-----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, JbPBhkU8JGvxqZNnqyWHU70zmq0r1ot+exTY7GKoeozsM9D7JTobhuMfLdgmxS8A Y8gred9QsxsZGf/Y1YZiDA== 0000950137-05-014721.txt : 20051208 0000950137-05-014721.hdr.sgml : 20051208 20051208171802 ACCESSION NUMBER: 0000950137-05-014721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20051208 DATE AS OF CHANGE: 20051208 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: 051253382 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 c00577e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended October 31, 2005 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 1-14959 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] 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, 2005, there were outstanding 45,642,813 shares of Class A Common Stock and 3,538,628 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. 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 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 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 PART II. Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22 Item 6. Exhibits 22
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) (UNAUDITED) -------------------------------- OCTOBER 31, 2005 JULY 31, 2005 ---------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 53,128 $ 72,970 Short term investments -- 7,100 Accounts receivable, less allowance for losses ($3,875 and $3,726, respectively) 136,490 123,453 Inventories: Finished products 42,743 38,827 Work-in-process 11,487 9,681 Raw materials and supplies 27,254 22,227 -------- -------- Total inventories 81,484 70,735 Prepaid expenses and other current assets 28,014 28,114 -------- -------- TOTAL CURRENT ASSETS 299,116 302,372 OTHER ASSETS: Goodwill 345,244 332,369 Other intangible assets 74,328 71,647 Deferred Income Taxes 38,585 39,043 Other 7,459 6,305 -------- -------- TOTAL OTHER ASSETS 465,616 449,364 PROPERTY, PLANT AND EQUIPMENT: Cost: Land 6,494 6,388 Buildings and improvements 65,589 65,007 Machinery and equipment 161,115 157,093 Construction in progress 12,493 6,510 -------- -------- 245,691 234,998 Less accumulated depreciation 142,085 136,587 -------- -------- NET PROPERTY, PLANT AND EQUIPMENT 103,606 98,411 -------- -------- TOTAL $868,338 $850,147 ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 50,546 $ 52,696 Wages and amounts withheld from employees 29,408 49,620 Taxes, other than income taxes 6,401 4,815 Accrued income taxes 30,392 24,028 Other current liabilities 34,071 29,649 Short-term borrowings and current maturities on long-term debt -- 4 -------- -------- TOTAL CURRENT LIABILITIES 150,818 160,812 LONG-TERM DEBT, LESS CURRENT MATURITIES 161,023 150,026 OTHER LIABILITIES 44,706 42,035 -------- -------- TOTAL LIABILITIES 356,547 352,873 STOCKHOLDERS' INVESTMENT: Class A nonvoting common stock - Issued 45,881,743 and 45,877,543 shares, respectively and outstanding 45,519,065 and 45,792,199 shares, respectively 459 458 Class B voting common stock - Issued and outstanding 3,538,628 shares 35 35 Additional paid-in capital 100,048 99,029 Income retained in the business 406,739 382,880 Treasury stock - 362,678 and 85,344 shares, respectively of Class A nonvoting common stock, at cost (10,025) (1,575) Accumulated other comprehensive income 16,273 17,497 Other (1,738) (1,050) -------- -------- TOTAL STOCKHOLDERS' INVESTMENT 511,791 497,274 -------- -------- TOTAL $868,338 $850,147 ======== ========
See Notes to Condensed Consolidated Financial Statements 3 BRADY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts)
(Unaudited) Three Months Ended October 31, -------------------------------- Percentage 2005 2004 Change -------- -------- ---------- Net sales $232,635 $200,419 16.1% Cost of products sold 108,644 94,894 14.5% -------- -------- Gross margin 123,991 105,525 17.5% Operating expenses: Research and development 6,534 5,704 14.6% Selling, general and administrative 73,328 68,028 7.8% -------- -------- Total operating expenses 79,862 73,732 8.3% Operating income 44,129 31,793 38.8% Other income and (expense): Investment and other income - net 392 283 38.5% Interest expense (1,989) (2,139) -7.0% -------- -------- Income before income taxes 42,532 29,937 42.1% Income taxes 12,334 9,580 28.7% -------- -------- Net income $ 30,198 $ 20,357 48.3% ======== ======== Per Class A Nonvoting Common Share(1): Basic net income $ 0.61 $ 0.42 45.2% Diluted net income $ 0.60 $ 0.41 46.3% Dividends $ 0.13 $ 0.11 18.2% Per Class B Voting Common Share(1): Basic net income $ 0.60 $ 0.40 50.0% Diluted net income $ 0.59 $ 0.40 47.5% Dividends $ 0.11 $ 0.09 22.2% Weighted average common shares outstanding (In Thousands)(1): Basic 49,250 48,475 Diluted 50,206 49,158
(1) Adjusted 2004 for two-for-one stock split in the form of a 100% dividend, effective December 31, 2004. 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, ------------------- 2005 2004 -------- -------- Operating activities: Net income $ 30,198 $ 20,357 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,360 6,775 Income tax benefit from the exercise of stock options -- 2,184 Deferred income taxes 187 (68) Loss on sale or disposal of property, plant & equipment 33 158 Provision for losses on accounts receivable 366 381 Non-cash portion of stock-based compensation expense 924 1,193 Changes in operating assets and liabilities (net of effects of business acquisitions): Accounts receivable (10,391) (5,151) Inventories (8,613) (3,536) Prepaid expenses and other assets 468 2,644 Accounts payable and accrued expenses (20,465) (16,725) Income taxes 5,999 7,111 Other liabilities 1,990 1,001 -------- -------- Net cash provided by operating activities 8,056 16,324 Investing activities: Acquisition of businesses, net of cash acquired (20,217) (34,394) Purchases of short-term investments (3,800) (8,700) Sales of short-term investments 10,900 7,100 Purchases of property, plant and equipment (8,537) (2,819) Proceeds from sale of property, plant and equipment 21 298 Other (1,126) (407) -------- -------- Net cash used in investing activities (22,759) (38,922) Financing activities: Payment of dividends (5,938) (5,178) Proceeds from issuance of common stock 374 5,643 Principal payments on debt (885) (30) Net proceeds from revolving loan agreement 11,000 -- Purchase of treasury stock (9,416) -- -------- -------- Net cash (used in) provided by financing activities (4,865) 435 Effect of exchange rate changes on cash (274) 141 -------- -------- Net decrease in cash and cash equivalents (19,842) (22,022) Cash and cash equivalents, beginning of period 72,970 68,788 -------- -------- Cash and cash equivalents, end of period $ 53,128 $ 46,766 ======== ======== Supplemental disclosures: Cash paid during the period for: Interest, net of capitalized interest $ (43) $ 78 Income taxes, net of refunds 4,956 489 Acquisitions: Fair value of assets acquired, net of cash $ 12,300 $ 30,337 Liabilities assumed (6,390) (17,019) Goodwill 14,307 21,076 -------- -------- Net cash paid for acquisitions $ 20,217 $ 34,394 ======== ========
See Notes to Condensed Consolidated Financial Statements. 5 BRADY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended October 31, 2005 (Unaudited) NOTE A - Basis of Presentation The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the "Company" or "Brady") 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 adjustments, necessary to present fairly the financial position of the Company as of October 31, 2005 and July 3l, 2005, and its results of operations and cash flows for the three months ended October 31, 2005 and 2004. The condensed consolidated balance sheet as of July 31, 2005 has been derived from the audited consolidated financial statements of that date and condensed. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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 GAAP 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, 2005. Reclassifications - Certain prior period amounts have been reclassified to conform with the current period presentation. NOTE B - Goodwill and Intangible Assets Changes in the carrying amount of goodwill for the quarter ended October 31, 2005, are as follows (in thousands):
Americas Europe Asia Total -------- ------- ------- -------- Balance as of July 31, 2005 $226,843 $73,544 $31,982 $332,369 Goodwill acquired during the period 6,090 5,561 2,656 14,307 Translation adjustments and other 257 (530) (1,159) (1,432) -------- ------- ------- -------- Balance as of October 31, 2005 $233,190 $78,575 $33,479 $345,244 ======== ======= ======= ========
Goodwill increased by $12,875,000 during the three months ended October 31, 2005, net of a decrease of $1,432,000 attributable to translation adjustments, and without adjustment to the preliminary allocation of the purchase price of Technology Print Supplies Ltd. and its associate, Technology Supply Media Co., Ltd. in Thailand, which was acquired on July 29, 2005. The increase in goodwill of $14,307,000 for the three months ended October 31, 2005 was due to the preliminary allocation of the purchase price for the acquisitions of STOPware, Inc. and TruMed Technologies Inc. in the United States, Texit Danmark AS and Texit Norge AS in Europe, and QDP Thailand Co. Ltd. in Asia. 6 Other intangible assets include patents, trademarks, non-compete agreements and other intangible assets with finite lives being amortized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." The net book value of these assets was as follows:
OCTOBER 31, 2005 JULY 31, 2005 -------------------------------------------------- -------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE AMORTIZATION GROSS AMORTIZATION GROSS PERIOD CARRYING ACCUMULATED NET BOOK PERIOD CARRYING ACCUMULATED NET BOOK (YEARS) AMOUNT AMORTIZATION VALUE (YEARS) AMOUNT AMORTIZATION VALUE ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Amortized other intangible assets: Patents .............. 16 $ 6,915,000 $ (4,675,000) $ 2,240,000 16 $ 6,830,000 $ (4,525,000) $ 2,305,000 Trademarks and other ............. 10 1,526,000 (1,202,000) 324,000 10 1,370,000 (1,134,000) 236,000 Customer relationships ..... 8 54,517,000 (8,996,000) 45,521,000 8 51,211,000 (7,244,000) 43,967,000 Purchased software ... 4 3,524,000 (1,499,000) 2,025,000 5 3,148,000 (1,353,000) 1,795,000 Non-compete agreements ........ 4 7,109,000 (3,500,000) 3,609,000 4 6,216,000 (3,212,000) 3,004,000 Unamortized other intangible assets: Trademarks ........... N/A 20,609,000 -- 20,609,000 N/A 20,340,000 -- 20,340,000 ----------- ------------ ----------- ----------- ------------ ----------- Total ................... $94,200,000 $(19,872,000) $74,328,000 $89,115,000 $(17,468,000) $71,647,000 =========== ============ =========== =========== ============ ===========
The increase in customer relationships in the quarter ended October 31, 2005, relates primarily to the acquisitions of STOPware, Inc., TruMed Technologies, Inc., Texit Danmark AS and Texit Norge AS. The increase in non-compete agreements for the same period is due primarily to the acquisitions of TruMed Technologies, Inc., Texit Danmark AS and Texit Norge AS. The value of these intangible assets in the Condensed Consolidated Financial Statements at October 31, 2005 differs from the value assigned to them in the preliminary allocation of purchase price due to the effect of fluctuations in the exchange rates used to translate financial results into the United States Dollar subsequent to the date of acquisition. Amortization expense of intangible assets during the year ended July 31, 2005 was $7,935,000. The amortization over each of the next five fiscal years is projected to be $9,948,000, $9,504,000, $8,981,000, $8,429,000 and $7,637,000 for the years ending July 31, 2006, 2007, 2008, 2009 and 2010, respectively. NOTE C - 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 $28,974,000 and $24,445,000 for the three months ended October 31, 2005 and 2004, respectively. 7 NOTE D - 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:
Three Months Ended October 31, ------------------------------ 2005 2004 (1) ------- -------- (Dollars in thousands, except per share amounts) Numerator: Net income $30,198 $20,357 Numerator for basic and diluted Class A net income per share 30,198 20,357 Less: Preferential dividends (758) (751) Less: Preferential dividends on dilutive stock options (16) (13) ------- ------- Numerator for basic and diluted Class B net income per share $29,424 $19,593 ======= ======= Denominator: Denominator for basic net income per share for both Class A and Class B 49,250 48,475 Plus: Effect of dilutive stock options 956 683 ------- ------- Denominator for diluted net income per share for both Class A and Class B 50,206 49,158 ======= ======= Class A Non Voting Common Stock net income per share: Basic $ 0.61 $ 0.42 Diluted $ 0.60 $ 0.41 Class B Voting Common Stock net income per share: Basic $ 0.60 $ 0.40 Diluted $ 0.59 $ 0.40
(1) 2004 share numbers have been adjusted for two-for-one stock split in the form of a 100% dividend, effective December 31, 2004. Options to purchase 361,000 shares of Class A Common Stock were not included in the computation of diluted net income per share for the quarter ended October 31, 2005 because the option exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. NOTE E - Acquisitions During the three months ended October 31, 2005, the Company acquired STOPware, Inc. (August 2005), Texit Danmark AS and Texit Norge AS (September 2005), TruMed Technologies Inc. (October 2005), and QDP Thailand Co., Ltd. ("QDPT") (October 2005) for a total combined purchase price, net of cash purchased, of $20,217,000 in cash. 8 A brief description of each company acquired during the quarter ended October 31, 2005 is included below: - STOPware, Inc. is located in San Jose, California and is the market leader in visitor-badging and lobby-security software used to identify and track visitors. The results of its operations have been included since the respective date of acquisition in the accompanying condensed consolidated financial statements. - Texit AS is a wire-marker manufacturer headquartered in Odense, Denmark, with operations in Alesund, Norway. The results of its operations have been included since the respective date of acquisition in the accompanying condensed consolidated financial statements. - TruMed Technologies, Inc. is a converter of disposable products and components for manufacturers in the medical device, diagnostic, personal care and industrial markets and is located in Burnsville, Minnesota. The results of its operations have been included since the respective date of acquisition in the accompanying condensed consolidated financial statements. - QDPT. is located in Wangnoi, Ayutthaya, Thailand and designs and manufactures high-precision components for the electronic, medical and automotive industries, specializing in precision laminating, stamping and contract assembly. The results of its operations were not significant for the quarter ended October 31, 2005, as the company was acquired on October 27, 2005. The allocation of the purchase price of each company acquired during the quarter ended October 31, 2005, is preliminary pending the final valuation of intangible assets. The combined purchase price resulted in the preliminary allocation to intangible assets in the accompanying condensed consolidated balance sheets as follows:
As of October 31, 2005 ---------------- Goodwill $14,307,000 Customer relationships 3,550,000 Non-compete agreements 591,000 Purchased software 378,000 Trade names 229,000 Other 176,000 ----------- Total $19,231,000 ===========
Pursuant to the purchase agreements for Texit AS and TruMed Technologies, Inc., the Company made cash payments to escrow accounts for combined contingent payments of approximately $1,700,000 that have not been accrued as liabilities in the accompanying condensed financial statements. Payment of the additional consideration, currently in escrow, to the sellers is contingent upon meeting certain performance conditions. In the event that the performance criteria are not met, the escrow balance will revert to the Company. The purchase agreement for STOPware, Inc. includes an earn-out provision under which the Company is required to pay additional consideration of up to a maximum of $2,000,000 if STOPware, Inc. achieves certain performance targets for the fiscal years ending July 31, 2006 and July 31, 2007. The contingent consideration has not been accrued as a liability in the accompanying condensed financial statements as of October 31, 2005. As of October 31, 2005, the allocation of the purchase price of Signs and Labels Ltd. in England and Print Supplies, Ltd., and its associate, Technology and Supply Media Co., Ltd. in Thailand remained preliminary pending the determination of the final purchase price and the final valuation of intangible assets. These companies were purchased in the fourth quarter of fiscal 2005. 9 NOTE F - Segment Information The Company's reportable segments are geographical regions that are each managed separately. The Company has three reportable segments: Americas, Europe and Asia. Following is a summary of segment information for the three months ended October 31, 2005 and 2004:
Corporate and Americas Europe Asia Subtotals Eliminations Totals -------- ------- ------- --------- ------------ -------- (Dollars in Thousands) Three months ended October 31, 2005: Revenues from external customers $116,059 $73,762 $42,814 $232,635 -- $232,635 Intersegment revenues 16,187 1,213 2,011 19,411 ($19,411) -- Profit (loss) 32,194 20,778 13,010 65,982 (2,386) 63,596 Three months ended October 31, 2004: Revenues from external customers $105,449 $64,527 $30,443 $200,419 -- $200,419 Intersegment revenues 10,583 665 1,215 $ 12,463 ($12,463) -- Profit (loss) 25,380 18,132 8,910 $ 52,422 (1,425) 50,997
Following is a reconciliation of segment profit (loss) to income before income taxes for the three months ended October 31, 2005 and 2004:
Three months ended: October 31, ------------------- 2005 2004 -------- -------- (Dollars in Thousands) Total profit from reportable segments $ 65,982 $ 52,422 Corporate and eliminations (2,386) (1,425) Unallocated amounts: Administrative costs (18,659) (17,601) Interest-net (1,671) (1,825) Foreign exchange 136 (30) Other (870) (1,604) -------- -------- Income before income taxes 42,532 29,937 Income taxes (12,334) (9,580) -------- -------- Net income $ 30,198 $ 20,357 ======== ========
NOTE G - Stock-Based Compensation The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to employees. Additionally, the Company has a nonqualified stock option plan for non-employee directors under which shares of Class A Common Stock are available for grant. The options have an exercise price equal to the fair market value of the underlying stock at the date of grant and vest ratably over a three-year period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under these plans, referred to herein as "time-based" options, generally expire 10 years from the date of grant. During the fiscal years ended July 31, 2004 and 2005 and the fiscal year ending July 31, 2006, certain executives and key management employees were issued stock options that vest upon meeting certain financial performance conditions in addition to the vesting schedule described above. These options, referred to herein as "performance-based" options, expire 5 years from the date of grant. 10 Effective August 1, 2005, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share Based Payment". In accordance with this standard, the Company has elected to recognize the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Total stock compensation expense recognized by the Company during the three months ended October 31, 2005, was $924,000, or $566,000 net of taxes. The Company expects that total stock compensation expense for the year ending July 31, 2006 will be approximately $5,800,000 on a pre-tax basis. The Company adopted the fair value recognition provisions of SFAS No. 123(R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in fiscal 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of August 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted subsequent to August 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated. Prior to August 1, 2005, the Company accounted for employee stock-based compensation under the intrinsic value method prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25, no employee stock-option based compensation expense was recorded in the income statement prior to August 1, 2005 for the time-based options. For performance-based options, the Company recorded compensation expense for changes in the market value of the underlying common stock under APB No. 25. Total stock compensation expense recognized by the Company during the three months ended October 31, 2004 was $1,193,000, or $667,000 net of taxes. The compensation cost for this period included expense for both performance stock options and restricted stock. Had compensation cost for all options granted prior to August 1, 2005 been determined based on the fair value at grant date consistent with SFAS No. 123(R), the Company's net income and income per share would have been as follows for the three months ended October 31, 2004 (in thousands, except per share amounts): Net earnings: As reported $20,357 Stock-based compensation expense recorded, net of tax 667 Pro forma expense, net of tax (504) ------- Pro forma $20,520 ======= Net earnings per class A common share (1) Basic: As reported $ 0.42 Pro forma adjustments -- ------- Pro forma $ 0.42 ======= Diluted: As reported $ 0.41 Pro forma adjustments 0.01 ------- Pro forma $ 0.42 =======
(1) Adjusted for two-for-one stock split in the form of a 100% stock dividend, effective December 31, 2004. 11 The Company has estimated the fair value of its performance-based option awards granted after August 1, 2005 using the Black-Scholes option valuation model. The assumptions used in the Black-Scholes valuation model are reflected in the following table:
Black-Scholes Option Valuation Assumptions October 31, 2005 - ------------------------------------------ ---------------- Expected term (in years) - performance-based options 3.39 Expected volatility 31.10% Expected dividend yield 1.50% Risk-free interest rate 4.09% Market value of underlying stock at grant date $33.89 Exercise price $33.89 Fair value of options granted during the period $ 8.34
The Company uses historical data regarding stock option exercise behaviors to estimate the expected term of options granted based on the period of time that options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company's stock. The expected dividend yield is based on the Company's historical dividend payments. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for the length of time corresponding to the expected term of the option. No time-based options were granted during the three months ended October 31, 2005. A summary of stock option activity under the Company's share-based compensation plans for the three months ended October 31, 2005 is presented below:
Weighted Average Aggregate Weighted Remaining Intrinsic Shares Average Contractual Value Options (000) Exercise Price Term (000) - ------- ------ -------------- ----------- --------- Outstanding at July 31, 2005 3,529 $18.41 New grants 330 $33.89 Exercised 26 $15.77 Forfeited or expired 9 $22.63 ----- Outstanding at October 31, 2005 3,824 $19.76 7.1 $36,265 ===== ======= Exercisable at October 31, 2005 1,906 $15.44 5.6 $25,417 ===== =======
The weighted-average grant-date fair value of options granted during the three months ended October 31, 2005 and 2004, was $33.89 and $22.63 (adjusted for the two-for-one stock split in the form of a 100% stock dividend, effective December 31, 2004), respectively. The total intrinsic value of options exercised during the three months ended October 31, 2005 and 2004, based upon the average market price during the period, was approximately $363,000 and $6,241,000, respectively. 12 NOTE H: Stockholder's Equity In September 2005, the Company announced that the Board of Directors of Brady Corporation approved a share repurchase program for up to 800,000 shares of the Company's non-voting Class A Common Stock during fiscal 2006. The share repurchase plan may be implemented by purchasing shares on the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's Stock Option Plan and for other corporate purposes. During the three months ended October 31, 2005, the Company reacquired 297,000 shares of its Class A Common Stock for $8,728,000 under the repurchase plan approved by the Board of Directors. Additional treasury shares are held for the benefit of the participants of the Company's deferred compensation plan. The total cost of treasury shares held by the deferred compensation plan as of October 31, 2005 and 2004 was $1,738,000 and $1,050,000, respectively. NOTE I: Employee Benefit Plans The Company provides postretirement medical, dental and vision benefits (the "Plan") 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, are 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 the employee's age and service at retirement. The Company accounts for postretirement benefits other than pensions in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The Company funds benefit costs on a pay-as-you-go basis. There have been no changes to the components of net periodic benefit cost or the amount that the Company expects to fund in fiscal 2006 from those reported in Note 3 to the consolidated financial statements included in the Company's annual report on Form 10-K for the year ended July 31, 2005. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Brady is an international manufacturer and marketer of identification solutions and specialty materials which identify and protect premises, products, and people. Its products include high-performance labels and signs, printing systems and software, label-application and data-collection systems, safety devices and precision die-cut materials. Founded in 1914, the Company serves customers in electronics, telecommunications, manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, transportation and a variety of other industries. The Company manufactures and sells products domestically and internationally through multiple channels including direct sales, distributor sales, mail-order catalogs, telemarketing and electronic access through the Internet. The Company operates manufacturing facilities and/or sales offices in Australia, Belgium, Brazil, Canada, China, Denmark, England, France, Germany, Hong Kong, Hungary, India, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Norway, the Philippines, Singapore, Slovakia, Spain, Sweden, Taiwan, Thailand and the United States. The Company believes that its reputation for innovation, commitment to quality and service, and dedicated employees have made it a world leader in the markets it serves. Sales for the quarter ended October 31, 2005, were up 16.1% to $232,635,000, compared to $200,419,000 in the same period of fiscal 2005. Base sales increased 7.0% compared to the same period in the prior year, while the effect of fluctuations in the exchange rates used to translate financial results into the United States Dollar added 1.1% and acquisitions added 8.0%. Net income for the quarter ended October 31, 2005, was $30,198,000 or $0.60 per diluted Class A Common Share, up 48.3% from $20,357,000 or $0.41 per share reported in the first quarter of last year. The increase in base sales for the quarter ended October 31, 2005, was due primarily to a 32.2% increase in Asia Pacific base sales, driven largely by a seasonally strong electronics business in China. Additionally, the Company had solid growth in many of its mature markets. On November 17, 2005, the Company increased its fiscal 2006 guidance range to $910,000,000 to $920,000,000 in sales and net income of $98,000,000 to $100,000,000, and earnings per share of $1.96 to $2.00 for the full fiscal year ending July 31, 2006. The Company expects capital expenditures to be approximately $26,000,000 and depreciation and amortization to be approximately $30,000,000 for the full fiscal year ending July 31, 2006. Management believes this guidance is justified based on the Company's strong performance in the first quarter of fiscal 2006 and acquisitions made this fiscal year, but notes that this guidance should be viewed in light of the various factors that could affect performance described in or incorporated by reference into this report, as well as the following factors: - Over the last two years, the strength and seasonality of the Company's OEM electronics business has somewhat shifted the total seasonality trend for the Company by strengthening the first quarter and part of the second quarter. - The Company continues to experience pressure from suppliers who are attempting to raise their prices as well as customers seeking cost decreases. - Shortages of certain raw materials have not currently had an effect on the Company's production, but management continues to monitor supplies of key materials for possible shortages and develop plans for alternative sources of supply. - Since more than 50% of our business is located outside of the United States, the Company's business operations and those of its customers and suppliers give rise to market risk exposure due to changes in foreign exchange rates. Fluctuations in the United States Dollar relative to other currencies may introduce some volatility with respect to the Company's sales and net income guidance. 14 - Management is cautious regarding sales and net income growth in Europe, due to the continued uncertain economic environment in the region. - The Company continues its preparations for compliance with the European directive on Waste Electrical and Electronics Equipment (WEEE). The new directive requires that by July 2006 all electronic and electrical equipment sold into EU member states be free of substances as defined in the new Restrictions on the Use of Hazardous Substances (RoHS) directive. The Company could incur additional costs of compliance or loss of sales, based on availability of compliant subcomponents and the finalization of the implementing regulations within each of the EU member states. Looking long term, the Company intends to continue its growth strategies of developing proprietary products; making acquisitions that expand its product range, geographical coverage, technical expertise, market penetration and further improving processes to better serve customers. Going forward, business and market uncertainties may affect results. For a discussion of additional factors that could impact results, please refer to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2005. Results of Operations For the three months ended October 31, 2005, net sales of $232,635,000 were 16.1% higher than the same quarter of the previous year. Base sales increased 7.0% for the quarter compared to the same period in the prior year. The sales increase was also aided by the positive effect of fluctuations in the exchange rates used to translate financial results into the United States Dollar, which increased sales by 1.1% in the quarter ended October 31, 2005. The acquisitions of Electromark, STOPware, Inc. and TruMed Technologies, Inc. in the United States, Signs & Labels Ltd. in the United Kingdom, Texit Danmark AS in Denmark, Texit Norge AS in Norway and Technology Print Supplies Ltd and its associate, Technology Supply Media Co., Ltd. in Thailand added 8.0% to sales in the quarter. Gross margin as a percentage of sales increased from 52.7% to 53.3% for the quarter ended October 31, 2005, compared to the same period of the previous year. The gross margin increase was due to strong improvement in productivity in the Americas region partially offset by supplier price increases, acquisitions with lower gross margins, and an increase in the mix of revenues attributable to Asia, which has lower margins. Selling, general and administrative ("SG&A") expenses as a percentage of sales decreased from 33.9% to 31.5% for the quarter ended October 31, 2005, compared to the same period of the prior year. The decrease in SG&A was due to continued cost control efforts, control of headcount, and growth in Asia, which has lower selling expenses offset by lower margins. In absolute dollars, SG&A increased $5,300,000 for the quarter ended October 31, 2005, compared to the same period in the prior year primarily due to SG&A expenses associated with acquired businesses. Research and development expenses as a percentage of sales remained flat at 2.8% for the quarter ended October 31, 2005, compared to the same period of the previous year. In dollars, research and development expenses increased from $5,704,000 to $6,534,000 for the quarter compared to the same period in the prior year, primarily due to development of new equipment and materials. Interest expense decreased from $2,139,000 to $1,989,000 for the quarter ended October 31, 2005, compared to the same period in the prior year. The decrease in interest expense was due to larger outstanding borrowings on the line of credit during the three months ended October 31, 2004, compared to the same period in 2005. 15 The Company's effective tax rate was 29.0% for the quarter ended October 31, 2005, and 32.0% for the same period of the previous year. The improvement in the effective rate was due to a shift in a portion of the Company's pre-tax income to lower tax rate countries. Net income for the three months ended October 31, 2005, increased 48.3% to $30,198,000, compared to $20,357,000 for the same quarter of the previous year. Net income as a percentage of sales increased from 10.2% to 13.0% for the quarter ended October 31, 2005, compared to the same period in the prior year. The increase was due to the factors noted above. On a Class A Common Share basis, diluted net income per share was $0.60 for the quarter ended October 31, 2005, compared to $0.41 for the same period of the previous year. Business Segment Operating Results Management of the Company evaluates results based on the following geographic regions: Americas, Europe, and Asia.
Corporate and Americas Europe Asia Subtotals Eliminations Total -------- ------- ------- --------- ------------ -------- (Dollars in thousands) SALES TO EXTERNAL CUSTOMERS Three months ended: October 31, 2005 $116,059 $73,762 $42,814 $232,635 $232,635 October 31, 2004 105,449 64,527 30,443 200,419 200,419 SALES GROWTH INFORMATION Three months ended October 31, 2005 Base 3.7% 0.5% 32.2% 7.0% 7.0% Currency 1.9% -1.2% 3.4% 1.1% 1.1% Acquisitions 4.5% 15.0% 5.0% 8.0% 8.0% Total 10.1% 14.3% 40.6% 16.1% 16.1% SEGMENT PROFIT (LOSS) Three months ended October 31, 2005 $ 32,194 $20,778 $13,010 $ 65,982 $(2,386) $ 63,596 October 31, 2004 25,380 18,132 8,910 52,422 (1,425) 50,997 Percentage increase 26.8% 14.6% 46.0% 25.9% 67.4% 24.7%
16 SEGMENT PROFIT RECONCILIATION (Dollars in thousands)
Three months ended: ------------------------- October 31, October 31, 2005 2004 ----------- ----------- Total profit from reportable segments $ 65,982 $ 52,422 Corporate and eliminations (2,386) (1,425) Unallocated amounts: Administrative costs (18,659) (17,601) Interest - net (1,671) (1,825) Foreign exchange 136 (30) Other (870) (1,604) Income before income taxes 42,532 29,937 Income taxes (12,334) (9,580) Net income $ 30,198 $ 20,357
The Company evaluates regional performance using sales and segment profit. Allocation of resources is based on a range of financial and strategic factors. Segment profit or loss does not include certain administrative costs, interest, foreign exchange gain or loss, restructuring charges, other expenses not allocated to a segment and income taxes. Americas: Americas sales increased 10.1% for the quarter ended October 31, 2005, compared to the same period in the prior year. Base sales in local currency increased 3.7% in the quarter. Sales were positively affected by fluctuations in the exchange rates used to translate financial results into United States currency, which increased sales within the region by 1.9% in the quarter. Sales in the region were also aided by the acquisitions of Electromark, STOPware, Inc., and TruMed Technologies, Inc., which increased sales by 4.5% for the quarter. Base sales were up for both Brady brand and direct marketing sales. The Company continues to experience broad-based growth in the majority of countries in this region, with strong base growth in both Canada and Brazil and modest growth in the U.S. Segment profit for the region increased 26.8% to $32,194,000 from $25,380,000 for the quarter ended October 31, 2005, compared to the same period in the prior year. While the region is experiencing increases with respect to many of its materials and utility costs, these increases were more than offset by spreading fixed costs over the larger sales base, therefore increasing gross margins. Additionally, the quarter ended October 31, 2004 included a higher level of logistics costs due to the ramping up of production in the our Tijuana, Mexico facility. As a result, segment profit growth continues to outpace sales growth in this region. Europe: Europe sales increased 14.3% for the quarter ended October 31, 2005, compared to the same period in the prior year. Base sales in local currency increased 0.5% in the quarter. Sales were negatively affected by fluctuations in the exchange rates used to translate financial results into United States currency, which decreased sales within the region by 1.2% in the quarter. The acquisition of Signs & Labels in the United Kingdom, Texit Danmark AS in Denmark, and Texit Norge AS in Norway increased sales by 15.0%. 17 Base sales in England, Germany and Belgium declined while base sales in France and Sweden showed positive growth for the quarter ended October 31, 2005. The direct marketing business experienced modest base growth due to expansion of the Company's customer base and product expansion. The Brady business declined slightly primarily due to an expected migration of OEM business within the die cut business to lower cost regions. Segment profit for the region increased 14.6% to $20,778,000 from $18,132,000 for the quarter ended October 31, 2005, compared to the same period of the prior year, driven primarily by productivity improvements in the base business, supplemented with additional profit from the acquisitions of Signs & Labels and Texit. Asia: Asia sales increased 40.6% for the quarter ended October 31, 2005, compared to the same period in the prior year. Base sales in local currency increased 32.2% in the quarter compared to the same period last year. Sales were positively affected by fluctuations in the exchange rates used to translate financial results into United States currency, which increased sales within the region by 3.4% in the quarter. The acquisition of Technology Print Supply and Technology Supply Media in Thailand increased sales by 5.0% for the quarter. Operations in North Asia and China continued to lead the strong base growth performance in the region due to strong demand for consumer electronics. Segment profit for the region was up 46.0% to $13,010,000 from $8,910,000 for the quarter ended October 31, 2005, compared to the same period in the prior year. The increase in profit was due primarily to increased sales volume. There continues to be significant pricing pressure in the region; the Company is working on sourcing strategies and new product development in order to mitigate the foregoing, and remain competitive. The Company has expanded its management and sales team in India with the goal of establishing a manufacturing presence in the Indian market in fiscal 2006. Financial Condition The Company's current ratio as of October 31, 2005, was 2.0 compared to 1.9 at July 31, 2005. Cash and cash equivalents decreased to $53,128,000 at October 31, 2005, compared to $72,970,000 at July 31, 2005. Additionally, there were no short-term investments outstanding at October 31, 2005, compared to $7,100,000 outstanding at July 31, 2005, consisting of investments in auction rate securities. Working capital increased $6,738,000 during the quarter ended October 31, 2005, to $148,298,000 from $141,560,000 at July 31, 2005. Accounts receivable increased $13,037,000 for the quarter due to increased sales volume, acquisitions and foreign currency translation. Inventories increased $10,749,000 for the quarter, due to acquisitions and planned increases in inventory levels in Asia to meet seasonal demand and in North America to meet demand for sales initiatives. The net decrease in current liabilities was $9,994,000 for the quarter. The decrease was composed of a significant decrease in accrued wages due to the payment of incentives in the quarter related to the year ended July 31, 2005. This decrease was partially offset by increases in accrued income taxes due to improved profitability and accrued liabilities associated with interest and retirement plans. Cash flow from operating activities totaled $8,056,000 for the quarter ended October 31, 2005, compared to $16,324,000 for the same period last year. The decrease was the result of an increase in accounts receivable balances, increased inventories and a decrease in accrued liabilities related to the payment of incentives during the quarter; the foregoing decreases were partially offset by a $9,841,000 increase in net income and increased accrued liabilities associated with income taxes. 18 The acquisitions of businesses used $20,217,000 of cash for the quarter ended October 31, 2005. Capital expenditures were $8,537,000 for the quarter ended October 31, 2005, compared to $2,819,000 in the same period last year, driven by the expansion of the Company's facility in Milwaukee, Wisconsin, continued expansion in Asia, and a new facility in Eastern Europe. Net cash used in financing activities was $4,865,000 for the quarter ended October 31, 2005, due to the repurchase of stock and the payment of dividends, partially offset by draws on the revolving loan agreement. Net cash provided in financing activities for the same period last year was $435,000 related to the issuance of common stock upon the exercise of stock options, partially offset by payment of dividends to the Company's stockholders. On March 31, 2004, the Company entered into an unsecured $125,000,000 multi-currency revolving loan agreement with a group of five banks. Under the five-year agreement, which has a final maturity date of March 31, 2009, the Company has the option to use either a base interest rate (based upon the higher of the federal funds rate plus one-half of 1% or the prime rate at Bank of America) or a Eurocurrency interest rate (at the LIBOR rate plus margin). A commitment fee is payable on the unused portion. The agreement requires the Company to maintain certain financial covenants. As of October 31, 2005, the Company was in compliance with the covenants of the agreement. The agreement restricts the amount of certain types of payments, including dividends, which can be made annually to $25,000,000 plus 50% of the consolidated net income for the prior year. The Company believes that, based on historic dividend practice, this restriction would not affect its ability to follow a similar dividend practice in the future. As of October 31, 2005, there was $11,000,000 of outstanding borrowings on the five-year revolving loan agreement. On June 30, 2004, the Company finalized a debt offering of $150,000,000 of 5.14% unsecured senior notes due in 2014 in an offering exempt from the registration requirements of the Securities Act of 1933. The notes will be amortized over seven years beginning in 2008, with interest payable on the notes semiannually on June 28 and December 28. The first interest payments were made on December 28, 2004. The Company used the proceeds of the offering to reduce outstanding indebtedness under the Company's revolving credit facility, which had been used initially to fund the EMED acquisition. The debt has certain prepayment penalties for repaying the debt prior to its maturity date. The agreement also requires the Company to maintain a financial covenant. As of October 31, 2005, the Company was in compliance with this covenant. During the first quarter of fiscal 2005, the Company announced plans to build a 60,000 square foot expansion of an existing facility in Milwaukee, Wisconsin. The approximately $10,000,000 project, which is being funded out of the Company's operating capital, will consolidate the warehouse and distribution services of several Brady facilities, providing increased distribution efficiencies and improved logistics for customers. As of October 31, 2005, the total spent on the warehouse expansion project was approximately $6,700,000. The Company expects the expanded facility to be fully operational in the second quarter of fiscal 2006. 19 Management believes the Company's continued positive cash flow and available borrowings will enable the Company to execute a long-term strategy, which includes investments that expand the Company's current market share, open new markets and geographies, develop new products and distribution channels and continue to improve the Company's processes. This strategy also includes executing key acquisitions. The Company does not have material off-balance sheet arrangements or related-party transactions. The Company is not aware of factors that are reasonably likely to adversely affect liquidity trends, other than the risk factors described in this and other Company filings. However, the following additional information is provided to assist those reviewing the Company's financial statements. Purchase Commitments - The Company has purchase commitments for materials, supplies, services, and property, plant and equipment as part of the ordinary conduct of its business. In the aggregate, such commitments are not in excess of current market prices and are not material to the financial position of the Company. Due to the proprietary nature of many of the Company's materials and processes, certain supply contracts contain penalty provisions for early termination. The Company does not believe a material amount of penalties will be incurred under these contracts based upon historical experience and current expectations. Other Contractual Obligations - The Company does not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity. Related-Party Transactions - The Company does not have any related-party transactions that materially affect the results of operations, cash flow or financial condition. Subsequent Events Affecting Financial Condition On November 17, 2005, the Board of Directors declared a quarterly cash dividend of $0.13 per share payable on January 31, 2006 to shareholders of record of the Company's class A common stock at the close of business on January 10, 2006. In September 2005, the Company announced that its Board of Directors had approved a share repurchase program for up to 800,000 shares of the Company's non-voting Class A Common Stock during fiscal 2006. The share repurchase plan may be implemented by purchasing shares on the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's stock option plan and for other corporate purposes. During the three months ended October 31, 2005, the Company reacquired 297,000 shares of its Class A Common Stock for $8,728,000 under the repurchase plan approved by the Board of Directors. Additional treasury shares were purchased by the participants of the Company's deferred compensation plan. On November 10, 2005, the Securities and Exchange Commission ("SEC")declared effective the Company's shelf registration statement on Form S-3, which will allow the Company to issue and sell, from time to time in one or more offerings, up to an aggregate of $400,000,000 of Class A Non-voting Common Stock and debt securities as it deems prudent or necessary to raise capital at a later date. The Company plans to use the proceeds from any future offerings under the shelf registration for general corporate purposes, including, but not limited to, acquisitions, capital expenditures and refinancing of debt. Forward-Looking Statements In addition to historical information, the Company's reports to the Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases, as well as other public documents and statements, may contain "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by words such as "intend," "anticipate," "assume," "believe," "estimate," "expect," "plan," "project," "will," and other expressions, which refer to future events and trends. Forward-looking information involves risks and uncertainties, including, but not limited to, domestic and international economic conditions and growth rates; fluctuations in currency exchange rates for international currencies versus the U.S. dollar; the successful implementation of a new enterprise-resource-planning system; the ability of the Company to acquire, integrate and achieve anticipated synergies from new businesses; the ability of the Company to adjust its cost structure to changes in levels of sales and product mix in a timely manner; variations in the economic or political conditions in the countries in which the Company does business; technology changes; and the continued availability of sources of supply. Brady 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. 20 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 a portion of known exposures using forward contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Japanese Yen and Australian Dollar. The risk of these hedging instruments is not material to the consolidated financial results of the Company. The Company could be exposed to interest rate risk through its corporate borrowing activities. The objective of the Company'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 the Company's preferred mix. The interest rate risk management program may include entering into approved interest rate derivatives when there is a desire to modify the Company's exposure to interest rates. As of October 31, 2005, the Company has not entered into any interest rate derivatives. ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company's periodic filings under the Exchange Act. There have not been any changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 21 PART II. OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers. On September 13, 2005, the Company announced that its Board of Directors had approved a share repurchase program for up to 800,000 shares of the Company's non-voting Class A Common Stock during fiscal 2006. The share repurchase plan may be implemented by purchasing shares on the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's stock option plan and for other corporate purposes. The following table provides information with respect to Class A Common Stock purchases by the Company during the three months ended October 31, 2005. ISSUER PURCHASES OF SECURITIES
(D) MAXIMUM (C) TOTAL NUMBER NUMBER OF OF SHARES SHARES THAT MAY (A) TOTAL PURCHASED AS PART YET BE NUMBER (B) AVERAGE OF PUBLICLY PURCHASED UNDER OF SHARES PRICE PAID ANNOUNCED PLANS THE PLANS OR PERIOD PURCHASED PER SHARE OR PROGRAMS PROGRAMS ------ --------- ---------- ----------------- --------------- August 1 to August 31, 2005 -- -- -- 800,000 September 1 to September 30, 2005 66,000 $30.82 66,000 734,000 October 1 to October 31, 2005 231,000 $28.98 231,000 503,000 ------- ------ ------- ------- Total 297,000 $29.39 297,000 503,000 ------- ------ ------- -------
ITEM 6. Exhibits (a) Exhibits 10.1 Brady Corporation 2005 Nonqualified Stock Option Plan for Non-employee Directors 10.2 Form of Brady Corporation Nonqualified Stock Option Agreement for Non-employee Directors 31.1 Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert 31.2 Rule 13a-14(a)/15d-14(a) Certification of David Mathieson 32.1 Section 1350 Certification of Frank M. Jaehnert 32.2 Section 1350 Certification of David Mathieson 22 Pursuant to the requirements 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. SIGNATURES BRADY CORPORATION Date: December 8, 2005 /s/ F. M. Jaehnert ---------------------------------------- F. M. Jaehnert President & Chief Executive Officer Date: December 8, 2005 /s/ David Mathieson ---------------------------------------- David Mathieson Vice President & Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) 23 EX-10.1 2 c00577exv10w1.txt 2005 NONQUALIFIED STOCK OPTION PLAN EXHIBIT 10.1 BRADY CORPORATION 2005 NONQUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSE. The 2005 Stock Option Plan for Non-Employee Directors (the "Plan) is intended to attract and retain the services of experienced and knowledgeable non-employee directors of Brady Corporation (the "Corporation") for the benefit of the Corporation and its shareholders and to provide additional incentive for such directors to continue to work for the best interest of the Corporation and its shareholders. 2. SHARES SUBJECT TO THE PLAN. There are reserved for issuance upon the exercise of options granted under the Plan 300,000 Class A Non-Voting Common Shares $.01 par value, of the Corporation (the "Stock"). Such Stock may be authorized and unissued Stock or previously outstanding Stock then held in the Corporation's treasury. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full, the Stock subject to the unexercised portion thereof shall again be available for the purposes of issuance upon the exercise of options granted under the Plan. 3. ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Corporation (the "Board"), which may delegate any or all of its authority to a Committee of the Board. Subject to the express provisions of the Plan, the Board shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the option grants and agreements (which shall comply with and be subject to the terms and conditions of the Plan) and to make all other determinations necessary or advisable for the administration of the Plan. The Board's determination of the matters referred to in this Paragraph 3 shall be conclusive. 4. ELIGIBILITY. For purposes of the Plan, "Non-Employee Director" means a member of the Board who is not an employee of the Corporation or a subsidiary of the Corporation. After the effective date of the Plan, each Non-Employee Director who first becomes a Director after July 26, 2005 shall automatically be granted an option to purchase 10,000 shares of Stock on the first day of such individual's first term of office as an Non-Employee Director, or if later, the effective date of the Plan. On the date of each annual meeting of the shareholders of the Corporation on or subsequent to the effective date of the Plan, each Non-Employee Director who will continue to serve as an Non-Employee Director after such annual meeting shall automatically be granted an option to purchase 6,000 shares of Stock. Only non-statutory stock options shall be granted under the Plan. 5. OPTION GRANTS. (a) The purchase price of the Stock under each option granted under the Plan shall be 100% of the Fair Market Value of the Stock on the date such option is granted. For purposes of the Plan "Fair Market Value" on any date shall mean, with respect to Stock, if the stock is then listed and traded on a registered national securities exchange, or is quoted in the NASDAQ National Market System, the average of the high and low sale prices recorded in composite transactions for such date or, if such date is not a business day or if no sales of the Stock shall have been reported with respect to such date, the next preceding business date with respect to which sales were reported. In the absence of reported sales or if the stock is not so listed or quoted, but is traded in the over-the-counter market, Fair Market Value shall be the average of the closing bid and asked prices for such Stock on the relevant date. (b) All options shall be exercisable in accordance with the following schedule:
Years After Date of Grant Percentage of Shares - ----------------- -------------------- Less than 1 0% 1 but less than 2 33-1/3% 2 but less than 3 66-2/3% 3 or more 100%
The term of each option shall be ten years from the date of grant, or such shorter period as is prescribed in Paragraphs 5(c) and 5(d). Except as provided in Paragraphs 5(c) and 5(d), no option may be exercised at any time unless the holder is then a director of the Corporation. Upon exercise, the option price is to be paid in full in cash or, at the discretion of the Board, in Stock owned by the optionee having a Fair Market Value on the date of exercise equal to the aggregate option price or, at the discretion of the Board, in a combination of cash and Stock. (c) All rights under any option shall terminate on the date such Participant ceases to be a Director of the Corporation, except that (a) if the Directorship is terminated by the death of the Director, any unexercised, unexpired Stock Options granted hereunder to the Director shall be 100% vested and fully exercisable, in whole or in part, at any time within one year after the date of death, by the Director's personal representative or by the person to whom the options are transferred under the Director's last will and testament or the applicable laws of descent and distribution; (b) if the Directorship is terminated as a result of the disability of the Director (a disability means that the Director is disabled as a result of sickness or injury, such that he or she is unable satisfactorily to perform the Director duties, as determined by the Board of Directors, on the basis of medical evidence satisfactory to it), any unexercised, unexpired options granted hereunder to the Director shall become 100% vested and fully exercisable, in whole or in part, at any time within one year after the date of disability; (c) if the Directorship is terminated and the Director has been a member of the Board of Directors for at least three years, any unexercised, unexpired options granted hereunder to the Director shall become 100% vested and fully exercisable, in whole or in part, at any time within one year after such date of termination; and (d) if the Directorship is terminated for any reason other than (a), (b) or (c) above, any unexercised, unexpired options granted hereunder and exercisable as of the date of such termination shall be exercisable in whole or in part at any time within 90 days after such date of termination. (d) In the event of (a) a merger, consolidation, or reorganization with another corporation in which the Corporation is not the surviving corporation or a merger, consolidation or reorganization with another corporation in which the Corporation is the surviving corporation, but the Stock ceases to be publicly traded, (b) the adoption of any plan for the dissolution of the Corporation, or (c) the sale or exchange of all or substantially all the assets of the Corporation for cash or for shares of stock or other securities of another corporation, all then-unexercised options shall become fully exercisable immediately prior to any such event. (e) Nothing in the Plan or in any option granted pursuant to the Plan shall confer on any individual any right to continue as a director of the Corporation. 6. TRANSFERABILITY AND SHAREHOLDER RIGHTS OF HOLDERS OF OPTIONS. No options granted under the Plan shall be transferable otherwise than by will or by the laws of descent and distribution, and an option may be exercised, during the lifetime of an optionee, only by the optionee or optionee's guardian or legal representative. An optionee shall have none of the rights of a shareholder of the Corporation until the option has been exercised and the Stock subject to the option has been registered in the name of the optionee on the transfer books of the Corporation. 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Notwithstanding any other provisions of the Plan, the number and class of shares subject to the options and the option prices of options covered thereby shall be proportionately adjusted in the event of changes in the outstanding Stock by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other similar changes in capitalization, or any distribution to common shareholders other than cash dividends and, in the event of any such change in the outstanding Stock, the aggregate number and class of shares available under the Plan and the number of shares as to which options may be granted shall be appropriately adjusted by the Board. 8. AMENDMENT AND TERMINATION. Unless the Plan shall theretofore have been terminated as hereinafter provided, the Plan shall terminate on, and no awards of options shall be made after, the tenth anniversary of the effective date of the Plan; provided, however, that such termination shall have no effect on options granted prior thereto. The Plan may be terminated, modified or amended by the shareholders of the Corporation. The Board may also terminate the Plan or modify or amend the Plan in such respects as it shall deem advisable in order to conform to any change in any law or regulation applicable thereto, or in other respects which shall not change (i) the total number of shares of Stock as to which options may be granted, (ii) the class of persons eligible to receive options under the Plan, (iii) the manner of determining the option prices, (iv) the period during which options may be granted or exercised or (v) the provisions relating to the administration of the Plan by the Board. 9. WITHHOLDING. Upon the issuance of Stock as a result of the exercise of an option, the Corporation shall have the right to retain or sell without notice sufficient Stock to cover the amount of any tax required by any government to be withheld or otherwise deducted and paid with respect to such Stock being issued, remitting any balance to the optionee; provided, however, that the optionee shall have the right to provide the Corporation with the funds to enable it to pay such tax. 10. EFFECTIVENESS OF THE PLAN. The Plan shall become effective on the day following the date the Plan is approved by the vote of the holders of a majority of the outstanding shares of the Corporation's Class B Voting Common Stock. The Board may in its discretion authorize the granting of options which shall be expressly subject to the conditions that (i) the Stock reserved for issue under the Plan shall have been duly listed, upon official notice of issuance, upon each stock exchange in the United States upon which the Stock is traded and (ii) a registration statement under the Securities Act of 1933 with respect to such shares shall have become effective. EX-10.2 3 c00577exv10w2.txt FORM OF NONQUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.2 BRADY CORPORATION DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT Option granted on ___________, ____, by Brady Corporation, a Wisconsin corporation (hereinafter called the "Company"), to _____________________ (hereinafter called the "Director"). WITNESSETH: WHEREAS, the Board of Directors of the Company, desiring to attract and retain the services of experienced directors and to provide additional incentive for such directors to continue to work for the best interest of the Company and its shareholders, adopted the Brady Corporation 2005 Nonqualified Stock Option Plan for Non-Employee Directors on November 17, 2005 ("the Plan"); NOW, THEREFORE, it is agreed as follows: 1. NUMBER OF SHARES OPTIONED; OPTION PRICE. The Company grants to the Director the right and option to purchase, on the terms and conditions hereof, all or any part of an aggregate of ____________ (_______) shares of the presently authorized Class A Common Stock of the Company, $.01 par value, whether unissued or issued and reacquired by the Company, at the price of __________ Dollars and __________________ Cents (_________) per share (the "Option Price"). 2. CONDITIONS OF EXERCISE OF OPTIONS DURING DIRECTOR'S LIFETIME; VESTING OF OPTION. Except as provided hereinafter in this paragraph and in paragraph 3, this Option may not be exercised (a) unless Director is at the date of the exercise a Director of the Company and (b) until Director shall have been continuously a Director for a period of at least one year from the date hereof. Thereafter, this Option shall be exercisable for any amount of shares up to the maximum percentage of shares covered by this Option (rounded up to the nearest whole share) as follows (but in no event shall this Option be exercisable for any shares after the expiration date provided in paragraph 7):
Number of Completed Years of Maximum Percentage Continuous Directorship with Company of Shares for Which After Date of Grant of this Option Option is Exercisable - ------------------------------------ --------------------- Less than 1 Zero At least 1 but less than 2 33-1/3% At least 2 but less than 3 66-2/3% At least 3 100%
If Director shall cease to be a Director of the Company for any reason (except death or disability, or if the Director has been a member of the Board of Directors for at least three years) 1 after Director shall have been continuously a Director for one year after the grant of this Option, Director may, at any time within three months of such termination, but in no event later than the date of expiration of this Option, exercise this Option to the extent Director was entitled to do so on the date of such termination. This Agreement does not confer upon Director any right to continue as a Director of the Company. 3. TERMINATION OF EMPLOYMENT, ETC. A. Notwithstanding the provisions of paragraph 2 hereof, in the event of the termination of the Directorship with the Company prior to _______, ________ [third anniversary of grant date], due to death or disability, or if the Director has been a member of the Board of Directors for at least three years, this Option shall become 100% vested and fully exercisable. For purposes of this Agreement, "Disability" means that the Director is disabled as a result of sickness or injury, such that he is unable satisfactorily to perform the Director's duties as determined by the Board of Directors, on the basis of medical evidence satisfactory to it. B. If the Directorship is terminated by the death of the Director, any unexercised, unexpired Stock Options granted hereunder to the Director shall be exercisable, in whole or in part, at any time within one year after the date of death, by the Director's personal representative or by the person to whom the Stock Options are transferred under the Director's last will and testament or the applicable laws of descent and distribution. If the Directorship is terminated as a result of the disability of the Director, any unexercised, unexpired Stock Options granted hereunder to the Director shall be exercisable, in whole or in part, at any time within one year after the date of disability. If the Directorship is terminated after the Director has been a member of the Board for at least three years, any unexercised, unexpired Stock Options granted hereunder to the Director shall be exercisable, in whole or in part, at any time within one year after the date of termination. C. In the event of (a) the merger or consolidation of the Company with or into another corporation or corporations in which the Company is not the surviving corporation, (b) the adoption of any plan for the dissolution of the Company, or (c) the sale or exchange of all or substantially all the assets of the Company for cash or for shares of stock or other securities of another corporation, this Option shall become fully vested and exercisable immediately prior to any such event in which the Company is not the surviving corporation. 4. DEFERRAL OF EXERCISE. Although the Company intends to exert its best efforts so that the shares purchasable upon the exercise of this Option will be registered under, or exempt from the registration requirements of, the Federal Securities Act of 1933 (the "Act") and any applicable state securities law at the time or times this Option (or any portion of this Option) first becomes exercisable, if the exercise of this Option would otherwise result in the violation by the Company of any provision of the Act or of any state securities law, the Company may require that such exercise be deferred until the Company has taken appropriate action to avoid any such violation. 5. METHOD OF EXERCISING OPTION. This Option shall be exercised by delivering to the Company, at the office of its Treasurer, a written notice of the number of shares with respect to which this Option is at the time being exercised and by paying the Company in full the Option Price of the shares being acquired at the time. 2 6. METHOD OF PAYMENT. Payment shall be made either (i) in cash or (ii) by delivering shares of the Company's Class A Common Stock which have been beneficially owned by the Director, the spouse of the Director, or both of them, for a period of at least six months prior to the time of exercise ("Delivered Stock") or (iii) by delivering a combination of cash and Delivered Stock. Payment in the form of Delivered Stock shall be in the amount of the Fair Market Value of the stock at the date of exercise, determined in accordance with paragraph 9. 7. EXPIRATION DATE. This Option shall expire ten years after the date on which this Option was granted. 8. WITHHOLDING TAXES. The Company may require payment of or withhold any tax which it believes is payable as a result of the exercise of this Option, and the Company may defer making delivery with respect to the shares until arrangements satisfactory to the Company have been made with regard to any such withholding obligations. In lieu of part or all of any such payment, the Director, in satisfaction of all withholding taxes (including, without limitation, Federal income, FICA (Social Security and Medicare) and any state and local income taxes) payable as a result of such exercise, may elect, subject to such rules and regulations as the Company may adopt from time to time, to have the Company withhold that number of shares (valued at Fair Market Value on the date of exercise and rounded upward) required to settle such withholding taxes. 9. METHOD OF VALUATION OF STOCK. The "Fair Market Value" of the Class A Common Stock of the Company on any date shall mean, if the stock is then listed and traded on a registered national securities exchange, or is quoted in the NASDAQ National Market System, the average of the high and low sale prices recorded in composite transactions for such date or, if such date is not a business day or if no sales of shares shall have been reported with respect to such date, the next preceding business date with respect to which sales were reported. In the absence of reported sales or if the stock is not so listed or quoted, but is traded in the over-the-counter market, Fair Market Value shall be the average of the closing bid and asked prices for such shares on the relevant date. 10. NO RIGHTS IN SHARES UNTIL CERTIFICATES ISSUED. Neither the Director nor his heirs nor his personal representative shall have any of the rights or privileges of a stockholder of the Company in respect of any of the shares issuable upon the exercise of the Option herein granted, unless and until certificates representing such shares shall have been issued. 11. OPTION NOT TRANSFERABLE DURING DIRECTOR'S LIFETIME. This Option shall not be transferable by the Director other than by his will or by the laws of descent and distribution and shall be exercisable during his lifetime only by him. 12. PROHIBITION AGAINST PLEDGE, ATTACHMENT, ETC. Except as otherwise herein provided, the Option herein granted and the rights and privileges pertaining thereto shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 13. CHANGES IN STOCK. In the event there are any changes in the Class A Common Stock of the Company through merger, consolidation, reorganization, recapitalization, stock 3 dividend, stock split, combination or exchange of shares, rights offering or any other change affecting the Class A Common Stock of the Company, appropriate changes shall be made by the Board of Directors of the Company, in the aggregate number of shares and the purchase price and kind of shares subject to this Option, to prevent substantial dilution or enlargement of the rights granted to or available for Director. 14. DISSOLUTION OR MERGER. Anything contained herein to the contrary notwithstanding, upon the dissolution or liquidation of the Company, or upon any merger in which the Company is not the surviving corporation, at any time prior to the expiration date of the termination of this Option, the Director shall have the right immediately prior to the effective date of such dissolution, liquidation or merger, to surrender all or any unexercised portion of this Option to the Company for cash, subject to the discretion of the Board of Directors as to the exact timing of said surrender. Notwithstanding the foregoing, however, in the event Director has retired or died, Director's right to surrender all or any unexercised portion of this Option under this paragraph shall be available only to the extent that at the time of any such surrender, Director would have been entitled to exercise this Option under paragraphs 2 or 3 hereof, as the case may be. The amount of cash to be paid to Director for the portion of this Option so surrendered, shall be equal to the number of shares of Class A Common Stock subject to the surrendered Option multiplied by the difference between the Option Price per share, as described in paragraph 1 hereof, and the Fair Market Value per share, determined in accordance with paragraph 9 hereof, as of the time of surrender. 15. NOTICES. Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company in care of its Vice President and Chief Financial Officer, and any notice to be given to the Director may be addressed at the address as it appears on the Company's records, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given if and when enclosed in a properly sealed envelope addressed as aforesaid, and deposited, postage prepaid, in the United States mail. 16. PROVISIONS OF PLAN CONTROLLING. This Option is subject in all respects to the provisions of the Plan. In the event of any conflict between any provisions of this Option and the provisions of the Plan, the provisions of the Plan shall control. Terms defined in the Plan where used herein shall have the meanings as so defined. Director acknowledges receipt of a copy of the Plan. 17. WISCONSIN CONTRACT. This Option has been granted in Wisconsin and shall be construed under the laws of that state. 4 IN WITNESS WHEREOF, the Company has caused these presents to be executed on its behalf by its President and to be sealed with its corporate seal, and attested by its Secretary and the Director has hereunto set his hand and seal, all as of the day and year first above written, which is the date of the granting of this Option evidenced hereby. BRADY CORPORATION By: ------------------------------------ President By: ------------------------------------ Compensation Committee Attest: -------------------------------- Secretary DIRECTOR: ---------------------------------------- 5 EX-31.1 4 c00577exv31w1.txt CERTIFICATION OF FRANK M. JAEHNERT EXHIBIT 31.1 RULE 13A-14(A)/15D-14(A) CERTIFICATION I, Frank M. Jaehnert, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Brady Corporation; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 8, 2005 /s/ FRANK M. JAEHNERT - ------------------------------------- Frank M. Jaehnert President and Chief Executive Officer EX-31.2 5 c00577exv31w2.txt CERTIFICATION OF DAVID MATHIESON EXHIBIT 31.2 RULE 13A-14(A)/15D-14(A) CERTIFICATION I, David Mathieson, certify that: (1) I have reviewed this quarterly report on Form 10-Q of Brady Corporation; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 8, 2005 /s/ DAVID MATHIESON - ------------------------------------------ David Mathieson Vice President and Chief Financial Officer EX-32.1 6 c00577exv32w1.txt SECTION 1350 CERTIFICATION OF FRANK M. JAEHNERT EXHIBIT 32.1 SECTION 1350 CERTIFICATION Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Brady Corporation (the "Company") certifies to his knowledge that: (1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended October 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in that Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company. Date: December 8, 2005 /s/ FRANK M. JAEHNERT - ------------------------------------- Frank M. Jaehnert President and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-32.2 7 c00577exv32w2.txt SECTION 1350 CERTIFICATION OF DAVID MATHEISON EXHIBIT 32.2 SECTION 1350 CERTIFICATION Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Brady Corporation (the "Company") certifies to his knowledge that: (1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended October 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in that Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company. Date: December 8, 2005 /s/ DAVID MATHIESON - ------------------------------------------ David Mathieson Vice President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----