-----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, FhcfLUnyUshPwjSvL2C0OSzcwXAvLVenuCR/5iKoYx02JXXJUQsV3sG7ps57vqTo sxt1HKoT62doallkRJA0lw== 0000950124-01-504314.txt : 20020413 0000950124-01-504314.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950124-01-504314 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011031 FILED AS OF DATE: 20011213 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: 1934 Act SEC FILE NUMBER: 001-14959 FILM NUMBER: 1813030 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 c66517e10-q.txt QUARTERLY REPORT 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, 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 November 26, 2001, there were outstanding 21,211,602 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. FORM 10-Q BRADY CORPORATION INDEX Page PART I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income and Earnings Retained in the Business 4 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 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
(UNAUDITED) ASSETS OCTOBER 31, JULY 31, 2001 ------ ----------- ------------- 2001 ---- CURRENT ASSETS: Cash and cash equivalents $ 74,467 $ 62,811 Accounts receivable, less allowance for losses ($2,510 and $2,297 73,981 71,684 respectively) Inventories 38,450 39,207 Prepaid expenses and other current assets 18,887 21,291 --------- --------- TOTAL CURRENT ASSETS 205,785 194,993 OTHER ASSETS: Goodwill - net 96,338 96,041 Other 16,825 16,909 --------- --------- 113,163 112,950 PROPERTY, PLANT AND EQUIPMENT: Cost: Land 5,953 5,944 Buildings and improvements 47,812 47,611 Machinery and equipment 128,273 132,272 Construction in progress 7,331 6,474 --------- --------- 189,369 192,301 Less accumulated depreciation 106,822 107,768 --------- --------- NET PROPERTY, PLANT AND EQUIPMENT 82,547 84,533 --------- --------- TOTAL $ 401,495 $ 392,476 ========= ========= LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 20,552 $ 20,666 Wages and amounts withheld from employees 27,756 26,767 Taxes, other than income taxes 1,725 1,496 Accrued income taxes 9,728 8,460 Other current liabilities 14,648 12,364 Short-term borrowings and current maturities on long-term debt 2,059 1,410 --------- --------- TOTAL CURRENT LIABILITIES 76,468 71,163 LONG-TERM DEBT, LESS CURRENT MATURITIES 3,706 4,144 OTHER LIABILITIES 14,093 14,590 --------- --------- TOTAL LIABILITIES 94,267 89,897 STOCKHOLDERS' INVESTMENT: Preferred stock 2,855 2,855 Class A nonvoting common stock - Issued and outstanding, 21,178,366 212 211 21,149,551 shares, respectively Class B voting common stock - Issued and outstanding 1,769,314 shares 18 18 Treasury Stock - 4,548 Class A Common Shares, at cost (132) (132) Additional paid-in capital 36,589 35,806 Earnings retained in the business 280,519 276,779 Cumulative other comprehensive income (12,064) (12,016) Other (769) (942) --------- --------- TOTAL STOCKHOLDERS' INVESTMENT 307,228 302,579 --------- --------- TOTAL $ 401,495 $ 392,476 ========= =========
See Notes to Condensed Consolidated Financial Statements 3 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, 2001 2000 ---------------- ---------------- Net Sales $ 130,001 $ 146,818 Operating expenses: Cost of products sold 63,123 66,247 Research and development 4,452 5,560 Selling, general and administrative 50,758 56,599 --------- --------- Total operating expenses 118,333 128,406 Operating income 11,668 18,412 Other income and (expense): Investment and other income - net 582 192 Interest expense (16) (175) --------- --------- Income before income taxes 12,234 18,429 Income taxes 4,239 7,010 --------- --------- Net Income 7,995 11,419 Earnings retained in business at beginning of period 276,779 265,462 Less dividends: Preferred stock (65) (65) Common stock (4,190) (3,931) --------- --------- Earnings retained in business at end of period $ 280,519 $ 272,885 ========= ========= Net income per Class A Nonvoting Common Share Basic $ 0.35 $ 0.50 ========= ========= Diluted $ 0.34 $ 0.49 ========= ========= Net income per Class B Voting Common Share Basic $ 0.32 $ 0.47 ========= ========= Diluted $ 0.31 $ 0.46 ========= =========
See Notes to Condensed Consolidated Financial Statements 4 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited) Three Months Ended October 31, 2001 2000 ---------------- ---------------- Operating activities: Net income $ 7,995 $ 11,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,923 4,374 Provision for losses on accounts receivable 438 452 Amortization of restricted stock 174 174 Changes in operating assets and liabilities: Accounts receivable (2,534) (6,924) Inventory 823 950 Prepaid expenses and other assets 2,581 985 Accounts payable, accrued expenses and other liabilities 2,989 (3,951) Income taxes 1,335 3,715 -------- -------- Net cash provided by operating activities 17,724 11,194 Investing activities: Purchases of property, plant and equipment (2,116) (5,484) Proceeds from sale of property, plant and equipment 149 5 -------- -------- Net cash (used in) investing activities (1,967) (5,479) Financing activities: Payment of dividends (4,255) (3,996) Proceeds from issuance of Class A Common Stock 783 260 Principal payments on debt (27) (4,035) Proceeds from short-term borrowings - net 221 0 -------- -------- Net cash (used in) financing activities (3,278) (7,771) Effect of exchange rate changes on cash (823) (1,291) -------- -------- Net increase (decrease) in cash and cash equivalents 11,656 (3,347) Cash and cash equivalents, beginning of period 62,811 60,784 -------- -------- Cash and cash equivalents, end of period $ 74,467 $ 57,437 ======== ======== Supplemental disclosures: Cash paid during the period for: Interest $ 63 $ 131 Income taxes, net of refunds 2,698 3,125
See Notes to Condensed Consolidated Financial Statements 5 BRADY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended October 31, 2001 (Unaudited) 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, 2001 and July 3l, 2001, its results of operations for the three months ended October 31, 2001 and 2000, and its cash flows for the three months ended October 31, 2001 and 2000. The condensed consolidated balance sheet at July 31, 2001 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, the condensed consolidated financial statements do 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. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K for the year ended July 31, 2001. 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 - New Pronouncements In May 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 provides guidance on the financial reporting of shipping and handling fees and costs in the condensed consolidated statements of income. During the fourth quarter of fiscal 2001, the Company adopted EITF 00-10 and, as a result, amounts billed to a customer in a sale transaction related to shipping costs are reported as net sales and the related costs incurred for shipping are reported as cost of goods sold. The Company previously reported shipping costs as a reduction of net sales. Prior period condensed consolidated financial statements have been reclassified to conform to the new requirements. In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which eliminates the pooling method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Company has adopted this accounting standard for business combinations initiated after June 30, 2001. As of August 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the condensed consolidated balance sheet, and no longer be amortized, but tested for impairment on at least a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle. The transitional impairment test will be completed during the quarter ending January 31, 2002. 6 In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective August 1, 2001. A reconciliation of previously reported net income and net income per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:
Fiscal 2002 Fiscal 2001 ----------- ----------- 1st Quarter 1st Quarter ----------- ----------- Reported net income $ 7,995,000 $ 11,419,000 Add: Goodwill amortization, net of tax -- 1,416,000 ------------- -------------- Adjusted net income $ 7,995,000 $ 12,835,000 ============= ============== Net income per Class A Nonvoting Common Share - Basic: Reported net income $ 0.35 $ 0.50 Add: Goodwill amortization, net of tax -- 0.06 ------------- -------------- Adjusted net income $ 0.35 $ 0.56 ============= ============== Net income per Class A Nonvoting Common Share - Diluted: Reported net income $ 0.34 $ 0.49 Add: Goodwill amortization, net of tax -- 0.06 ------- ------- Adjusted net income $ 0.34 $ 0.55 ======= =======
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS No. 144 addresses the accounting for and the reporting of the impairment or disposal of long-lived assets. The impact of this pronouncement on the Company's financial results is currently being evaluated. NOTE C - Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the quarter ended October 31, 2001, are as follows:
Graphics & Workplace ISST Solutions Total Balance as of August 1, 2001 $56,740,000 $39,301,000 $96,041,000 Goodwill acquired during the period -- -- -- Translation adjustments and other 16,000 281,000 297,000 ----------- ----------- ----------- Balance as of October 31, 2001 $56,756,000 $39,582,000 $96,338,000 =========== =========== ===========
Other long-term assets include patents, trademarks, non-compete agreements and other intangibles with finite lives being amortized in accordance with SFAS No. 142. The net book value of these assets was $1,582,000 at October 31, 2001. Amortization expense related to intangible assets was not material. 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 $7,947,000 and $7,519,000 for the three months ended October 31, 2001 and 2000, respectively. 7 NOTE E - 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 2002 Fiscal 2001 ------------ ------------ 1st Quarter 1st Quarter ------------ ------------ Numerator: Net income $ 7,995,000 $ 11,419,000 Less: Preferred stock dividends (65,000) (65,000) ------------ ------------ Numerator for basic and diluted Class A net income per share 7,930,000 11,354,000 Less: Preferential dividends (705,000) (699,000) Less: Preferential dividends on dilutive stock options (10,000) (8,000) ------------ ------------ Numerator for basic and diluted Class B net income per share $ 7,215,000 $ 10,647,000 ============ ============ Denominator: Denominator for basic net income per share for both Class A and Class B 22,937,000 22,742,000 Plus: Effect of dilutive stock options 313,000 257,000 ------------ ------------ Denominator for diluted net income per share for both Class A and Class B 23,250,000 22,999,000 ============ ============ Class A Common Stock net income per share: Basic $0.35 $0.50 Diluted $0.34 $0.49 Class B Common Stock net income per share: Basic $0.32 $0.47 Diluted $0.31 $0.46
Options to purchase 75,000 and 519,000 shares of Class A Common Stock were not included in the computations of diluted net income per share for the quarters ending October 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. 8 NOTE F - Acquisitions In November 2001, the Company acquired StrandWare, Inc., located in Eau Claire, Wisconsin, a bar-code, label-design, and data-collection software developer. Also in November 2001, the Company acquired Safety Signs Service, located in Perth, Australia, a manufacturer and supplier of safety products. The combined purchase price of those acquisitions was approximately $5,000,000. These acquisitions occurred subsequent to October 31, 2001, and therefore their results have not been included in the accompanying condensed consolidated financial statements. NOTE G - Restructuring During the fourth quarter of fiscal 2001, the Company recorded a nonrecurring charge of $9,560,000 related primarily to facilities consolidation in the United States and Europe and workforce reductions in its operations around the world. The workforce reduction of approximately 175 people was essentially completed in August 2001. A reconciliation of activity with respect to the Company's restructuring is as follows: Provision, quarter ended July 31, 2001 $9,560,000 Fiscal 2001 activity Cash payments associated with severance and other (334,000) Non-cash asset write-offs (2,289,000) ---------- Ending balance, July 31, 2001 $6,937,000 Fiscal 2002 activity Cash payments associated with severance and other (1,487,000) Non-cash asset write-offs (263,000) ---------- Ending balance, October 31, 2001 $5,187,000 ==========
9 NOTE H - 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 two reportable segments: the Identification Solutions & Specialty Tapes Group, the Graphics and Workplace Solutions Group. Effective August 1, 2001, the Company's Graphics and Direct Marketing operating segments were combined to form Graphics and Workplace Solutions. The prior year segment information has been reclassified to conform to the current year presentation. Following is a summary of segment information for the three months ended October 31, 2001 and 2000:
(Dollars in Thousands) Identification Solutions & Graphics & Corporate Specialty Workplace and Tapes Solutions Eliminations Totals ----- --------- ------------ ------ Three months ended October 31, 2001: Sales from external customers $57,082 $72,919 $130,001 Intersegment sales 121 590 ($711) -- Profit 9,038 18,652 (560) 27,130 Three months ended October 31, 2000: Sales from external customers $71,524 $75,294 $146,818 Intersegment sales 604 844 ($1,448) -- Profit 17,575 20,372 (647) 37,300
Following is a reconciliation of profit for the three months ended October 31, 2001 and 2000:
(Dollars in Thousands) Fiscal 2002 Fiscal 2001 ----------- ----------- 1st Quarter 1st Quarter ----------- ----------- Total profit from reportable segments $ 27,690 $ 37,947 Corporate and eliminations (560) (647) Unallocated amounts: Administrative costs (14,303) (16,489) Goodwill amortization (1,497) Interest-net 159 201 Foreign exchange 406 (230) Other (1,158) (856) -------- -------- Income before income taxes $ 12,234 $ 18,429 ======== ========
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the three months ended October 31, 2001, sales of $130,001,000 were 11.5% lower than the same quarter of the previous year. Sales of the Company's international operations were up 3.5% for the quarter in local currencies, due to the acquisition of Balkhausen GmbH. This increase was partially 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 2.1 percentage points in the quarter. Thus, international sales in U.S. currency increased 1.4% for the quarter. Sales of the Company's U.S. operations decreased 20.3% in the quarter. The decrease in U.S. base business in the quarter was related to softness in the U.S. economy and the wireless, electronics and automatic identification industries. The cost of products sold as a percentage of sales increased from 45.1% to 48.6% for the quarter. This increase was due primarily to the effect of a fixed cost structure being spread over a lower sales volume, changes in product mix resulting from the Company's recent acquisition of Balkhausen GmbH and the effect of the exchange rate on goods purchased by foreign subsidiaries. Selling, general and administrative (SG&A) expenses as a percentage of sales were 39.0% for the quarter compared to 37.5% for the same quarter of the previous year, excluding goodwill amortization. The increase as a percentage of sales was primarily due to lower sales volume in the current year. In dollars, SG&A declined $4.3 million from the same quarter of last year due to restructuring and cost reduction efforts. Research and development expenditures decreased 19.9% for the quarter from the same period last year, reflecting more focused spending, better tracking and allocation of costs and variations in project timing. As a percentage of sales, research and development expenses decreased from 3.8% to 3.4% for the quarter. Operating income was $11,668,000 for the quarter compared to $18,412,000 for the same period last year because of the factors cited above. Excluding goodwill amortization in the prior year first quarter, operating income would have been $19,909,000. Investment and other income increased $390,000 for the quarter ended October 31, 2001, compared to the prior-year results. This increase was the result of a positive impact from foreign exchange transaction gains in the quarter. Income before income taxes decreased 38.6% for the quarter ended October 31, 2001, compared to prior-year results, excluding goodwill amortization in both periods. The Company's effective tax rate was 34.6% for the quarter compared to 35.6% for the same quarter of the previous year, excluding goodwill amortization in both years. The decrease was the result of profitability changes in the Company's international operations. Net income for the three months ended October 31, 2001, decreased 37.7% to $7,995,000 compared to $12,835,000 for the same quarter of the previous year, excluding goodwill amortization in both periods. On a Class A Common Share basis, diluted net income for the three months ended October 31, 2001, was $0.34 compared to $0.49 per share for the same quarter of the previous year or $0.55 per share excluding goodwill amortization in the prior year first quarter. The decrease in the current quarter was primarily due to the sales shortfalls discussed above partially offset by restructuring and cost reduction efforts. 11 Business Segment Operating Results Identification Solutions & Specialty Tapes (ISST) Group: ISST sales decreased 20.2% for the three months ended October 31, 2001, from the same period last year. Core business in local currency decreased 23.9% in the quarter ended October 31, 2001. The acquisition of Balkhausen GmbH increased sales over prior year 4.7% in the quarter. Contributing to the decrease was 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 1.0% in the quarter ended October 31, 2001. Latin America, Europe and the United States all showed sales declines in local currency for the quarter, while Asia Pacific sales showed a double-digit increase in the quarter. The domestic decrease related to softness in the electronic and telecommunications and industrial markets. Profit as a percentage of sales decreased from 24.6% to 15.8% for the quarter; the decrease was primarily a result of the decline in sales. Graphics & Workplace Solutions Group: Graphics & Workplace Solutions' sales decreased 3.2% for the three months ended October 31, 2001. Sales in local currency decreased 2.6% in the quarter ended October 31, 2001. Sales were negatively affected by fluctuations in the exchange rates used to translate financial results into U.S. currency, which reduced sales growth within the group by 0.6% in the quarter. Sales in local currencies for the quarter were up in Europe, Latin America and Asia Pacific and down in the United States. Profit as a percentage of sales decreased from 27.1% to 25.6% in the quarter ended October 31, 2001. The decline was primarily due to the decreased sales levels. Financial Condition The Company's liquidity remained strong. The current ratio as of October 31, 2001, was 2.7. Cash and cash equivalents were $74,467,000 at October 31, 2001, compared to $62,811,000 at July 31, 2001. The increase was primarily due to continued strong cash flow provided by operating activities, offset by investments in property, plant and equipment and payment of dividends. Working capital increased $5,487,000 during the three months ended October 31, 2001, to $129,317,000. Cash flow from operations totaled $17,724,000 for the three months ended October 31, 2001, compared to $11,194,000 for the same period last year. The improvement was primarily the result of changes in accounts receivable and current liabilities. Capital expenditures were $2,116,000 in the three months ended October 31, 2001, compared to $5,484,000 in the same period last year. Cash used in financing activities was $3,278,000 for the three-month period ended October 31, 2001, resulting primarily from payments of dividends to the Company's stockholders. Cash flows used in financing activities for the same period last year were $7,771,000 related to payment of dividends and principal payments on debt. Long-term debt as a percentage of long-term debt plus stockholders' investment was 1.2% and 1.4% at October 31, 2001 and July 31, 2001, respectively. The Company maintains a maximum $200 million line of credit with a group of six banks, none of which was being utilized as of October 31, 2001. At October 31, 2001, approximately $140 million of the line of credit was available to the Company. 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 intended 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 $23,700,000 in the project. The Company estimates that about 50% of that cash outlay will be capital expenditures. 12 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. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's business operations give rise to market risk exposure due to changes in foreign exchange rates. To manage that risk effectively, the Company enters into hedging transactions, according to established guidelines and policies, that enable it to mitigate the adverse effects of this financial market risk. The global nature of the Company's business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global scale, the Company has assets, liabilities and cash flows in currencies other than the U.S. Dollar. The primary objective of the Company's foreign-exchange risk management is to minimize the impact of currency movements on intercompany transactions and foreign raw-material imports. To achieve this objective, the Company hedges known exposures using forward contracts. Main exposures are related to transactions denominated in the British Pound, the Euro (primarily the Belgian Franc, Deutsche Mark and French Franc), Canadian Dollar, Japanese Yen and Australian Dollar. The risk of these hedging instruments is not material. 13 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, 2001. 14 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: December 10, 2001 /s/ K. M. Hudson ------------------ ---------------- K. M. Hudson President & Chief Executive Officer Date: December 10, 2001 /s/ F. M. Jaehnert ------------------ ------------------ F. M. Jaehnert Vice President & Chief Financial Officer (Principal Accounting Officer) 15 -----END PRIVACY-ENHANCED MESSAGE-----