Brady Corp (BRC) 2003 Q4 法說會逐字稿

Good morning. My name is Tina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Brady fiscal 2003 fourth quarter conference call. I would now like to turn the call over to Barbara Bolens, Director of Investor Relations. Please go ahead, ma'am.

Thank you. Welcome to our fiscal 2003 fourth quarter conference call. We are glad you could join us today. In the call you will hear from Frank Jaehnert, President and CEO; Dave Schroeder, CFO; and also Dave Hawke, Executive Vice President. After brief presentations by the team, we will open up the floor to questions. Also joining us today is Matt Williamson, VP of Brady America.

Please note that in this call we may make comments about forward-looking information. Words such as expect, believe and anticipates are a few examples of words identifying a forward-looking statement. It is important to note that forward-looking information is subject to various risk factors and uncertainties which could significantly impact expected results. Risk factors were noted in our news release this morning and in the 10-Q filed with the SEC in June of 2003.

Also, please note that this teleconference is copyrighted by Brady Corporation, and there may be no rebroadcasting of this without expressed written consent of Brady. Note also that Brady will be taping the call and rebroadcasting it on the Internet. And your participation in the question-and-answer session will constitute your consent to being recorded.

Now, here's Frank Jaehnert.

Good morning and thanks for joining us. Today we announced results for our fiscal 2003 fourth quarter and year-end. Sales for the quarter were 144.7 million, up 6.5 percent from the same quarter last year. That brings our sales for fiscal 2003 in total to 555 million, which is up 7.3 percent from fiscal 2002. While this was a record level of sales for Brady, the gains in the quarter and the year were due to foreign currency and acquisitions made during the year.

Net income for the fourth quarter was 1.8 million or 8 cents a share, which includes the net 6.3 million after-tax charge from a previously announced restructuring program. For the year, our net income was 21.4 million or 91 cents a share, which was in line with our guidance provided in May. For comparison purposes in fiscal 2002, our net income was 28.3 million or $1.20 a share, which also included a 1.8 million after-tax restructuring charge or 7 cents a share.

As the numbers illustrate, fiscal 2003 was a very challenging year due to a combination of factors, including a weak economy in several of our key markets, and the continued movement of electronics and handset manufacturing into Asia and other markets abroad. Our strategy of being where customers are has been validated through the growth we have seen in Asia and Latin America. During the year, we opened two manufacturing (indiscernible) and one in Asia.

We took action to reduce our cost structure and have simplified our organization by combining several divisions into one. We are now operating under our new regionally based structure. This change has renewed our focus on the customer and allowed us to eliminate duplicated resources so that our cost structure will be more properly sized to return to higher profit levels. From internal and external feedback we have received this year, we're moving in the right direction.

Our sales force for the North American business is energized. The actions to combine the sales force are complete, and the sales teams held their kick off sales meeting in July. The reaction from our sales team has been positive for a variety of reasons, including being able to sell a wider range of products into new markets, and energy that comes from new products and new markets.

Our channel partners and customers have also reacted positively. Our channel partners like change because it truly makes Brady easier to do business with by streamlining the contact they have for the Company. Additionally, because of the structure of the new sales team, many either have a broader range of products to sell, or they are receiving more support than they previously did. In many cases both situations are true.

Brady continues to invest in the business for growth. During fiscal 2003, we made four acquisitions that provided new technology and expanded product offerings. Additionally, our spending on R&D was up by 1.6 million over fiscal 2002.

I will read return later to summarize the key points of our call, but for now I will turn the call over to Dave Schroeder, who will provide more details on the financials. Dave?

Thanks, Frank. Good morning everyone. I'm happy to present the fourth quarter and full year results for our fiscal 2003. Net sales were $144.7 million, up 6.5 percent from the same quarter last year. Base business fell 4.7 percent. The exchange rate impact was a positive 6.6 percent, and acquisitions added 4.6 percent to the top line for the quarter.

In the U.S., quarterly sales declined 7.2 percent versus last year. Base business fell 9.4 percent for the quarter, while the acquisition of TISCOR added 2.2 percent. The base business decline was experienced throughout our business units in the U.S. with virtually all units reporting sales decreases from the prior year.

International sales increased by 20.9 percent in U.S. dollars, and .3 percent expressed in local currencies, excluding acquisitions. Europe benefited by 16.8 percent from foreign currency translation, while Asia-Pacific was aided by 7.8 percent. Latin American sales results were reduced by 9.2 percent as a result of continued currency weakness in Brazil and Mexico.

Base business increases were strong in Asia-Pacific and Latin America, up 9 percent and 26.8 percent respectively. Europe based sales declined 2.7 percent, but were then boosted 10.8 percent from the acquisitions of Clear Advantage and Etimark.

From a group perspective, Graphics and Workplace Solutions generated quarterly sales growth of 7.1 percent, as foreign currency translations added 7.4 percent, and the Clear Advantage and TISCOR acquisitions added 2.6 percent. These increases were partially offset by a base business decline by 3 percent within the group.

Identification solutions and specialty tape sales grew by 5.7 percent for the quarter. A base business decline of 7.1 percent was more than offset by a foreign currency translation increase of 5.4 percent, and the added sales from our Etimark acquisition of 7.4 percent.

Gross margin as a percent of sales increased to 50.6 percent in the quarter, up from 49.5 percent in the quarter of the prior year. The prior year fourth quarter included startup costs from our Global Mark product and abnormally low margins in our European die-cut business. Neither of these items was repeated again in this quarter.

Research and development was 3.5 percent of sales, .5 percent higher than the fourth quarter of 2002, due in part to the R&D activities associated with one of our recent acquisitions. In the fourth quarter of 2002 we experienced lower than normal expenses associated with R&D due primarily to timing of project expenses.

SG&A expenses of $55.5 million ran at 38.3 percent of sales, about .4 of a point below the prior year. In U.S. dollars, SG&A expenses were up $2.8 million above the same quarter of last year. Foreign currency translation increased our expenses in Europe and Asia by $3.5 million. SG&A administrative expenses associated with acquired businesses added another $1.5 million. Savings from our restructuring program and lower incentive expenses partially offset these increases.

As I just mentioned, we're beginning to see the savings of our restructuring activities. We're working to align the Company into our newer regional structures by combining sales and marketing resources in North America and Europe, and consolidating facilities in the U.S. Through attrition and job eliminations, these actions will result in a total workforce reduction of around 10 percent globally. The majority of these efforts took place in the fourth quarter, resulting in a pretax restructuring charge of $10.2 million.

This charge was offset by a credit of $600,000 recorded in the quarter to reflect lower than anticipated expenses related to our fiscal 2002 and 2001 restructuring programs. The net restructuring impact is approximately $9.6 million pretax, $6.3 million after tax, or 27 cents per diluted share on an after-tax basis. Our restructuring program will be substantially completed in the first half of fiscal 2004, when we expect to incur additional charges of 2 to $3 million pretax.

We anticipate fiscal 2004 savings to be approximately equal to the full restructuring charge of 10 to $13 million pretax. The prior year fourth quarter results included a net restructuring charge of $2.7 million, 1.8 million after-tax or 7 cents per diluted share.

Operating income in the fourth quarter was $3.2 million, down 59 percent from last year's fourth quarter. The impact of higher sales stemming from foreign currency translation and acquisitions, higher gross margin percentages, and lower SG&A expenses as a percent of sales was more than offset by the net pretax restructuring charge of $9.6 million in the fourth quarter of the current year, which was $6.9 million higher than the prior year's restructuring charge.

Investments and other income fell $1.2 million from the fourth quarter of fiscal 2002 due to the net impact of intercompany foreign currency transactions in the quarter. Net income for the quarter was $1.8 million versus 5.6 million in the prior year. Earnings per share on a diluted basis for the current quarter was 8 cents versus 24 cents last year. The current year quarter included a net after-tax restructuring charge of 27 cents per diluted share, while the prior year's similar charge was 7 cents per diluted share.

Turning to the results for the year. Sales reached a record level of $554.9 million. Sales were 7.3 percent better than the prior year's $517 million. Base business declined .7 of one percent. Foreign currency translation added 5.1 percent, and acquisitions added 2.9 percent. U.S. sales were down 1 percent, as base sales decline of 5.4 percent was partially offset by increased sales from recent acquisitions of 4.4 percent.

International sales in U.S. dollars were 16.2 percent, up from the prior year. This increase included 10.4 percent due to foreign currency translations, 2.3 percent from recent acquisitions, and 3.3 percent from base sales growth. Base sales in our international locations increased 2.5 percent in Asia-Pacific, 31 percent in Latin America, and 2.6 percent in Europe for the year. Within Asia-Pacific, strong growth in China was offset by reduced activity in Korea and a base business decline in Singapore.

By segment, comparisons were stronger within our Graphics and Workplace Solutions segment as sales were up 10.2 percent over the prior year. The acquisitions of Clear Advantage, TISCOR, Temtec and Safety Signs Services added 3.4 percent to the group sales, with a positive effect of foreign currency translations adding another 5.9 percent. Base sales results increased by .9 percent for the year.

Our identification and specialty solutions and specialty tapes group saw sales rise 3.6 percent compared to the last year. The acquisition of Etimark and StrandWare added 2.1 to ISST sales, while foreign currency translations added 4.1 percent. Base sales declined 2.6 percent for the year.

The gross margin for the year was 50.5 percent, up .1 of one percent from fiscal 2002. While gross margins were relatively flat, several items impacted margins during the year, namely, production ramp up costs incurred for the Global Mark and Busy Mate product introductions lowered our margins in the first quarter. Growth within the higher margin Graphic and Workplace Solutions Group helped outpaced the growth of ISST businesses, and favorably impacted our gross margin.

A temporary service disruption of service levels in North America direct marketing operations as we brought our new business system online reduced second-quarter margins due to lower volumes. And restructuring savings and modest price increases in the U.S. were offset by pricing pressures in specific Asia-Pacific markets, and start up costs associated with new plants in China and Malaysia.

SG&A expenses of $219.7 million were $20.4 million higher than the prior year. SG&A was 39.6 percent of sales in fiscal 2003, versus 38.6 percent for fiscal 2002. One-third of the increase is attributable to foreign currency translation increasing our expenses in Europe and Asia. Additional administrative expenses associated with acquired businesses, temporary expenses related to [Wave 3 go live], and additional spending in Europe direct marketing businesses accounted for another third. The remainder comes from general cost increases, including pay and benefit cost increases throughout the organization, net of savings from the restructuring program.

Operating income for the year was $32.1 million, down $9.4 million from fiscal 2002. As a percent of sales, operating income was 5.8 percent in fiscal 2003 versus 8 percent for last year. 1.7 percent of this difference is due to the larger restructuring charge incurred in fiscal 2003.

Investment and other income was down $1.3 million for the year due to the impact of intercompany foreign currency transactions. Net income for fiscal 2003 was 21.4 million, or 91 cents per diluted share, compared to 28.3 million and $1.20 per diluted share for fiscal 2002. Fiscal 2003 and fiscal 2002 net income figures included after-tax restructuring charges of $6.3 million, or 27 cents per diluted share in '03, and $1.8 million, or 7 cents per diluted share in fiscal '02.

Most of our efforts in the fourth quarter focused on the details of the restructuring. Therefore, we continue to assess our performance for the final quarter of fiscal 2003 under the group segment structure. We will begin to report our results under the regional structure in the first quarter of fiscal 2004. We will provide historical results for the Americas, Europe and Asia under the new regional base structure in the coming months.

Looking at the balance sheet, cash at the end of the year was $76 million, and was essentially flat with the end of fiscal 2002. During the year however, we invested $24 million in our acquisition program, $14 million on capital expenditures, which compares to $17.8 million on depreciation and amortization expense. And we returned $18 million back to our shareholders in the form of dividends. These expenditures were funded through operating cash flows of $55 million.

From a working capital perspective, our accounts receivable management efforts were able to offset increases due to both currency and acquisitions. This was especially true in Europe where our DSOs improved seven days. Also we maintained inventory despite the same currency and acquisition issues.

Looking forward to fiscal 2004, we expect full year sales to be in the range of $575 million to $610 million, with net income of $1.50 to $1.65 per diluted share after restructuring charges.

Now, I will turn the call back to Frank to discuss the results of ISST.

Thanks, Dave. ISST customer sales in the fourth quarter were $59.5 million, an increase of 5.7 percent from the same quarter last year. Growth from acquisitions added 7.4 percent. Base business declined 7.1 percent, and currency added 5.4 percent to topline results.

By region, the North American business declined 12.3 percent versus the prior year. Europe's growth was 34.6 percent in U.S. dollars. In Europe, growth from acquisitions was 27 percent, and a strong euro added 17.9 percent. Base business declined 10.4 percent. Asia grew 16 percent in U.S. dollars, but local currency growth was 13.4 percent. Net in America grew 23 percent in U.S. dollars. Their growth was even stronger at 32.6 percent in local currency.

In North America, our sales climbed 12.3 percent. The largest decline was in our (indiscernible) due to a shift and resources away from our integration business. Our domestic die-cut business for the quarter was obviously significantly weaker than last year mainly due to lower volumes (indiscernible) our top contractors as the production has moved to China. In most cases we have been able to capture this business through our operation in China.

In North America, our high-performance vapor business remained flat. And we saw a modest decline in our electrical and datacom business during the quarter. This business may have been impacted by the consolidation of our domestic customer service, sales and marketing teams associated with our distribution business. It was our goal to assure that we aggressively and rapidly implemented our restructuring program, so that we could start the fiscal year with the chief processes in place.

We announced the changes in May. By the end of July, the combined team was in place. All logistics, including putting in place a common distributor policy, how we combined sales meeting, focused on training, collocating support functions, synchronizing common (indiscernible) we had put in place prior to the end of the fiscal year.

In Europe, sales and dollars grew 34.6 percent with 27 percent of the growth from the acquisition of Etimark in Germany. The strong euro contributed 17.9 percent to the topline. Days sales declined 10.4 percent as France continuing significantly down versus last year.

Sales in Asia grew 16 percent during the same quarter last year. We continue to see significant growth in China where sales have grown 45 percent over the same period last year. In January, we opened our Beijing facility and they are tracking ahead of sales plan. We are in the startup stage in our third Chinese plant in [Chan Zin], where label production was started this month, and dye-cut production will start next month.

In Latin America, Brazil continued strong as we gained momentum in the electronic and electrical market. We are seeing stronger sales in the high-performance label business. Profit for the Argentine for the quarter moved in the right direction. Our sales growth for the quarter was 6 percent. Our profit growth was 11.9 percent. As anticipated, our gross margin improved 2 percentage points. Reduced cost is a result of the restructuring, and the improved product mix contributed to this improvement.

Now I will turn the call over to Dave Hawke, who will discuss the Graphics and Workplace Solutions Group. Dave?

Thanks, Frank. For the quarter, sales for the Graphic and Workplace Solutions Group were $85.2 million, up 7.1 percent from last year's fourth quarter. Currency translation had a 7.4 percent positive affect, and acquisitions added 2.6 percent to our results for the quarter. The underlying business was down 3 percent.

By region, the North American business declined 2 percent versus prior year. Europe's growth was 20 percent in U.S. dollars, and up 3 percent in local currency. Asia grew 18 percent in U.S. dollars. Their local currency growth was 2 percent. Latin America grew 10 percent, where growth was 18 percent in local currency.

Now I will take a closer look at the business by region. In North America, sales declined through percent, while acquisitions added 3 percent for the quarter. As I mentioned in the previous quarter's conference call, two of our units were suffering from service disruptions resulting from conversion to SAP. We've made good progress on restoring service to previous levels of performance. While there still is a residual impact from the service disruption over the last couple of quarters, this is not the major factor affecting our current business levels. Our primary issue is continuing weakness in our key industry segments of manufacturing and construction.

Europe was about 3 percent above last year for the quarter in local currency, driven primarily by the growth in the UK, including our acquisition of (indiscernible). The economies in Europe are slowed and our business felt this pressure. Most notably in France, where our growth has slowed in the last two quarters. Asia was 2 percent ahead of last year's fourth quarter in local currency. Australia's growth continues to offset a decline in Japan due to the exit of our direct marketing business earlier this year.

Latin America was up 18 percent in local currency. Despite the continued weakness in Brazil's economy, sales increased as a result of the performance of our catalog, which was dropped in March. Profit for the group was $20.6 million for the quarter, up 8 percent from last year's fourth quarter. Profit in local currency was even with prior year's fourth quarter despite the decline in revenues. We saw both gross margin improvement relative to the prior year, and some benefits from our recent restructuring activities. Current year acquisitions are a drain on the bottom line as we are still in the integration phase.

It is clear that our largest markets remain soft. We're confident that we're not losing market share. We continue to invest in new product development, new production capabilities, and market development activities. This will allow us to hold our own in the current economy and fully taken advantage of any upturn.

Thanks, Dave. We would like to get the questions from those participating on the line. But before we do that, I would like to summarize several key points to take away from the call. Our strategy of being where our customers are is proving to be the right one. In Asia, we have two facilities in China now, with a third beginning prototype production this month and label production next month.

Our existing facilities in Asia and Brazil continue to see large increases in business month after month. In terms of our restructuring, we are aggressive in making decisions and implementing change quickly, so that going into fiscal 2004 we were up in running. This is especially true in our North American distribution business where we brought the sales teams together, synchronized distributor policies, and held a kick off sales meeting all within three months.

Moving forward, while our restructuring activities were a large part of our fourth quarter story, my team is focused on planning and implementing our growth strategies. We look to grow through a combination of core business growth and acquisitions. Brady is a strong global Company with established brands and proprietary product. In growing our base business, we look to continue to develop proprietary products, expand geographically, take our proprietary product into newer higher growth markets, and expand our existing markets, and getting a larger share of our customers' purchases.

We will leverage our simplified organization structure and invest in our initiatives to enhance our base business growth. Our acquisitions strategy is focused on selectively acquiring businesses that will either add new technology, allow us to expand into markets, expand geographically, or enhance our current market positions. Basing our growth strategies on new organization platforms, we reiterate our guidance of fiscal '04 as (indiscernible) of sales in the 575 to $610 million range, and net income in the range of 150 to 165 per share. Again, that is before any acquisitions.

I'll turn it over to Barb.

We would now like to start the question-and-answer session. Tina, if you could please provide the instructions for our listeners.

The first question comes from the Jim Kissinger with Kissinger Loftman Capital Management.

Good morning everyone. I'm trying to get an understanding of when we will begin to see the SG&A leverage. It looks to me like the gross margins are holding up reasonably well in this environment. But we still are not seeing SG&A kind of leverage. And I'm not necessarily, Frank, looking at a timeframe, but I am looking at has been a mix shift that continues to keep this up that we don't get the leverage next year?

At what revenue rate, given your current mix, do we begin to see significant SG&A leverage for the money that you guys have spent? And when do operating margins begin to expand because of that? And whether it is a timeline or a revenue number, given your current mix? That is kind of what I'm interested in.

Jim, that is a very good question. It is also a very complex question. Of course when you talk about SG&A leverage, you talk about SG&A as a percent of sales coming down. And of course here we have it, it is a function of sales. Our sales in the fourth quarter certainly were going down, our base sales. And of course, we added acquisitions, which you know the first couple months are not necessarily productive because there are onetime charges. So I think as base sales is going to come back to gross, you're going to see leverage.

And the other part, of course, is our restructuring. See, we have just undertaken a major restructuring. As a matter of fact, the largest in the history of Brady -- impacting SG&A going forward. Now of course, in the fourth quarter we also had a lot of onetime expenses. We got the whole sales team together. We have a lot of training, a lot of travel and so forth. So I think in the fourth quarter what you saw, not too much impact yet from the year restructuring, but some onetime expenses just to pull everything together.

Some onetime expenses still in the direct marketing, America's business, where we are taking out a SAP implementation. So looking forward, I think we should start seeing better leverage in fiscal '04 starting the first quarter, and then ramping up as the restructuring takes hold, and the growth of the base business, hopefully, comes back. Now of course, that is a big wild card. When is our base business started to grow again? At this point of time, if you look at our fourth quarter, our base markets are pretty weak, mainly manufacturing, industrial, and electronics. But if this picks up, and we're hopeful that it is going to happen going forward, we should see some leverage.

I guess that is what I'm trying to get at, Frank, is as you anniversary some of this stuff, at some point either -- because the revenues are still pretty significant. Now a bunch of that is acquisition revenue, and I'm wondering if that mix shift between your old base business here in the U.S., which is suffering, and a lot of the new business that you have either purchased or a part of the business is growing, inherently has higher SG&A levels, or is it we just haven't crossed over yet?

And I'm not talking about this last quarter. I'm really kind of looking out whether it is lat in fiscal '04 or late in calendar '04. When do we begin to see some substantial leverage from that? And am I missing something here from a mix shift standpoint?

I don't think you are missing anything from a mix shift point of view. I think the story is that our base business just continued weak in the fourth quarter. And of course, if our base business which is the majority of our sales, and this suffers, you're not going to see leverage. So as base business starts picking up steam again, I think you'll see a leverage.

This, of course, in combination with our restructuring, which you know a lot of the restructuring took place in the fourth quarter, but the expenses are still in there. As we go into the fiscal '04 quarter, our first, second, third quarter you'll see more of this expense reduction materialize. And hopefully by this time then the top line is going to improve as well on base business.

I don't think there's a shift in mix because of some of the acquisitions we made. It is too small to make an impact. I think the other factors like base business growth and restructuring would overcompensate any shift from these areas.

Okay, thank you.

Your next question comes from Reik Read with Robert Baird & Company.

Hi, good morning. Frank, I just want to pick up a little bit on Jim's question, and you guys have articulated that you expect to see $10 to $13 million in savings on an annual basis. I am just wondering, it sounds like you think that will start in the first quarter. Can you give us an idea of the slope of the ramp, and how much of that 10 to 13 you would actually see in fiscal '04?

We have not provided guidance, on a quarterly basis, and I don't think we want to start it now, especially because of the difficulties in the economy. But I can tell you this much, we said about 10 to 13 million restructuring in fiscal '03, and then the beginning of fiscal '04. Now we still believe that we are going to come in somewhere in this range, probably at the upper end of the range, closer to 13 million.

Now about 10 million of this restructuring has taken place already. And the majority, I would say, has been in the fourth quarter, toward the end of the fourth quarter. So we should certainly see some reduction, because of some expense reduction, some savings in the first quarter kicking in. But since we still have some additional restructuring to do in the order of about 2 to 3 million, in the first half of the year, we are going to see this ramp up towards the end of year.

Also, I think what we are hopefully going to see is some productivity gains from our restructuring, reorganization of the sales force. You know we brought three divisions together. Now, this all happened in the fourth quarter. They all have now a broader range of products which they have to learn about, and we did this full steam in the fourth quarter.

So I think we're going to see some ramp up of efficiencies in the quarters to come. So I think the first quarter you're going to see some, second-quarter see some more, and third and fourth quarter, we definitely would like to see the impact of the expense savings.

So you're saying by the second half of the year, on a run rate basis, we should be seeing that say $3 million a quarter impact?

Yes.

Okay. And can you also talk a little bit about the SAP, how things are going right now? And what you expect in total expenditures during fiscal '04 versus '03?

Anybody here who has numbers for this one? I can tell you this much, we're about almost two-thirds of the Company now is on SAP roughly. So the majority of the rollout is over. Also on the expense point of view, a lot of the expenses were, of course, training of our people. A pretty broad range of a pretty big number of people who are experiencing SAP, so I don't think there is going to be too much of new expenses coming in. But I was just wondering, do we have any more specific numbers we can give him?

Nothing in terms of specific numbers that we pulled together. As you were just mentioning, we don't have another large initiative that is starting this year, so we won't have a Wave 3 ongoing expense.

Is it fair to say, Dave, that the incremental expenditures though will be dropping throughout '04 because you don't have those initiatives?

Yes.

In addition, what we're doing right now, since we have so many units now on SAP, we're going to really try to get more benefits out of it. So instead of taking some of the smaller units and adding them onto SAP, we want to first get more efficiencies out of SAP. So this should help as well during fiscal '04. And of course, the reduction of the base spending in SAP should also help.

One question over on Europe. It sounds like things have continued to be a little bit tough over there. You have gotten some benefit from currency, but there has been some talk that things are starting to get a little bit better. Is that something that you would echo, or how are you seeing your business play out at this point in Europe?

Europe was certainly challenging, as was the US. And to put a little bit more flavor on it, August more or less continued along the same lines as was the fourth quarter. But we have seen a pretty good pick up in the first couple of days of September. Now I do not want to call it a trend at this point of time. It would be irresponsible to do this after a couple of days. But it is almost like people came back from vacation and started ordering. So I think that is encouraging.

And that's only true in the U.S., is also true in Europe. I've heard Germany seems to be picking up some steam now as also -- pretty recent news. But we're encouraged of what we are seeing in the first couple of days of September after a continued weak August, I have to add. So hopefully, this doesn't prove to be just a short spike, but the beginning of a trend. But it is too early to say at this point in time.

Okay. Great. Frank, thank you very much.

You have a follow-up question from Jim Kissinger with Kissinger Loftman Capital Management.

I would like to follow-up a little bit on what Reik was asking. Most of our industrial companies, Frank, kind of told us that business hadn't gotten a lot worse in the summertime, which spans your fiscal fourth quarter, part of it. It just hadn't gotten a lot better. And it sounds like your base business was significantly worse. I guess the question is, is it the end markets or is there stuff coming out of the channel? It doesn't correspond as tightly as I would have thought relative to some of the other companies that I think are more industrial production related, similar to yours?

Let me go around the table and ask a couple of people, especially Matt Williamson, who is Vice President Brady America. But let me give you maybe some additional flavor on this. Jim, what I'm saying is it is very, very difficult to put your finger on it. But you know we just embarked on the largest restructuring in the history of Brady, by combining three of our divisions here in the U.S. into one. And of course our direct marketing business just went through the SAP implementation, and as you are well aware, we had some issues here. So we're talking about a $300 million business in the Americas going through a major change.

In Europe, we went through a similar recent restructuring effort too. Why do you think that this didn't impact our quarter significantly? We think the economy had a stronger impact on the quarter than all these restructuring activities. I think we cannot ignore the fact that we have done a tremendous thing to the organization. So I think part of it might be reflected in the numbers as well.

It went very well, as I said earlier. I think we are up and running. We might still have maybe some of this impact in the first quarter. But this might have been part of the impact as well. Very difficult to put your finger on how much. Now I will let Matt Williamson talk a little bit about Brady America where the business was down significantly.

I would make a couple of comments. Number one, I don't think that you are asking relative to distribution versus end-users. And I don't think this is a matter of us losing share at distribution, I think our position with our distributors has remained very strong. We have a very loyal distributor base. I don't think we have seen any erosion there at all. And I think our overall base business being in the U.S. market -- it is our largest market -- flat to slightly down is, I think, very in-line with industrial markets across electronics, electrical, safety throughout the U.S. I don't think it is out of line with what we're seeing in the end-user market.

Maybe I misread that. My sense was that your base business in the U.S. was down 7 percent or some number like that.

I was making reference to on an annual basis for our entire fiscal year.

Okay. But on a quarterly basis, the base business was down pretty significantly here, correct?

Correct. Slightly more than it was on an annual basis. But again, I don't really think when you look at our core markets, electronics and electrical, being the largest market, I don't really think that that is out of line with what we're seeing in those markets. And as you look at, particularly at electronics, we're picking that up in China, and seeing a nice increase there. So I think our aggregate position, for example, in the electronics market has improved over the course of the year.

Maybe I am just confused. You guys threw out a lot of numbers, and I don't have anything in front of me. I will follow-up off-line.

Jim, there's no question that the fourth quarter was weak, the base business was weak. And you look at the numbers, while they were well within our guidance, we anticipated looking at our predictor models as our economic predictor models and then market specific data, we didn't expect the fourth quarter to be a stellar quarter. We expected some kind of business. We knew that we were going to restructure the organization big-time. So we came in basically with where we expected to be.

Now it doesn't look necessarily very encouraging. But the only thing I can offer is what I am reading in the papers about the manufacturing industry, and what I am seeing on the first couple of days of September. It seems to support that there might be a recovery in the manufacturing sector, but we certainly didn't see it in our fourth quarter. We talk to our distributors and some other companies were playing in the same segment and asking many of the people I talked with say, I read all this great stuff in the newspaper about what is going on. But, yet, in my business, I do not see it yet.

Okay. Thanks.

Your next question comes from Mark Roberts with Wachovia Securities.

Frank, just to follow-up on some of the questions here about where we have been on revenues. I would like to address your 2004 guidance. And just to help us maybe understand the components that went into that, I think of your revenue, at least the variances between current year in four categories, growth from acquisitions that you made in '04, currency translation, kind of the direction of unit pricing, and then just overall base unit business. When we look at your general guidance for '04, how much currency effect have you built into that, either positive or negative? And how much heavy have you built-in as just either base increases or declines in overall unit volume?

And then to the extent you want to comment on it, if you could, give us a sense of -- if units are going to be up? Is pricing going to be flat? Is it going to be down? Are you able to take some price increases? That sort of thing. If you could help us out with some of the components here, I think it would help me understand how you guys put your revenue plan together.

That is a pretty complex question. I'm not sure if we can answer this totally here. You might want to follow-up later and give us some time to put those numbers together. But I can give you a couple of pointers here. Number one, of course the guidance doesn't include any acquisitions, which we have not. When we issued our guidance, which was I think in June, the acquisitions we had made by this point of time would have been included in the guidance. But all the acquisitions which come subsequent would not be included in there.

I'm sure we had some pickup in currency. We also do have some price increases figured in; modest price increases, of course. But in this environmental, I don't think you can get too much out of this. But as to the specifics, I see the team here is talking to each other and trying to see if they have the numbers here in the room. But I would suggest, because that is a pretty specific question, you might want to follow-up later with Bob or with Dave.

Okay. But I just want to be clear. You have built-in to the forecast for '04 some additional benefit from currency as opposed to potential currency rates turning around and going in the other direction?

I would expect so.

No, it is essentially flat. The big portions of next year's guidance, we've got the annualization of acquisitions that have already been complete. As Frank just mentioned, any future acquisitions that would close during the year are not included in the guidance. We're close to flat on currency. And then we've got a very modest unit growth rolled in there with, as Frank also mentioned, a modest price increase in order to recover unit cost increases. The big chunk is annualization of acquisitions, flat on currency, and a very small unit growth.

Great. That is exactly what I was looking for. Thank you.

Thanks for the clarification. You know, I have been out of CFO position now for one and an half years. I guess I should just let Dave answer these kinds of questions. All right? Do we have any further questions?

At this time, there are no further questions.

Thank you. We appreciate you joining us today. The audio and slides from this call today are available on our website, which is www.investor.bradycorp.com. If you'd like to listen to a replay of this call via the phone, you may do so starting at 1 PM Eastern time today. The phone number for that is 1-800-642-1687. International callers may dial 706-645-9291. A pass code of 2298851 will be needed to activate the call. The phone replay will be available until 11.59 PM on Tuesday, September 16.

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This concludes today's Brady fiscal 2003 fourth quarter conference call. You may now disconnect.