-----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, Es4PH8+qub6Vicf8EcU8L5mEVdOwC4AnorqXt0FQm0JeAeQTIku/aIPQ/vT7jP8h Mk6aEno+2UMy5BCkZHNVAQ== 0000950124-98-007190.txt : 19981207 0000950124-98-007190.hdr.sgml : 19981207 ACCESSION NUMBER: 0000950124-98-007190 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRADY CORP 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-Q SEC ACT: SEC FILE NUMBER: 000-12730 FILM NUMBER: 98763953 BUSINESS ADDRESS: STREET 1: 6555 W GOOD HOPE RD STREET 2: P O BOX 571 CITY: MILWAUKEE STATE: WI ZIP: 53201-0571 BUSINESS PHONE: 4143586600 FORMER COMPANY: FORMER CONFORMED NAME: BRADY W H CO DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) - OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended October 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) - OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ---- ---- Commission File Number 0-12730 BRADY CORPORATION ----------------- (Exact name of registrant as specified in its charter) WISCONSIN 39-0178960 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6555 WEST GOOD HOPE ROAD, MILWAUKEE, WISCONSIN 53223 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (414) 358-6600 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of December 1, 1998, there were outstanding 20,750,363 shares of 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 an affiliate of the Registrant, is the only voting stock. 2 FORM 10-Q BRADY CORPORATION INDEX
Page ---- PART I. Financial Information Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets 3 Unaudited Condensed Consolidated Statements of Income and Earnings Retained in the Business 4 Unaudited Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
3 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
ASSETS October 31, 1998 July 31, 1998 ------ ---------------- ------------- (Unaudited) Current assets: Cash and cash equivalents $ 61,343 $ 65,609 Accounts receivable, less allowance for losses ($2,177 and $2,011 respectively) 69,993 63,365 Inventories 38,383 38,444 Prepaid expenses and other current assets 13,645 16,635 --------- --------- Total current assets 183,364 184,053 Other assets: Intangibles - net 56,357 53,528 Other 7,384 7,078 Property, plant and equipment: Cost: Land 4,975 4,988 Buildings and improvements 39,933 39,595 Machinery and equipment 84,799 83,146 Construction in progress 14,303 11,705 --------- --------- 144,010 139,434 Less accumulated depreciation 75,569 72,269 --------- --------- Net property, plant and equipment 68,441 67,165 --------- --------- Total $ 315,546 $ 311,824 ========= ========= LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities: Accounts payable $ 16,084 $ 15,761 Wages and amounts withheld from employees 17,795 19,542 Taxes, other than income taxes 2,670 2,033 Accrued income taxes 9,152 9,276 Other current liabilities 7,494 11,647 Current maturities on long-term debt 509 408 --------- --------- Total current liabilities 53,704 58,667 Long-term debt, less current maturities 3,569 3,716 Other liabilities 15,303 16,068 --------- --------- Total liabilities 72,576 78,451 Stockholders' investment: Preferred stock 2,855 2,855 Class A nonvoting common stock - issued and outstanding 20,736,963 207 207 and 20,726,863 shares, respectively Class B voting common stock - issued and outstanding 1,769,314 shares 18 18 Additional paid-in capital 26,275 26,131 Earnings retained in the business 213,437 208,254 Other (2,851) (3,024) Accumulated other comprehensive income 3,029 (1,068) --------- --------- Total stockholders' investment 242,970 233,373 --------- --------- Total $ 315,546 $ 311,824 ========= =========
See Notes to Condensed Consolidated Financial Statements 3 4 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EARNINGS RETAINED IN THE BUSINESS (Dollars in Thousands, Except Per Share Amounts)
(Unaudited) Three Months Ended October 31 1998 1997 ------------ ------------ Net sales $ 116,802 $ 115,302 Operating expenses: Cost of products sold 51,278 52,585 Research and development 4,646 4,806 Selling, general and administrative 46,349 44,778 --------- --------- Total operating expenses 102,273 102,169 Operating income 14,529 13,133 Other income and (expense): Investment and other income - net 14 515 Interest expense (145) (79) --------- --------- Income before income taxes 14,398 13,569 Income taxes 5,687 5,359 --------- --------- Net income 8,711 8,210 Earnings retained in business at beginning of period 208,254 193,602 Less dividends: Preferred stock (65) (65) Common stock (3,463) (3,252) --------- --------- Earnings retained in business at end of period $ 213,437 198,495 ========= ========= Net Income - Class A Nonvoting Common Share Basic $ 0.38 $ 0.37 ========= ========= Diluted $ 0.38 $ 0.36 ========= ========= Net Income - Class B Voting Common Share Basic $ 0.35 $ 0.34 ========= ========= Diluted $ 0.35 $ 0.33 ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 5 BRADY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited) Three Months Ended October 31 1998 1997 -------------- ---------- Operating Activities: Net Income $ 8,711 $ 8,210 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation & Amortization 3,777 3,411 (Gain) Loss on Sale of Property, Plant & Equipment (2) 88 Provision for Losses on Accounts Receivable 230 426 Amortization of Restricted Stock 174 0 Changes in Operating Assets & Liabilities: (Increase) Decrease in Accounts Receivable (4,785) (4,749) (Increase) Decrease in Inventory 1,201 (109) (Increase) Decrease in Prepaid Expense 3,571 (134) Increase (Decrease) in Accounts Payable and Other Liabilities (6,923) (5,668) Increase (Decrease) in Income Taxes (474) (923) -------- -------- Net Cash Provided by Operating Activities 5,480 552 Investing Activities: Purchase of Business (4,214) 0 Purchases of Property, Plant and Equipment (3,324) (4,702) Proceeds from Sale of Property, Plant and Equipment - Net 20 78 Other Investments (153) 0 -------- -------- Net Cash (Used in) Investing Activities (7,671) (4,624) Financing Activities: Payment of Dividends (3,528) (3,317) Proceeds from Issuance of Common Stock 143 194 Principal Payments on Long-Term Debt (121) (141) Proceeds from Issuance of Long-Term Debt 208 263 -------- -------- Net Cash (Used in) Financing Activities (3,298) (3,001) Effect of Exchange Rate Changes on Cash 1,223 640 -------- -------- Net (Decrease) in Cash and Cash Equivalents (4,266) (6,433) Cash and Cash Equivalents at Beginning of Year 65,609 65,329 -------- -------- Cash and Cash Equivalents at End of Period $ 61,343 $ 58,896 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year For: Interest $ 253 $ 176 Income Taxes 4,559 7,050
See Notes to Condensed Consolidated Financial Statement 5 6 BRADY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended October 31, 1998 NOTE A - Basis of Presentation The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position of the Company as of October 31, 1998, and July 3l, 1998, and its results of operations and its cash flows for the three months ended October 31, 1998, and l997. The consolidated balance sheet at July 31, l998, has been taken from the audited consolidated financial statements of that date and condensed. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report. It is not practical to segregate the amounts of raw material, work in process or finished goods at the respective interim balance sheet dates. NOTE B - Net Income Per Common Share Last fiscal year the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," which established new standards for the calculation of net income per share effective for interim and annual periods ending after December 15, 1997. Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company's Class A and Class B common stock are summarized as follows:
Fiscal 1999 Fiscal 1998 ----------- ----------- 1st Quarter 1st Quarter Numerator: Net income $8,711,000 $8,210,000 Less: Preferred stock dividends (64,784) (64,784) ---------- ---------- Numerator for basic and diluted Class A earnings per share $8,646,216 $8,145,216 Less: Preferential dividends (690,541) (676,298) Preferential dividends on dilutive stock options (2,522) (9,140) ---------- ---------- Numerator for basic and diluted Class B earnings per share $7,953,153 $7,459,778 ========== ==========
6 7
Fiscal 1999 Fiscal 1998 ----------- ----------- 1st Quarter 1st Quarter Denominator: Denominator for basic earnings per share for both Class A and B 22,499,432 22,074,575 Plus: Effect of dilutive stock options 75,735 274,475 ----------- ----------- Denominator for diluted earnings per share for both Class A and B 22,575,167 22,349,050 =========== =========== Class A common stock earnings per share calculation: Basic $0.38 $0.37 Diluted $0.38 $0.36 Class B common stock earnings per share calculation: Basic $0.35 $0.34 Diluted $0.35 $0.33
Options to purchase 1,629,684 and 213,100 shares of Class A common stock were not included in the computations of diluted earnings per share for the quarters ending October 31, 1998, and 1997, respectively, because the option exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. NOTE C - Comprehensive Income Effective August 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. The adoption of this Statement had no impact on the Company's net income or stockholders' investment. Statement 130 requires the Company's foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' investment, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform with the requirements of Statement 130. Total comprehensive income, which was comprised of net income and foreign currency adjustments, amounted to approximately $12,808,000 and $9,854,000 for the three months ended October 31, 1998 and 1997, respectively. NOTE D - Restructuring During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring charge of $5,390,000 related primarily to a provision for severance costs associated with a reduction in workforce at its operations around the world. The workforce reduction of 7.5%, approximately 200 people, was essentially completed in August 1998. 7 8 A reconciliation of activity with respect to the Company's restructuring is as follows: Provision, 1998 $ 5,390,000 Noncash asset write-offs (376,000) Cash payments associated with severance (1,215,000) ----------- Ending balance, October 31, 1998 $ 3,799,000
NOTE E - Acquisition Effective August 16, 1998, the Company acquired the common stock of VEB Sistemas de Etiquetas Ltda. located in Sao Paulo, Brazil, an industrial label manufacturer, for cash of approximately $4,400,000. The purchase price of this acquisition is subject to change based on post-closing adjustments. This acquisition has been accounted for using the purchase method of accounting and accordingly the results of operations have been included since the date of acquisition in the accompanying financial statements. The pro-forma results assuming the acquisition had been consummated as of the beginning of the periods presented are not significant. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the three months ended October 31, 1998, revenues of $116,802,000 were 1.3% higher than the same quarter of the previous year. Sales of the Company's international operations increased 8.7%. Of that increase, continued market penetration in Brady's operations outside the United States increased international sales by 4.8%. The acquisitions of Techniques Avancees, GrafTek Inc. and VEB Sistemas de Etiquetas Ltda. increased international sales by 5.4%. These increases were somewhat offset by the negative effect of fluctuations in the exchange rates used to translate financial results into U.S. currency, which reduced international sales growth by 1.5 percentage points. Sales of the Company's U.S. operations decreased 4.0%, due primarily to weakness in electrical and electronics markets. The cost of products sold decreased from 45.6% to 43.9% as a percentage of sales during the first quarters of 1997 and 1998. Reduced costs due to changes in product mix, the workforce reduction and manufacturing efficiencies from the Company's continuous improvement efforts were partially offset by increased depreciation, amortization expenses from the acquisitions and by increases in inventory reserves. Selling, general and administrative expenses as a percentage of sales increased from 38.8% to 39.7% due primarily to the acquisitions and the increase in direct marketing efforts. Research and development expenditures decreased 3.3% in this year's quarter to $4,646,000, compared to $4,806,000 in last year's quarter. Operating income increased 10.6% to $14,529,000, compared to $13,133,000 in the prior year because of the factors cited above. Investment and other income decreased $501,000 over the same period last year. This decrease was the result of foreign exhange losses and lower investment income because of lower cash balances as a result of the acquisitions and lower interest rates. Income before income taxes increased 6.1% over the same period last year. The effective tax rate was 39.5% this year and last year. Net income increased 6.1% to $8,711,000, compared to $8,210,000 for the same quarter of the previous year. On a per share basis, fully diluted net income for the three months ended October 31, 1998, was $0.38 compared to $0.36 for the same quarter of the previous year. Financial Condition The Company's liquidity remains strong. The current ratio as of October 31, 1998, was 3.4 to 1. Cash and cash equivalents were $61,343,000 at October 31, 1998, compared to $65,609,000 at July 31, 1998. The decrease was primarily due to the acquisition of VEB Sistemas de Etiquetas Ltda. Working capital increased $4,274,000 during the quarter and equaled $129,660,000 as of October 31, 1998. 9 10 The Company continues to maintain significant cash balances, although about 6.5% lower than at July 31, 1998. The decrease was due primarily to the acquisition of VEB Sistemas de Etiquetas Ltda. Cash flow from operations totaled $5,480,000 for the three months ended October 31, 1998, compared to $552,000 for the same period last year primarily from the decrease in inventory, prepaid assets and accounts payable and other liabilities. Capital expenditures were $3,324,000 in the three months ended October 31, 1998, compared to $4,702,000 in last year's first quarter. These expenditures were primarily progress payments made on the Company's new coating line. Financing activities, primarily the payment of dividends to the Company's stockholders, consumed $3,298,000 of cash in the first three months of fiscal 1999, compared to $3,001,000 for the same period last year. Long-term debt as a percentage of long-term debt plus stockholders' investment was 1.5% at October 31, 1998, compared to 1.6% at July 31, 1998. The Company believes that its cash and cash equivalents and the cash flow it generates from operating activities are adequate to meet the Company's current investing and financing needs. Year 2000 Compliance The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a 2 digit year is commonly referred to as the Year 2000 Compliance issue (the "Issue"). As the year 2000 approaches, such systems may be unable to process certain date-based information. This could result in a system failure or miscalculations causing disruptions of operations and the inability to engage in normal business activities. Many of the Company's systems, including information and computer systems and automated equipment, will be affected by the Issue. The Company has a comprehensive plan to address the Issue. The plan includes (i) the complete inventory of all in-house computers, software and other equipment utilizing microprocessors and identification of all hardware and software affected by the Issue; (ii) modification of the affected systems; and (iii) testing the modified system, installing the changes and auditing the installed system for final compliance. The Company is using both internal and external resources to implement its plan. The Company has generally completed the inventory phase and is at various stages of modification and testing of these systems. The Company expects to complete the majority of its efforts in this area by early calendar 1999, leaving adequate time to assess and correct any significant issues that materialize. The Company currently estimates that the total cost of its Year 2000 project will be approximately $2,000,000. Costs associated with this issue have been and will continue to be expensed as incurred and are not expected to have a material effect on the results of operations, cash flows or financial condition of the Company. As a third-party supplier of software and printing systems to other companies, the Company has posted its own product compliance status on its Internet site (www.bradycorp.com). The Company is in the process of formally communicating with all of its significant suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 Compliance issues. The Company can not guarantee that the systems of other companies on which the Company's systems rely will be converted on time, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems would not have a material adverse effect on the Company. 10 11 The costs of the project and the timetable in which the Company plans to complete the Year 2000 requirements are based upon management's best estimates, which are derived utilizing assumptions of future events including the continued availability of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. However, there can be no guarantee that these estimates will be achieved, and actual results could differ significantly from these plans. If the Company's plan to address the Issue is not successfully or timely implemented, the Company may need to devote more resources to the process and additional costs may be incurred, which could have a material adverse effect on the Company's financial condition and results of operations. Management of the Company believes it has an effective program in place to resolve the Issue in a timely manner. Nevertheless, since it is not possible to anticipate all possible future outcomes, especially when third parties are involved, there could be circumstances in which the Company would be unable to take customer orders, manufacture and ship products, invoice customers and collect payments, or the Company could be subject to litigation for product failure. The amount of potential liability and lost revenue has not been estimated. Contingency plans will be developed in the second quarter of calendar 1999 and most of calendar 1999 has been reserved for final verification of all Year 2000 Compliance processes and rehearsal of contingency plans. Forward-Looking Statements Matters in this Quarterly Report may contain forward-looking information, as defined in the Private Securities Litigation Reform Act of 1995. All such forward-looking information in this report involves risks and uncertainties, including, but not limited to, variations in the economic or political conditions in the countries with which the Company does business; fluctuations in currency exchange rates for international currencies versus the U.S. dollar; technology changes; the continued availability of sources of supply; domestic and international economic conditions and growth rates; the ability of the Company to timely adjust its cost structure to changes in levels of sales, product mix and low levels of order backlog; the ability of the Company to acquire new businesses; risks associated with the Year 2000 Compliance issue; and other risks indicated in filings by the Company with the Securities and Exchange Commission. The Company cautions that forward-looking statements are not guarantees, since there are inherent difficulties in predicting future results, and that actual results could differ materially from those expressed or implied in forward-looking statements. 11 12 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K. The Company was not required to file and did not file a report on Form 8-K during the quarter ended October 31, 1998. 12 13 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES W. H. BRADY CO. Date: December 4, 1998 /s/ K. M. Hudson ------------------------ ----------------------------- K. M. Hudson President Date: December 4, 1998 /s/ F. Jaehnert ------------------------ ----------------------------- F. M. Jaehnert Vice President & Chief Financial Officer (Principal Accounting Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUL-31-1999 AUG-01-1998 OCT-31-1998 61,343 0 72,170 2,177 38,383 183,364 144,010 75,569 315,546 53,704 3,569 2,855 0 225 239,890 315,546 116,802 116,802 51,278 51,278 50,995 0 145 14,398 5,687 8,711 0 0 0 8,711 0.38 0.38
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