To achieve this objective, the Company hedges a portion of known exposures using forward
contracts. Main exposures are related to transactions denominated in the British Pound, the Euro,
Canadian Dollar, Australian Dollar, Singapore Dollar, Swedish Krona, Korean Won and Chinese Yuan
currency.
The Company could be exposed to interest rate risk through its corporate borrowing
activities. The objective of the Companys interest rate risk management activities is to manage
the levels of the Companys fixed and floating interest rate exposure to be consistent with the
Companys preferred mix. The interest rate risk management program allows the Company to enter
into approved interest rate derivatives, with the approval of the Board of Directors, if there is
a desire to modify the Companys exposure to interest rates. As of April 30, 2008, the Company had
no interest rate derivatives.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that the
information the Company must disclose in its filings with the Securities and Exchange Commission
is recorded, processed, summarized and reported on a timely basis. The Companys Chief Executive
Officer and Chief Financial Officer have reviewed and evaluated the Companys disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act) as of the end of the period covered by this report (the
Evaluation Date). Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Companys disclosure controls and procedures are effective in bringing to
their attention on a timely basis material information relating to the Company required to be
included in the Companys periodic filings under the Exchange Act.
The Company is in the process of implementing its enterprise resource planning system, SAP,
to many of its locations around the world. This implementation has resulted in certain changes to
business processes and internal controls impacting financial reporting. Management is taking the
necessary steps to monitor and maintain appropriate internal controls during this period of
change.
There were no other changes in the Companys internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Companys most
recently completed fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In September 2007, the Company announced that the Board of Directors of the Company had
authorized a share repurchase plan for up to one million shares of the Companys Class A Nonvoting
Common Stock. The share repurchase plan may be implemented by purchasing shares on the open market
or in privately negotiated transactions, with repurchased shares available for use in connection
with the Companys stock-based plans and for other corporate purposes.
In March 2008, the Company announced that the Board of Directors of the Company authorized a
share repurchase plan for up to an additional one million shares of the Companys Class A Nonvoting
Common Stock. The share repurchase plan may be implemented by purchasing shares on the open market
or in privately negotiated transactions, with repurchased shares available for use in connection
with the Companys stock-based plans and for other corporate purposes.
The following table provides information with respect to the purchases of Class A Nonvoting
Common Stock during the nine months ended April 30, 2008.
ISSUER PURCHASES OF SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
Average |
|
|
Shares Purchased |
|
|
of Shares that May |
|
|
|
Total Number of |
|
|
Price Paid |
|
|
as Part of Publicly |
|
|
Yet Be Purchased |
|
Period |
|
Shares Purchased |
|
|
per Share |
|
|
Announced Plans |
|
|
Under the Plans |
|
February 1, 2008 February 29, 2008 |
|
|
267,306 |
|
|
$ |
29.34 |
|
|
|
267,306 |
|
|
|
732,694 |
|
March 1, 2008 March 31, 2008 |
|
|
676,490 |
|
|
$ |
30.58 |
|
|
|
676,490 |
|
|
|
1,056,204 |
|
April 1, 2008 April 30, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
1,056,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
943,796 |
|
|
$ |
30.23 |
|
|
|
943,796 |
|
|
|
1,056,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 6. Exhibits
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert |
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Thomas J. Felmer |
|
|
32.1 |
|
Section 1350 Certification of Frank M. Jaehnert |
|
|
32.2 |
|
Section 1350 Certification of Thomas J. Felmer |
23
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
|
|
|
|
|
|
BRADY CORPORATION
|
|
Date: June 6, 2008 |
/s/ F. M. Jaehnert
|
|
|
F. M. Jaehnert |
|
|
President & Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
Date: June 6, 2008 |
/s/ Thomas J. Felmer
|
|
|
Thomas J. Felmer |
|
|
Senior Vice President & Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer) |
|
|
24