-----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, QQ+DC0OFLU3EzYipm6q2yAdcV0Ya30f5zLrqmDqPCoIJFvOik7p+cdXYcQF+A8Mu F1pg/fQkQ6AvXUnc5PhAIQ== 0000950124-01-001313.txt : 20010316 0000950124-01-001313.hdr.sgml : 20010316 ACCESSION NUMBER: 0000950124-01-001313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010315 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: 001-14959 FILM NUMBER: 1569307 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 c60858e10-q.txt 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 January 31, 2001 ---------------- 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 March 1, 2001, there were outstanding 21,087,770 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 Condensed 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 11 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
3 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
ASSETS January 31, 2001 July 31, 2000 ------ ---------------- ------------- (Unaudited) Current assets: Cash and cash equivalents $ 46,772 $ 60,784 Accounts receivable, less allowance for losses ($3,152 and $2,919 respectively) 86,861 82,656 Inventories 45,973 41,220 Prepaid expenses and other current assets 18,586 18,523 --------- --------- Total current assets 198,192 203,183 Other assets: Goodwill - net 97,255 99,954 Other 15,321 14,337 Property, plant and equipment: Cost: Land 5,238 4,723 Buildings and improvements 47,577 43,006 Machinery and equipment 127,808 113,319 Construction in progress 5,906 15,955 --------- --------- 186,529 177,003 Less accumulated depreciation 102,231 96,343 --------- --------- Net property, plant and equipment 84,298 80,660 --------- --------- Total $ 395,066 $ 398,134 ========= ========= LIABILITIES AND STOCKHOLDERS' INVESTMENT ---------------------------------------- Current liabilities: Accounts payable $ 27,295 $ 26,070 Wages and amounts withheld from employees 21,150 27,857 Taxes, other than income taxes 2,450 2,585 Accrued income taxes 7,183 10,245 Other current liabilities 11,902 12,212 Short-term borrowings and current maturities on long-term debt 112 8,130 --------- --------- Total current liabilities 70,092 87,099 Long-term debt, less current maturities 4,433 4,157 Other liabilities 15,831 15,654 --------- --------- Total liabilities 90,356 106,910 Stockholders' investment: Preferred stock 2,855 2,855 Class A nonvoting common stock - issued 21,071,004 210 209 and 20,966,315 shares, respectively Class B voting common stock - issued 1,769,314 shares 18 18 Additional paid-in capital 33,837 31,586 Earnings retained in the business 277,436 265,462 Treasury stock - 4,548 shares of Class A nonvoting common stock, at cost (132) (132) Cumulative other comprehensive income (8,225) (7,137) Other (1,289) (1,637) --------- --------- Total stockholders' investment 304,710 291,224 --------- --------- Total $ 395,066 $ 398,134 ========= =========
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 Six Months Ended January 31 January 31 2001 2000 2001 2000 ----------- ------------ ------------- ------------ Net sales $ 133,673 $ 129,222 $ 278,090 $ 254,771 Operating expenses: Cost of products sold 61,818 56,511 125,664 110,844 Research and development 5,591 5,297 11,151 9,347 Selling, general and administrative 52,208 52,035 108,807 99,423 ----------- ------------ ------------- ------------ Total operating expenses 119,617 113,843 245,622 219,614 Operating income 14,056 15,379 32,468 35,157 Other income and (expense): Investment and other income - net (152) 556 40 1,058 Interest expense (9) (38) (184) (119) ----------- ------------ ------------- ------------ Income before income taxes 13,895 15,897 32,324 36,096 Income taxes 5,273 6,065 12,283 13,897 -------------------------- ---------------------------- Net income 8,622 9,832 20,041 22,199 Earnings retained in business at beginning of period 272,885 242,126 265,462 233,521 Less dividends: Preferred Stock (65) (65) (130) (130) Common Stock (4,006) (3,767) (7,937) (7,464) ----------- ------------ ------------- ------------ Earnings retained in business at end of period $ 277,436 $ 248,126 $ 277,436 $ 248,126 =========== ============ ============= ============ Net income per Class A Nonvoting Common Share Basic $ 0.38 $ 0.43 $ 0.87 $ 0.97 =========== ============ ============= ============ Diluted $ 0.37 $ 0.43 $ 0.86 $ 0.96 =========== ============ ============= ============ Net income per Class B Voting Common Share Basic $ 0.38 $ 0.43 $ 0.84 $ 0.94 =========== ============ ============= ============ Diluted $ 0.37 $ 0.43 $ 0.83 $ 0.93 =========== ============ ============= ============
See Notes to Condensed Consolidated Financial Statements. 4 5 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited) Six Months Ended January 31 2001 2000 ------------- ------------ Operating activities: Net income $ 20,041 $ 22,199 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,571 6,107 Amortization 3,411 2,560 Loss on sale of property, plant & equipment 167 29 Provision for losses on accounts receivable 798 951 Amortization of restricted stock 347 347 Changes in operating assets & liabilities (net of effects of business acquisitions): Accounts receivable (5,673) (9,548) Inventory (5,163) 450 Prepaid expenses and other assets (87) (6,378) Accounts payable, accrued expenses and other liabilities (4,323) (2,616) Income taxes (3,086) (4,199) -------- -------- Net cash provided by operating activities 14,003 9,902 Investing activities: Acquisitions of businesses, net of cash acquired 0 (4,949) Purchases of property, plant and equipment (12,341) (5,839) Proceeds from sale of property, plant and equipment 42 102 Other (13) 16 -------- -------- Net cash (used in) investing activities (12,312) (10,670) Financing activities: Payment of dividends (8,067) (7,594) Proceeds from issuance of Common Stock 2,252 1,577 Principal payments on debt (8,071) (2,958) Other (1,223) 0 -------- -------- Net cash (used in) financing activities (15,109) (8,975) Effect of exchange rate changes on cash (594) 1,078 -------- -------- Net (decrease) in cash and cash equivalents (14,012) (8,665) Cash and cash equivalents, beginning of period 60,784 75,466 -------- -------- Cash and cash equivalents, end of period $ 46,772 $ 66,801 ======== ======== Supplemental disclosures: Cash paid during the period for: Interest $ 270 $ 311 Income taxes, net of refunds 14,187 15,609 Acquisitions: Fair value of asset acquired, net of cash 1,300 Liabilities assumed (561) Goodwill 4,210 -------- -------- Net cash paid for acquisitions $ 0 $ 4,949 ======== ========
See Notes to Condensed Consolidated Financial Statements. 5 6 BRADY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three and Six Months Ended January 31, 2001 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 January 31, 2001, and July 3l, 2000, and its results of operations for the three months and six months ended January 31, 2001, and 2000 and its cash flows for the six months ended January 31, 2001, and 2000. The condensed consolidated balance sheet at July 31, 2000, has been derived 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 accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, this does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. In the opinion of management, such unaudited interim information reflects all adjustments, consisting only of a normal recurring nature, necessary to present the financial position, results of operations, and cash flows for the periods presented. 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. Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE B - New Pronouncement Effective August 1, 2000, the Company adopted Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The cumulative effect of adopting FAS 133 on August 1, 2000, was not material to the Company's financial statements. The Company is exposed to market risk, such as changes in interest rates and currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes. Interest Rate Hedging - Brady could be exposed to interest rate risk through its corporate borrowing activities. The objective of Brady's interest rate risk management activities is to manage the levels of the Company's fixed and floating interest rate exposure to be consistent with Brady's preferred mix. The interest rate risk management program consists of entering into approved interest rate derivatives when there is a desire to modify Brady's exposure to interest rates. As of January 31, 2001, the Company has not entered into any interest rate derivatives. 6 7 Currency Rate Hedging - The primary objectives of the foreign exchange risk management activities are to understand and mitigate the impact of potential foreign exchange fluctuations on the Company's financial results and its economic well-being. While the Company's risk management objectives and strategies will be driven from an economic perspective, the Company will attempt where possible and practical to ensure that the hedging strategies it engages in can be treated as "hedges" from an accounting perspective or otherwise result in accounting treatment where the earnings effect of the hedging instrument provides substantial offset (in the same period) to the earnings effect of the hedged item. Generally, these risk management transactions will involve the use of foreign currency derivatives to protect against exposure resulting from intercompany sales and identified inventory or other asset purchases. The Company primarily utilizes forward exchange contracts with maturities of less than 12 months, which qualify as cash flow hedges. These are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and intercompany charges. The fair value of these instruments at January 31, 2001, was a $353,000 asset. Gains and losses on these instruments are deferred in other comprehensive income (OCI) until the underlying transaction is recognized in earnings. The impact is reported in investment and other income on the income statement to match the underlying transaction being hedged. Hedging activity for cash flow hedges, currently fair valued at $313,000 of after-tax gain, is expected to be reclassified to earnings within the next 12 months. Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Any ineffective portions are to be recognized in earnings immediately. The Company's existing cash flow hedges are considered to be 100% effective. As a result, there is no current impact to earnings due to hedge ineffectiveness. No cash flow hedges were discontinued during the six-month period ended January 31, 2001. NOTE C - Net Income Per Common Share 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 2001 Fiscal 2000 ----------- ----------- 2nd Quarter 6-Month 2nd Quarter 6-Month ----------- ------- ------------ ------- Numerator: - ---------- Net income $8,622,000 $20,041,000 $9,832,000 $22,199,000 Less: Preferred stock dividends (64,784) (129,567) (64,784) (129,567) -------- --------- -------- --------- Numerator for basic and diluted Class A earnings per share 8,557,216 19,911,433 9,767,216 22,069,433 Less: Preferential dividends -- (698,631) -- (694,492) Less: Preferential dividends on dilutive stock options -- (8,555) -- (10,410) -- ------- -- -------- Numerator for basic and diluted Class B earnings per share $8,557,216 $19,204,247 $9,767,216 $21,364,531 ========== =========== ========== ===========
7 8
Fiscal 2001 Fiscal 2000 ----------- ----------- 2nd Quarter 6-Month 2nd Quarter 6-Month ----------- ------- ----------- ------- Denominator: - ------------ Denominator for basic earnings per share for both Class A and Class B 22,788,168 22,765,253 22,660,321 22,663,973 Plus: Effect of dilutive stock options 314,316 278,392 269,034 287,962 ------- ------- ------- ------- Denominator for diluted earnings per share for both Class A and Class B 23,102,484 23,043,645 22,929,355 22,951,935 ========== ========== ========== ========== Class A Common Stock earnings per share: Basic $0.38 $0.87 $0.43 $0.97 Diluted $0.37 $0.86 $0.43 $0.96 Class B Common Stock earnings per share: Basic $0.38 $0.84 $0.43 $0.94 Diluted $0.37 $0.83 $0.43 $0.93
Options to purchase 75,450 and 526,000 shares of Class A Common Stock were not included in the computations of diluted earnings per share for the quarters ending January 31, 2001, and 2000, respectively, because the option exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 81,450 and 254,167 shares of Class A Common Stock were not included in the computations of diluted earnings per share for the six months ending January 31, 2001, and 2000, 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 D - Comprehensive Income Total comprehensive income, which was comprised of net income, foreign currency adjustments and net unrealized gains and losses from cash flow hedges, amounted to approximately $11,434,000 and $7,922,000 for the three months ended January 31, 2001, and 2000, respectively, and $18,953,000 and $20,840,000 for the six months ended January 31, 2001 and 2000, respectively. NOTE E - Segment Information The Company's reportable segments are business units that are each managed separately because they manufacture and/or distribute distinct products using different processes. The Company has three reportable segments: the Identification Solutions & Specialty Tapes Group, the Graphics Group and the Direct Marketing Group. The Company's internal measure of profit or loss changed in Fiscal 2001 to support the move to a global process organization. This change excludes administrative line expenses from the segments' measure of profit or loss. The prior year has been restated to reflect this change. 8 9 Following is a summary of segment information for the three months ended January 31, 2001, and 2000:
(Dollars in Thousands) Identification Solutions & Corporate Specialty Direct and Tapes Graphics Marketing Eliminations Totals ----- -------- --------- ------------ ------ Three months ended January 31, 2001: - ------------------------------------ Revenues from external customers $65,339 $28,730 $39,604 $133,673 Intersegment revenues 1,147 760 299 ($2,206) -- Profit (loss) 14,054 5,505 11,199 (214) 30,544 Three months ended January 31, 2000: - ------------------------------------ Revenues from external customers $58,752 $29,310 $41,160 $129,222 Intersegment revenues 515 828 199 ($1,542) -- Profit (loss) 16,436 5,279 10,746 (1,218) 31,243
Following is a summary of segment information for the six months ended January 31, 2001, and 2000:
(Dollars in Thousands) Identification Solutions & Corporate Specialty Direct and Tapes Graphics Marketing Eliminations Totals ----- -------- --------- ------------ ------ Six months ended January 31, 2001: - ---------------------------------- Revenues from external customers $135,271 $62,115 $80,704 $278,090 Intersegment revenues 2,109 2,081 557 ($4,747) -- Profit (loss) 31,515 14,935 22,970 (861) 68,559 Six months ended January 31, 2000: - ---------------------------------- Revenues from external customers $113,182 $61,182 $80,407 $254,771 Intersegment revenues 1,159 1,450 493 ($3,102) -- Profit (loss) 31,298 14,271 21,497 (1,922) 65,144
9 10 Following is a reconciliation of profit for the three and six months ended January 31, 2001, and 2000:
(Dollars in Thousands) Fiscal 2001 Fiscal 2000 ----------- ----------- 2nd Quarter 6-Month 2nd Quarter 6-Month ------------ ------- ----------- ------- Total profit from reportable segments $30,758 $69,420 $32,461 $67,066 Corporate and eliminations (214) (861) (1,218) (1,922) Unallocated amounts: Administrative costs (14,482) (31,686) (13,821) (25,883) Goodwill (1,576) (3,073) (1,289) (2,509) Interest-net 385 586 560 1,102 Foreign exchange (593) (823) (61) (200) Other (383) (1,239) (735) (1,558) ----- ------- ----- ------- Income before income taxes $13,895 $32,324 $15,897 $36,096 ======= ======= ======= =======
10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the three months ended January 31, 2001, revenues of $133,673,000 were 3.4% higher than the same quarter of the previous year. For the six months ended January 31, 2001, revenues of $278,090,000 were 9.2% higher than the same period last year. Sales of the Company's international operations increased 9.7% for the quarter and 13.1% for the six-month period in local currencies, which is attributable to continued market penetration of existing base products. This increase was significantly 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 10.6 percentage points in the quarter and 11.4 percentage points in the six-month period. Thus, international sales in U.S. currency decreased 0.9% for the quarter and increased 1.7% for the six-month period. Sales of the Company's U.S. operations increased 7.3% in the quarter and 15.5% for the six months ended January 31, 2001. Of that increase, base business decreased 2.4% in the quarter and increased 4.2% for the six-month period. The acquisitions of Data Recognition, Inc. and Imtec, Inc. increased U.S. sales by 9.7% in the quarter and along with the acquisition of the Champion America, Inc. brand name increased U.S. sales by 11.3% in the six-month period. The decrease in U.S. base business in the quarter was related to softness in the U.S. economy and wireless, electronics and automatic identification industries. The cost of products sold as a percentage of sales increased from 43.7% to 46.2% for the quarter and from 43.5% to 45.2% for the six months ended January 31, 2001. This increase was due primarily to changes in product mix resulting from some of the Company's recent acquisitions; higher utility costs; and the exchange rate on goods purchased by foreign subsidiaries. Selling, general and administrative (SG&A) expenses as a percentage of sales were 39.1% for the quarter compared to 40.3% for the same quarter of the previous year. For the six months ended January 31, 2001, this percentage was 39.1% compared to 39.0% for the same period last year. The decrease in the quarter was primarily due to some of the Company's recent acquisitions having lower SG&A costs as a percentage of sales, as well as lower accruals for management bonuses. Research and development expenditures increased 5.6% for the quarter and 19.3% for the six months ended January 31, 2001, over the same periods last year, reflecting the Company's commitment to new product development. As a percentage of sales, research and development expenses increased from 4.1% to 4.2% for the quarter and from 3.7% to 4.0% for the six-month period. Operating income was $14,056,000 for the quarter and $32,468,000 for the six months ended January 31, 2001, compared to $15,379,000 and $35,157,000 for the same periods last year because of the factors cited above. Investment and other income decreased $708,000 for the quarter and $1,018,000 for the six months ended January 31, 2001, compared to the prior-year results. These decreases were the result of higher foreign exchange transaction losses and lower investment income due to lower cash balances resulting from acquisitions made during the prior year. Income before income taxes decreased 12.6% for the quarter and 10.4% for the six months ended January 31, 2001, compared to the prior-year results. The Company's effective tax rate was 37.9% for the quarter compared to 38.2% for the same quarter of the previous year. For the six months ended January 31, 2001, this percentage was 38.0% compared to 38.5% for the same period last year. These decreases were the result of profitability changes in the Company's international operations. 11 12 Net income for the three months ended January 31, 2001, decreased 12.3% to $8,622,000 compared to $9,832,000 for the same quarter of the previous year. For the six months ended January 31, 2001, net income decreased 9.7% to $20,041,000 from $22,199,000 for the same period last year. On a Class A Common Share basis, diluted net income for the three months ended January 31, 2001, was $0.37 compared to $0.43 per share for the same quarter of the previous year. For the six months ended January 31, 2001, Class A Common Share diluted net income was $0.86 compared to $0.96 per share for the same period last year. The decreases in the current quarter and six-month period were primarily due to the sales shortfalls discussed above, a strong U.S. dollar, higher utility costs, and increased investments in electronic commerce and process improvement. The Company's incremental investment in process improvement and electronic business in the six-month period represented approximately $0.08 per share. Business Segment Operating Results Identification Solutions & Specialty Tapes (ISST) Group: ISST sales increased 11.2% for the three months ended January 31, 2001. For the six months ended January 31, 2001, ISST sales were 19.5% higher than the same period last year. Core business in local currency increased 4.0% in the quarter and 10.7% for the six-month period ended January 31, 2001. The acquisitions of Data Recognition, Inc. and Imtec, Inc. also contributed, increasing sales over prior year 11.4% in the quarter and 13.2% for the six-month period. These increases were partially offset by the negative effect of fluctuations in the exchange rates used to translate financial results into U.S. currency, which reduced sales growth within the group by 4.2% in the quarter and 4.4% in the six-month period ended January 31, 2001. Latin America, Asia Pacific and Europe all showed double-digit growth in local currency for the quarter; however this was offset by a decline in domestic business. The domestic decrease related to softness in the wireless and automatic identification markets. Profit as a percentage of sales decreased from 28.0% to 21.5% for the quarter and from 27.7% to 23.3% for the six months ended January 31, 2001. The decreases were primarily a result of negative effects of foreign currency, increased utility costs and lower than expected sales. The negative effect of foreign currency decreased quarterly group profit by approximately 5 percentage points. Graphics Group: Graphics sales decreased 2.0% for the three months ended January 31, 2001. For the six months ended January 31, 2001, Graphics sales were 1.5% higher than the same period last year. Base sales in local currency increased 1.6% in the quarter and 5.1% for the six-month period ended January 31, 2001. These increases were significantly offset by the negative effect of fluctuations in the exchange rates used to translate financial results into U.S. currency, which reduced sales growth within the group by 3.6% in both the quarter and the six-month period. Sales for the quarter were flat in North America, up 16.0% in Asia Pacific and down 12.4% in Europe. Profit as a percentage of sales increased from 18.0% to 19.2% in the quarter and from 23.3% to 24.0% for the six months ended January 31, 2001. These increases were primarily the result of cost-control measures and the timing of research and development costs in relation to the prior year. 12 13 Direct Marketing Group: Direct Marketing sales decreased 3.8% for the quarter and increased 0.4% for the six-month period ended January 31, 2001, in comparison to the prior year. Core business in local currency increased 3.3% in the three months ended January 31, 2001, and 7.2% for the six-month period. The acquisition of the Champion America Inc. brand name also contributed, increasing sales 0.8% for the six-month period ended January 31, 2001. The Direct Marketing Group was particularly impacted by the negative effect of fluctuations in the exchange rates used to translate financial results into U.S. currency, which reduced sales growth within the group by 7.1% in the quarter and 7.6% in the six-month period. Sales for the quarter were flat in the United States and Canada. In local currency, Europe grew at single digit rates while Australia and Brazil grew at double digit rates. Profit as a percentage of sales increased from 26.1% to 28.3% in the quarter and from 26.7% to 28.5% for the six months ended January 31, 2001. These improvements were primarily due to continued productivity improvement in selling and marketing expenses and refinements in mailing plan techniques. Financial Condition The Company's liquidity remained strong. The current ratio as of January 31, 2001, was 2.8. Cash and cash equivalents were $46,772,000 at January 31, 2001, compared to $60,784,000 at July 31, 2000. The decrease was primarily due to payments of $8,000,000 on the Company's revolving loan agreement. Working capital increased $12,016,000 during the six months ended January 31, 2001, to $128,100,000. Cash flow from operations totaled $14,003,000 for the six months ended January 31, 2001, compared to $9,902,000 for the same period last year. The improvement was primarily the result of a decrease in prepaid expenses. Capital expenditures were $12,341,000 in the six months ended January 31, 2001, compared to $5,839,000 in the same period last year. The increase over prior year was primarily a result of investments in new technology to support process improvements. Cash used in financing activities was $15,109,000 for the six-month period ended January 31, 2001, resulting from payments of dividends to the Company's stockholders and principal payments on bank debt. Cash flows used in financing activities for the same period last year were $8,975,000. Long-term debt as a percentage of long-term debt plus stockholders' investment was 1.4% at January 31, 2001, unchanged from July 31, 2000. The Company maintains a $200,000,000 line of credit with a group of six banks none of which is being utilized as of January 31, 2001. During the second quarter of fiscal 2000, Brady began a Company-wide process-improvement initiative, known as Eclipse - Earning Customer Loyalty through Integrated Processes and Systems Everywhere. This initiative is expected to improve and standardize processes throughout the Company and install new technology to support those processes. The Company estimates this initiative will take approximately three years to complete with total cash outlay of approximately $30,000,000. To date, the Company has invested approximately $18,700,000 in the project. The Company estimates that about 60% of that cash outlay will be capital expenditures. The Company believes that its cash and cash equivalents, the cash flow from operating activities and available line of bank credit are adequate to meet the Company's current and anticipated investing and financing needs. 13 14 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; and the ability of the Company to acquire new businesses. 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. 14 15 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 January 31, 2001. 15 16 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 BRADY CORPORATION Date: March 12, 2001 /s/ K. M. Hudson -------------- ---------------- K. M. Hudson President Date: March 12, 2001 /s/ F. M. Jaehnert -------------- ------------------ F. M. Jaehnert Vice President & Chief Financial Officer (Principal Accounting Officer) 16 -----END PRIVACY-ENHANCED MESSAGE-----