-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CqUumPzufBFLEH/KqZVKoFzhNpU6UfI1wPP/j72ZnRE5hYCtNfEPKj641Ht1zpUH xyUC58b3J8nAvD/lCb3CZw== 0000950124-95-003299.txt : 19951016 0000950124-95-003299.hdr.sgml : 19951016 ACCESSION NUMBER: 0000950124-95-003299 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951013 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRADY W H CO CENTRAL INDEX KEY: 0000746598 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 390178960 STATE OF INCORPORATION: WI FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12730 FILM NUMBER: 95580493 BUSINESS ADDRESS: STREET 1: 727 W GLENDALE AVE STREET 2: PO BOX 571 CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4143328100 10-K 1 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended July 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the Transition Period from __________ to __________ Commission File Number 0-12730 ------- W.H. BRADY CO ------------- (Exact name of registrant as specified in charter) Wisconsin 39-0178960 --------- ---------- (State of Incorporation) (IRS Employer Identification No.)
6555 West Good Hope Road Milwaukee, WI 53223 (Address of Principal Executive Offices and Zip Code) (414) 358-6600 (Registrant's Telephone Number) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Class A Nonvoting Common Stock, Par Value $.01 per share 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 X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No ___ As of September 30, 1995, there were outstanding 5,507,599 shares of Class A Nonvoting Common Stock (the "Class A Common Stock"), and 1,769,314 shares of Class B Common Stock. The Class B Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock. DOCUMENTS INCORPORATED BY REFERENCE W.H. Brady Co. 1995 Annual Report, Incorporated into Part II & IV 2 I N D E X
PART I PAGE ---- Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 1 General Development of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 1 Financial Information About Industry Segments . . . . . . . . . . . . . . . . . . . . . . . . I - 1 Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 1 International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 7 Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 8 Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 8 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 8 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9 Financial Information About Foreign and Domestic Operations and Export Sales . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - 1 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - 2 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . II - 2 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . II - 2 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . II - 2 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 1
3 I N D E X
PART III (Continued) Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 4 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 4 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 6 Common Stock Price Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 9 Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -10 Termination of Employment Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -10 Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -11 Profit Sharing and Employee Thrift Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -11 Deferred Compensation Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -12 Compensation Committee Report on Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -12 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -15 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV - 1 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV - 5
4 PART I W.H. Brady Co. and Subsidiaries is hereinafter referred to as the Company or Brady. ITEM 1 BUSINESS (a) General Development of Business Brady is a Wisconsin corporation. It presently operates 12 manufacturing facilities in the United States and six foreign countries. The Company operates through seven subsidiaries with operations in two states and in Australia, Belgium, Canada, England, France, Germany, Hong Kong, Italy, Japan, Korea, New Zealand, Singapore, Spain and Sweden. The Company's principal office is located at 6555 West Good Hope Road, Milwaukee, Wisconsin 53223 and its telephone number is (414) 358-6600. (b) Financial Information About Industry Segments Not applicable. (c) Narrative Description of Business General The Company develops, manufactures and sells a broad range of stock and customized products employing its knowledge of surface chemistry, principally in adhesives, coatings and graphics technologies. Brady's products include over 20,000 stock items and a wide variety of custom items, which are used primarily to identify, inform or instruct, including pressure-sensitive identification, labeling and marking systems for electrical wires and pipes; self-bonding nameplates; safety and instructional signs and specialized tapes used in audio, video and computer applications. The Company's products are sold domestically and internationally through a network of distributors, a direct sales force and mail order sales, and are used in a variety of industrial, commercial, governmental, public utility, medical equipment, computer and consumer product markets, including original equipment manufacturers. The Company operates 12 manufacturing facilities in the United States and six foreign countries. Domestic and international operations are conducted through its Identification Systems and Specialty Tapes Group, Signmark Group, and Seton Group. Domestic operations are located in Connecticut and Wisconsin. International operations are located in Australia, Belgium, Canada, England, France, Germany, Hong Kong, Italy, Japan, Korea, New Zealand, Singapore, Spain and Sweden. I - 1 5 Technology and Product Development The Company focuses its research and development efforts on applications in the science of surface chemistry, i.e., coatings, adhesives and physical bonding. This dedication to surface chemistry, in combination with a manufacturing technology oriented to adhesives and graphics, has led to the development of many proprietary release coatings, adhesives and products which are adhesively fastened. Most of the Company's products are adhesively fastened to customers' products, equipment or buildings, but a portion of the products are mechanically fastened. Adhesive based products are characterized by their ability to adhere to another surface merely by application of pressure. The adhesive materials generally consist of a face stock, which is coated with an adhesive, and a removable protective backing coated with a release-coating. The stock may be paper, metal or metal foil, plastic film or cloth. The release-coated removable backing is laminated to the adhesive side of the face stock and protects the pressure-sensitive adhesive from premature contact with other surfaces, thus allowing the material to be printed and/or die-cut, as required. The backing paper also serves as the carrier for supporting and dispensing the products. When the products are to be used, the backing is removed to expose the adhesive, and the product is pressed or rolled into place manually or applied automatically. New product and process development and product improvements are a significant part of the Company's business plan. Although it is difficult to accurately measure, the Company has a goal that a significant portion of its sales be of products introduced within the past five years. These products included bar code labels, computer printable wire marking sleeves and application systems, Bradywriter, Bradylabel Software, Bradymarker & labels, Lasertabs, Brady snap-on and mechanically applied pipemarkers, lockout compliance products, parts for micro discs, surface mount carrier and cover tape, outdoor weatherable graphic arts adhesive coated films, laser printable nameplates, and abrasive and solvent resistant coatings for polyester and polycarbonates. The Company conducts most of its research and development activities at its 30,000 sq. ft. Frederic S. Tobey Research and Innovation Center in Milwaukee, Wisconsin and through a small research center in Belgium which services its European subsidiaries. The Company spent approximately $10.4 million, $10.3 million, and $12.1 million in fiscal 1995, 1994 and 1993, respectively, on its research and development activities, all of which were Company sponsored. In fiscal 1995, approximately 100 employees were engaged in research and development activities for the Company. Additional research projects were conducted under contract with universities, other institutions and consultants. The Company owns patents covering various aspects of adhesive chemistry, electronic circuitry, computer generated wire markers, and systems for aligning letters and patterns. While the I - 2 6 Company believes that its patents are a significant factor in maintaining its market position as to certain products, technology in the areas covered by many of the patents is evolving rapidly and may limit the value of the Company's patents. The Company's business is not dependent on any single patent or group of patents. Manufacturing Processes The Company's manufacturing processes require application of coatings and adhesives to a variety of materials, including paper, metal and metal foil, plastic film and cloth, and the use of various graphic techniques to print or mark the materials. Products manufactured by the Company generally require a high degree of precision and the application of adhesives with chemical and physical properties suited for specific usages. The Coated Products Division of Brady USA, Inc. produces adhesive coated materials and printable top coated materials mainly for use by other divisions and subsidiaries. The Company's production of the majority of its own adhesive stocks and top coated materials permits an integrated manufacturing process which the Company believes, when combined with its emphasis on quality control, provides the basis for high quality, uniform products. The Company's integrated manufacturing processes also permit it to achieve greater flexibility in product design and manufacture, and improve its ability to provide specialized products designed to meet the needs of specific applications. Products Brady's products are used in a wide variety of industrial applications, including markers that identify electrical circuits and piping systems; safety and accident prevention signs that warn of health and accident hazards; nameplates that identify consumer, scientific, medical and electrical products; specialized tapes for audio, video and computer applications; products for the marking and identification of buildings, equipment, and storage facilities; products for the aerial and ground location and identification of utility lines; products for floor safety, aisle and barricade marking. The Company's most significant products are described below. I - 3 7 WIRE MARKERS Since 1945, the Company has been the leading domestic producer of labeling and identification products for electrical wires and wiring devices. Virtually all industrial products, medical equipment, computers, large buildings, transportation equipment and vehicles contain a complex network of electrical wiring and circuits. The wires and wiring devices that comprise these networks must be identified at the time of manufacture or installation. Many of the Company's products have become standard in the industry, with applications in both manufacturing and distribution. The Company manufactures both self-adhesive and non-adhesive wire marking products and labels in a wide variety of styles and materials. The markers may be printed with a single number or letter, or with a multi-line "address" that indicates the origination and termination of the wire, the device or devices to which it transmits current, engineering drawings and part numbers, or other information that facilitates the location of the source of trouble and repair in case of malfunction of the system. Brady wire markers and labels are designed for application by a variety of means and for use in specialized environments, including temperature ranges of -85F to more than 1,200F and chemical or other corrosive exposures including radiation, moisture, ozone, acid, alkalis, oils, and solvents. These products are constructed from various materials designed to meet engineers' specifications, ranging from general purpose cloth to materials for more specialized uses such as aluminum, vinyls, polyesters and polyvinylflourides. Such markers and labels and their chemically appropriate adhesives provide resistance to various environmental hazards such as heat, abrasion, solvents, and chemical corrosion. The Company's self-adhesive wire markers and labels are either preprinted or blank. The blank wire markers and labels can be computer printed by the customer using Brady developed software. Preprinted wire markers and labels are mounted on relatively thick release-coated card stock from which individual adhesive markers are removed manually or by machine and wrapped around the wire to provide permanent identification. Computer printable wire markers and labels are mounted on pin-fed rolls or backing sheets. An important feature of the Brady computer printable products is the proprietary ink-receptive, nonerasable, heat and solvent resistant coating on the surface of the marker. The Company's non-adhesive wire marking sleeves are being used increasingly in industrial applications. These sleeve markers are produced in a variety of forms, ranging from simple slip-on or clip-on preprinted molded plastic pieces which are applied manually or through the use of a simple tubular device, to highly automated application systems for computer printed wire marking sleeves. These computer printed sleeves may be applied using Brady developed equipment at rates I - 4 8 up to 1,800 markers per hour. Wire marking sleeves may also be heat shrunk onto the wire using equipment designed for that purpose. This product line includes indelible ink ribbons and portable, self-contained printing systems able to withstand the rigors of an industrial environment. SPECIALIZED TAPE PRODUCTS The Company's specialized tapes and related products are used in a variety of audio, video and computer applications, as well as surface mount technology products. These specialized tape products are characterized by high performance adhesives, most of which are formulated by the Company, to meet high tolerance requirements of the industries in which they are used. The Company's computer application products include reinforcing rings for floppy discs and components of micro-discs. Its audio industry products include cassette leader and splicing tapes and conductive splicing tapes. Video products include splicing and leader tapes, conductive/reflective sensing tapes, and other specialty components used in video cassettes. The Company's surface mount carrier and cover tapes are compatible with the products of all major surface-mounted-device electronic component manufacturers. PIPE MARKERS The Company manufactures both self-adhesive and non-adhesive mechanically applied stock and custom designed pipe markers and plastic and metal valve tags for the identification of piping systems in chemical plants, refineries, pipelines, utilities, ships, hospitals, food processing plants, institutions, and other buildings and facilities in a variety of temperature and chemical environments. These products are designed to legibly identify and provide information as to the contents, direction of flow and special hazardous properties of materials contained in the piping systems. The Company's products are designed to meet standards established by the American National Standards Institute for the identification of piping systems. The Company formulates its own adhesives for its pipe marking products to withstand demanding climatic conditions encountered by facilities ranging from the Alaska pipeline to Middle East refineries, as well as exposure to various chemical environments. The products are also designed for application to a variety of pipe surfaces and sizes. SAFETY AND ACCIDENT PREVENTION SIGNS The Company manufactures safety and accident prevention signs for use in a broad range of industrial, commercial, governmental and institutional applications. These signs are either self-adhesive or mechanically mounted, are designed for both indoor and outdoor use, and are manufactured to meet standards promulgated by the National Safety Council, the Occupational Safety and Health Administration and a variety I - 5 9 of industry associations. The Company manufactures products with both stock and custom legends. Safety and accident prevention signs are constructed from materials designed to meet specific industry and environmental requirements, including self-adhesive vinyl coated cloth, subsurface printed polyester, reflective sheeting and phosphorescent polyester, metal, and fiberglass reinforced panels. The Company's sign products are categorized by type of message to be conveyed, including admittance, directional and exit signs; electrical hazard warnings and energy conservation messages; fire protection and fire equipment signs; hazardous waste labels; hazardous and toxic material warning signs; vehicle placards for the transportation industry; personal hazard warnings; housekeeping and operational warnings; pictograms; radiation and laser signs; safety practices signs; traffic signs; and regulatory markings. This product line includes printing systems that enable customers to print signs on-demand, on-site using Brady software and Brady materials. The Company believes that no other supplier offers as broad a range of safety and accident prevention sign products. NUMBERS AND LETTERS The Company produces self-adhesive numbers and letters used for the systematic identification of bins and shelving in factories, warehouses, stockrooms and other facilities where alphanumeric labeling is desired. It produces card mounted numbers and letters in a variety of sizes and types of adhesive-backed printed material. Numbering and lettering systems are constructed of vinyl-coated cloth and indoor/outdoor vinyl. The Brady Bintab (R) labeling system provides custom computer printed labels for specialized storage identification needs. The Company also manufactures self-adhesive and self-aligning die-cut numbers and letters and sign making kits. OTHER PRODUCTS The Company also sells a variety of other products, none of which individually accounts for a material portion of its sales. These products include non-skid safety tapes, warning posts and cones, die cut masks, adhesive backed felt, lockout/tag-out devices, temperature indicating labels, and hospital and clinical labels. I - 6 10 Marketing and Sales Brady markets its stock products primarily through a network of domestic distributors, mail order sales, and foreign distributors. The Company's custom designed products are marketed directly to end users, primarily through domestic and foreign full-time sales representatives. As part of its marketing program, the Company encourages distributors to maintain adequate inventories of its stock products to permit prompt delivery, and maintains such inventories itself. Many of the Company's stock products were originally designed, developed and manufactured as custom products for a specific purchaser. However, such products have frequently developed wide industry acceptance and become stock items offered by the Company through mail order and distributor sales. The Company's products are designed to specifications established by industrial, commercial and military customers for specific applications. The Company seeks also to have its products specified by the engineering departments of manufacturers, constructors and contractors to which it sells. The Company's products are sold in a wide variety of industrial, commercial, governmental, public utility, medical equipment, computer and consumer product markets, including original equipment manufacturers. No material part of the Company's business is dependent upon a single customer or group of customers, and the loss of a particular customer would have no material adverse effect upon the Company's business. In fiscal 1995, no single customer accounted for more than 2.0% of Company sales. Although sales of certain of the Company's products experience recurring seasonal variations, management does not consider the Company's overall sales to be seasonal in nature. International Operations The Company's international operations consist both of direct export sales and operations conducted by its eighteen international locations (Australia, Belgium, Canada (2), England (2), France (2), Germany (2), Hong Kong, Italy, Japan, Korea, New Zealand, Singapore, Spain and Sweden). Six of these international locations manufacture or have the capability to manufacture certain of the Brady products they sell. In fiscal 1995, 1994, and 1993, international sales accounted for 41.1%, 37.1%, and 32.0%, respectively, of Brady's sales. Other than for the risks normally attending foreign operations, such as currency fluctuations, exchange control regulations and the effect of international relations or the domestic affairs of foreign countries on the conduct of business, the nature of the Company's international operations and the countries in which they are conducted do not present unusual business risks over those encountered by the Company's domestic activities. I - 7 11 Backlog As of July 31, 1995, the amount of the Company's backlog orders believed to be firm was $14.6 million. This compares with approximately $17.4 million and $15.2 million of backlog orders as of July 31, 1994 and 1993, respectively. Average delivery time for the Company's orders varies from one day to twelve weeks, depending on the type of product, and whether the product is stock or custom designed and manufactured. Raw Materials Base materials used in the Company's products consist primarily of paper, plastic sheets and films (primarily polyesters and polycarbonates), metal and metal foil, cloth, fiberglass, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers and solvents. The Company purchases its raw materials from many suppliers and is not dependent upon any single supplier for any of its base supply materials. Competition The markets for most of the Company's products are highly competitive. Although no industry statistics are available, the Company believes, on the basis of its knowledge and experience in its various product markets, that it is the leading domestic producer of self-adhesive wire markers, pipe markers, audio and video leader and splicing tapes, reinforcing rings for floppy discs, and adhesive numbers and letters, and believes that it is a leading domestic producer of safety signs. The Company competes for business principally on the basis of quality and performance, and to a lesser extent on price. Product quality is determined by factors such as suitability of component materials for various applications, adhesive properties, graphics quality, durability, product consistency and workmanship. Competition in many of the Company's product markets is highly fragmented, ranging from smaller companies offering only one or a few types of products to some of the world's major adhesive and electrical product companies offering a wide range of competing products. A number of the Company's competitors are larger than the Company and have substantially greater resources. I - 8 12 Employees As of July 31, 1995, Brady employed approximately 2,000 persons. The Company has never experienced a work stoppage due to a labor dispute, is not a party to any labor contracts, and considers its relations with employees to be excellent. To meet present and future manpower requirements, the Company maintains an active college recruiting program for sales, technical and administrative personnel. Environment At present, the manufacturing processes for the Company's adhesive-based products utilize certain evaporative organic solvents which, unless controlled, would be vented into the atmosphere. Emissions of these substances are regulated at the federal, state and local levels. During the past several years, the Company has implemented a number of procedures to reduce atmospheric emissions and/or to recover solvents. These efforts have included the reformulation of certain adhesives to water-based emulsions, rather than solvent-based products. During the past three years, Brady also installed incineration equipment to control emissions of organic solvents at a cost of approximately $393,000. (d) Financial Information about Foreign and Domestic Operations and Export Sales See Note 7 to Notes to Consolidated Financial Statements ITEM 2 PROPERTIES The Company and its subsidiaries have 12 manufacturing facilities, five of which are located in Wisconsin, and one each in Connecticut, Australia, Belgium, Canada, England, Japan and Singapore. The Company's primary research facility of approximately 30,000 square feet is located in Milwaukee, Wisconsin. The Company's present operating facilities contain a total of approximately 840,000 square feet of space. All of the Company's facilities are owned by it, except for a total of approximately 180,000 square feet of leased space. The Company believes that its equipment and facilities are modern, well maintained, and adequate for its present needs. ITEM 3 LEGAL PROCEEDINGS The Company and its subsidiaries are not parties to any material pending legal proceedings. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. I - 9 13 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The Company's Class A Common Stock is principally traded on the Over-the-Counter market and is quoted on NASDAQ under the symbol BRCOA. There is no established public trading market for the Company's Class B Common Stock. Stock price disclosure required by this item is incorporated by reference to Page 36 of the W.H. Brady Co. 1995 Annual Report. (b) Holders The number of holders of record of the Company's Class A and Class B Common Stock as of October 3, 1995, was 336 and 2, respectively. (c) Dividends The Company has followed a practice of paying quarterly dividends on its outstanding common stock. Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual, non-cumulative cash dividend of $.10 per share (subject to adjustment in the event of future stock splits, stock dividends or similar event involving shares of Class A Common Stock). Thereafter, any further dividend in that fiscal year must be paid on all shares of Class A Common Stock and Class B Common Stock on an equal basis. During its two most recent fiscal years and for the first quarter of the current year, the Company declared the following dividends per share on its Class A and Class B Common Stock:
Year Ending Year Ended 7/31/94 Year Ended 7/31/95 7/31/96 ------------------------------ --------------------------- ------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr --- --- --- --- --- --- --- --- --- Class A $.17 $.17 $.17 $.17 $.20 $.20 $.20 $.20 $.30 Class B .07 .17 .17 .17 .10 .20 .20 .20 .20
II - 1 14 ITEM 6 SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to Page 18 and 19 of the W.H. Brady Co. 1995 Annual Report. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to Pages 20 and 21 of the W.H. Brady Co. 1995 Annual Report. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to Pages 22 through 34 of the W.H. Brady Co. 1995 Annual Report. ITEM 9 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II - 2 15 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title - ---- --- ----- Katherine M. Hudson 48 President, CEO and Director Donald P. DeLuca 55 Senior Vice President, Treasurer, Assistant Secretary, and Director Mary T. Arnold 52 Vice President, Research and Development Richard L. Fisk 51 Vice President, Seton Group David R. Hawke 41 Vice President, Signmark Group Peter J. Lettenberger 58 Secretary and Director David W. Schroeder 40 Vice President, ISST Group James M. Sweet 42 Vice President, Human Resources William H. Brady III 53 Director Elizabeth B. Lurie 50 Director Robert C. Buchanan 55 Director Roger D. Peirce 58 Director Richard A. Bemis 54 Director Frank W. Harris 53 Director Gary E. Nei 51 Director
KATHERINE M. HUDSON - Mrs. Hudson joined the Company in January 1994, as President, Chief Executive Officer and Director. Prior thereto she was a Vice President at Eastman Kodak Company and General Manager of its Professional, Printing and Publishing Image Division. She is also a director of Apple Computer. DONALD P. DELUCA - Mr. DeLuca joined the Company as Vice President-Finance and Chief Financial Officer in May 1990. He was promoted to Senior Vice President in August 1994. Before joining Brady, he served as Executive Vice President-Finance and Administration of CSC Industries, Inc. from 1987 to April 1990. Prior to that he served as Vice President, Treasurer and Secretary of Copperweld Corp. from 1974 to 1987. He is also a director of GAN North American Insurance Company, GAN National Insurance Company and Fugitive Emissions Control, Inc.. MARY T. ARNOLD - Dr. Arnold joined the Company in February 1993. In March 1995, she was appointed to her present position. Prior to joining Brady, Dr. Arnold served in various capacities at G. E. Appliances. RICHARD L. FISK - Mr. Fisk joined the Company in 1979 and was appointed to his present position in August 1987. He previously served as General Manager of Seton Name Plate Co., a wholly-owned subsidiary of the Company. III - 1 16 DAVID W. HAWKE - Mr. Hawke joined the Company in 1979. He served as General Manager of the Industrial Products Division from 1985 to 1991. From 1991 to February 1995, he served as Managing Director - European Operations. In March 1995, he was appointed to his present position. PETER J. LETTENBERGER - Mr. Lettenberger has served as a Director and Secretary of the Company since January 1977. Mr. Lettenberger has been a member of the Company's audit and compensation committees since April, 1977 and October 1978, respectively, and has been chairman of the compensation committee since June 1985. He is a partner of Quarles & Brady, general counsel to Company, which firm he joined in 1964. He is also a director of Electronic Tele-Communications, Inc. DAVID W. SCHROEDER - Mr. Schroeder joined the Company in June 1991 as General Manager of the Industrial Products Division. He was appointed to his present position in March 1995. Before joining the Company, he served as President and Chief Executive Officer of Uniroyal Adhesives & Sealants Co., Inc. from 1988 to May 1991. JAMES M. SWEET - Mr. Sweet joined the Company in 1985. In November of 1987 he was appointed Director, Personnel. In August of 1989 he was appointed Vice President, Human Resources. WILLIAM H. BRADY III - Mr. Brady has been a director of the Company since January of 1979. Mr. Brady is a private investor. ELIZABETH B. LURIE - Mrs. Lurie has been a director of the Company since January of 1979. Mrs. Lurie is President and Administrator, W. H. Brady Foundation. Until June 1, 1984, Mrs. Lurie was a Vice President of Chase Federal Savings & Loan Association, Miami, Florida, and had been employed by that firm since November 1973, except for the period from October 1979 to November 1980, when she was Financial Manager for the University of Miami Law & Economic Center. Prior to November 1994, she was the principal owner of an art gallery in Maggie Valley, North Carolina. ROBERT C. BUCHANAN - Mr. Buchanan has been a director of the Company since November 1987 and a member of its audit committee since June 1988 (chairman since June 1990). Mr. Buchanan is President and CEO of the Fox Valley Corporation in Appleton, Wisconsin, having assumed that position November 1, 1980. He is also a director of The Northwestern Mutual Life Insurance Company and Firstar Corporation. ROGER D. PEIRCE - Mr. Peirce has served as a director and a member of the compensation committee of the Company since September, 1988. Mr. Peirce is President of Valuation Research Corporation, having assumed that position in April 1995. From September 1986 to December 1993, he was President of Super Steel Products Corp. in Milwaukee, Wisconsin. Prior to that he was a managing partner for Arthur Andersen & Co., independent certified public accountants. III - 2 17 RICHARD A. BEMIS - Mr. Bemis has been a director of the Company since January 1990 and a member of its compensation committee since March 1990. Mr. Bemis is President and CEO of Bemis Manufacturing Company, a manufacturer of molded plastic products in Sheboygan Falls, Wisconsin. He is also a director of Wisconsin Public Service Corporation. FRANK W. HARRIS - Dr. Harris has been a Director of the Company since November 1991. Dr. Harris is a Professor of Polymer Science and Biomedical Engineering in the Institute of Polymer Science at the University of Akron, and has been on its faculty since 1983. GARY E. NEI - Mr. Nei has been a Director of the Company since November 1992, and a member of its audit committee since November 1994. Mr. Nei is Chairman of B&B Publishing, a publishing company in Walworth, Wisconsin. He is also a director of DIFCO Inc. and Uroquest, Inc.. All directors serve until their respective successors are elected at the next annual meeting of shareholders. Officers serve at the discretion of the Board of Directors. None of the Company's directors or executive officers has any family relationship with any other director or executive officer, except that William H. Brady III is the brother of Elizabeth B. Lurie. III - 3 18 ITEM 11 EXECUTIVE COMPENSATION - ------------------------------ The following table summarizes the compensation paid or accrued by the Company during the three fiscal years ended July 31, 1995 to those persons who, as of the end of fiscal 1995, were the Named Executive Officers.
SUMMARY COMPENSATION TABLE -------------------------- Long-Term Annual Compensation Compensation --------------------------- ------------ Awards Name and Other Annual --------- All Other Principal Fiscal Salary Bonus Compensation Options/SAR Compensation Position Year ($) ($) (1) ($) (2) (# of Shares) ($) (3) - -------- ------ ------- ------- ------------ ------------- ------------ K.M. Hudson 1995 315,000 369,914 4,163 10,000 87,333(4) President 1994 175,000 175,000 - 25,000 400,366(4) & Chief 1993 - - - - - Executive Officer D.P. DeLuca 1995 217,875 175,273 4,480 4,000 64,349(5) Senior Vice 1994 182,750 127,925 2,825 2,500 18,161(5) President, 1993 174,000 69,426 2,340 2,500 32,151(5) Treasurer & Chief Financial Officer R.L. Fisk 1995 189,954 156,861 3,425 3,000 13,691 Vice President, 1994 182,577 127,804 3,097 2,500 15,462 Seton Group 1993 173,846 63,280 2,375 2,500 14,421 D.W. Schroeder 1995 170,449 124,446 2,979 2,000 12,394 Vice President, 1994 157,279 90,404 2,887 1,750 12,775 ISST Group 1993 149,780 60,212 2,893 1,750 14,172(6) D.R. Hawke 1995 160,939 112,497 - 2,000 202,113(7) Vice President, 1994 147,468 95,855 - 1,250 62,459(7) Signmark Group 1993 141,341 39,871 - 1,250 39,802(7)
(1) Reflects bonus earned during the fiscal year which was paid during the next fiscal year. (2) The amounts shown represent costs to the Company for expenses associated with the use of a company car. (3) All other compensation for fiscal 1995 for Mrs. Hudson, and Messrs. DeLuca, Fisk, Schroeder and Hawke, respectively, includes: (i) matching contributions to the Company's Profit Sharing and Employee Thrift (i.e. "BradyGold") Plan for each named executive officer of $12,000, $12,000, $12,000, $12,000, and $12,000 and (ii) the cost of group term life insurance for each named executive officer of $1,544, $2,349, $1,691, $394 and $480. III - 4 19 All other compensation for fiscal 1994 for Mrs. Hudson, and Messrs. DeLuca, Fisk, Schroeder and Hawke, respectively, includes: (i) matching contributions to the Company's Profit Sharing and Employee Thrift (i.e. "BradyGold") Plan for each named executive officer of $13,000, $14,620, $14,606, $12,582 and $11,798 and (ii) the cost of group term life insurance for each named executive officer of $660, $1,022, $856, $193 and $246. All other compensation for fiscal 1993 for Messrs. DeLuca, Fisk, Schroeder, and Hawke, respectively, includes: (i) matching contributions to the Company's Profit Sharing and Employee Thrift (i.e. "BradyGold") Plan for each named executive officer of $13,920, $13,858, $11,982, $10,620 and (ii) the cost of group term life insurance for each named executive officer of $931, $563, $184, and $171. (4) Fiscal 1995 includes relocation expenses of $50,586 and $23,203 accrued, but not paid, for the current year portion of a Supplemental Executive Retirement Plan. Fiscal 1994 includes $386,706 accrued, but not paid, for that year's portion of the same plan. (5) Fiscal 1995 includes $50,000 accrued, but not paid, for the current year portion of a Supplemental Executive Retirement Plan. Fiscal 1994 includes relocation expenses of $2,519. Fiscal 1993 includes relocation expenses of $17,300. (6) Includes relocation expenses of $2,006 in fiscal 1993. (7) Fiscal 1995 includes relocation expenses of $25,282 and expatriation expenses of $164,351 related to Mr. Hawke's Belgium assignment. Fiscal 1994 includes relocation expenses of $1,104 and expatriation expenses of $49,311. Fiscal 1993 includes relocation expenses of $16,599 and expatriation expenses of $12,412. III - 5 20 STOCK OPTIONS The following tables summarize option grants and exercises during fiscal 1995 to or by the executive officers named in the Summary Compensation Table above, and the value of unexercised options held by such persons at July 31, 1995. Stock Appreciation Rights are not available under any of the Company's plans. OPTION GRANTS IN FISCAL 1995
Individual Grants ------------------------------------------------------ % of Total Options Granted to Options Employees Exercise Granted in Price (2) Expiration Name (#) (1) Fiscal 1995 ($/Sh) Date - ---- ------- ----------- ------ ---- K.M. Hudson 10,000 26.1% 47.000 10/21/2004 D.P. DeLuca 4,000 10.5% 47.000 10/21/2004 R.L. Fisk 3,000 7.8% 47.000 10/21/2004 D.W. Schroeder 2,000 5.2% 47.000 10/21/2004 D.R. Hawke 2,000 5.2% 47.000 10/21/2004
Potential Realizable Value at Assumed Rates of Stock Price Appreciation (3) ---------------------------------------------- 0% 5% 10% $47 $76-5/8 $121-5/8 Name ($) ($) (6) ($) (6) - ---- --- ------- ------- K.M. Hudson 0 296,250 748,750 D.P. DeLuca 0 118,500 299,500 R.L. Fisk 0 88,875 224,625 D.W. Schroeder 0 59,250 149,750 D.R. Hawke 0 59,250 149,750
All Shareholders' Gains (increase in market value of W.H. Brady Co. Common Stock at assumed rates of stock price appreciation) (4) (6)................................ $162,477,661 $410,650,290 All Optionees' Gains (as a percent of all shareholders' gains) (5) (6)... 0.70% 0.70%
(1) The options granted were dated October 21, 1994 and become exercisable as follows: 33 1/3% of the shares on October 21, 1995; 33 1/3% of the shares in October 21, 1996; and 33 1/3% of the shares on October 21, 1997. All these options have a term of ten years. III - 6 21 (2) The exercise price is the average of the highest and lowest sale prices of the Company's Class A Common Stock as reported by NASDAQ on the date of the grant. (3) Represents total potential appreciation of approximately 0%, 63% and 159% for assumed annual rates of appreciation of 0%, 5% and 10%, respectively, compounded annually for the ten year option term. (4) Calculated from the $47.00 exercise price applicable to the options granted in fiscal 1995 based on the 5,484,478 shares of Class A Common Stock outstanding on October 21, 1994. (5) Represents potential realizable value for all options granted in fiscal 1995 as compared to the increase in market value of W.H. Brady Co. Class A Common Stock at assumed rates of stock price appreciation. (6) The Company disavows the ability of any valuation model to predict or estimate the Company's future stock price or to place a reasonably accurate present value on these options because any model depends on assumptions about the stock's future price movement that the Company is unable to predict. III - 7 22 AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND VALUE OF OPTIONS AT END OF FISCAL 1995
Number of Unexercised Options at Shares July 31, 1995 Acquired ------------------------- on Value Exercise Realized Exercisable Unexercisable Name (#) ($) (#) (#) - ---- -------- -------- ----------- ------------- K.M. Hudson 0 0 28,333 6,667 D.P. DeLuca 0 0 13,000 3,500 R.L. Fisk 0 0 8,667 2,833 D.W. Schroeder 0 0 5,584 1,916 D.R. Hawke 0 0 8,750 1,750
Value of Unexercised In-the-Money Options at July 31, 1995 (1) ------------------------------ Exercisable Unexercisable Name ($) ($) - ---- ----------- ------------- K.M. Hudson 790,617 162,508 D.P. DeLuca 525,223 94,059 R.L. Fisk 313,606 77,801 D.W. Schroeder 200,020 52,824 D.R. Hawke 352,560 47,035
(1) Represents the closing price for the Company's Class A Common Stock on July 31, 1995 of $71-3/8 less the exercise price for all outstanding exercisable and unexercisable options for which the exercise price is less than such closing price. III - 8 23 COMMON STOCK PRICE PERFORMANCE GRAPH The graph below shows a comparison of the cumulative return over the last five fiscal years had $100 been invested at the close of business on July 31, 1990 in each of W.H. Brady Co. Class A Common Stock, the Standard & Poor's (S&P) 500 Index and the National Association of Securities Dealers' Automated Quotation System (NASDAQ) United States Index. [graph]
1990 1991 1992 1993 1994 1995 BRADY $100 $150 $133 $137 $188 $281 S&P 500 $100 $113 $127 $138 $145 $183 NASDAQ US $100 $118 $139 $169 $174 $243
* $100 invested on 31 July 1990 in stock or index Includes reinvestment of dividends Fiscal year ending 31 July III - 9 24 COMPENSATION OF DIRECTORS Each director who is also an employee of the Company receives no additional compensation for service on the Board or on any committee of the Board. Directors who are not also employees of the Company receive an annual retainer of $15,000 in addition to $1,250 ($1,000 prior to December, 1994) plus expenses for each meeting of the Board or any committee thereof which they attend. TERMINATION OF EMPLOYMENT ARRANGEMENTS In fiscal 1994 the Company created a Supplemental Executive Retirement Plan (SERP) for Mrs. Hudson. The stated amount of the Plan until January 1, 1999 is $500,000. The Company credited a deferred compensation account with the net present value of the stated amount in January 1994. The account will be credited annually with the current year's increase in the net present value calculation. No interest accrues on the balance in the account until January 1, 1999. After that date, interest will accrue quarterly on the balance in the account at the prime rate in effect at the end of each calendar quarter. The Company is required to pay Mrs. Hudson the balance in the account over a ten year period beginning January 2009. The first payment will be one-tenth of the balance in the account; the second one-ninth; and so on. In the event of a change in control of the Company, Mrs. Hudson's SERP may accelerate and become payable in thirty days. In September 1994, the Company created a Supplemental Executive Retirement Plan (SERP) for Mr. DeLuca. The Plan calls for the Company to credit a deferred compensation account with $50,000 on July 31 of each year beginning July 31, 1995 to and including July 31, 1999, provided Mr. DeLuca is employed by the Company as of each of those dates. Interest accrues on the balance in the account at the prime rate in effect on July 31 of each year, but not less than 6% nor more than 10% per annum. The Company is required to pay Mr. DeLuca the balance in the account over a ten year period beginning on August 1 of the year following his termination of employment with the Company. The first payment will be 1/10th of the balance in the account; the second payment will be 1/9th; and so on. The Company may make payments in some other manner provided the payments are neither smaller nor extend beyond such ten year period. In fiscal 1992 the Company created a Supplemental Executive Retirement Plan (SERP) for Mr. Gengler, retired President, CEO and Director. The Plan credits a deferred compensation account with $125,000 each year provided Mr. Gengler is in the employment of the Company as of July 31, 1992, July 31, 1993 and July 31, 1994. If Mr. Gengler is in the employment of the Company as of July 31, 1994 an additional $100,000 will be credited to this account on July 31, 1995, July 31, 1996 and July 31, 1997. Mr. Gengler met these requirements. Interest accrues on the balance in the account at the rate of 8% per year. III - 10 25 The Company is required to pay Mr. Gengler the balance in the account over a ten year period beginning August 1, 1997. That payment, and the nine succeeding payments, will equal one-tenth of the account balance at August 1, 1997. Additionally, the payments in succeeding years will include interest credited to the account in the interim. The Company may make payments in some other manner provided the payments are neither smaller nor extend beyond August 1, 2006. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1995, the Board's Compensation Committee was composed of Messrs. Bemis, Lettenberger and Peirce. None of these persons has at any time been an employee of the Company or any of its subsidiaries, although Mr. Lettenberger has been and remains Secretary of the Company. Mr. Lettenberger is a partner of Quarles & Brady, which is general counsel to the Company. There are no other relationships among the Company's executive officers, members of the Compensation Committee or entities whose executives serve on the Board that require disclosure under applicable SEC regulations. PROFIT SHARING AND EMPLOYEE THRIFT PLAN All Brady employees in the United States and certain expatriate employees working for its international subsidiaries are eligible to participate in the Company's Profit Sharing and Employee Thrift Plan (the "BradyGold Plan"). Under this plan the Company agrees to contribute certain amounts to the BradyGold Plan to the extent of current earnings and profits, or, under certain circumstances, accumulated earnings of the Company. Under the BradyGold Plan, the Company first contributes 4% of the eligible earnings of each person covered by the BradyGold Plan. In addition, participants may elect to have their annual pay reduced by up to an additional 4% and to have the amount of this reduction contributed to the BradyGold Plan by the Company and matched by an additional, equal contribution by the Company. Participants may also elect to have their annual pay reduced by up to an additional 4% and to have the amount of this reduction contributed to the BradyGold Plan by the Company (without an additional matching contribution by the Company). The assets of the BradyGold Plan credited to each participant are invested by the BradyGold Plan trustee as directed in several investment funds as permitted by the BradyGold Plan. The annual contributions and forfeitures allocated to any participant under all defined contribution plans may not exceed the lesser of $30,000 or 25% of the participant's base compensation and bonuses. Benefits are generally payable upon the death, disability, or retirement of the participant or upon termination of employment before retirement, although benefits may also be withdrawn from the BradyGold Plan and paid to the participant if required for certain emergencies. Under certain specified circumstances, the BradyGold Plan allows loans to be drawn on a participant's account. The participant is immediately fully vested with respect to the contributions attributable to reductions in pay; all other contributions become fully vested after five years of service. III - 11 26 DEFERRED COMPENSATION ARRANGEMENTS Directors, executive officers, corporate staff officers and certain key management employees of the Company are permitted to defer portions of their fees, salary and bonus and to invest the deferred amounts in "phantom stock" of the Company. "Phantom Stock" is not actual stock or rights to acquire stock in the Company, but it gives participants the right to share in increases in book value (as defined) of the common stock. At the end of each fiscal year, the deferred compensation balance (with interest) is credited to the purchase of phantom common stock at the then book value of the common stock of the Company, and is thereafter adjusted to reflect stock dividends and other dividends or distributions on the Company's Class A Common Stock. Upon the retirement, disability, or death of participant, the Company is required to pay, each year for a period of ten years, a portion of the book value of the phantom stock determined by the book value of the corresponding number of common shares as of the end of each fiscal year. The first payment must be one-tenth of the book value; the second one-ninth; and so on, with the number of phantom shares reduced by the equivalent in book value of each payment. If the participant's employment ends for reasons other than his retirement, disability or death, the book value of his phantom stock will be determined as of the end of the fiscal year following his termination of employment and he will receive one-tenth of such amount each year for a period of ten years, plus interest at a rate 2% less than the Company's short-term borrowing rate. At the request of the participant, the Company may make payments in larger installments or in a lump sum on a discounted or other basis. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Company's Compensation Committee (the "Committee") is composed entirely of outside directors and is responsible for considering and approving compensation arrangements for senior management of the Company, including the Company's executive officers and the chief executive officer. It is the philosophy of the Committee to establish a total executive compensation program which is competitive with a broad range of companies that it considers to be of comparable size and complexity. The primary components of the Company's executive compensation program are (i) base salary, (ii) annual shareholder value enhancement plan cash bonuses and (iii) long term incentive compensation in the form of stock options. These are designed to align shareholder and management interests, to balance the achievement of annual performance targets with actions that focus on the long-term success of the Company, and to attract, motivate and retain key executives who are important to the continued success of the Company. Decisions made by the Committee relating to the base salary compensation and the annual cash incentive compensation plan are reviewed and approved by the full Board of Directors. III - 12 27 The Committee believes that: - The Company's pay levels are appropriately targeted to attract and retain key executives; - The Company's incentive plan provides strong incentives for management to increase shareholder value; and - The Company's total executive compensation program is a cost-effective strategy to increase shareholder value. BASE SALARY Consistent with the Committee's philosophy, base salaries are generally maintained at or modestly above competitive base salary levels. Competitive salary level is defined as the average base salary for similar responsibilities in a group of companies selected by the Committee that the Committee considers to be of comparable size and complexity. In setting base salaries for fiscal 1995, the Committee reviewed compensation survey data and was satisfied that the base salary levels set would achieve the Company's objectives. Specific increases reflect the Committee's subjective evaluation of individual performance. ANNUAL SHAREHOLDER VALUE ENHANCEMENT PLAN The shareholder value enhancement plan (the "Bonus Plan") provides for the annual payment of cash bonuses. When viewed together with the Company's base salary, the purpose of the Bonus Plan is to provide a balance between fixed compensation and variable, results-oriented compensation. The Bonus Plan has both an objective (90%) and a subjective (10%) element. Components of the objective element include maximizing the Company's profitability and shareholder value. Components of the subjective element include the achievement of certain agreed upon goals. STOCK OPTIONS In 1989 the Board approved the W.H. Brady Co. 1989 Non-Qualified Stock Option Plan (the "Option Plan") under which 500,000 shares of Class A Non-Voting Common Stock are available for grant. The Option Plan assists executive officers, corporate staff officers and key management employees in becoming shareholders with an important stake in the Company's future, aligning their personal financial interest with that of all shareholders. Stock options are typically granted annually and have a term of ten years. Generally the options become one-third exercisable one year after the date of the grant and one-third additional in each of the succeeding two years so that at the end of three years after the date of the grant they are fully exercisable. All grants under the Option Plan are at market price on the date of the grant and have value only if the price of W.H. Brady Co. Class A Common Stock, after the vesting requirement passes, has increased to a greater value than at the grant date. III - 13 28 COMPLIANCE WITH TAX REGULATIONS REGARDING EXECUTIVE COMPENSATION Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget Reconciliation Act of 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to the corporation's chief executive officer and the other named executive officers. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Company's executive compensation program, as currently constructed, is not likely to generate non-deductible compensation in excess of these limits. The Compensation Committee will continue to review these evolving tax regulations as they apply to the Company's executive compensation program. It is the Compensation Committee's intent to preserve the deductibility of executive compensation to the extent reasonably practicable and to the extent consistent with its other compensation objectives. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER Mrs. Hudson received $315,000 in base salary in fiscal 1995, an increase of 6.7% over the prior year's annualized amount. She was paid a bonus attributable to fiscal 1995 of $369,914. Mrs. Hudson's bonus reflects: (i) sales increased $58,521,000, or 22.9%, and profits increased $9,371,000, or 50.5%, over similar amounts from the prior year (ii) stock price increased from $41.50 to $71.375, increasing shareholder value by approximately $174,000,000 (iii) successful divestiture of the Nameplate Division of BUSA, Inc., Brady Medical Products Co., and certain real estate (iv) facilitated continued improvement in intercompany teamwork (v) focused the Company's resources on value-enhancing growth During fiscal 1995, Mrs. Hudson was awarded options to purchase 10,000 shares of Class A Common Stock. The Committee believes these awards are consistent with the objectives of the various plans and with the overall compensation policy of the Board of Directors. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The Compensation Committee believes the executive compensation programs and practices described above are competitive. They are designed to provide increased compensation with improved financial results and provide additional opportunity for capital accumulation, but only if shareholder value is increased. Peter J. Lettenberger, Chairman Richard A. Bemis Roger D. Peirce III - 14 29 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners The following table sets forth the current beneficial ownership of shareholders who are known by the Company to own five percent (5%) of any class of the Company's voting shares on September 30, 1995.
Amount of Title of Name and Address of Beneficial Percent of Class Beneficial Owner Ownership Ownership - -------- ---------------- ---------- ---------- Class B William H. Brady, Jr.(1) 1,574,866 89% Common Marital Trust Stock c/o Quarles & Brady Attn: Peter J. Lettenberger 411 East Wisconsin Avenue Milwaukee, WI 53202 William H. Brady, Jr.(1) 194,448 11% Non-QTIP Marital Trust c/o Quarles & Brady Attn: Peter J. Lettenberger 411 East Wisconsin Avenue Milwaukee, WI 53202
___________________________________________ The trustees of both trusts are Robert C. Buchanan, Irene B. Brady, Roger D. Pierce, Peter J. Lettenberger, and Richard A. Bemis, each of whom shares voting and dispositive power. The vested beneficiary is Irene B. Brady; the contingent remainder beneficiaries are William H. Brady, III and Elizabeth B. Lurie. III - 15 30 (b) Security Ownership of Management The following table sets forth the current beneficial ownership of each class of equity securities of the Company by each Director or Nominee and by all Directors and Officers of the Company as a group as of September 30, 1995. Except as otherwise indicated, all shares are owned directly.
Title Name of Beneficial Amount of Percent of Owner & Nature of Beneficial of Class Beneficial Ownership Ownership Ownership - ----- -------------------- --------- --------- Class A Peter J. Lettenberger (1)(2)(3) 1,109,963 20.2% Common Richard A. Bemis (1)(4) 849,431 15.4% Stock Robert C. Buchanan (1)(5) 849,231 15.4% Roger D. Peirce (1)(6) 848,931 15.4% Elizabeth B. Lurie (2)(7) 559,290 10.2% William H. Brady III (8) 345,824 6.3% Katherine M. Hudson (9) 30,370 0.6% Donald P. DeLuca (10) 13,500 0.2% Gary R. Nei 1,500 * % Frank W. Harris 500 * % All Officers and Directors as a Group (17 persons)(11) 1,842,186 33.0% Class B Peter J. Lettenberger (1) 1,769,314 100% Common Robert C. Buchanan (1) 1,769,314 100% Stock Roger D. Peirce (1) 1,769,314 100% Richard A. Bemis (1) 1,769,314 100% All Officers and Directors as a Group 1,769,314 100% 6% Peter J. Lettenberger (1)(2) 2,751 69.1% Cumulative Robert C. Buchanan (1) 1,920 48.2% Preferred Roger D. Peirce (1) 1,920 48.2% Richard A. Bemis (1) 1,920 48.2% Stock Elizabeth B. Lurie (2)(7) 1,066 26.8% William H. Brady III (8)(6) 235 5.9% All Officers and Directors as a Group 3,221 80.8% 1979 Series Elizabeth B. Lurie (2)(7) 8,071 36.7% Cumulative Peter J. Lettenberger (2) 5,529 25.2% Preferred William H. Brady III (8) 2,542 11.6% Stock All Officers and Directors as a Group 10,613 48.3% 6% Peter J. Lettenberger (2) 2,600 100% Cumulative Elizabeth B. Lurie (2) 2,600 100% Preferred All Officers and Directors Stock, as a Group (2) 2,600 100% 1972 Series
* Indicates less than one-tenth of one percent _______________________________________________________________________ III - 16 31 (1) The amount shown includes shares held directly by the William H. Brady, Jr. Marital Trust (the "Marital Trust") and the William H. Brady, Jr. Non-QTIP Marital Trust (the "Non-QTIP Trust")(collectively, the "Trusts"). The Marital Trust owns 687,781 shares of Class A Common Stock, 1,574,866 shares of Class B Common Stock, and 1,709 shares of 6% Cumulative Preferred Stock. The Non-QTIP Trust owns 160,650 shares of Class A Common Stock, 194,448 shares of Class B Common Stock, and 211 shares of 6% Cumulative Preferred Stock. The Trustees of both Trusts are Irene B. Brady, Robert C. Buchanan, Roger D. Peirce, Peter J. Lettenberger, and Richard A. Bemis, each of whom shares voting and dispositive power. All of the Trustees except Mrs. Brady disclaim beneficial ownership of these shares. Irene B. Brady is the widow of William H. Brady, Jr. and the vested beneficiary of the Marital Trust; she is the parent of William H. Brady, III and Elizabeth Brady Lurie (who are contingent remainder beneficiaries of the Trusts) and the grandparent of Elizabeth Irene Pungello. See also note (7). (2) Elizabeth B. Lurie and Peter J. Lettenberger are among the directors of the W.H. Brady Foundation, Inc. (the "Foundation") which owns 5,529 shares of the 1979 Series, Cumulative Stock, 763 shares of the 6% Cumulative Preferred Stock and 2,600 shares of the 6% Cumulative Preferred Stock, 1972 Series. Mr. Lettenberger and Mrs. Lurie are also trustees of the Irene B. Brady Revocable Trust of 1986 (the "1986 Trust"), which owns 259,941 shares of Class A Common Stock and 68 shares of 6% Cumulative Preferred Stock. All such persons disclaim beneficial ownership of shares held by the Foundation and the 1986 Trust. (3) In addition to shares beneficially owned as a trustee of the Trusts and the 1986 Trust and as a director of the Foundation, Mr. Lettenberger owns directly 1,590.93 shares of Class A Common Stock. (4) In addition to shares beneficially owned as a trustee of the Trusts, Mr. Bemis owns 1,000 shares of Class A Common Stock directly. (5) In addition to shares beneficially owned as a trustee of the Trusts, Mr. Buchanan owns directly 600 shares of Class A Common Stock, and 200 shares through his Keogh plan. (6) In addition to shares beneficially owned as a trustee of the Trusts, Mr. Peirce owns 500 shares of Class A Common Stock directly. (7) In addition to the shares owned as a trustee of the 1986 Trust and as a director of the Foundation, Mrs. Lurie owns directly 141,615 shares of Class A Common Stock, or 2.3% of the number of such shares outstanding, 235 shares of 6% Cumulative Preferred Stock and 2,542 shares of 1979 Series Preferred Stock. She is the mother of Elizabeth Irene Pungello, who is the beneficiary of the Elizabeth Irene Pungello Irrevocable Trust (the trustees of which are Nicholas M. Daniels and Shy Lurie, Mrs. Lurie's husband) which owns 157,734 III - 17 32 shares of the Class A Common Stock, or 2.9% of the number of such shares outstanding. She disclaims ownership of these shares. (8) Mr. Brady owns 345,824 shares of Class A Common Stock, 235 shares of 6% Cumulative Preferred Stock, and 2,542 shares of 1979 Series Cumulative Stock. (9) Mrs. Hudson owns 2,036.42 shares of Class A Common Stock indirectly through an employee benefit plan and holds a vested option to acquire an additional 28,333.3 shares of Class A Common Stock. (10) Mr. DeLuca owns 500 shares of Class A Common Stock direclty and holds vested options to acquire an additional 13,000 shares of Class A Common Stock. (11) The amount shown for all officers and directors as a group (17 persons) includes options to acquire a total of 79,268 shares of Class A Common Stock which are currently exercisable or will be exercisable within 60 days. It does not include other options for Class A Common Stock which have been granted, but vest over the next three years. (c) Changes in Control No arrangements are known to the Company which may, at a subsequent date, result in a change in control of the Company. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. III - 18 33 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1) The consolidated financial statements, together with the Independent Auditors' Report thereon of Deloitte & Touche LLP, presented on Pages 22 through 34 of the Company's 1995 Annual Report is incorporated herein by reference. 2) Consolidated Financial Statement Schedules-- Schedule VIII Valuation and Qualifying Accounts Independent Auditors' Report on Financial Statement Schedules All other schedules are omitted as they are not required, or the required information is shown in the consolidated financial statements or notes thereto. 3) Exhibits 3.1(1) Restated Articles of Incorporation of W.H. Brady Co. 3.2(2) By-laws of W.H. Brady Co., as amended. 10.2(2) W.H. Brady Co. Four Square Plan, as amended. 10.3(2) Executive Additional Compensation Plan, as amended. 10.4(2) Form of Executive's Deferred Compensation Agreement, as amended. 10.5(2) Forms of Director's Deferred Compensation Agreement, as amended. 10.6(4) W.H. Brady Co. 1989 Non-Qualified Stock Option Plan. 10.7 Shareholder Value Enhancement (SVE) Plan. 10.8(4) Supplemental Executive Retirement Plan dated March 27, 1992 between W.H. Brady Co. and Paul Gengler. 10.9(4) W.H. Brady Co. Automatic Dividend Reinvestment Plan. 10.10(5) Supplemental Executive Retirement Plan between W.H. Brady Co. and Katherine M. Hudson 10.11(5) Supplemental Executive Retirement Plan dated September 23, 1994 between W.H. Brady Co. and Donald P. DeLuca. IV - 1 34 13.1 Annual Report to Shareholders for year ended July 31, 1995. 18.1(3) Letter regarding change in accounting method. 21.1 Subsidiaries of W.H. Brady Co. 23.1 Consent of Deloitte & Touche LLP, Independent Auditor. ___________________ (1) Incorporated by reference to Registrant's Registration Statement No. 2-91287 on Form S-1. (2) Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1989. (3) Incorporated by reference to Exhibit 18 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1989. (4) Incorporated by reference to Registrant's Annual Report on form 10-K for the fiscal year ended July 31, 1992. (5) Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1994. IV - 2 35 W.H. BRADY CO. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS _______________________________________________________________________________
Year ended July 31, --------------------------------------- 1995 1994 1993 ---- ---- ---- Description (Dollars in Thousands) Valuation accounts deducted in balance sheet from assets to which they apply-- Accounts receivable--allowance for losses: Balances at beginning of period $1565 $1247 $1320 Additions--Charged to expense 463 725 758 Deductions--Bad debts written off, net of recoveries (147) (407) (831) ----- ----- ----- Balances at end of period $1881 $1565 $1247 ===== ===== =====
IV - 3 36 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of W.H. Brady Co.: We have audited the consolidated financial statements of W.H. Brady Co. and subsidiaries as of July 31, 1995 and 1994 and for each of the three years in the period ended July 31, 1995, and have issued our report thereon dated September 12, 1995; such consolidated financial statements and report are included in your 1995 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of W.H. Brady Co. and subsidiaries, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ Deloitte & Touche LLP Milwaukee, Wisconsin September 12, 1995 IV - 4 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 this thirteenth day of October, 1995. W.H. BRADY CO. By /s/ D. P. DeLuca --------------------------- D.P. DeLuca, Senior Vice President, Treasurer, and Assistant Secretary (Principal Accounting Officer) (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ K. M. Hudson President and Director 10/13/95 - ------------------------- (Principal Executive Officer) ---------- K.M. Hudson /s/ P. J. Lettenberger Director 10/13/95 - ------------------------- ---------- P.J. Lettenberger /s/ R. A. Bemis Director 10/13/95 - ------------------------- ---------- R.A. Bemis Director - ------------------------- ---------- W.H. Brady III Director - ------------------------- ---------- E.B. Lurie Director - ------------------------- ---------- F.W. Harris
IV - 5 38 /s/ R. C. Buchanan Director 10/13/95 - ------------------------- ---------- R.C. Buchanan /s/ R.D. Peirce Director 10/13/95 - ------------------------- ---------- R.D. Peirce /s/ D. P. DeLuca Director 10/13/95 - ------------------------- ---------- D.P. DeLuca Director - ------------------------- ---------- G.E. Nei
IV - 6
EX-10.7 2 SVE PLAN 1 EXHIBIT.10.7 W. H. BRADY CO. Shareholder Value Enhancement (SVE) Plan ---------------------------------------- Adopted August 1, 1994 I. Purpose ------- The purpose of this Shareholder Value Enhancement Plan (the "Plan") is to provide incentive and reward to those employees of W. H. Brady Co. and its subsidiaries (the "Company") responsible for directing functions where the decisions involved have a significant bearing on the success and profitability of the Company, and who have a demonstrated exceptional ability, industry and service. The Plan is to motivate the individuals to maximize profitability and shareholder value through group performance. The incentive reward is to be in the form of supplemental compensation in addition to the individual's regular base compensation and will vary based upon the individual's ability to influence or impact at the Company, Group, and Division levels. II. Definitions ----------- A. "Base Salary" means the gross salary paid during the fiscal year while in the position eligible for incentive compensation on account of which incentive compensation is payable (before any reduction for amounts voluntarily deferred under Company-sponsored deferred compensation plans) and does not include the value of fringe benefits, directors' fees, sales incentives, additional compensation under this Plan, or amounts paid in lieu of other benefits earned as, for example, amounts paid in lieu of vacation benefits. B. "Capital" means the Company's annual month end average operating capital for the Plan Year, calculated as follows: Total Assets + Bad Debt Reserve + LIFO Reserve - Construction in Progress +/- Other capital items as determined by the Compensation Committee. C. "Capital Charge" means the deemed opportunity cost of employing Capital in the Company's businesses, determined as follows: Capital Charge = Capital x Cost of Capital 1 2 D. "Compensation Committee" means a committee as determined by the W. H. Brady Co. Board of Directors to oversee all matters related to compensation practices of the Company. E. "Cost of Capital" means the weighted average of the cost of equity and the after tax cost of debt for the relevant Plan Year plus adjustments to cover non-allocated investments and non-allocated costs. The Cost of Capital will be determined by the Company (to the nearest tenth of a percent) and approved by the Compensation Committee prior to each Plan Year, consistent with the following methodology: a) Cost of Equity = Risk Free Rate + (Business Risk Index x Market Risk Premium) b) Cost of Debt = Debt Yield x (1 - Tax Rate) c) The weighted average of the Cost of Equity and the Debt Cost of Capital is determined by reference to the actual debt-to-capital ratio. The Risk Free Rate is the closing yield rate on 30 year U. S. Treasury Bonds for the month of July immediately preceding the relevant Plan Year, the Business Risk Index is determined by reference to the Beta shown in the most recent available data base report on the Company from a recognized authoritative source (as approved by the Compensation Committee), the Market Risk Premium is 6%, the Cost of Debt is the weighted average yield of all borrowing included in the Company's permanent capital, and the tax rate is the combination of the projected relevant federal, state and foreign income tax rates for the year immediately preceding the Plan Year. F. "Division" means any unit of operations as determined by the Compensation Committee. G. "Divisional Value Added" means the Value Added calculated in the same manner as set forth in the Value Added definition, except that NOPAT, Capital, Capital Charge, Company's Cost of Capital and other relevant terms shall be defined by reference to the particular division, not by reference to the entire Company. H. "Earned Bonus" means the bonus, which may be negative or positive, which is calculated in the manner set forth in Section V. I. "Group" means any collection of divisions as determined by the Compensation Committee that are combined for purposes of determining Value Added on a collective basis. 2 3 J. "Group Value Added" means the Value Added calculated in the same manner as set forth in the Value Added definition, except that NOPAT, Capital, Capital Charge, Cost of Capital and other relevant terms shall be defined by reference to the particular group, not by reference to the entire Company. K. "NOPAT" means adjusted net operating profits after taxes for the Plan Year, calculated as follows: Net Income Before Taxes +/- Changes in Reserves +/- Other Income & Expense on Non-Operating Investments +/- Other Unusual Income or Expense Items +/- Amortization of Unusual Income or Expense Items - Modified Cash Taxes on the Above +/- Other items as determined by the Compensation Committee. L. "Plan Year" means the one year period coincident with the Company's fiscal year. M. "Value Added" means the NOPAT that remains after subtracting the Capital Charge, expressed as follows: NOPAT Less: Capital Charge Equals: Value Added Value Added may be positive or negative. III. Eligibility and Participation A. General. Participation in this Plan is determined by the Chief Executive Officer (CEO) of the Company, approved by the Compensation Committee, and communicated to the Plan participants prior to the Plan Year, except as provided in Section VI.A. In recommending such participation, the CEO will consider the potential contribution and impact each employee may have on the Company's ability to create value for its shareholders. Employees eligible for participation in the Plan will generally be selected from Company Officers, Division General Managers (GMs), and Operating Management Team (OMT) members. B. Basis for Determining Incentive Compensation. In general, the Plan will be based on a two part evaluation system to determine the incentive compensation. In general, earned bonuses by Plan participants will be based on Corporate, Group, and/or Divisional Value Added, and upon the Senior 3 4 Officer's or Manager's subjective evaluation of the individual's performance against specific individual goals and accomplishments. The Compensation Committee will determine the relevant percentages that each of the respective parts are weighted for each Plan participant prior to the Plan Year. C. Target Incentive Awards. The Target Incentive Awards will be determined according to the following schedule, or other schedule as determined by the Compensation Committee prior to the beginning of the Plan Year: Target ------ Chief Executive Officer 100% Senior Vice President 75% Vice Presidents 70% Director-Group Operations 65% General/Venture Managers 60% Department Heads 50% Operating Management Members 40% Other Key Individuals 25% D. Determination of Subjective Performance. All of the subjective determinations will be subject to approval by the CEO and the appropriate Senior Manager, except that the CEO's subjective performance will be determined and evaluated by the Compensation Committee. IV. Calculation of the Incentive Compensation Fund The Company shall add a predetermined percentage of the Value Added to the Company, along with a predetermined percentage of the change in Value Added to the Company, into an Incentive Compensation Fund for purposes of accumulating bonus amounts for all Plan participants. In addition, the Company shall add a predetermined percentage of the Group Value Added and Division Value Added to each designated Group and Division, along with a predetermined percentage of the change in Group Value Added and change in Division Value Added, to each designated Group and Division into similar Incentive Compensation Funds for purposes of accumulating bonus amounts for members of the respective Group or Division. 4 5 The said percentages will be at the sole discretion of the Compensation Committee and shall be determined prior to each Plan Year. For the Plan's initial year the following percentages will be utilized: Corporate Total Value Added: 5.0% Corporate Change in Value Added: 25.0% Group Total Value Added: 1.0% Group Change in Value Added: 5.0% Division Total Value Added: 1.0% Division Change in Value Added: 5.0% V. Plan Distribution The Company shall set up an individual account for each of the participants in the Plan for purposes of accumulating each participant's interest in the Plan. All amounts added to the Incentive Compensation Funds will be allocated to each of the participants' accounts based on their interest in the Plan as defined below. Allocations to the individual participant accounts shall be made in the following manner. Each participant will share in the Corporate, Group, and Divisional proceeds in that proportion that his Target Incentive Award bears to the total Target Incentive Awards of all participants who are members of the respective Company, Group, or Division as determined by the Compensation Committee prior to the Plan Year. This calculation will be conducted in U.S. dollars with applicable amounts converted into U.S. dollars at the weighted average exchange rate (as approved by the CEO) for the Plan Year. For those non-U.S. Company employees, the individual participant accounts shall be translated from U.S. dollars into their home country local currency at the weighted average exchange rate (as approved by the CEO) for the Plan Year. For the Plan Year the Company will distribute to each participant thirty-three and one-third percent (33-1/3%) of their individual account. In the Plan's initial year, a start-up amount equal to 2 times each individual's actual 1994 bonus will be credited to their respective individual participant account to offset the effects of the 3 year payout deferral. All start-up amounts remain the property of the Company and must be returned to the Company in the event of termination. The individual participant accounts are not assignable by the Plan participant. 5 6 VI. Change in Employment Status During the Plan Year A. New Hire, Transfer, Promotion, Demotion.A newly hired employee or an employee transferred, promoted, or demoted during the Plan Year to a position qualifying for participation (or leaving the participating class) may accrue (subject to discretion of the Compensation Committee) a pro rata Accrued Bonus based on the percentage of the Plan Year (participant's Target Incentive Award is multiplied by a factor equal to actual weeks participating/52) the employee is in each participating position. Any amounts (less start-up amount) previously credited to a participant who is terminated from the Plan by reason of transfer or demotion shall be paid to the participant at the next normally scheduled payout period. B. Discharge and Resignation. An employee who resigns or is discharged from the Company during the Plan Year shall not be eligible for an Accrued Bonus, even though his or her service arrangement or contract extends past year-end, unless the Compensation Committee determines that the conditions of the termination indicate that a prorated Accrued Bonus is appropriate. The Compensation Committee shall have full and final authority in making such a determination, including the timing of payouts, if any, of any amounts credited to the participant's individual account (less start-up amount). C. Death, Disability, Retirement. If a participant's employment is terminated during a Plan Year by reason of death, disability, or normal or early retirement under the Company's retirement plan, a pro rata Accrued Bonus based on the percentage of the Plan Year the employee participated (pro rate amount to be calculated similar to Section VI, A. above) shall accrue for the benefit of the participant. Any amounts (less start-up amount) previously credited to a participant who is terminated from the Plan by reason of death, disability, or retirement shall be paid to the participant at the next normally scheduled payout period. D. Beneficiary Designation. An individual may designate in writing in a form satisfactory to the Company a beneficiary or beneficiaries to receive incentive compensation in the event of the individual's death, and payment by the Company in accordance with such designation shall fully discharge the Company from all liability for the amount so paid. The Company may refuse 6 7 to accept any designation which contains unacceptable contingencies. If no such designation is on file with the Company, any incentive compensation amounts which are payable will be paid to the individual's personal representative. VII. Administration A. The Plan shall be administered by the Compensation Committee whose decision shall be final and binding on all parties. B. The Plan shall continue for each fiscal year following the effective date of the Plan unless modified or revoked by the Compensation Committee. The right is expressly reserved by the Compensation Committee to modify, repeal or to discontinue this Plan. C. Neither the establishment of the Plan, nor any modification or amendment hereof, nor the payment of awards hereunder shall be construed as giving any Participant or other person whomsoever any legal or equitable right against the Company, the Compensation Committee, or their respective members; or the right to payment of any awards hereunder (unless the same shall be specifically provided herein); or as giving any participant the right to be retained in the service of the Company. D. Bonuses which are payable shall be paid within 60 days after the end of the fiscal year. VII. Effective Date The Plan shall be effective as to the fiscal year beginning August 1, 1994. 7 EX-13.1 3 ANNUAL REPORT FOR YEAR ENDED JULY 31, 1995 1 W.H. BRADY CO. 1995 ANNUAL REPORT [PHOTO] Teamwork for Global Success Doing More Where We Are New Products New Markets Global Expansion [BRADY LOGO] 2 W.H. BRADY CO. FISCAL 1995 ANNUAL REPORT TO SHAREHOLDERS: TEAMWORK FOR GLOBAL SUCCESS [PHOTO] The cover of our annual report depicts our commitment to reaching the world with W.H. Brady Co. products. But, more importantly, it illustrates how we will make it happen. At Brady, we'll make it happen together--as a team--as 2,000 worldwide employees bring their skills and creativity to their jobs each day. In the pages that follow you will see how teamwork has enabled Brady to become a more dominant global competitor. You will see a very successful fiscal 1995, with sales and net income reaching record levels. You will see a company creating value worldwide. You will see a steadfast commitment to premier products, superior service and rapid response. Most of all, you will see a world-class manufacturer of industrial identification products and coated materials embracing teamwork. Teamwork for global success!
TABLE OF CONTENTS Financial Highlights 1 Letter to Shareholders 2 Teamwork for Global Success 6 Financial Review, 1995 17 Corporate Data 35 Shareholder Services 36
Graph: 1995 SALES BY GEOGRAPHIC AREA (in $ thousands) Europe 88,723 USA 185,123 Other 40,516 3 [PHOTO] Corporate Profile W.H. Brady Co. develops, manufactures and markets industrial identification products and coated materials. Headquartered in Milwaukee, Wisconsin, the 81-year-old company has operations worldwide. Driving Brady is its focus on quality, innovation and performance in all it does. Using total-quality-assurance methods, extensive research and development resources and people committed to doing their best and improving their best, Brady is a leader in its markets. Identification Systems and Specialty Tapes Group: BRADY PRECISION TAPE CO. develops and manufactures precision die-cut and slit tapes for data storage, semi-conductor, audio/video and other industries. COATED PRODUCTS DIVISION develops and manufactures specialized adhesive and topcoated materials for graphics, medical, industrial and other markets. INDUSTRIAL PRODUCTS DIVISION develops and manufactures high-performance industrial identification products including wire markers, automatic data-collection and management systems and industrial printing systems. Signmark(R) Group: SIGNMARK develops and manufactures safety and facility identification products, including signs, regulatory labeling and reporting systems, pipe markers, lockout /tagout devices and portable printing systems. Seton Group: THE SETON COMPANIES are global direct marketers of a wide range of custom-manufactured and standard identification and safety-related products. 4 [PHOTO] Service Operations: BRADY SERVICE CO. provides accounting, benefits, communication, information systems, training and other services to W.H. Brady Co. operations. BRADY FINANCIAL CO. provides treasury, insurance, credit, collection and other services to W.H. Brady Co. operations. - BRADY LOCATION - SETON LOCATION Locations AUSTRALIA - -W.H. Brady Pty. Ltd. 2 Pat Devlin Close Chipping Norton, NSW 2170 Australia - -Seton Australia Pty. Ltd. 2 Pat Devlin Close Chipping Norton, NSW 2170 Australia BELGIUM - -W.H. Brady, N.V. Industriepark Lindestraat 20 B9240 Zele, Belgium CANADA - -W.H. Brady, Inc. 10 Marmac Drive Rexdale, Ontario M9W 1E6 Canada - -Seton, Inc. 150 Steelcase Road, West Markham, Ontario L3R 3J9 Canada ENGLAND - -W.H. Brady Co. Ltd. Wildmere Industrial Estate Banbury, Oxfordshire, OX16 7JU England - -Seton Limited Canada Close Banbury, Oxon OX16 7RT England FRANCE - -W.H. Brady S.A.R.L. 2, Place Marcel Rebuffat BP 362 Parc de Villejust F-91959 Les Ulis Cedex France - -Seton S.A. 113, Rue Horace Vernet BP 181 59054 Roubaix, France GERMANY - -W.H. Brady GmbH Odenwaldstrasse 71 63322 Rodermark, Germany - -Seton GmbH Otto-Hahn-Str. 5-7 63222 Langen, Germany HONG KONG - -W.H. Brady Co. Sales Office Room 702, 7/F Bank of Communications Bldg. No. 563 Nathan Road Kowloon, Hong Kong ITALY - -W.H. Brady, N.V. Sales Office Via Lazzaroni 7 21047 Saronno VA Italy - -Seton Italia Srl Via Lazzaroni 7 21047 Saronno VA Italy JAPAN - -Nippon Brady K.K. Sumitomo Fudosan Shin Yokohama Bldg. 8F 2-5-5 Shin Yokohama Kohoku-ku, Yokohama Kanagawa 222, Japan NEW ZEALAND - -W.H. Brady Pty. Ltd. Sales Office P.O. Box 100868 North Shore Mail Centre Auckland, New Zealand SINGAPORE - -W.H. Brady Pte Ltd. 55 Ayer Rajah Crescent #03-25 Ayer Rajah Industrial Estate Singapore 139949 SOUTH KOREA - -W.H. Brady Co. Sales Office Hanaro B/D 609 194-4 Insadong Jongro-Ku Seoul, South Korea SWEDEN - -Brady AB Karins Vag 5 194 54 Upplands Vasby Sweden UNITED STATES - -W.H. Brady Co. Headquarters 6555 W. Good Hope Road P.O. Box 571 Milwaukee, WI 53201-0571 Brady USA, Inc. 2221 W. Camden Road Glendale, WI 53209 2230 W. Florist Avenue Glendale, WI 53209 3328 W. Cameron Avenue Milwaukee, WI 53209 Brady Financial Co. 5150 N. Port Washington Road Glendale, WI 53217 Brady Precision Tape Co. N144 W5690 Pioneer Road Cedarburg, WI 53012 - -Seton 20 Thompson Road Branford, CT 06405 [ISO LOGO] W.H. Brady Co. operations in the United Kingdom and Belgium along with the Signmark(R) Division, Industrial Products Division, Coated Products Division and Brady Precision Tape Co. in the United States are registered to the International Organization for Standardization 9000 series standards. Other operations are expected to be registered in the future. 5 Financial Highlights W.H. Brady Co. and Subsidiaries
Percent Increase (Dollars in Thousands, Except Per Share Amounts) 1995 1994 (Decrease) - ---------------------------------------------------------------------------------------------- NET SALES $314,362 $255,841 22.9 INCOME BEFORE INCOME TAXES $ 44,639 $ 29,902 49.3 Pre-tax profit margin 14.2% 11.7% NET INCOME $ 27,911 $ 18,540 50.5 After-tax profit margin 8.9% 7.2% Return on average stockholders' investment 17.7% 13.6% NET INCOME PER COMMON SHARE Class A Nonvoting $ 3.83 $ 2.55 Class B Voting $ 3.73 $ 2.45 WORKING CAPITAL $129,938 $100,023 29.9 STOCKHOLDERS' INVESTMENT $170,823 $145,129 17.7 RESEARCH AND DEVELOPMENT $ 10,426 $ 10,318 1.1 CAPITAL EXPENDITURES $ 8,114 $ 6,466 25.5 DEPRECIATION AND AMORTIZATION $ 9,159 $ 9,435 (2.9) - ----------------------------------------------------------------------------------------------
Charts:
NET SALES (in $ millions) 1991 $211 1992 236 1993 243 1994 256 1995 315 INTERNATIONAL SALES as percent of total sales 1991 29% 1992 30 1993 32 1994 37 1995 41 STOCKHOLDERS' INVESTMENT (in $ millions) 1991 $115 1992 120 1993 128 1994 145 1995 171 NET INCOME (in $ millions) 1991 $ 15 1992 5 1993 17 1994 19 1995 28
*Net income in 1992 was affected by $8.8 million in one time accounting charges. W.H. BRADY CO. 1995 Annual Report 1 6 Letter to Shareholders Fiscal 1995 was a terrific year for W.H. Brady Co. Net income rose 50.5 percent on sales growth of 22.9 percent for the year. We introduced profitable new products, launched new operations internationally and created significant value for our shareholders. And, as you will see in the pages that follow, we did it as a team--a team fully committed to managing your investment and building your Company. FINANCIAL HIGHLIGHTS Our sales for the year ending July 31, 1995, were $314,362,000, up 22.9 percent from last year's sales of $255,841,000. And profitability was even better. Net income in fiscal 1995 was $27,911,000 or $3.83 per share, up 50.5 percent over last year's net income of $18,540,000 or $2.55 per share. Sales for the fourth quarter ending July 31, 1995, were $83,145,000, up 25.6 percent from $66,209,000 in sales during the fourth quarter of fiscal 1994. Net income for the fourth quarter was $7,334,000 or $1.00 per share, up 48.6 percent from net income of $4,936,000 or $0.67 per share during the same period last year. Our success resulted from employee efforts in doing more where we are, introducing new products and entering new markets around the world. Our Automatic Identification and Data Collection Team, which we formed in fiscal 1994, performed beyond expectations, proving successful in serving companies worldwide with tools for improving efficiency, ensuring quality and implementing just-in-time environments. The group provides software; labels; printing, data-collection and label-application systems; systems integration; and project management services. New products, introduced within the last five years, brought in significant sales for us in fiscal 1995. These products include the I.D. Pro(TM) Wire Marker Printer; thermal-transfer-printable labels and ribbons; lockout/tagout devices; aluminum and plastic signs; Ultrathin(TM) Labels for PCMCIA cards; leadframe tape for use in semiconductors; and various other tapes, labels and printing systems. Seton-Australia was launched this year and performed well beyond our expectations in both response rate from mailings and in average order value. And Seton-Italy is off to a good start as well. In fiscal 1995, W.H. Brady Co. accomplished a great deal. Here are just some of the highlights: Seton begins marketing in Australia 9/94 Industrial Products Division introduces Labelmark(TM) Software 10/94 Seton-France begins marketing to the Netherlands 10/94 Brady-Canada sells label applicator for Ultrathin(TM) Labels 11/94 Signmark Division introduces plastic and aluminum signs 11/94 Seton achieves 24-hour shipping goal 11/94 Brady Precision Tape Co. sells a record 174 million adhesive rings in a month 11/94 W.H. BRADY CO. 1995 Annual Report 2 7 Letter from Shareholders cont. [PHOTO] Caption: The W.H. Brady Co. executive team (from left): Identification Systems and Specialty Tapes Group Vice President Dave Schroeder, Vice President of Research and Development Mary Arnold, Senior Vice President and Chief Financial Officer Don DeLuca, Signmark(R) Group Vice President Dave Hawke, President and CEO Katherine Hudson, Seton Group Vice President Richard Fisk and (seated) Vice President of Human Resources Jim Sweet. Our performance in 1995 was strengthened by favorable exchange rates on foreign currency. But even without this we are seeing international sales as an ever-growing part of Brady's business. There is tremendous potential for us globally. Our net income increase of more than 50 percent in 1995 was due in large part to the efforts of employees to control costs and improve efficiencies. Operating expenses declined as a percentage of sales. While increasing sales 22.9 percent, we reduced inventory by more than 2.7 percent. And we decreased our total investment in property, plant and equipment by 9 percent while making significant investments in equipment, facility expansions and information systems for improved production and customer service. Also this year, we had $2 million in pretax income representing the gain on the divestiture of Brady Medical Products Co., the Nameplate Division and two of our Milwaukee-area facilities. A YEAR OF ACHIEVEMENT, RECOGNITION AND REORGANIZATION There were many highlights in fiscal 1995 for us (see timeline below). Our operation in Singapore expanded its operations to include custom label manufacturing in addition to production of semiconductor carrier and cover tape. Seton began a separate catalog to market more effectively to healthcare agencies. We won several honors, including being named Wisconsin Manufacturer of the Year and a Grainger CFQ1 Supplier. In February 1995, divisions and international subsidiaries were realigned into three global groups, each headed by a newly appointed group vice president. The groups are the Signmark(R) Group, the Seton Group and the Identification Systems and Specialty Tapes Group. The reorganization is enhancing teamwork and spurring global thinking by all employees as it brings together multiple units into three distinct global groups. Signmark Division markets LeakTracker(TM) Emission-Detection and Reporting System 11/94 Brady-Belgium begins cellular manufacturing 1/95 Brady introduces tape products for hard disk drives 1/95 Brady-Sweden moves to a larger facility 1/95 Brady sells woundcare division to B. Braun Medical Inc. 1/95 Seton-UK expands facility, nearly doubling its size 1/95 Singapore begins producing labels for custom orders 2/95 Brady becomes Wisconsin Manufacturer of the Year--large company category 2/95 W.H. BRADY CO. 1995 Annual Report 3 8 Letter to Shareholders cont. [PHOTO] Caption: The LeakTracker(TM) system helps petrochemical companies comply with EPA emission-reporting requirements. Cross-group teamwork is increasing too, with groups teaming up to enter new geographies quickly and efficiently. Several significant projects are underway as a result of the reorganization and improved communication and teamwork. GOING FOR IT While 1995 was an outstanding year for the Brady team, we are more excited about the future. We believe that we have only scratched the surface in many of the countries in which we operate. We'll be doing more where we are by increasing sales and marketing efforts in 1996. This will include adding additional salespeople at our current locations worldwide and capitalizing on technological advances to expand and accelerate global marketing efforts. A seamless customer service team is further integrating our systems to improve turnaround and the ease of doing business with Brady. During fiscal 1995 we introduced many new products which we expect to help drive sales growth in the years ahead. These include adhesive products for hard disk drives; laser-printable signs; the LeakTracker(TM) Emission Detection System and radio-frequency FIVE YEAR CUMULATIVE TOTAL RETURN* W.H. Brady Co. vs. Published Indices in $
W.H. Brady Co. NASDAQ S&P 500 -------------- ------ ------- 1991 $150 $118 $113 1992 138 139 127 1993 137 169 138 1994 188 174 145 1995 281 243 183
*$100 invested on July 31, 1990, in stock or index with reinvestment of dividends. Brady reorganizes into Seton, Signmark and Identification Systems and Specialty Tapes groups 2/95 Brady purchases a 10-percent share in Fugitive Emissions Control, Inc., the maker of LeakTracker(TM) system 3/95 Brady sells corporate headquarters facility in Glendale, Wis., to Emjay Corp. 3/95 Brady sells Nameplate Division to Fred B. Johnston Co. 3/95 Seton-Germany begins marketing into Switzerland and Austria 3/95 Coated Products Division produces electrostatic-printable Excelar(TM) graphics 3/95 Brady- and Seton-Canada merge 4/95 Seton begins marketing in Italy 4/95 W.H. BRADY CO. 1995 Annual Report 4 9 [PHOTO] Caption: KATHERINE M. HUDSON, President and Chief Executive Officer tags; a universal ball-valve lockout/tagout device; the Excelar(TM) EDIS (Electrostatic Digital Imaging System) Graphic System for high-performance outdoor graphics; high-temperature labels for circuit boards; the Ultrathin(TM) Label Applicator; and a system for use in customers' manufacturing lines that both prints and applies labels. Through coordinated global research and development efforts, we expect to be introducing many more new products in the future. In fiscal 1996 we will be actively pursuing acquisitions that will leverage our core competencies and bring us opportunities for value-enhancing growth. And we have employee teams working on many global expansion projects. Latin America, Brazil, South Korea, Spain, China and India are just some of the areas we are targeting for the future. TEAMWORK FOR GLOBAL SUCCESS We had a great year in fiscal 1995 resulting from the teamwork and talent of Brady employees worldwide. Read on to learn about several of the team successes in fiscal 1995. As we continue to strive for value-enhancing growth in fiscal 1996 and beyond, W.H. Brady Co. will be doing more where we are, developing new products, entering new markets and geographies, and seeking potential acquisitions and joint ventures. And we'll do it the same way we did it this year--as a team. A team committed to global success. /s/ KATHERINE M. HUDSON KATHERINE M. HUDSON President and Chief Executive Officer October 1995 Brady-UK expands facility, more than doubling its size 5/95 Nippon Brady introduces Japanese CodeSoft(TM) Software 5/95 Italian operations move into larger facility 5/95 Signmark Division is named 1994 Grainger CFQ1 Supplier 5/95 Seton begins marketing through the Internet 6/95 Brady-Belgium begins expansion project 7/95 W.H. Brady Co. has a record year 1996 --> W.H. BRADY CO. 1995 Annual Report 5 10 Our strategies for value-enhancing growth include doing more where we are, introducing new products and expanding globally. By working together across functional, divisional and geographic lines, our 2,000 employees are capitalizing on opportunities worldwide. DOING MORE Today it isn't enough to merely meet your customers' expectations--you must exceed them, daily! Quality is a given and partnerships are as important as products. But a partnership is much more than a "supplier-customer relationship." It's a call to commitment--a commitment to help your partner become a more complete global competitor by providing nothing less than premier products, personal service and on-time delivery. PARTNERING FOR SUCCESS W.H. Brady Co. and W.W. Grainger, Inc. redefine partnership. It is that kind of focus that has led the Signmark(R) Division of W.H. Brady Co. to earn accolades from Grainger and other distributors. In fiscal 1995, Signmark was named one of Grainger's CFQ1 (Customer-Focused Quality 1) Suppliers for outstanding performance in product quality, sales, shipping performance and invoicing accuracy. Grainger is a leading U.S. distributor of maintenance, repair and operating supplies and related information to commercial, industrial, contractor and institutional customers. "We're pleased to honor W.H. Brady Co. as a Grainger CFQ1 Supplier for outstanding performance in 1994 and the willingness to go the extra mile in helping us deliver solutions that meet or exceed our customers' expectations," said John Slayton, Grainger senior vice president-product management. [PHOTO] Caption: Stephen Allen and Karen Langer pick and ship products to Grainger locations. Grainger sells a broad range of products, including Brady signs, pipe markers, labels and portable printing systems. Brady meets or exceeds the expectations of customers by focusing on quality and service. W.H. BRADY CO. 1995 Annual Report 6 11 WHERE WE ARE Grainger selects suppliers for this distinguished award based on a formal supplier-evaluation process. Here is how Signmark came through in 1994: . Signmark sales through Grainger increased more than 30 percent. . Signmark achieved 98.1 percent shipping accuracy. . Signmark achieved 99.5 percent invoicing accuracy. . Signmark delivered 95 percent of all Grainger orders on time (2 percent were shipped early and 3 percent were shipped late). While the award was a significant achievement, things have only just begun for the Signmark team. It will now be working as a strategic supplier to Grainger. Grainger has defined three types of supplier partners--"traditional," "alliance" and "strategic." A traditional supplier does most of its business with Grainger via phone or mail and supplies a limited product line. The alliance supplier (Signmark's previous category) does a significant amount of business with Grainger, yet Grainger carries only a portion of the supplier's product line. "The strategic supplier has its entire product offering carried on Grainger's system, complete with Grainger part numbers and pricing," said Julie Malek, Signmark business development manager. "Beginning in the fall of 1995, Grainger will list all of our 20,000 stock products on its system. So when a customer wants any of them, Grainger can simply place the order with Signmark and have the product shipped in less than 24 hours. The setup will make it easier for Grainger and its customers to order products from Signmark--something which has positive benefits for all of us." [PHOTO] Caption: Brady's Labelizer(R) Plus Industrial Labeling System enables customers to create their own signs or labels on site using Brady materials. W.H. BRADY CO. 1995 Annual Report 7 12 Doing More Where We Are [PHOTO] Caption: While on tour, Brady's Big Rig stopped at Grainger's branch in Timonium, Maryland. Inside the mobile training center, Grainger employees and customers learned about products such as the I.D. Pro(TM) Wire Marker Printer. Brady took its show on the road by converting a 48-foot semi truck into a mobile safety lab and product training center. From June to December 1995, Brady sales representatives toured with the mobile lab and demonstrated new Brady printing systems, lockout/tagout devices, pipe markers and signs to more than 100 distributor and customer locations throughout the United States. "BIG RIG" SHOWCASES BRADY PRODUCTS The outside of the "Big Rig" features brilliant, full-color fleet graphics using Brady's new Excelar(TM) EDIS Graphics System, a graffiti-proof, ultraviolet-light-resistant coated material. Inside the trailer are a variety of safety and identification products. The "Big Rig" enables distributors and customers alike to get hands-on experience with the latest in safety and identification products. It's just one more way we are "doing more where we are." W.H. Brady Co. is a vertically integrated company, with coated materials produced by one division being converted into labels, tapes or other die-cut products at other divisions. This enables the Company to have the experts in-house to develop and manufacture products of the highest quality and performance levels and also to continuously improve operating efficiencies. JUST-IN-TIME EFFORTS FOCUS ON ADDING VALUE In fact, a Brady Interdivisional Just In Time (IDJIT) Team was formed in March 1995 specifically to eliminate non-value-added activity between the divisions. The team, using just-in-time concepts, is focused on reducing interdivisional inventory while providing high-quality service and products. "Inventory creates waste because it covers up problems, takes up space, ties up money and requires effort to manage," said Mike Stommel, Coated Products Division manufacturing manager. The IDJIT Team has found several ways to reduce cycle time and inventory, such as eliminating duplicate testing procedures, reducing test cycles to 24 hours and streamlining its interdivisional order system. The work completed by the IDJIT Team has reduced Milwaukee inventory on the top 10 "A" item products (products most frequently ordered) by more than $600,000 in just four months. "The real success is the interdivisional cooperation and teamwork," Stommel said. "As we develop new relationships, trust and the ability to work with one another, we will create other opportunities as well." W.H. BRADY CO. 1995 Annual Report 8 13 As competitive efforts grow more fierce and the economy becomes more global, it's more important than ever to take customer service to the next level. That is why Brady-Belgium launched initiatives in rapid response, cellular manufacturing and Just In Time. BRADY-BELGIUM TAKES CUSTOMER SERVICE TO THE NEXT LEVEL Brady-Belgium takes customer service to new heights with cellular manufacturing and rapid response. "Our 'rapid response' effort is simply an initiative to achieve good, fast customer service in every way possible," said Brigitte De Decker, Brady-Belgium customer service manager. "And excellent service is one of the most crucial elements of long-term business success!" One of the ways Brady-Belgium is improving service is through cellular manufacturing, something which proved effective at Brady's U.S. operations. Cellular manufacturing organizes employee groups or "cells" into independent manufacturing units. Each cell is empowered to manage a specific product line, a line in which it becomes an expert. The cell orders raw materials; schedules, performs and improves production; ensures product quality; and manages inventory. Brady-Belgium implemented its first manufacturing cell, the Pressure-Sensitive-Adhesive (PSA) Safety Sign Cell, in January 1995, and additional cells in the months that followed. The PSA cell worked diligently to enhance service by improving turnaround time on stock orders and reducing lead time on custom orders. Other departments pitched in to help, such as Belgium's Information Systems Department which upgraded and linked computer systems to enable interchange of data such as artwork and orders. The PSA cell has already achieved outstanding results, reducing lead time on custom orders from two weeks to two days! And stock orders are now processed and shipped in 24 hours. "Cellular manufacturing is very important to the rapid response effort," said Pascal Catteeuw, rapid response coach. "Customer service representatives must be able to rely on the lead times and quality that cells promise." Since implementing cellular manufacturing, the PSA Safety Sign Cell has not only significantly reduced lead times, but also has reduced throughput time and scrap, adding value not only to customers but also to Brady's shareholders. [PHOTO] Caption: Brady uses manufacturing cells or teams to ensure manufacturing efficiency and continuous improvement. The Pressure-Sensitive-Adhesive Safety Sign Cell, which includes Alain Van De Weghe, Sofie Van Kerckhove, Robby Gyssens and Steve De Decker, processes and ships stock orders in 24 hours. And it fulfills custom orders in two days. Other cells are getting involved, too, to effect similar results. In keeping with its vision to be easy and enjoyable to conduct business with, Seton, the direct-marketing arm of W.H. Brady Co., went live on the Internet in June 1995. CONNECTING WITH THE CUSTOMER The World Wide Web is a user-to-user graphical interface which operates within the Internet network of networks. Seton was one of the first in its industry to design and construct a Web site for its catalog pages. The Seton site features more than 5,000 identification and safety products. It enables customers to quickly learn about Seton products, services and related topics. In fiscal 1996, customers will also be able to order through the Internet site. Through a team effort, Seton-Canada, Seton-United Kingdom and other Seton operations will be added to the Internet in fiscal 1996. The Seton address on the Web is http://www.seton.com. And http://www.whbrady.com is W.H. Brady Co.'s Internet site, containing general information about the Company. W.H. BRADY CO. 1995 Annual Report 9 14 New products are the lifeblood of W.H. Brady Co. In 1995, we positioned the Company for future growth by capturing new markets with innovative new products such as high-performance tapes for hard disk drives. NEW PRODUCTS Since the Company's inception in 1914, W.H. Brady has embraced a simple precept. Destiny is not a matter of chance, it's a matter of choice. So, for the last 81 years Brady has chosen to control its destiny by launching new products and initiatives in both its core markets and fertile new markets. And 1995 was no exception. BREAKING NEW GROUND GLOBAL TEAMWORK HELPS BRADY BREAK INTO THE HARD-DISK-DRIVE MARKET. This year a worldwide Brady team broke new ground by supplying components to the hard-disk-drive market. And, as in former endeavors, the Company began by thinking big! Brady entered the market in Singapore, the world leader in hard-disk-drive manufacturing. When the Singapore subsidiary of California-based Connor Peripherals needed high-performance tapes to permanently seal the seam between the top and bottom halves of its hard disk drives, Brady answered the call. Jeffrey Hoe, Brady's sales manager in Singapore, put together an international team of Brady employees--including employees of Brady Precision Tape Co., Coated Products Division and the Tobey Research and Innovation Center in Milwaukee, Wisconsin. The project team of chemists, product and business development managers and a chief engineer developed a strategic approach and went to work. While some team members procured an aluminum tape seal and poly-ester material for the liner, engineering and manufacturing employees designed the manufacturing process to precisely die cut the products to Connor's unique specifications. [PHOTO] Caption: Gary Wirth, chief engineer; Michael Savagian, new product development manager; Malcolm Hoth, senior development chemist; and Rick Stoegbauer, business development manager, were the core team in the United States who answered the call from Jeffrey Hoe in Singapore to develop precision tape products for hard disk drives. W.H. BRADY CO. 1995 Annual Report 10 15 NEW MARKETS Meanwhile, Brady chemists broke new ground of their own, developing a liner without silicone in its release coating (silicone can contaminate the magnetic media in the hard disk drive). "Other products on the market use silicone," Hoe explained. "Our proprietary silicone-free release system for pressure-sensitive hard-disk-drive parts is a major breakthrough." But this Brady team didn't stop there. They have also developed several other precision die-cut products for the market, including a filter cover, a track-write seal and a clock-write seal, which seal openings in the disk-drive casing. What's more, this team collaborated to develop a printed-circuit-board insulator to reduce noise and it is currently developing a new Brady adhesive and other precision die-cut products. [PHOTO] Caption: Jeffrey Hoe "Quick response, technical competency and teamwork are crucial in this fast-paced, high-tech industry," said Rick Stoegbauer, business development manager. "Through global teamwork, Brady broke new ground in this new market." [PHOTO] Caption: Brady products developed for the hard-disk-drive market include an aluminum tape which seals together the top and bottom halves of a hard disk drive; a filter cover; and a printed-circuit-board insulator, shown at left. W.H. BRADY CO. 1995 Annual Report 11 16 New Products New Markets [PHOTO] Caption: The core team that came up with a new solution for labeling printed circuit boards includes Mark Schlagenhaft, business development manager (left); Vicki Heideman, development engineer; Bill Hammann, senior process engineer; Wayne Kelley, senior development chemist; and Dennis Polinski, product manager. Where do you find high-quality circuit-board labels that will withstand heat up to 300 degrees Celsius, molten solder and harsh chemical environments? That's the question the printed-wiring-assembly industry, manufacturers of more than four billion circuit boards per year, was asking. Fortunately, Brady had an answer. NEW BRADY CIRCUIT-BOARD LABELS BEAT THE HEAT...AND THE COMPETITION "A Brady team of chemists, engineers and marketing professionals began answering that question in March 1994 by looking at why other label materials were failing," said Wayne Kelley, senior development chemist. "Then we worked on formulating a new topcoat and adhesive for the heat- and chemical-resistant polyimide material currently in use." This team effort resulted in the development of a high-quality printed label (the Brady XB457 label) especially for circuit-board manufacturing. It's a label that stands up to high temperatures and chemical fluxes through superior print durability, color stability and also shrink-resistance. Later the team developed a low-cost, less heat-resistant label requested for the European market and it introduced a new thermal-transfer ribbon material for imprinting both label varieties. "The key to the successful product launch of these two labels in June 1995 was excellent communication within the project team, among Brady's support staff and with our customers," said Dave Dreifus, research and development director for the Identification Systems and Specialty Tapes Group. "Team visits to customers' locations in Texas, Colorado, Maryland, Singapore and Europe to test the labels on their equipment ensured swift product development and effective solutions to each customer's needs." Today, Brady is not only beating the heat with these new high-performance circuit-board labels, we're beating the competition. When Brady's Industrial Products Division prelaunched its I.D. Pro(TM) Wire Marker Printer to distributors in March 1994, it couldn't anticipate it would be so successful--so soon! It couldn't anticipate the high demand or the supplier delays in key component manufacturing and assembly. STICKING TOGETHER BRADY'S INDUSTRIAL PRODUCTS DIVISION STICKS TOGETHER TO DELIVER I.D. PRO(TM) PRINTERS. A special team of marketing and engineering employees worked with suppliers for five months--training, establishing component specifications to get production to meet quality requirements and demand, and procuring key components through multiple sources. A team of inspectors was also assembled to ensure the highest product quality. In November 1994, Industrial Products Division began shipping I.D. Pro printers in quantity to customers. And, in June 1995, the team initiated a full-scale product launch, highlighting the product's computerization, portability, capability to use multiple label materials, and other key features. W.H. BRADY CO. 1995 Annual Report 12 17 New Products New Markets [PHOTO] Caption: A specialized Seton catalog to market safety, identification and other products to the healthcare industry was the result of a team effort by Heidi Matteo, marketing programs manager (left); Christopher Karam, graphic designer; Deborah Scirpo, Art Department production assistant; Dave Giroux, special markets manager; Edward Fletcher, senior graphic designer, and several other employees. The specialized catalog enables Seton to market to healthcare organizations more effectively. [PHOTO] Caption: The 1994 prelaunch of the versatile and affordable I.D. Pro(TM) Wire Marker Printer brought about an overwhelming customer response. The team getting production and shipping of the printer to meet the demand included (back row, from left) Robert Behlmer, senior project engineer; Bob Quinn, mechanical research and development manager; Brent Bandholz, product engineer; Charles Phelan, then purchasing manager; and (front row) Charlie Check, marketing manager; and Robert Stout Jr., project engineer. "We stuck together when things got tough," said Charlie Check, marketing manager for the product. "By sticking together we solved problems and scaled up production to deliver this high-quality product." Healthcare. It's one of the most explosive growth industries today! To capture new opportunities and continue to posture the Company for the future, Seton has developed a product catalog targeted to the special needs of the healthcare market. CAPTURING NEW OPPORTUNITIES SETON CREATES CATALOG TARGETING HEALTHCARE INDUSTRY. Today Seton is going beyond the hospital parking lot into the heart of healthcare facilities. It is expanding its offerings from traffic and safety signs, OSHA signs, pipe markers and Setonguard(R) property-identification labels to include products related to patient services. A Seton team developed and mailed an 80-page catalog in February 1995 featuring products most often purchased by healthcare organizations. The first 60 pages feature standard labels, tapes and signs repositioned from Seton's full-line catalog, while the remaining 20 pages feature new products targeted to healthcare safety. These products include biohazardous-waste identification, environmental regulation signs and labels and containers for blood-borne pathogen disposal. But Seton isn't stopping there. It plans to introduce an updated catalog in the fall of 1995. And to enhance catalog sales, Seton has set up contracts with healthcare group purchasing organizations together covering more that 5,000 healthcare facilities. W.H. BRADY CO. 1995 Annual Report 13 18 W.H. Brady Co.'s mission is to be the global leader in unique identification solutions. Around the world we mark it, tag it, scan it, lock it, protect it, fasten it and stick to it. GLOBAL Seton, W.H. Brady Co.'s direct-marketing business acquired in 1981, has traditionally operated independently. But in August 1994, Seton expanded into Australia and later into Italy by teaming up with Brady operations already there. SHARING SUCCESS SETON TEAMS UP WITH BRADY TO EXPAND INTO NEW COUNTRIES. To launch the Australian operation, a Seton team from Branford, Connecticut, assisted in setting up Seton sales, customer service, marketing, financial and information system functions in a Brady manufacturing facility. Teammates from Brady-Australia and Seton operations in the United Kingdom and France also helped get this new venture off the ground. "The team brought great expertise to the project due to its global experience," said Deborah Saporito, Seton global business development manager, who spent seven months living in Australia while leading the setup efforts. "We also found we had a lot to share--the facility, accounting, information systems, warehousing functions and even a general manager. Teamwork helped us to enter this market at the lowest cost and highest expertise level." "Both units are learning from each other," said Bill Gill, general manager of Australian operations. "Together we can become unstoppable in this market." Seton Australia Pty. Ltd., Chipping Norton, released its first product mailing in September 1994 and a 68-page catalog in February 1995. And the response has been tremendous. Italy is looking good, too! In October 1994, Seton Italia Srl began operations within an established Brady operation in Milan, Italy. Seton's entry into Italy, the world's fifth largest economy, occurred through a team approach--this one led by Peter Cnudde, director of Signmark Group sales and marketing in Europe, and Greg Burke, catalog manager at Seton-United Kingdom. Seton's first mailing in Italy was a promotion of Setonguard(R) property-identification labels in April 1995. An Italian catalog featuring safety and facility identification products followed in June. In May, the Italian operation outgrew its office and moved to a larger, 9,000-square-foot facility in Saronno. By sharing facilities, information and expertise, Seton and Brady are also sharing something else--success. [PHOTO] Caption: The Customer Service Department, including Melinda Gates and Paula Bailey, receives hundreds of inquiries each day about Seton's safety and identification products. [PHOTO] Caption: Seton Australia is performing above expectations under the direction of Bill Gill, its general manager, and the continued support of direct-marketing experts from the U.S. and Europe. W.H. BRADY CO. 1995 Annual Report 14 19 EXPANSION [PHOTO] Caption: Seton-Australia is a fine example of Teamwork for Global Success. Leslie Massa, general manager of Seton U.S.; Guy Marhewka, Seton vice president-international; Deborah Saporito, global business development manager; Vincent Prigitano, finance director; and Cathy Allen, senior project analyst, were some of the many individuals that helped launch Seton operations in Australia. COMING SOON We are going for value-enhancing growth in the businesses of identification and taping solutions throughout the world. In fact, W.H. Brady Co. teams are currently exploring opportunities in areas such as Latin America, Brazil, South Korea, Spain, China and India. In May 1994, Seton-France began marketing property-identification products to the Netherlands through promotional mailings, while Seton-Germany began marketing to Austria and Switzerland. Product catalogs were developed and distributed in October 1994 and March 1995 respectively. REACHING OUR WORLD SETON SELLS TO NEW MARKETS. Seton-France continued to penetrate the European Community by beginning marketing efforts in Belgium in September 1995. Catalogs in French and Dutch are part of its strategy. "We see great opportunities to build on our success by reaching out to these markets," said Seton Group Vice President Richard Fisk. "The key is to customize our product line and our services to meet the specific needs of each customer." This method of cross-border marketing allows W.H. Brady Co. to gain a presence in smaller markets--a presence the Company will build on in the future. [PHOTO] Caption: Seton-Germany markets to companies in Austria and Switzerland as well as in Germany. W.H. BRADY CO. 1995 Annual Report 15 20 As we grow W.H. Brady Co. by doing more where we are, introducing innovative new products, entering new markets and penetrating geographic areas, we are ever-focused on creating shareholder value. SHAREHOLDER VALUE ENHANCEMENT We are maximizing our value for shareholders by leveraging our assets and controlling costs--using our teams, equipment, facilities, systems and other assets to their full potential. For example, in fiscal 1995 we reduced inventory while increasing sales 22.9 percent. We divested divisions and assets which would not create long-term value for the Company. We decreased our total investment in property, plant and equipment by 9 percent while continuing to invest in productive assets, such as additional manufacturing equipment in Singapore and the United States. The Brady team was very successful in value enhancement in fiscal 1995. As our stock price rose from $47.50 to $71.38 during the year, we created nearly $174 million in value for shareholders. In fiscal 1996 we will continue to invest in new product development; sales and marketing; systems to improve efficiency and service; geographic expansions; and acquisitions to further improve our long-term value to shareholders. Graph: Stock Price vs. Book Value
Stock Price Book Value ----------- ---------- 1991 $39.25 $15.66 1992 34.25 16.26 1993 34.75 17.35 1994 47.50 19.61 1995 71.38 23.06
Value-enhancement efforts at Brady are evident in our stock performance. W.H. BRADY CO. 1995 Annual Report 16 21 FINANCIAL REVIEW, 1995
Table of Contents Selected Financial Information 18 Management's Discussion and Analysis of Results of Operations & Financial Condition 20 Consolidated Balance Sheets 22 Consolidated Statements of Income 24 Consolidated Statements of Stockholders' Investment 25 Consolidated Statements of Cash Flows 26 Notes to Consolidated Financial Statements 27 Independent Auditors' Report 34 Corporate Data 35 Shareholder Services 36
W.H. BRADY CO. 1995 Annual Report 17 22 Selected Financial Information
Years Ended July 31, 1986 through 1995 (Dollars in Thousands, Except Per Share Amounts) 1995 1994 1993 ---------------------------------- Operating Data Net sales........................................................... $314,362 $255,841 $242,970 Operating expenses: Cost of products sold............................................. 143,634 118,116 114,301 Research and development.......................................... 10,426 10,318 12,132 Selling, general and administrative............................... 119,717 97,932 92,449 Nonrecurring charge (credit)...................................... -- (1,236) ---------------------------------- Total operating expenses........................................ 273,777 226,366 217,646 ---------------------------------- OPERATING INCOME.................................................... 40,585 29,475 25,324 OTHER INCOME AND (EXPENSE): Investment and other income - net................................. 4,609 837 559 Interest expense.................................................. (555) (410) (54) ---------------------------------- Net other income................................................ 4,054 427 505 Income before income taxes, extraordinary item and cumulative ---------------------------------- effect of changes in accounting principles.......................... 44,639 29,902 25,829 INCOME TAXES........................................................ 16,728 11,362 8,973 Income before extraordinary item and cumulative effect of ---------------------------------- changes in accounting principles.................................... 27,911 18,540 16,856 Extraordinary item: ---------------------------------- Gain on proceeds of officer's life insurance policies, net........ -- -- -- ---------------------------------- Income before cumulative effect of changes in accounting principles. 27,911 18,540 16,856 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES FOR: Postretirement benefits (net of income taxes of $2,663)........... -- -- -- Income taxes...................................................... -- -- -- Catalog costs..................................................... -- -- -- ---------------------------------- NET INCOME.......................................................... $ 27,911 $ 18,540 $ 16,856 ================================== NET INCOME PER COMMON SHARE: Class A Nonvoting................................................. $ 3.83 $ 2.55 $ 2.33 Class B Voting.................................................... $ 3.73 $ 2.45 $ 2.23 CASH DIVIDENDS ON: Class A Common Stock.............................................. $ .80 $ .68 $ .60 Class B Common Stock.............................................. $ .70 $ .58 $ .50 Balance Sheet (at period end) Working capital..................................................... $129,938 $100,023 $ 77,943 Total assets........................................................ 230,005 202,509 179,901 Long-term debt, less current maturities............................. 1,903 1,855 1,978 Stockholders' investment............................................ 170,823 145,129 128,068
W.H. BRADY CO. 1995 Annual Report 18 23
1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------ $235,965 $211,063 $191,161 $174,174 $153,016 $126,420 $108,364 110,130 96,797 84,952 75,620 67,302 56,284 49,385 10,001 9,176 7,355 6,168 5,879 5,383 5,004 93,931 84,936 76,596 71,292 63,986 50,108 38,019 6,562 -- -- 6,465 -- -- -- - ------------------------------------------------------------------------------ 220,624 190,909 168,903 159,545 137,167 111,775 92,408 - ------------------------------------------------------------------------------ 15,341 20,154 22,258 14,629 15,849 14,645 15,956 239 2,845 4,004 2,380 1,901 2,082 1,764 (219) (548) (646) (356) (477) (348) (400) - ------------------------------------------------------------------------------ 20 2,297 3,358 2,024 1,424 1,734 1,364 - ------------------------------------------------------------------------------ 15,361 22,451 25,616 16,653 17,273 16,379 17,320 6,972 7,054 10,606 6,778 6,968 7,535 7,873 - ------------------------------------------------------------------------------ 8,389 15,397 15,010 9,875 10,305 8,844 9,447 -- -- -- 4,625 -- -- -- - ------------------------------------------------------------------------------ 8,389 15,397 15,010 14,500 10,305 8,844 9,447 (3,995) -- -- -- -- -- -- 661 -- -- -- -- -- -- -- -- -- 1,233 -- -- -- - ------------------------------------------------------------------------------ $ 5,055 $ 15,397 $ 15,010 $ 15,733 $ 10,305 $ 8,844 $ 9,447 ============================================================================== $ .69 $ 2.14 $ 2.09 $ 2.10 $ 1.36 $ 1.17 $ 1.26 $ .59 $ 2.04 $ 1.99 $ 2.00 $ 1.26 $ 1.07 $ 1.16 $ .56 $ .48 $ .40 $ .28 $ .24 $ .20 $ .10 $ .46 $ .38 $ .30 $ .18 $ .14 $ .10 -- $ 66,093 $ 70,883 $ 67,797 $ 53,056 $ 42,492 $ 44,176 $ 40,701 173,054 156,812 147,197 129,890 117,201 104,398 94,477 2,524 1,982 3,298 3,637 3,086 3,851 4,548 119,771 115,260 103,784 89,443 84,987 76,044 66,791
W.H. BRADY CO. 1995 Annual Report 19 24 Management's Discussion and Analysis of Results of Operations & Financial Condition YEAR ENDED JULY 31, 1995, COMPARED TO YEAR END JULY 31, 1994 Sales for fiscal 1995 increased by $58,521,000 or 22.9% over fiscal 1994. Sales of the Company's international subsidiaries increased 36.3%, 24.3% as a result of real growth through continued market penetration in Europe and the Far East and new Seton subsidiaries in Australia and Italy. Translation into U.S. currency resulted in an additional 12.0% increase in international sales due to favorable exchange rates during the year. Sales of the Company's U.S. operations increased 15.0%, primarily from new product introductions such as the I.D. Pro(TM) Wire Marker Printer. This U.S. sales increase was achieved despite the divestiture of two businesses during the year that had sales of $7,943,000 in fiscal 1995 and $10,901,000 in fiscal 1994. The cost of products sold decreased from 46.2% of sales to 45.7% of sales as a result of changes in product mix and manufacturing efficiencies from the Company's continuous-improvement efforts. Selling, general and administrative expenses as a percentage of sales decreased slightly from 38.3% to 38.1% of sales, as the Company's continuing cost-control efforts more than offset the costs associated with new product introductions and the new Seton start-ups. Research and development increased 1.1% over fiscal 1994, but declined as a percentage of sales. Investment and other income for fiscal 1995 included $2,033,000 representing the gain on the divestiture of two domestic manufacturing operations and the sale of certain real estate. Interest income increased by $1,190,000 over fiscal 1994 because of increased levels of investment and higher rates. Income before income taxes for the two businesses divested in fiscal 1995 was a loss of $1,098,000 compared to fiscal 1994's full year loss of $4,283,000. The Company's income before income taxes increased to $44,639,000, an increase of 49.3% compared to fiscal 1994's $29,902,000. Net income was positively impacted by a decrease in the effective tax rate from 38.0% for fiscal 1994 to 37.5% for fiscal 1995. This was primarily caused by a lower effective state tax rate. Net income for the year increased 50.5% to $27,911,000 for fiscal 1995, compared to $18,540,000 for fiscal 1994, because of the factors cited above. YEAR ENDED JULY 31, 1994, COMPARED TO YEAR END JULY 31, 1993 Sales for fiscal 1994 increased by $12,871,000 or 5.3% over fiscal 1993. Sales of the Company's international subsidiaries increased 22.1% as a result of real growth through continued market penetration in Europe and the Far East offset by changes in the exchange rates used to translate financial results into U.S. currency. Foreign exchange effect resulted in a 6.5% overall decrease in international sales. Sales of its U.S. operations decreased 2.6% because of the divestiture of three businesses last year. Comparing only continuing operations, sales of the Company's U.S. operations increased 6.1% as a result of the introduction of new products. The cost of products sold decreased from 47.0% of sales to 46.2% of sales as a result of changes in product mix, the divestiture of three businesses last year and increased manufacturing efficiencies from the Company's continuous-improvement efforts. Selling, general and administrative expenses as a percentage of sales increased from 38.1% to 38.3% of sales as a result of costs attributable to the introduction of new products. The completion of certain product development projects last year caused research and development expenses to decrease 15.0% this year compared to fiscal 1993. In fiscal 1993 the Company recorded a nonrecurring credit of $1,236,000 ($742,000 after tax) primarily representing the gain on the divestiture of three domestic operations. Income before income taxes increased to $29,902,000 in fiscal 1994, an increase of 15.8% compared to fiscal 1993's $25,829,000, largely as a result of improved performance in the Company's international operations. Net income was negatively impacted by an increase in the effective tax rate from 34.7% in fiscal 1993 to 38.0% in fiscal 1994. The lower effective tax rate in fiscal 1993 was due to the reversal of a $730,000 provision for future settlement relating to the amortization of customer lists which was established in fiscal 1992 and favorably resolved in fiscal 1993. Eliminating the effect of this adjustment, the effective tax rate for fiscal 1993 would have been 37.6% compared to 38.0% for the current fiscal year. Net income was $18,540,000 for fiscal 1994, compared to $16,856,000 for fiscal 1993, because of the factors cited above. W.H. BRADY CO. 1995 Annual Report 20 25 YEAR ENDED JULY 31, 1993, COMPARED TO YEAR END JULY 31, 1992 Sales for fiscal 1993 increased by $7,005,000 or 3.0% over fiscal 1992. Sales of the Company's international subsidiaries increased 9.6% as a result of real growth partially offset by changes in the exchange rates used to translate financial results into U.S. currency. Sales of its U.S. operations increased slightly compared to the prior year despite the divestiture of three businesses during the year. The cost of products sold increased from 46.7% of sales to 47.0% of sales as a result of increased material costs resulting from a change in products sold and because of additional depreciation from the Company's expansion projects. Capital expenditures of $12,280,000 in fiscal 1993 and $24,074,000 in fiscal 1992 gave rise to the increased depreciation. Selling, general and administrative expenses as a percentage of sales decreased from 39.8% to 38.1% as a result of the Company's continuing cost-control efforts. Research and development expenses increased 21.3% over the prior year, reflecting the Company's continued commitment to process improvements and new product development. The Company recorded a nonrecurring charge of $6,562,000 ($3,757,000 after tax) during fiscal 1992, representing a writedown of a portion of its investment in two domestic operations and a loss on the sale of a foreign manufacturing operation. The writedown related primarily to the carrying value of certain inventories and machinery and equipment. During fiscal 1993, the Company recorded a nonrecurring credit of $1,236,000 ($742,000 after tax) primarily representing the gain on the divestiture of three domestic operations. Income before income taxes and cumulative effect of changes in accounting principles increased to $25,829,000 in fiscal 1993, compared to fiscal 1992's $15,361,000. Net income was positively impacted by a decrease in the effective tax rate from 45.5% in fiscal 1992 to 34.7% in fiscal 1993. The lower effective tax rate in fiscal 1993 was due to the reversal of a $730,000 provision for future settlement relating to the amortization of customer lists which was established in fiscal 1992 and favorably resolved in fiscal 1993. Eliminating the effect of this adjustment, the effective tax rate for fiscal 1993 would have been 37.6% compared to 40.6% for the prior fiscal year. The $3,995,000 cumulative after-tax effect of adopting SFAS-106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" was included as a charge against earnings in fiscal 1992. The $661,000 cumulative effect of adopting SFAS-109 "Accounting for Income Taxes" was included as income in fiscal 1992. Net income was $16,856,000 for fiscal 1993, compared to $5,055,000 for fiscal 1992, because of the factors cited above. LIQUIDITY The Company's liquidity remains strong. Cash and cash equivalents were $89,067,000 at July 31, 1995, compared to $66,107,000 at July 31, 1994, and $42,366,000 at July 31, 1993. Working capital was $129,938,000 at July 31, 1995, compared to $100,023,000 at July 31, 1994, an increase of $29,915,000. Of this amount $12,175,000 represented proceeds from the divestitures and real estate sales and the balance was from the profits of the Company. Cash flow generated by operating activities was $21,552,000 for fiscal 1995, $33,068,000 for fiscal 1994, and $21,582,000 for fiscal 1993. Capital expenditures were $8,114,000 in fiscal 1995, $6,466,000 in fiscal 1994, and $12,280,000 in fiscal 1993. Financing activities, primarily the payment of dividends to the Company's stockholders, consumed $4,659,000 of cash in fiscal 1995, $4,214,000 in fiscal 1994 and $4,326,000 in fiscal 1993. Long-term debt as a percentage of long-term debt plus stockholders' investment was 1.1% at July 31, 1995, compared to 1.3% at July 31, 1994, and 1.5% at July 31, 1993. Management believes the Company's cash and cash equivalents and the cash flow it generates from its operating activities are adequate to meet its current investing and financing needs. INFLATION Over the last three fiscal years, inflation has had a minimal effect on reported results of operations and the Company s financial condition. W.H. BRADY CO. 1995 Annual Report 21 26 Consolidated Balance Sheets
July 31, 1995 and 1994 (Dollars in Thousands) 1995 1994 ---------------------- Assets CURRENT ASSETS: Cash and cash equivalents (Note 1)..................................... $ 89,067 $ 66,107 Accounts receivable, less allowance for losses ($1,881 and $1,565, respectively).................................... 42,104 32,308 Inventories (Note 1): Finished products.................................................... 16,866 16,717 Work-in-process...................................................... 1,987 2,534 Raw materials and supplies........................................... 4,246 4,486 ---------------------- Total inventories.................................................. 23,099 23,737 Prepaid expenses and other current assets (Notes 1, 3 and 4)........... 10,202 9,611 ---------------------- Total current assets............................................... 164,472 131,763 OTHER ASSETS (Note 4).................................................... 6,960 6,403 PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 5): Cost: Land................................................................. 4,417 4,689 Buildings and improvements........................................... 34,284 38,431 Machinery and equipment.............................................. 69,278 72,576 Construction in progress............................................. 815 939 ---------------------- 108,794 116,635 Less accumulated depreciation......................................... 50,221 52,292 ---------------------- Net property, plant and equipment................................. 58,573 64,343 ---------------------- TOTAL................................................................... $230,005 $202,509 ====================== See Notes to Consolidated Financial Statements.
W.H. BRADY CO. 1995 Annual Report 22 27
July 31, 1995 and 1994 (Dollars in Thousands) 1995 1994 ------------------------ Liabilities and Stockholder's Investment CURRENT LIABILITIES: Accounts payable........................................................ $ 9,252 $ 9,678 Wages and amounts withheld from employees............................... 14,447 10,479 Taxes, other than income taxes.......................................... 1,361 1,962 Accrued income taxes.................................................... 2,150 2,999 Other current liabilities (Note 3)...................................... 6,912 6,217 Current maturities on long-term debt (Note 5)........................... 412 405 ------------------------ Total current liabilities........................................... 34,534 31,740 LONG-TERN DEBT, less current maturities (Note 5).......................... 1,903 1,855 OTHER LIABILITIES (Note 3)................................................ 22,745 23,785 ------------------------ Total liabilities.................................................. 59,182 57,380 ------------------------ STOCKHOLDER'S INVESTMENT (Notes 1 and 6): Preferred Stock (aggregate liquidation preference of $3,026 at July 31, 1995)........................................................... 2,855 2,855 Common Stock: Class A Nonvoting - Issued and outstanding 5,507,341 and 5,476,812 shares, respectively, (aggregate liquidation preference of $27,537 at July 31, 1995)................................................... 55 54 Class B Voting - Issued and outstanding 1,769,314 shares............. 18 18 Additional paid-in capital............................................. 8,074 6,768 Earnings retained in the business...................................... 154,286 132,271 Cumulative translation adjustments..................................... 5,535 3,163 ------------------------ Total stockholder's investment..................................... 170,823 145,129 ------------------------ TOTAL.................................................................... $230,005 $202,509 ------------------------ See Notes to Consolidated Financial Statements.
W.H. BRADY CO. 1995 Annual Report 23 28 Consolidated Statements of Income
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands, Except Per Share Amounts) 1995 1994 1993 --------------------------------------- NET SALES................................................... $314,362 $255,841 $242,970 OPERATING EXPENSES: Cost of products sold..................................... 143,634 118,116 114,301 Research and development.................................. 10,426 10,318 12,132 Selling, general and administrative....................... 119,717 97,932 92,449 Nonrecurring (credit) (Note 2)............................ -- -- (1,236) --------------------------------------- Total operating expenses................................ 273,777 226,366 217,646 ---------------------------------------- OPERATING INCOME............................................ 40,585 29,475 25,324 OTHER INCOME AND (EXPENSE): Investment and other income - net (Note 2) ............... 4,609 837 559 Interest expense.......................................... (555) (410) (54) --------------------------------------- Net other income........................................ 4,054 427 505 --------------------------------------- Income before income taxes................................. 44,639 29,902 25,829 INCOME TAXES (Notes 1 and 4)............................... 16,728 11,362 8,973 NET INCOME................................................. $ 27,911 $ 18,540 $ 16,856 ======================================== NET INCOME PER COMMON SHARE (Notes 6 and 8): Class A Nonvoting........................................ $ 3.83 $ 2.55 $ 2.33 Class B Voting........................................... $ 3.73 $ 2.45 $ 2.23 ---------------------------------------- See Notes to Consolidated Financial Statements.
W.H. BRADY CO. 1995 Annual Report 24 29 Consolidated Statements of Stockholder's Investment
Additional Earnings Cumulative Years Ended July 31, 1993, 1994 and 1995 Preferred Common Paid-In Retained in Translation (Dollars in Thousands, Except Per Share Amounts) Stock Stock Capital the Business Adjustments --------------------------------------------------------------------------- BALANCES AT AUGUST 1, 1992............................ $2,855 $72 $4,836 $106,274 $5,734 Net income.......................................... -- -- -- 16,856 -- Net currency translation adjustment................. -- -- -- -- (4,894) Issuance of 26,000 shares of Class A Common Stock under stock option plan........................... -- -- 646 -- -- Tax benefit from exercise of stock options.......... -- -- 89 -- -- Cash dividends on Preferred Stock: 1979 series - $10 a share......................... -- -- -- (220) -- 6% and 1972 series - $6 a share................... -- -- -- (39) -- Cash dividends on Common Stock: Class A - $.60 a share............................ -- -- -- (3,256) -- Class B - $.50 a share............................ -- -- -- (885) -- ----------------------------------------------------------------------- BALANCES AT JULY 31, 1993............................. 2,855 72 5,571 118,730 840 Net income.......................................... -- -- -- 18,540 Net currency translation adjustment................. -- -- -- -- 2,323 Issuance of 39,650 shares of Class A Common Stock under stock option plan........................... -- -- 1,063 -- -- Tax benefit from exercise of stock options.......... -- -- 134 -- -- Cash dividends on Preferred Stock: 1979 series - $10 a share......................... -- -- -- (220) -- 6% and 1972 series - $6 a share................... -- -- -- (39) -- Cash dividends on Common Stock: Class A - $.68 a share............................ -- -- -- (3,714) -- Class B - $.58 a share............................ -- -- -- (1,026) -- ----------------------------------------------------------------------- BALANCES AT JULY 31, 1994............................. 2,855 72 6,768 132,271 3,163 Net income.......................................... -- -- -- 27,911 -- Net currency translation adjustment................. -- -- -- -- 2,372 Issuance of 30,529 shares of Class A Common Stock under stock option plan........................... -- 1 999 -- -- Tax benefit from exercise of stock options.......... -- -- 307 -- -- Cash dividends on Preferred Stock: 1979 series - $10 a share......................... -- -- -- (220) -- 6% and 1972 series - $6 a share................... -- -- -- (39) -- Cash dividends on Common Stock: Class A - $.80 a share........................... -- -- -- (4,398) -- Class B - $.70 a share........................... -- -- -- (1,239) -- ----------------------------------------------------------------------- BALANCES AT JULY 31, 1995............................ $2,855 $73 $8,074 $154,286 $5,535 ----------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
W.H. BRADY CO. 1995 Annual Report 25 30 Consolidated Statements of Cash Flows
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 ------------------------- OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $27,911 $18,540 $16,856 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . 9,049 9,325 9,848 Amortization . . . . . . . . . . . . . . . . . . . . . . . 110 110 325 Loss/(Gain) on sale of businesses . . . . . . . . . . . . 413 --- (1,963) (Gain)/Loss on sale of property, plant and equipment . . . (2,209) 194 51 Provision for losses on accounts receivable . . . . . . . 463 725 758 Changes in operating assets and liabilities (net of effects of business disposals in 1995 and 1993): Accounts receivable . . . . . . . . . . . . . . . . . (12,564) (2,169) (2,917) Inventory . . . . . . . . . . . . . . . . . . . . . . . 473 (928) (3,583) Prepaid expenses and other assets. . . . . . . . . . . . (1,385) 1,305 1,981 Accounts payable and accrued liabilities . . . . . . . . 1,361 3,325 (890) Income taxes . . . . . . . . . . . . . . . . . . . . . . (1,605) 1,852 2,139 Deferred income taxes. . . . . . . . . . . . . . . . . . 212 (413) (608) Other liabilities . . . . . . . . . . . . . . . . . . . (687) 1,202 (415) ------------------------- Net cash provided by operating activities. . . . . . . . . . . 21,552 33,068 21,582 ------------------------- INVESTING ACTIVITIES: Purchases of property, plant and equipment . . . . . . . . . (8,114) (6,466) (12,280) Proceeds from sale of property, plant and equipment. . . . . 6,227 458 570 Proceeds from sale of businesses . . . . . . . . . . . . . . 6,315 10,327 Purchase of other long-term investment . . . . . . . . . . . (750) ------------------------- Net cash provided by (used in) investing activities. . . . . . 3,678 (6,008) (1,383) ------------------------- FINANCING ACTIVITIES: Payment of dividends . . . . . . . . . . . . . . . . . . . . (5,896) (4,999) (4,400) Proceeds from issuance of Common Stock . . . . . . . . . . . 1,306 1,063 646 Proceeds from long-term borrowings . . . . . . . . . . . . . --- 217 139 Principal payments on long-term debt . . . . . . . . . . . . (69) (495) (711) ------------------------- Net cash used in financing activities . . . . . . . . . . . . (4,659) (4,214) (4,326) ------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . . . . . . . 2,389 895 (2,026) ------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . 22,960 23,741 13,847 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . 66,107 42,366 28,519 ------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . $89,067 $66,107 $42,366 ========================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 116 $ 237 $ 436 Income taxes, net of refunds . . . . . . . . . . . . . . . 17,174 10,601 9,110 ------------------------- See Notes to Consolidated Financial Statements.
W.H. BRADY CO. 1995 Annual Report 26 31 Notes to Consolidated Financial Statements Years Ended July 31, 1995, 1994 and 1993 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The accompanying consolidated financial statements include the accounts of W.H. Brady Co. and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents - The Company considers all highly liquid investments with maturities of three months or less when acquired to be cash equivalents. The carrying amounts of cash equivalents approximate fair value because they mature in three months or less. Inventories - Inventories are stated at the lower of cost or market. Cost has been determined using the last-in, first-out (LIFO) method for domestic inventories (approximately 62% and 65% of total inventories at July 31, 1995 and 1994, respectively) and the first-in, first-out method for other inventories. The difference between the carrying value of domestic inventories stated at LIFO cost and the value of such inventories stated at replacement cost was $5,204,000 at July 31, 1995, and $5,777,000 at July 31, 1994. Depreciation - The cost of buildings and improvements and machinery and equipment is being depreciated over their estimated useful lives using the straight-line method for financial reporting purposes. Catalog Costs - Catalog costs are initially capitalized and amortized over the estimated useful lives of the publications (generally eight months). At July 31, 1995 and 1994, $4,436,000 and $2,325,000, respectively, of prepaid catalog costs were included in prepaid expenses and other current assets. Foreign Currency Translation - Foreign currency assets and liabilities are translated into United States dollars at end of period rates of exchange, and income and expense accounts are translated at the weighted average rates of exchange for the period. Resulting translation adjustments are included as a separate component of stockholders investment. Hedging - The Company enters into forward foreign exchange contracts to hedge committed intercompany foreign currency transactions. Such exchange contracts generally have maturities of six months or less. At July 31, 1995, exchange contracts aggregating approximately $4,500,000 were outstanding. Income Taxes - Effective August 1, 1991, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Note 2 DISPOSITIONS AND NONRECURRING (CREDIT) During fiscal 1995, the Company sold two businesses and certain real estate which resulted in a gain of $2,033,000 which is included in other income in the accompanying financial statements. During fiscal 1993, the Company sold two domestic manufacturing operations and a direct-marketing subsidiary. The nonrecurring credit of $1,236,000 in 1993 represents the excess of proceeds over the net carrying amounts of net assets disposed of, offset by provision for severance and other related disposition expenses. Note 3 EMPLOYEE BENEFIT PLANS The Company provides postretirement medical, dental and vision benefits for all regular full- and part-time domestic employees (including spouses) who retire 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, will be 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 an employee s age and service at retirement. Effective August 1, 1991, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS No. 106), "Employers Accounting for Postretirement Benefits Other than Pensions." In connection with the adoption of SFAS No. 106, the Company elected to recognize as expense the entire accumulated postretirement benefit obligation (transition obligation) rather than amortizing such amount to expense over a 20-year period. The Company funds benefit costs on a pay-as-you-go basis. During the years ended July 31, 1995 and 1994, the Company made benefit payments totalling $165,000 and $185,000, respectively. W.H. BRADY CO. 1995 Annual Report 27 32 The following table sets forth the plan s status reconciled with amounts recognized in the accompanying consolidated balance sheets at July 31, 1995 and 1994:
(Dollars in Thousands) 1995 1994 Accumulated postretirement benefit obligation: Retirees . . . . . . . . . . . . . . . . . . . . $3,387 $2,607 Fully eligible active plan participants. . . . . 1,077 2,225 Other active plan participants . . . . . . . . . 1,790 1,448 ------ ------ 6,254 6,280 Unrecognized net gain . . . . . . . . . . . . . . 1,882 1,543 ------ ------ Accrued postretirement benefit cost. . . . . . . . $8,136 $7,823 ====== ======
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 Net periodic postretirement benefit cost included the following components: Service cost - benefit attributed to service during the period . . $230 $209 $210 Interest cost on accumulated postretirement benefit obligation . . 469 469 462 Amortization of (gain) . . . . . . . . . . . . . . . . . . . . . . (103) (64) (58) ---- ---- ---- Periodic postretirement benefit cost prior to curtailment. . . . . 596 614 614 Effective curtailment (gain) due primarily to disposition of operations . . . . . . . . . . . . . . . . (93) -- (185) ---- ---- ---- Net periodic postretirement benefit cost . . . . . . . . . . . . . . . $503 $614 $429 ==== ==== ====
The assumed healthcare cost trend rates used in measuring the accumulated postretirement benefit obligation were 8% in 1995 and gradually declining to 5.5% by the year 2000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8% in 1995 and 1994. If the healthcare cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of July 31, 1995, would be increased by $90,000. The effect of this change on the sum of service cost and interest cost would not be material. During 1995 and 1993, the Company had curtailment gains which represent the accumulated postretirement benefit obligation of employees who were employed at operations disposed of in those years. The Company has retirement and profit-sharing plans covering substantially all full-time domestic employees and certain of its foreign subsidiaries. Contributions to the plans are determined annually based on earnings of the respective companies and employee contributions. At July 31, 1995 and 1994, $397,000 and $3,109,000, respectively, of accrued profit-sharing contributions were included in other current liabilities. The Company also has deferred compensation plans for directors, officers and key executives utilizing the phantom stock plan concept. At July 31, 1995 and 1994, $17,015,000 and $15,795,000, respectively, of deferred compensation was included in current and other long-term liabilities. The amounts charged to income for the plans described above were $6,188,000 in 1995, $5,660,000 in 1994 and $4,443,000 in 1993. The Company has a voluntary employee benefit trust for the purpose of funding employee medical benefits and certain other employee benefits. At July 31, 1995 and 1994, $2,738,000 and $4,145,000, respectively, of payments to the trust to fund such benefits were included in prepaid expenses and other current assets. Note 4 INCOME TAXES Income taxes consist of the following:
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 Currently payable: Federal . . . . . . . . . . . . . . . . . . $10,194 $ 6,987 $6,612 Foreign . . . . . . . . . . . . . . . . . . 4,518 2,755 1,869 State . . . . . . . . . . . . . . . . . . 1,804 2,033 1,100 ------- ------- ------ 16,516 11,775 9,581 ------- ------- ------ Deferred (credit): Federal . . . . . . . . . . . . . . . . . . (382) (448) (376) Foreign . . . . . . . . . . . . . . . . . . 662 112 (165) State . . . . . . . . . . . . . . . . . . (68) (77) (67) ------- ------- ------ 212 (413) (608) ------- ------- ------ Total . . . . . . . . . . . . . . . . . . $16,728 $11,362 $8,973 ======= ======= ======
Deferred income taxes result from timing differences in the recognition of revenues and expenses for financial statement and income tax purposes. These differences relate principally to depreciation and certain expenses not deductible for tax reporting until paid. W.H. BRADY CO. 1995 Annual Report 28 33 Pre-tax income consists of the following:
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 - ------------------------------------------------------------------------- United States .............................. $32,074 $21,565 $22,220 Foreign .................................... 12,565 8,337 3,609 ------------------------- Total .................................... $44,639 $29,902 $25,829 =========================
The approximate tax effects of temporary differences are as follows:
July 31, 1995 (Dollars in Thousands) Assets Liabilities Total - ------------------------------------------------------------------------- Inventories ................................ $ 1,724 -- $1,724 Prepaid catalog costs ...................... -- $ (944) (944) Employee benefits .......................... -- (100) (100) Tax loss carryforwards ..................... 105 -- 105 Allowance for doubtful accounts ............ 307 -- 307 Other, net ................................. 272 -- 272 ------------------------- Current .................................. 2,408 (1,044) 1,364 Excess of tax over book ------------------------- depreciation ............................. -- (3,695) (3,695) Deferred compensation ...................... 5,383 -- 5,383 Postretirement benefits .................... 3,316 -- 3,316 Tax loss carryforwards ..................... 1,563 -- 1,563 Less valuation allowance ................... (1,563) -- (1,563) Other, net ................................. 199 -- 199 ------------------------- Noncurrent ............................... 8,898 (3,695) 5,203 ------------------------- Total ...................................... $11,306 $(4,739) $6,567 ========================= July 31, 1994 (Dollars in Thousands) Assets Liabilities Total Inventories ............................... $ 1,659 -- $1,659 Prepaid catalog costs ..................... -- $ (612) (612) Employee benefits ......................... -- (505) (505) Tax loss carryforwards .................... 397 -- 397 Allowance for doubtful accounts ........... 324 -- 324 Other, net ................................ 644 -- 644 ------------------------- Current ................................. 3,024 (1,117) 1,907 Excess of tax over book ------------------------- depreciation ............................ -- (4,517) (4,517) Deferred compensation ..................... 6,001 -- 6,001 Postretirement benefits ................... 3,129 -- 3,129 Tax loss carryforwards .................... 1,550 -- 1,550 Less valuation allowance .................. (1,550) -- (1,550) Other, net ................................ 259 -- 259 ------------------------- Noncurrent ............................. 9,389 (4,517) 4,872 ------------------------- Total ..................................... $12,413 $(5,634) $6,779 =========================
At July 31, 1995 and 1994, $1,364,000 and $1,907,000, respectively, of net deferred tax assets were included in prepaid expenses and other current assets. At July 31, 1995 and 1994, $5,203,000 and $4,872,000, respectively, of net deferred tax assets were included in other assets. A reconciliation of the tax computed by applying the statutory U.S. Federal income tax rate to income before income taxes to the total income tax provision is as follows:
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 - ------------------------------------------------------------------------ Tax at statutory rate . . . . . . . . . . . . $15,624 $10,466 $8,782 State income taxes, net of Federal tax benefit . . . . . . . . . . . . . . . 1,177 1,271 841 International losses with no related tax benefits . . . . . . . . . . . . . . . 613 175 351 International rate differential . . . . . . . 169 (226) 126 Rate variances arising from foreign subsidiary distributions . . . . . . . . . (558) 174 157 Provision for future settlements. . . . . . . -- -- (730) Other, net . . . . . . . . . . . . . . . . . (297) (498) (554) ------------------------ Total income tax provision . . . . . . . . . $16,728 $11,362 $8,973 ======================== Effective tax rate . . . . . . . . . . . . . 37.5% 38.0% 34.7% ========================
The Company's policy is to remit earnings from foreign subsidiaries only to the extent any resultant foreign income taxes are creditable in the United States. Accordingly, the Company does not currently provide for the additional United States and foreign income taxes which would become payable upon remission of undistributed earnings of foreign subsidiaries. The cumulative undistributed earnings of such companies at July 31, 1995, amounted to approximately $14,000,000. If all such undistributed earnings were remitted, an additional provision for foreign income taxes of approximately $200,000 would be required. W.H. BRADY CO. 1995 Annual Report 29 34 Notes to Consolidated Financial Statements Years Ended July 31, 1995, 1994 and 1993 (continued) NOTE 5 LONG-TERM DEBT Long-term debt consists of the following:
July 31, 1995 and 1994 (Dollars in Thousands) 1995 1994 - ----------------------------------------------------------------- 6.25% Industrial Development Revenue Bonds payable on December 1, 2001 ................. $1,000 $1,000 6.75% Industrial Development Revenue Bonds payable in annual installments of $125,000 in 1996 and $140,000 in 1997 ................ 265 385 Other ......................................... 1,050 875 --------------- 2,315 2,260 Less current maturities ....................... 412 405 --------------- $1,903 $1,855 ===============
The Industrial Development Revenue Bonds and the covering mortgage and loan agreements require, among other provisions, that the Company maintain minimum net working capital of $5,000,000 and a defined net worth of $10,000,000. The bonds are collateralized by first mortgages on certain property with a net carrying amount of approximately $5,657,000 at July 31, 1995. The Company's Industrial Development Revenue Bonds approximate fair value. Maturities on long-term debt are as follows:
Year Ended July 31, (Dollars in Thousands) - --------------------------------------------------- 1996 .................................... $ 412 1997 .................................... 349 1998 .................................... 231 1999 .................................... 255 2000 .................................... 68 Thereafter .............................. 1,000
NOTE 6 STOCKHOLDERS' INVESTMENT Information as to the Company's capital stock at July 31, 1995, is as follows:
Shares Shares (Dollars in Thousands) Authorized Outstanding Amount - ------------------------------------------------------------------------ Preferred Stock, $.01 par value ........ 5,000,000 0 $ 0 Cumulative Preferred Stock, 6% Cumulative ........................ 5,000 3,984 $ 399 1972 Series ........................ 10,000 2,600 260 1979 Series ........................ 30,000 21,963 2,196 ------------------------------- $2,855 Common Stock, $.01 par value: =============================== Class A Nonvoting 10,000,000 5,507,341 $ 55 Class B Voting 10,000,000 1,769,314 18 ------------------------------- $ 73 ===============================
Each share of $100 par value Cumulative Preferred Stock is entitled to receive cumulative cash dividends and may be redeemed, under certain circumstances, by the Company at par value plus accrued dividends plus a premium of 6% of the par value. Such shares, which are held by the initial holder thereof, are subject to redemption only if the holder consents thereto. Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual, noncumulative cash dividend of $.10 per share. Thereafter, any further dividend in that fiscal year must be paid on each share of Class A Common Stock and Class B Common Stock on an equal basis. Holders of the Class A Common Stock are not entitled to any vote on corporate matters, unless, in each of the three preceding fiscal years, the $.10 preferential dividend described above has not been paid in full. Holders of the Class A Common Stock are entitled to one vote per share for the entire fiscal year immediately following the third consecutive fiscal year in which the preferential W.H. BRADY CO. 1995 Annual Report 30 35 dividend is not paid in full. Holders of Class B Common Stock are entitled to one vote per share for the election of directors and for all other purposes. Upon liquidation, dissolution or winding up of the Company, and after distribution of any amounts due to holders of Cumulative Preferred Stock, holders of the Class A Common Stock are entitled to receive the sum of $5.00 per share before any payment or distribution to holders of the Class B Common Stock. Thereafter, holders of the Class B Common Stock are entitled to receive a payment or distribution of $5.00 per share. Thereafter, holders of the Class A Common Stock and Class B Common Stock share equally in all payments or distributions upon liquidation, dissolution or winding up of the Company. The preferences in dividends and liquidation rights of the Class A Common Stock over the Class B Common Stock will terminate at any time that the voting rights of Class A Common Stock and Class B Common Stock become equal. The Company has a Nonqualified Stock Option Plan (the Plan) under which 500,000 shares of Class A Nonvoting Common Stock were made available for grant. Options are issued at an option price equal to the market price at the grant date. Options granted prior to 1992 become exercisable once the employees have been continuously employed for six months after the grant date. Generally, options granted in 1992 and thereafter will not be exercisable until one year after the date of grant, to the extent of one-third per year. Transactions with respect to the Plan are summarized as follows:
Option Options Price Outstanding - ------------------------------------------------------------------------- Balance, August 1, 1992 . . . . . . . . . $20.50-$29.8125 142,550 Options granted . . . . . . . . . . . . . 37.125 40,750 Options exercised . . . . . . . . . . . . 20.50-29.8125 (26,000) Options cancelled . . . . . . . . . . . . 20.50-29.8125 (7,500) ------------------------------- Balance, July 31, 1993. . . . . . . . . . 20.50-37.125 149,800 Options granted . . . . . . . . . . . . . 36.50-43.00 78,400 Options exercised . . . . . . . . . . . . 20.50-37.125 (39,650) Options cancelled . . . . . . . . . . . . 28.125-37.125 (9,750) ------------------------------- Balance, July 31, 1994. . . . . . . . . . 20.50-43.00 178,800 Options granted . . . . . . . . . . . . . 47.00 38,250 Options exercised . . . . . . . . . . . . 20.50-37.125 (30,529) Options cancelled . . . . . . . . . . . . 29.8125-47.00 (13,802) Balance, July 31, 1995 =============================== (98,009 options exercisable) . . . . 20.50-47.00 172,719 ------------------------------- Available for grant after July 31, 1995 . 200,902
=============================== NOTE 7 DOMESTIC AND FOREIGN OPERATIONS The Company operates predominantly in a single industry as a manufacturer and distributor of identification products. Operations are conducted in the United States and through subsidiaries located in Canada, Europe, Australia, Japan and Singapore. Transfers between geographic areas primarily represent intercompany export sales of goods produced in the U.S. and are based on established sales prices between the related corporations. In computing operating income for non-U.S. subsidiaries, no allocations of general corporate expenses, interest or income taxes have been made. Identifiable assets of subsidiaries are those assets related to the operations of those subsidiaries. Corporate assets consist primarily of cash and cash equivalents. W.H. BRADY CO. 1995 Annual Report 31 36 Notes to Consolidated Financial Statements Years Ended July 31, 1995, 1994 and 1993 (continued)
Corporate Assets and (Dollars in Thousands) United States Europe Other Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------- YEAR ENDED JULY 31, 1995: Sales to unaffiliated customers. . $185,123 $88,723 $ 40,516 -- $314,362 Transfers between geographic areas . . . . . . . . . . . . . 20,975 197 100 $(21,272) -- ---------------------------------------------------------------------- Net sales . . . . . . . . . . . . $206,098 $88,920 $ 40,616 $(21,272) $314,362 ====================================================================== Operating . . . . . . . . . . . $ 27,693 $12,509 $ 545 $ (162) $ 40,585 ====================================================================== Identifiable assets. . . . . . . . $106,371 $36,586 $ 16,259 $ 70,789 $230,005 ====================================================================== -- YEAR ENDED JULY 31, 1994: Sales to unaffiliated customers. . $161,024 $64,634 $ 30,183 -- $255,841 Transfers between geographic areas . . . . . . . . . . . . . 18,965 159 128 $(19,252) -- ---------------------------------------------------------------------- Net sales . . . . . . . . . . . . $179,989 $64,793 $ 30,311 $(19,252) $255,841 ====================================================================== Operating income . . . . . . . . . $ 20,318 $ 7,605 $ 2,091 $ (539) $ 29,475 ====================================================================== Identifiable assets. . . . . . . . $112,161 $26,921 $ 11,855 $ 51,572 $202,509 ====================================================================== -- YEAR ENDED JULY 31, 1993: Sales to unaffiliated customers. . $166,017 $53,912 $ 23,041 -- $242,970 Transfers between geographic -- areas . . . . . . . . . . . . . 14,266 169 81 $(14,516) ---------------------------------------------------------------------- Net sales . . . . . . . . . . . . $180,283 $54,081 $ 23,122 $(14,516) $242,970 ====================================================================== Operating income . . . . . . . . . $ 21,292 $ 5,117 $ (479) $ (606) $ 25,324 ====================================================================== Identifiable assets. . . . . . . . $134,453 $23,152 $ 11,329 $ 10,967 $179,901 ======================================================================
Information with respect to operations located outside the United States which have been translated into U.S. dollars are as follows:
Years Ended July 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 - ----------------------------------------------------------------------- Current assets . . . . . . . . . . . . . $ 51,727 $41,702 $38,497 Other assets . . . . . . . . . . . . . . 8,805 4,833 3,949 Property, plant and equipment. . . . . . 11,656 8,474 8,070 ---------------------------- Total assets . . . . . . . . . . . . . . $ 72,188 $55,009 $50,516 ============================ Current liabilities. . . . . . . . . . . $ 44,575 $38,645 $34,081 Long-term debt . . . . . . . . . . . . . 763 590 492 Other liabilities. . . . . . . . . . . . 743 66 197 Stockholders' investment . . . . . . . . 26,107 15,708 15,746 ---------------------------- Total liabilities and stockholders investment . . . $ 72,188 $55,009 $50,516 ============================ Net sales . . . . . . . . . . . . . . . $129,267 $95,104 $77,203 ============================ W.H. Brady Co. equity in net income . . . . . . . . . . . . . . $ 7,385 $ 5,470 $ 1,666 ============================
W.H. Brady Co. 1995 Annual Report 32 37 NOTE 8 NET INCOME PER COMMON SHARE Net income per Common Share is computed by dividing net income (after deducting the applicable Preferred Stock dividends and preferential Class A Common Stock dividends) by the weighted average Common Shares outstanding of 7,266,643 for 1995; 7,226,038 for 1994; and 7,194,545 for 1993. The preferential dividend on the Class A Common Stock of $.10 per share has been added to the net income per Class A Common Share for all years presented. NOTE 9 COMMITMENTS The Company has entered into various noncancellable operating lease agreements. Rental expense charged to operations was $3,057,000 for 1995; $2,788,000 in 1994; and $2,871,000 in 1993. Future minimum lease payments required under such leases in effect at July 31, 1995, are as follows (by fiscal year): 1996............................... $4,014,000 1997............................... 3,231,000 1998............................... 1,492,000 1999............................... 641,000 2000............................... 596,000 Thereafter......................... 1,439,000
W.H. BRADY CO. 1995 Annual Report 33 38 Independent Auditors' Report TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF W.H. BRADY CO.: We have audited the accompanying consolidated balance sheets of W.H. Brady Co. and subsidiaries as of July 31, 1995 and 1994, and the related statements of income, stockholders' investment and cash flows for each of the three years in the period ended July 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at July 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1995, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Milwaukee, Wisconsin September 12, 1995 W.H. BRADY CO. 1995 Annual Report 34 39 Corporate Data W.H. BRADY CO. OPERATIONS Brady AB Upplands-Vasby, Sweden Brady Financial Co. Glendale, Wisconsin, USA Brady International Co. Milwaukee, Wisconsin, USA Brady Precision Tape Co. Cedarburg, Wisconsin, USA Brady USA, Inc. Milwaukee, Wisconsin, USA Brady Service Co. Milwaukee, Wisconsin, USA W.H. Brady Co. Ltd. Banbury, Oxon, England W.H. Brady Co. sales office Kowloon, Hong Kong W.H. Brady Co. sales office Seoul, South Korea W.H. Brady GmbH Rodermark, Germany W.H. Brady, Inc. Rexdale, Ontario, Canada W.H. Brady Pte. Ltd. Singapore W.H. Brady Pty. Ltd. Chipping Norton, Australia W.H. Brady Pty. Ltd. sales office Auckland, New Zealand W.H. Brady, N.V. Zele, Belgium W.H. Brady, N.V. sales office Saronno, Italy W.H. Brady S.A.R.L. Paris, France Nippon Brady K.K. Yokohama, Japan Seton Australia Pty. Ltd. Chipping Norton, Australia Seton Branford, Connecticut, USA Seton, Inc. Markham, Ontario, Canada Seton GmbH Langen, Germany Seton Italia Srl Saronno, Italy Seton Limited Banbury, Oxon, England Seton S.A. Roubaix, France OFFICERS Katherine M. Hudson President, Chief Executive Officer Donald P. DeLuca Senior Vice President, Chief Financial Officer and Treasurer Mary T. Arnold Vice President Research and Development Richard L. Fisk Vice President Seton Group David R. Hawke Vice President Signmark(R) Group David W. Schroeder Vice President Identification Systems and Specialty Tapes Group James M. Sweet Vice President Human Resources Donald E. Rearic President Brady Financial Co. Thomas E. Scherer Controller Peter J. Lettenberger Secretary Partner, Quarles & Brady BOARD OF DIRECTORS Richard A. Bemis President Bemis Manufacturing Company William H. Brady, III Investor Robert C. Buchanan President and CEO Fox Valley Corporation Donald P. DeLuca Senior Vice President, CFO and Treasurer W.H. Brady Co. Frank W. Harris Professor of Polymer Science University of Akron Katherine M. Hudson President and CEO W.H. Brady Co. Peter J. Lettenberger Partner Quarles & Brady Elizabeth Brady Lurie President and Administrator W.H. Brady Foundation Gary E. Nei Chairman B & B Publishing Roger D. Peirce President and CEO Valuation Research Corp. W.H. BRADY CO. 1995 Annual Report 35 40 Shareholder Services COMMON STOCK LISTING As of September 8, 1995, there were 324 Class A Nonvoting Common Stock shareholders of record and two Class B Voting Common Stock shareholders. W.H. Brady Co. Class A Nonvoting Common Stock trades on the over-the-counter market under the symbol BRCOA. Trading information is carried by the National Association of Securities Dealers Automated Quotation System (NASDAQ). SHAREHOLDER ACCOUNT RECORDS Shareholder account records are maintained in the corporate general office. Shareholder inquiries should be directed to Donald P. DeLuca, senior vice president and chief financial officer, W.H. Brady Co., 6555 W. Good Hope Road, P.O. Box 571, Milwaukee, Wisconsin 53201-0571, (414) 358-6600. QUARTERLY STOCK DATA
1995 1994 1993 - ------------------------------------------------------------------------ High Low High Low High Low - ------------------------------------------------------------------------ 4th Quarter $71-1/2 $52-3/4 $49 $44-3/4 $36-1/2 $34-3/4 3rd Quarter 53 47 48 43-1/2 37-3/4 34 2nd Quarter 48-1/2 47 46-1/2 36 37-3/4 35-1/2 1st Quarter 49 47 37 34-1/2 37-1/4 33-1/4
DIVIDEND POLICY Dividends are normally paid on the last day of October, January, April and July. The Board of Directors voted a quarterly dividend of 30 cents per share of Class A Nonvoting Common Stock to shareholders of record on October 6, 1995. Shareholders may have their dividends reinvested in Brady stock. Brochures about this program are available through the Investor Services Unit of the stock transfer agent, Firstar Trust Company, by calling (800) 637-7549. STOCK TRANSFER AGENT Firstar Trust Company 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 ADDITIONAL INFORMATION AVAILABLE If your stock is held in a street name and you wish to receive shareholder publications directly from the Company, please contact Donald P. DeLuca at W.H. Brady Co., P.O. Box 571, Milwaukee, Wisconsin 53201-0571, (414) 358-6600. Your name will be added to the mailing list. COMPANY NEWS W.H. Brady Co. issues many of its corporate news releases through PR Newswire. You can obtain faxed copies of recent news releases by calling Company News On-Call at (800) 758-5804. This electronic, menu-driven system will request a six-digit code (952350) which will enable you to request specific Brady releases to be sent to your fax machine. Brady information, including the corporate brochure, is also available at http//www.whbrady.com on the Internet World Wide Web. FORM 10-K A copy of the W.H. Brady Co. 1995 Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission, is also available without charge upon written request. ANNUAL MEETING The annual meeting of W.H. Brady Co. will be held at 9 a.m. on Friday, November 17, 1995, at the Wyndham Milwaukee Center Hotel, 139 E. Kilbourn Avenue, Milwaukee, Wisconsin 53202. W.H. BRADY CO. 1995 Annual Report 36 41 PLEASE RESPOND TO OUR SHAREHOLDERS: W.H. Brady Co. is reviewing its shareholder communication to ensure that it meets your needs and that it is timely and cost-effective. Please take a minute to complete and return the card below. Your opinion is important. We will be formulating our future communications based on your response. Thank you for your help. W.H. BRADY CO. CORPORATE COMMUNICATIONS DEPARTMENT - ------------------------------------------------------------------------------- WHAT IS YOUR MAIN SOURCE OF INFORMATION ABOUT W.H. BRADY CO.? / / Annual Reports / / Interim Reports / / Annual Meeting / / News Media / / Stock Broker/Investment Advisor / / Other (Please name) _________________ DO YOU FEEL THAT YOU RECEIVE ENOUGH INFORMATION ABOUT THE COMPANY? / / Yes / / No If not, what information do you feel is missing? ____________ _______________________________________________________________________________ IS THE INFORMATION TIMELY? / / Yes / / No If not, please explain. _______________________________________________________ PLEASE RATE HOW UNDERSTANDABLE THE INFORMATION IS THAT YOU RECEIVE. / / Very Understandable / / Understandable / / Difficult to understand Indicate specific area ___________________________ DO YOU RECEIVE INTERIM REPORTS? (Issued first through third quarters) / / Yes / / No If yes, do you: / / Only read the letter / / Only review the financials / / Read the entire report / / Skim the report / / Discard without reviewing / / Find the report useful WOULD YOU PREFER TO RECEIVE A NEWS RELEASE: / / Instead of the report / / In addition to the report / / Not necessary HOW CAN WE IMPROVE OUR COMMUNICATION? _________________________________________ _______________________________________________________________________________ ADDITIONAL COMMENTS. __________________________________________________________ _______________________________________________________________________________ ABOUT YOU HOW MANY YEARS HAVE YOU BEEN A SHAREHOLDER? ___________________________________ INDICATE HOW THE STOCK IS OWNED: (Check all that apply.) / / Individual (including joint tenant) / / In my (our) own name(s) / / Through my (our) broker / / W.H Brady Co. Employee Investment Program / / Institutional Investor DO YOU PARTICIPATE IN OUR AUTOMATIC DIVIDEND REINVESTMENT PROGRAM? / / Yes / /No / / I would like to receive information about the program Name___________________________________________________________________________ Street Address_________________________________________________________________ City/State/Zip_________________________________________________________________
EX-21.1 4 SUBSIDIARIES OF W.H. BRADY CO. 1 EXHIBIT 21.1 SCHEDULE OF SUBSIDIARIES OF W.H. BRADY CO.
Percentage of Voting State (Country) Securities Name of Company of Incorporation Owned - --------------- ---------------- ---------- W. H. Brady Co. Wisconsin Parent Brady Financial Co. Delaware 100% Tricor Direct Inc.- Delaware 100% Doing business As Seton Seton Name Plate Company D&G Sign and Label Co. Worldmark of Wisconsin Inc. Delaware 100% Brady International Sales, Inc. U.S. Virgin Islands 100% Brady International Co. Wisconsin 100% Brady Precision Tape Co. Wisconsin 100% Brady Service Co. Wisconsin 100% Brady USA, Inc. Wisconsin 100% W.H. Brady, Pty. Ltd. Australia 100% Seton Australia Pty. Ltd. Australia 100% W.H. Brady, N.V. Belgium 100% W.H. Brady Identification Solutions, Inc. Canada 100% W.H. Brady, Ltd. England 100% Seton, Ltd. England 100% W.H. Brady, S.A.R.L. France 100% Seton S.A. France 100% W.H. Brady, GmbH Germany 100% Seton, GmbH Germany 100% Seton Italia SRL Italy 100% Nippon Brady K.K. Japan 100% W.H. Brady, Pte. Ltd. Singapore 100% Brady AB Sweden 100% NYBYGGAREN 29:782 AB Sweden 100%
IV - 7
EX-23.1 5 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT.23.1 INDEPENDENT AUDITORS' CONSENT To the Board of Directors and Stockholders of W.H. Brady Co.: We consent to the incorporation by reference in Registration Statement No. 33-30258 of W.H. Brady Co. on Form S-8 of our reports dated September 12, 1995, appearing in and incorporated by reference in the Annual Report on Form 10-K of W.H. Brady Co. for the year ended July 31, 1995. /S/ Deloitte & Touche LLP Milwaukee, Wisconsin October 13, 1995 EX-27 6 FDS
5 1,000 YEAR JUL-31-1995 AUG-01-1994 JUL-31-1995 89,067 0 43,985 1,881 23,099 164,472 108,794 50,221 230,005 34,534 1,903 73 2,855 0 167,895 230,005 314,362 314,362 143,634 143,634 130,143 0 555 44,639 16,728 27,911 0 0 0 27,911 3.83 3.83
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