FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended July 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from to
Commission File Number 0-12730
W.H. BRADY CO
(Exact name of registrant as specified in charter)
Wisconsin 39-0178960
(State of Incorporation) (IRS Employer Identification No.)
727 West Glendale Avenue
P.O. Box 571
Milwaukee, WI 53201
(Address of Principal Executive Offices and Zip Code)
(414) 332-8100
(Registrant's Telephone Number)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Nonvoting Common Stock, Par Value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. Yes X No
As of October 3, 1994, there were outstanding 5,477,312 shares of Class
A Nonvoting Common Stock (the "Class A Common Stock"), and 1,769,314
shares of Class B Common Stock. The Class B Common Stock, all of which
is held by affiliates of the Registrant, is the only voting stock.
DOCUMENTS INCORPORATED BY REFERENCE
W.H. Brady Co. 1994 Annual Report, Incorporated into Part II & IV
<PAGE>
I N D E X
PART I PAGE
Item 1. Business I - 1
General Development of Business I - 1
Financial Information About Industry Segments I - 1
Narrative Description of Business I - 1
International Operations I - 8
Backlog I - 8
Raw Materials I - 8
Competition I - 9
Employees I - 9
Environment I - 9
Financial Information About Foreign and
Domestic Operations and Export Sales I - 9
Item 2. Properties I -10
Item 3. Legal Proceedings I -10
Item 4. Submission of Matters to a Vote of
Security Holders I -10
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters II - 1
Item 6. Selected Financial Data II - 2
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations II - 2
Item 8. Financial Statements and Supplementary Data II - 2
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure II - 2
PART III
Item 10. Directors and Executive Officers of the
Registrant III - 1
<PAGE>
I N D E X
PART III (Continued)
Item 11. Executive Compensation III - 4
Summary Compensation Table III - 4
Stock Options III - 5
Common Stock Price Performance Graph III - 8
Compensation of Directors III - 9
Termination of Employment Arrangements III - 9
Compensation Committee Interlocks and
Insider Participation III -10
Profit Sharing and Employee Thrift Plan III -10
Deferred Compensation Arrangements III -11
Compensation Committee Report on
Executive Compensation III -11
Item 12. Security Ownership of Certain Beneficial
Owners and Management III -15
Item 13. Certain Relationships and Related
Transactions III -18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV - 1
SIGNATURES IV - 9
<PAGE>
PART I
W.H. Brady Co. and Subsidiaries is hereinafter referred to as the
Company or Brady.
ITEM 1 BUSINESS
(a) General Development of Business
Brady is a Wisconsin corporation. It presently operates 15
manufacturing facilities in the United States and six foreign countries.
The Company operates through seven subsidiaries with operations in three
states and in Australia, Belgium, Canada, England, France, Germany, Hong
Kong, Italy, Japan, New Zealand, Singapore, Spain and Sweden. The
Company's principal office is located at 727 West Glendale Avenue,
Milwaukee, Wisconsin 53201 and its telephone number is (414) 332-8100.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
General
The Company develops, manufactures and sells a broad range of stock
and customized products employing its knowledge of surface chemistry,
principally in adhesives, coatings and graphics technologies. Brady's
products include over 20,000 stock items and a wide variety of custom
items, which are used primarily to identify, inform or instruct,
including pressure-sensitive identification, labeling and marking
systems for electrical wires and pipes; self-bonding nameplates,
faceplates, and control panels; safety and instructional signs;
specialized tapes used in audio, video and computer applications; and
pressure sensitive wound care products. The Company's products are sold
domestically and internationally through a network of distributors, a
direct sales force and mail order sales, and are used in a variety of
industrial, commercial, governmental, public utility, medical equipment,
computer and consumer product markets, including original equipment
manufacturers.
The Company operates 15 manufacturing facilities in the United
States and six foreign countries. Domestic operations are conducted
through its North American Group and Direct Marketing Group with
locations in Connecticut, North Carolina, and Wisconsin. International
operations are conducted through its International Group and Direct
Marketing Group with locations in Australia, Belgium, Canada, England,
France, Germany, Hong Kong, Italy, Japan, New Zealand, Singapore, Spain
and Sweden.
Technology and Product Development
The Company focuses its research and development efforts on
applications in the science of surface chemistry, i.e., coatings,
adhesives and physical bonding. This dedication to surface chemistry,
in combination with a manufacturing technology oriented to adhesives and
graphics, has led to the development of many proprietary release
coatings, adhesives and products which are adhesively fastened. Most of
the Company's products are adhesively fastened to customers' products,
equipment or buildings, but a portion of the products are mechanically
fastened.
Adhesive based products are characterized by their ability to
adhere to another surface merely by application of pressure. The
adhesive materials generally consist of a face stock, which is coated
with an adhesive, and a removable protective backing coated with a
release-coating. The stock may be paper, metal or metal foil, plastic
film or cloth. The release-coated removable backing is laminated to the
adhesive side of the face stock and protects the pressure-sensitive
adhesive from premature contact with other surfaces, thus allowing the
material to be printed and/or die-cut, as required. The backing paper
also serves as the carrier for supporting and dispensing the products.
When the products are to be used, the backing is removed to expose the
adhesive, and the product is pressed or rolled into place manually or
applied automatically.
New product and process development and product improvements are a
significant part of the Company's business plan. Although it is
difficult to accurately measure, the Company has a goal that 25% of its
sales be of products introduced within the past five years. These
products included bar code labels, computer printable wire marking
sleeves and application systems, Bradywriter, Bradylabel Software,
Bradymarker & labels, Lasertabs, Brady snap-on and mechanically applied
pipemarkers, lockout compliance products, parts for micro discs, surface
mount carrier and cover tape, outdoor weatherable graphic arts adhesive
coated films, laser printable nameplates, abrasive and solvent resistant
coatings for polyester and polycarbonates, and wound care devices.
The Company conducts most of its research and development
activities at its 30,000 sq. ft. Frederic S. Tobey Research and
Innovation Center in Milwaukee, Wisconsin and through a small research
center in Belgium which services its European subsidiaries. The Company
spent approximately $10.3 million, $12.1 million and $10.0 million in
Fiscal 1994, 1993 and 1992, respectively, on its research and
development activities, all of which were Company sponsored. In Fiscal
1994, approximately 100 employees were engaged in research and
development activities for the Company. Additional research projects
were conducted under contract with universities, other institutions and
consultants. The Company owns patents covering various aspects of
adhesive chemistry, electronic circuitry, computer generated wire
markers, and systems for aligning letters and patterns. While the
Company believes that its patents are a significant factor in
maintaining its market position as to certain products, technology in
the areas covered by many of the patents is evolving rapidly and may
limit the value of the Company's patents. The Company's business is not
dependent on any single patent or group of patents.
Manufacturing Processes
The Company's manufacturing processes require application of
coatings and adhesives to a variety of materials, including paper, metal
and metal foil, plastic film and cloth, and the use of various graphic
techniques to print or mark the materials. Products manufactured by the
Company generally require a high degree of precision and the application
of adhesives with chemical and physical properties suited for specific
usages.
The Coated Products Division of Brady USA, Inc. produces adhesive
coated materials and release coated backings mainly for use by other
divisions and subsidiaries. The Company's production of the majority of
its own adhesive stocks and release coatings permits an integrated
manufacturing process which the Company believes, when combined with its
emphasis on quality control, provides the basis for high quality,
uniform products. The Company's integrated manufacturing processes also
permit it to achieve greater flexibility in product design and
manufacture, and improve its ability to provide specialized products
designed to meet the needs of specific applications.
Products
Brady's products are used in a wide variety of industrial
applications, including markers that identify electrical circuits and
piping systems; safety and accident prevention signs that warn of health
and accident hazards; nameplates and faceplates that identify and
decorate consumer, scientific, medical and electrical products;
specialized tapes for audio, video and computer applications; products
for the marking and identification of buildings, equipment, and storage
facilities; products for the aerial and ground location and
identification of utility lines; products for floor safety, aisle and
barricade marking; and wound care devices. The Company's most
significant products are described below.
<PAGE>
Wire Markers
Since 1945, the Company has been the leading domestic producer of
labeling and identification products for electrical wires and wiring
devices. Virtually all industrial products, medical equipment,
computers, large buildings, transportation equipment and vehicles
contain a complex network of electrical wiring and circuits. The wires
and wiring devices that comprise these networks must be identified at
the time of manufacture or installation. Many of the Company's products
have become standard in the industry.
The Company manufactures both self-adhesive and non-adhesive wire
marking products in a wide variety of styles and materials. The markers
may be printed with a single number or letter, or with a multi-line
"address" that indicates the origination and termination of the wire,
the device or devices to which it transmits current, engineering
drawings and part numbers, or other information that facilitates the
location of the source of trouble and repair in case of malfunction of
the system.
Brady wire markers are designed for application by a variety of
means and for use in specialized environments, including temperature
ranges of -85F to more than 1,200F and chemical or other corrosive
exposures including radiation, moisture, ozone, acid, alkalis, oils, and
solvents. These products are constructed from various materials
designed to meet engineers' specifications, ranging from general purpose
cloth to materials for more specialized uses such as aluminum, vinyls,
polyesters and polyvinylflourides. Such markers and their chemically
appropriate adhesives provide resistance to various environmental
hazards such as heat, abrasion, solvents, and chemical corrosion.
The Company's self-adhesive wire markers are either preprinted or
blank. The blank wire markers can be computer printed by the customer
using Brady developed software. Preprinted wire markers are mounted on
relatively thick release-coated card stock from which individual
adhesive markers are removed manually or by machine and wrapped around
the wire to provide permanent identification. Computer printable wire
markers are mounted on pin-fed rolls or backing sheets. An important
feature of the Brady computer printable wire markers is the proprietary
ink-receptive, nonerasable, heat and solvent resistant coating on the
surface of the marker.
The Company's non-adhesive wire marking sleeves are being used
increasingly in industrial applications. These sleeve markers are
produced in a variety of forms, ranging from simple slip-on or clip-on
preprinted molded plastic pieces which are applied manually or through
the use of a simple tubular device, to highly automated application
systems for computer printed wire marking sleeves. These computer
printed sleeves may be applied using Brady developed equipment at rates
up to 1,800 markers per hour. Wire marking sleeves may also be heat
shrunk onto the wire using equipment designed for that purpose.
Nameplates, Faceplates and Control Panels
Brady's nameplates, faceplates and control panels, all of which are
custom designed for specific product and customer needs, are used for
product identification. These products display company logos or other
designs to enhance a customer's product or company image, and may also
incorporate a variety of functional features such as light emitting
diode displays, backlighting (spectrum match filter windows for light
transmission), deadfront lighting (light activated message windows), hot
spot compensation (a mechanism for the even diffusion of a single light
source over a wider area), and light filters. Brady manufactured
nameplates, faceplates and control panels are used on electrical
appliances and consumer products, medical and diagnostic equipment,
computers, machine control panels, automobile dashboards, tools and
identification plates.
These products may be surface printed on plastic or metal and
protected with a coating or an overlaminate to resist solvents and
abrasions, or the products may be constructed of a plastic film and
printed on the underside to provide maximum protection. Nameplates,
faceplates and control panels are applied to customer products with
pressure-sensitive adhesives, most of which are developed by the Company
to meet specific bonding requirements. Most of these adhesives are
formulated from acrylic-base polymers, which provide a variety of
adhesive properties as well as superior durability. Rubber-based
adhesives are used when nameplates are applied to low friction surfaces
such as polyethylene and polypropylene.
Specialized Tape Products
The Company's specialized tapes and related products are used in a
variety of audio, video and computer applications, as well as surface
mount technology products. These specialized tape products are
characterized by high performance adhesives, most of which are
formulated by the Company, to meet high tolerance requirements of the
industries in which they are used. The Company's computer application
products include reinforcing rings for floppy discs and components of
micro-discs. Its audio industry products are cassette leader and
splicing tapes and conductive splicing tapes. Video products include
Beta/VHS splicing and leader tapes, conductive/reflective sensing tapes,
and other specialty components used in video cassettes. The Company's
surface mount carrier and cover tapes are compatible with the products
of all major surface-mounted-device electronic component manufacturers.
Pipe Markers
The Company manufactures both self-adhesive and non-adhesive
mechanically applied stock and custom designed pipe markers and plastic
and metal valve tags for the identification of piping systems in
chemical plants, refineries, pipelines, utilities, ships, hospitals,
food processing plants, institutions, and other buildings and facilities
in a variety of temperature and chemical environments. These products
are designed to legibly identify and provide information as to the
contents, direction of flow and special hazardous properties of
materials contained in the piping systems. The Company's products are
designed to meet standards established by the American National
Standards Institute for the identification of piping systems. The
Company formulates its own adhesives for its pipe marking products to
withstand demanding climatic conditions encountered by facilities
ranging from the Alaska pipeline to Middle East refineries, as well as
exposure to various chemical environments. The products are also
designed for application to a variety of pipe surfaces and sizes.
Safety and Accident Prevention Signs
The Company manufactures safety and accident prevention signs for
use in a broad range of industrial, commercial, governmental and
institutional applications. These signs are either self-adhesive or
mechanically mounted, are designed for both indoor and outdoor use, and
are manufactured to meet standards promulgated by the National Safety
Council, the Occupational Safety and Health Administration and a variety
of industry associations. The Company manufactures products with both
stock and custom legends. Safety and accident prevention signs are
constructed from materials designed to meet specific industry and
environmental requirements, including self-adhesive vinyl coated cloth,
subsurface printed polyester, reflective sheeting and phosphorescent
polyester, metal, and fiberglass reinforced panels. The Company's sign
products are categorized by type of message to be conveyed, including
admittance, directional and exit signs; electrical hazard warnings and
energy conservation messages; fire protection and fire equipment signs;
hazardous waste labels; hazardous and toxic material warning signs;
vehicle placards for the transportation industry; personal hazard
warnings; housekeeping and operational warnings; pictograms; radiation
and laser signs; safety practices signs; traffic signs; and regulatory
markings. The Company believes that no other supplier offers as broad a
range of safety and accident prevention sign products.
Numbers and Letters
The Company produces self-adhesive numbers and letters used for the
systematic identification of bins and shelving in factories, warehouses,
stockrooms and other facilities where alphanumeric labeling is desired.
It produces card mounted numbers and letters in a variety of sizes and
types of adhesive-backed printed material. Numbering and lettering
systems are constructed of vinyl-coated cloth and indoor/outdoor vinyl.
The Brady Bintab (R) labeling system provides custom computer printed
labels for specialized storage identification needs. The Company also
manufactures self-adhesive and self-aligning die-cut numbers and letters
and sign making kits.
Other Products
The Company also sells a variety of other products, none of which
individually accounts for a material portion of its sales. These
products include non-skid safety tapes, warning posts and cones, die cut
masks, adhesive backed felt, temperature indicating labels, and hospital
and clinical labels.
Marketing and Sales
Brady markets its stock products primarily through a network of
domestic distributors, mail order sales, and foreign distributors. The
Company's custom designed products are marketed directly to end users,
primarily through domestic and foreign full-time sales representatives.
As part of its marketing program, the Company encourages distributors to
maintain adequate inventories of its stock products to permit prompt
delivery, and maintains such inventories itself.
Many of the Company's stock products were originally designed,
developed and manufactured as custom products for a specific purchaser.
However, such products have frequently developed wide industry
acceptance and become stock items offered by the Company through mail
order and distributor sales. The Company's products are designed to
specifications established by industrial, commercial and military
customers for specific applications. The Company seeks also to have its
products specified by the engineering departments of manufacturers,
constructors and contractors to which it sells.
The Company's products are sold in a wide variety of industrial,
commercial, governmental, public utility, medical equipment, computer
and consumer product markets, including original equipment
manufacturers. No material part of the Company's business is dependent
upon a single customer or group of customers, and the loss of a
particular customer would have no material adverse effect upon the
Company's business. In Fiscal 1994, no single customer accounted for as
much as 2.0% of Company sales. Although sales of certain of the
Company's products experience recurring seasonal variations, management
does not consider the Company's overall sales to be seasonal in nature.
International Operations
The Company's international operations consist both of direct
export sales by the Company's International Group and operations
conducted by its seventeen international locations (Australia, Belgium,
Canada (2), England (2), France (2), Germany (2), Hong Kong, Italy,
Japan, New Zealand, Singapore, Spain and Sweden). Six of these
international locations manufacture or have the capability to
manufacture certain of the Brady products they sell. In Fiscal 1994,
1993, and 1992, international sales accounted for 37.1%, 32.0%, and
30.0%, respectively, of Brady's sales. Other than for the risks
normally attending foreign operations, such as currency fluctuations,
exchange control regulations and the effect of international relations
or the domestic affairs of foreign countries on the conduct of business,
the nature of the Company's international operations and the countries
in which they are conducted do not present unusual business risks over
those encountered by the Company's domestic activities.
Backlog
As of July 31, 1994, the amount of the Company's backlog orders
believed to be firm was $17.4 million. This compares with approximately
$15.2 million and $19.4 million of backlog orders as of July 31, 1993
and 1992, respectively. Average delivery time for the Company's orders
varies from one day to twelve weeks, depending on the type of product,
and whether the product is stock or custom designed and manufactured.
Raw Materials
Base materials used in the Company's products consist primarily of
paper, plastic sheets and films (primarily polyesters and
polycarbonates), metal and metal foil, cloth, fiberglass, inks, dyes,
adhesives, pigments, natural and synthetic rubber, organic chemicals,
polymers and solvents. The Company purchases its raw materials from
many suppliers and is not dependent upon any single supplier for any of
its base supply materials.
<PAGE>
Competition
The markets for most of the Company's products are highly
competitive. Although no industry statistics are available, the Company
believes, on the basis of its knowledge and experience in its various
product markets, that it is the leading domestic producer of self-
adhesive wire markers, pipe markers, audio and video leader and splicing
tapes, reinforcing rings for floppy discs, and adhesive numbers and
letters, and believes that it is a leading domestic producer of
nameplates and faceplates, and safety signs. The Company competes for
business principally on the basis of quality and performance, and to a
lesser extent on price. Product quality is determined by factors such
as suitability of component materials for various applications, adhesive
properties, graphics quality, durability, product consistency and
workmanship. Competition in many of the Company's product markets is
highly fragmented, ranging from smaller companies offering only one or a
few types of products to some of the world's major adhesive and
electrical product companies offering a wide range of competing
products. A number of the Company's competitors are larger than the
Company and have substantially greater resources.
Employees
As of July 31, 1994, Brady employed approximately 1,900 persons.
The Company has never experienced a work stoppage due to a labor
dispute, is not a party to any labor contracts, and considers its
relations with employees to be excellent. To meet present and future
manpower requirements, the Company maintains an active college
recruiting program for sales, technical and administrative personnel.
Environment
At present, the manufacturing processes for the Company's adhesive-
based products utilize certain evaporative organic solvents which,
unless controlled, would be vented into the atmosphere. Emissions of
these substances are regulated at the federal, state and local levels.
During the past several years, the Company has implemented a number of
procedures to reduce atmospheric emissions and/or to recover solvents.
These efforts have included the reformulation of certain adhesives to
water-based emulsions, rather than solvent-based products. During the
past three years, Brady also installed incineration equipment to control
emissions of organic solvents at a cost of approximately $1,052,000.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
See Note 7 to Notes to Consolidated Financial Statements
ITEM 2 PROPERTIES
The Company and its subsidiaries have 15 manufacturing facilities,
six of which are located in Wisconsin, two in North Carolina, and one
each in Connecticut, Australia, Belgium, Canada, England, Japan and
Singapore. The Company's primary research facility of approximately
30,000 square feet is located in Milwaukee, Wisconsin. The Company's
present operating facilities contain a total of approximately 923,000
square feet of space. All of the Company's facilities are owned by it,
except for a total of approximately 150,000 square feet of leased space.
The Company believes that its equipment and facilities are modern, well
maintained, and adequate for its present needs.
ITEM 3 LEGAL PROCEEDINGS
The Company and its subsidiaries are not parties to any material
pending legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's Class A Common Stock is principally traded on the
Over-the-Counter market and is quoted on NASDAQ under the symbol
BRCOA. There is no established public trading market for the
Company's Class B Common Stock.
Stock price disclosure required by this item is incorporated by
reference to Page 37 of the W.H. Brady Co. 1994 Annual Report.
(b) Holders
The number of holders of record of the Company's Class A and Class
B Common Stock as of September 30, 1994 was 304 and 2,
respectively.
(c) Dividends
The Company has followed a practice of paying quarterly dividends
on its outstanding common stock. Before any dividend may be paid
on the Class B Common Stock, holders of the Class A Common Stock
are entitled to receive an annual, non-cumulative cash dividend of
$.10 per share (subject to adjustment in the event of future stock
splits, stock dividends or similar event involving shares of Class
A Common Stock). Thereafter, any further dividend in that fiscal
year must be paid on all shares of Class A Common Stock and Class B
Common Stock on an equal basis.
During its two most recent fiscal years and for the first quarter
of the current year, the Company declared the following dividends
per share on its Class A and Class B Common Stock:
<TABLE>
<CAPTION> Year
Ending
Year Ended 7/31/93 Year Ended 7/31/94 7/31/95
1st2nd 3rd 4th 1st 2nd 3rd 4th 1st
QtrQtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $.15 $.15 $.15 $.15 $.17 $.17 $.17 $.17 $.20
Class B .05 .15 .15 .15 .07 .17 .17 .17 .10
</TABLE>
ITEM 6 SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to
Page 18 and 19 of the W.H. Brady Co. 1994 Annual Report.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to
Pages 20 through 22 of the W.H. Brady Co. 1994 Annual Report.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to
Pages 23 through 35 of the W.H. Brady Co. 1994 Annual Report.
ITEM 9 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
<TABLE>
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
Name Age Title
<S> <C> <C>
Katherine M. Hudson 47 President, CEO and
Director
Donald P. DeLuca 54 Senior Vice President, Treasurer
and Assistant Secretary
Richard L. Fisk 50 Vice President, Direct Marketing
Gregory W. Gyllstrom 42 Vice President, Domestic
Peter J. Lettenberger 57 Secretary and Director
Daniel J. Subach 47 Vice President, Research and
Development
James M. Sweet 41 Vice President, Human Resources
Thomas L. Turner 54 Vice President, Administration
William H. Brady III 52 Director
Elizabeth B. Lurie 49 Director
Robert C. Buchanan 54 Director
Roger D. Peirce 57 Director
Michael S. Joyce 52 Director
Richard A. Bemis 53 Director
Frank W. Harris 52 Director
Gary E. Nei 50 Director
</TABLE>
KATHERINE M. HUDSON - Mrs. Hudson joined the Company in January 1994 as
President, Chief Executive Officer and Director. Prior thereto she was
a Vice President at Eastman Kodak Company and General Manager of its
Professional, Printing and Publishing Image Division. She is also a
director of Apple Computer.
DONALD P. DELUCA - Mr. DeLuca joined the Company as Vice President-
Finance and Chief Financial Officer in May of 1990. He was promoted to
Senior Vice President in August 1994. Before joining Brady, he served
as Executive Vice President-Finance and Administration of CSC
Industries, Inc. from 1987 to April 1990. Prior to that he served as
Vice President, Treasurer and Secretary of Copperweld Corp. from 1974 to
1987. He is also a director of GAN North American Insurance Company.
RICHARD L. FISK - Mr. Fisk joined the Company in 1979 and was appointed
to his present position in August 1987. He previously served as General
Manager of Seton Name Plate Co., a wholly-owned subsidiary of the
Company.
GREGORY W. GYLLSTROM - Mr. Gyllstrom joined the Company in June 1980 and
was appointed to his present position in February 1992. He previously
served as General Manager of the Company's Signmark Division for five
years. Mr. Gyllstrom left the Company in October 1994.
PETER J. LETTENBERGER - Mr. Lettenberger has served as a Director and
Secretary of the Company since January 1977. Mr. Lettenberger has been
a member of the Company's audit and compensation committees since April
1977 and October 1978, respectively, and has been chairman of the
compensation committee since June 1985. He is a partner of Quarles &
Brady, general counsel to Company, which firm he joined in 1964. He is
also a director of Electronic Tele-Communications, Inc.
DANIEL J. SUBACH - Mr. Subach joined the Company in February 1992 as
Vice President-Research and Development. Prior thereto he was Director
of New Product Ventures for H.B. Fuller. Mr. Subach resigned from the
Company in July 1994.
JAMES M. SWEET - Mr. Sweet joined the Company in 1985. In November of
1987 he was appointed Director, Personnel. In August of 1989 he was
appointed Vice President, Human Resources.
THOMAS L. TURNER - Mr. Turner joined the Company in September 1979. In
October 1985 he was appointed Director, Information Services. In
September 1987 he was appointed Vice President, Administration. Mr.
Turner will retire in December 1994.
WILLIAM H. BRADY III - Mr. Brady has been a director of the Company
since January of 1979. He is an audio consultant for Brady Audio Consulting.
ELIZABETH B. LURIE - Mrs. Lurie has been a director of the Company since
January of 1979. Until June 1, 1984, Mrs. Lurie was a Vice President of
Chase Federal Savings & Loan Association, Miami, Florida, and had been
employed by that firm since November 1973, except for the period from
October 1979 to November 1980, when she was Financial Manager for the
University of Miami Law & Economic Center. She now lives in North
Carolina where she is the principal owner of an art gallery in Maggie
Valley.
ROBERT C. BUCHANAN - Mr. Buchanan has been a director of the Company
since November 1987 and a member of its audit committee since June 1988
(chairman since June 1990). Mr. Buchanan is President and CEO of the
Fox Valley Corporation in Appleton, Wisconsin, having assumed that
position November 1, 1980. He is also a director of The Northwestern
Mutual Life Insurance Company.
ROGER D. PEIRCE - Mr. Peirce has served as a director and a member of
the compensation committee of the Company since September, 1988. From
September 1986 to December 1993, he was President of Super Steel
Products Corp., a manufacturer and marketer of fabricated metal products
in Milwaukee, Wisconsin. Prior thereto he was a managing partner,
partner or staff accountant for Arthur Andersen & Co. (since 1961),
independent certified public accountants.
MICHAEL S. JOYCE - Mr. Joyce has been a director of the Company since
March of 1989 and a member of its audit committee since June of 1990.
Mr. Joyce is President and CEO of the Lynde and Harry Bradley
Foundation. Prior thereto he was Executive Director and a trustee of
the John M. Olin Foundation for seven years. Mr. Joyce is also a
trustee of the Pinkerton Foundation, the Lehrman Institute, the
Institute for Educational Affairs and a member of the Advisory Panel of
the Conference Board of Associated Research Councils.
RICHARD A. BEMIS - Mr. Bemis has been a director of the Company since
January 1990 and a member of its compensation committee since March
1990. Mr. Bemis is President and CEO of Bemis Manufacturing Company, a
manufacturer of molded plastic products in Sheboygan Falls, Wisconsin.
He is also a director of Wisconsin Public Service Corporation.
FRANK W. HARRIS - Dr. Harris has been a Director of the Company since
November 1991. Dr. Harris is a Professor of Polymer Science and
Biomedical Engineering in the Institute of Polymer Science at the
University of Akron, and has been on its faculty since 1983. Dr. Harris
is also a director of Ballard Advance Materials.
GARY E. NEI - Mr. Nei has been a Director of the Company since November
1992. Mr. Nei is President and CEO of Eon Laboratories, Inc., a
manufacturer and distributor of pharmaceuticals in Lake Forest,
Illinois. He is also a director of DIFCO Inc.
All directors serve until their respective successors are elected at the
next annual meeting of shareholders. Officers serve at the discretion
of the Board of Directors. None of the Company's directors or executive
officers has any family relationship with any other director or
executive officer, except that William H. Brady III is the brother of
Elizabeth B. Lurie.
ITEM 11 EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by
the Company during the three fiscal years ended July 31, 1994 to those
persons who, as of the end of Fiscal 1994, were the Named Executive
Officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name and Other Annual Awards All
Other
Principal Fiscal Salary Bonus Compensation Options/SAR Compen-
sation
Position Year ($) ($) (1) ($) (2) (3) (# of Shares) ($)(2)
(4)
<S> <C> <C> <C> <C> <C> <C>
K.M. Hudson 1994 175,000 175,000 - 25,000 400,366(5)
President 1993 - - - - -
& Chief 1992 - - - - -
Executive Officer
P.G. Gengler 1994 446,667 - 10,084 - 169,975 (6)
Retired 1993 331,250 172,250 6,725 10,000 157,710 (6)
President 1992 316,250 170,775 - 13,000 -
& Chief
Executive Officer
D.P. DeLuca 1994 182,750 127,925 2,825 2,500 18,161 (7)
Senior Vice 1993 174,000 69,426 2,340 2,500 32,151 (7)
President, 1992 166,000 69,720 - 3,500 -
Treasurer &
Chief Financial
Officer
R.L. Fisk 1994 182,577 127,804 3,097 2,500 15,462
Vice President, 1993 173,846 63,280 2,375 2,500 14,421
Direct Marketing 1992 166,000 62,748 - 3,500 -
G.W. Gyllstrom 1994 164,384 110,006 3,511 2,500 12,968
Vice President, 1993 155,962 51,311 2,435 2,500 12,258
Domestic 1992 127,707 76,007 - 2,000 -
T.L. Turner 1994 128,519 83,126 5,954 2,000 9,716
Vice President, 1993 123,154 44,828 3,734 2,000 9,230
Administration 1992 118,988 42,479 - 2,500 -
(1) Reflects bonus earned during the fiscal year which was paid during
the next fiscal year.
(2) In accordance with SEC transitional rules, amounts have not been
included for Fiscal 1992.
(3) The amounts shown represent costs to the Company for expenses
associated with the use of a company car.
(4) All other compensation for fiscal 1994 for Mrs. Hudson, and
Messrs., Gengler, DeLuca, Fisk, Gyllstrom and Turner, respectively,
includes: (i) matching contributions to the Company's Profit
Sharing and Employee Thrift (i.e. "BradyGold") Plan for each named
executive officer of $13,000, $18,567, $14,620, $14,606, $12,652,
and $9,082 and (ii) the cost of group term life insurance for each
named executive officer of $660, $5,608, $1,022, $856, $316 and
$634.
All other compensation for fiscal 1993 for Messrs. Gengler, DeLuca,
Fisk, Gyllstrom and Turner, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift
(i.e. "BradyGold") Plan for each named executive officer of
$17,752, $13,920, $13,858, $11,997, $8,652 and (ii) the cost of
group term life insurance for each named executive officer of
$4,958, $931, $563, $261, and $578.
(5) Includes $386,706 accrued, but not paid, for the Fiscal 1994
portion of a Supplemental Retirement Plan.
(6) Fiscal 1994 includes $145,800 accrued, but not paid, for the
current year portion of a Supplemental Executive Retirement Plan.
Fiscal 1993 includes $135,000 accrued, but not paid, for that
year's portion of the same Plan.
(7) Includes relocation expenses of $2,519 in Fiscal 1994 and $17,300
in Fiscal 1993.
</TABLE>
STOCK OPTIONS
The following tables summarize option grants and exercises during
Fiscal 1994 to or by the executive officers named in the Summary
Compensation Table above, and the value of unexercised options held by
such persons at July 31, 1994. Stock Appreciation Rights are not
available under any of the Company's plans.
<TABLE>
OPTION GRANTS IN FISCAL 1994
<CAPTION>
Individual Grants
% of Total
Options
Granted to
Options Employees Exercise
Granted in Price (2) Expiration
Name (#) (1) Fiscal 1994 ($/Sh) Date
<S> <C> <C> <C> <C>
K.M. Hudson 25,000 31.9% $43.000 01/06/2004
P.G. Gengler - - - -
D.P. DeLuca 2,500 3.2% $36.500 10/28/2003
R.L. Fisk 2,500 3.2% $36.500 10/28/2003
G.W. Gyllstrom 2,500 3.2% $36.500 10/28/2003
T.L. Turner 2,000 2.6% $36.500 10/28/2003
<CAPTION>
Potential Realizable Value
at Assumed Rates of
Stock Price Appreciation (3)
0% 5% 10%
$43 $70 $111 1/2
Name ($) ($) (6) ($) (6)
<S> <C> <C> <C>
K.M. Hudson $0 $675,000 $1,712,500
P.G. Gengler - - -
D.P. DeLuca $0 $ 83,750 $ 187,500
R.L. Fisk $0 $ 83,750 $ 187,500
G.W. Gyllstrom $0 $ 83,750 $ 187,500
T.L. Turner $0 $ 67,000 $ 150,000
All Shareholders' Gains
(increase in market value of W.H. Brady Co.
Common Stock at assumed rates of stock price
appreciation) (4) (6)........................$147,289,374 $373,678,597
All Optionees' Gains
(as a percent of all shareholders' gains) (5) (6)...1.67% 1.53%
(1) The options granted to Mrs. Hudson were dated January 7, 1994 and
became exercisable July 7, 1994. The options granted to the other
named executives were dated October 29, 1993 and become exercisable
as follows: 33 1/3% of the shares on October 29, 1994; 33 1/3% of
the shares in October 29, 1995; and 33 1/3% of the shares on
October 29, 1996. All these options have a term of ten years.
(2) The exercise price is the average of the highest and lowest sale
prices of the Company's Class A Common Stock as reported by NASDAQ
on the date of the grant.
(3) Represents total potential appreciation of about 0%, 63% and 159%
for assumed annual rates of appreciation of 0%, 5% and 10%,
respectively, compounded annually for the ten year option term.
These calculations are based upon $43.00 exercise price on options
granted to Mrs. Hudson.
(4) Calculated from the $43.00 exercise price applicable to the
options granted to Mrs. Hudson in fiscal 1994 based on the
5,455,162 shares of Class A Common Stock outstanding on January 7,
1994.
(5) Represents potential realizable value for all options granted in
fiscal 1994 as compared to the increase in market value of W.H.
Brady Co. Class A Common Stock at assumed rates of stock price
appreciation.
(6) The Company disavows the ability of any valuation model to predict
or estimate the Company's future stock price or to place a
reasonably accurate present value on these options because any
model depends on assumptions about the stock's future price
movement that the Company is unable to predict.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1994
AND VALUE OF OPTIONS AT END OF FISCAL 1994
<CAPTION>
Number of Unexercised
Shares Options at
Acquired July 31, 1994
on Value
Exercise Realized Exercisable Unexercisable
Name (#) ($) (#) (#)
<S> <C> <C> <C> <C>
K.M. Hudson 0 $ 0 25,000 0
P.G. Gengler 25,000 $364,688 13,666 4,334
D.P. DeLuca 0 $ 0 7,167 5,333
R.L. Fisk 0 $ 0 3,167 5,333
G.W. Gyllstrom 0 $ 0 7,167 4,833
T.L. Turner 4,000 $ 56,500 2,333 4,167
<CAPTION>
Value of Unexercised
In-the-Money Options
at July 31, 1994 (1)
Exercisable Unexercisable
Name ($) ($)
<S> <C> <C>
K.M. Hudson $112,500 $ 0
P.G. Gengler $168,592 $76,658
D.P. DeLuca $157,926 $65,419
R.L. Fisk $ 49,926 $65,419
G.W. Gyllstrom $136,738 $56,575
T.L. Turner $ 36,405 $50,581
(1) Represents the closing price for the Company's Class A Common Stock
on July 31, 1994 of $47.50 less the exercise price for all
outstanding exercisable and unexercisable options for which the
exercise price is less than such closing price.
</TABLE>
COMMON STOCK PRICE PERFORMANCE GRAPH
The graph below shows a comparison of the cumulative return over the
last five fiscal years had $100 been invested at the close of business
on July 31, 1989 in each of W.H. Brady Co. Class A Common Stock, the
Standard & Poor's (S&P) 500 Index and the National Association of
Securities Dealers' Automated Quotation System (NASDAQ) United States
Index.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
W.H. Brady Co. versus Published Indices (S&P 500 and NASDAQ-US)
<CAPTION>
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Brady $100 $ 96 $144 $127 $131 $179
S&P 500 $100 $105 $118 $133 $145 $152
NASDAQ US $100 $ 98 $116 $136 $166 $170
*$100 invested on 7/31/89 in stock or index.
Includes reinvestment of dividends.
Fiscal year ending July 31.
</TABLE>
COMPENSATION OF DIRECTORS
Each director who is also an employee of the Company receives no
additional compensation for service on the Board or on any committee of
the Board. Directors who are not also employees of the Company receive
an annual retainer of $15,000 in addition to $1,000 plus expenses for
each meeting of the Board or any committee thereof which they attend.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
In Fiscal 1994 the Company created a Supplemental Executive
Retirement Plan (SERP) for Mrs. Hudson. The stated amount of the Plan
until January 1, 1999 is $500,000. The Company credited a deferred
compensation account with the net present value of the stated amount in
January 1994. The account will be credited annually with the current
year's increase in the net present value calculation. No interest
accrues on the balance in the account until January 1, 1999. After that
date, interest will accrue quarterly on the balance in the account at
the prime rate in effect at the end of each calendar quarter.
The Company is required to pay Mrs. Hudson the balance in the
account over a ten year period beginning January 2009. The first
payment will be one-tenth of the balance in the account; the second one-
ninth; and so on.
In the event of a change in control of the Company, Mrs. Hudson's
SERP may accelerate and become payable in thirty days.
In September 1994, the Company created a Supplemental Executive
Retirement Plan (SERP) for Mr. DeLuca. The Plan calls for the Company
to credit a deferred compensation account with $50,000 on July 31 of
each year beginning July 31, 1995 to and including July 31, 1999,
provided Mr. DeLuca is employed by the Company as of each of those
dates. Interest accrues on the balance in the account at the prime rate
in effect on July 31 of each year, but not less than 6% nor more than
10% per annum.
The Company is required to pay Mr. DeLuca the balance in the
account over a ten year period beginning on August 1 of the year
following his termination of employment with the Company. The first
payment will be 1/10th of the balance in the account; the second payment
will be 1/9th; and so on. The Company may make payments in some other
manner provided the payments are neither smaller nor extend beyond such
ten year period.
In Fiscal 1992 the Company created a Supplemental Executive
Retirement Plan (SERP) for Mr. Gengler, retired President, CEO and
Director. The Plan credits a deferred compensation account with
$125,000 each year provided Mr. Gengler is in the employment of the
Company as of July 31, 1992, July 31, 1993 and July 31, 1994. If Mr.
Gengler is in the employment of the Company as of July 31, 1994 an
additional $100,000 will be credited to this account on July 31, 1995,
July 31, 1996 and July 31, 1997. Mr. Gengler met these requirements.
Interest accrues on the balance in the account at the rate of 8% per
year.
The Company is required to pay Mr. Gengler the balance in the
account over a ten year period beginning August 1, 1997. That payment,
and the nine succeeding payments, will equal one-tenth of the account
balance at August 1, 1997. Additionally, the payments in succeeding
years will include interest credited to the account in the interim. The
Company may make payments in some other manner provided the payments are
neither smaller nor extend beyond August 1, 2006.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1994, the Board's Compensation Committee was
composed of Messrs. Bemis, Lettenberger and Peirce. None of these
persons has at any time been an employee of the Company or any of its
subsidiaries, although Mr. Lettenberger has been and remains Secretary
of the Company. Mr. Lettenberger is a partner of Quarles & Brady, which
is general counsel to the Company. There are no other relationships
among the Company's executive officers, members of the Compensation
Committee or entities whose executives serve on the Board that require
disclosure under applicable SEC regulations.
PROFIT SHARING AND EMPLOYEE THRIFT PLAN
All Brady employees in the United States and certain
expatriate employees working for its international subsidiaries are
eligible to participate in the Company's Profit Sharing and Employee
Thrift Plan (the "BradyGold Plan"). Under this plan the Company agrees
to contribute certain amounts to the BradyGold Plan to the extent of
current earnings and profits, or, under certain circumstances,
accumulated earnings of the Company. Under the BradyGold Plan, the
Company first contributes 4% of the eligible earnings of each person
covered by the BradyGold Plan. In addition, participants may elect to
have their annual pay reduced by up to an additional 4% and to have the
amount of this reduction contributed to the BradyGold Plan by the
Company and matched by an additional, equal contribution by the Company.
Participants may also elect to have their annual pay reduced by up to an
additional 4% and to have the amount of this reduction contributed to
the BradyGold Plan by the Company (without an additional matching
contribution by the Company). The assets of the BradyGold Plan credited
to each participant are invested by the BradyGold Plan trustee as
directed in several investment funds as permitted by the BradyGold Plan.
The annual contributions and forfeitures allocated to any participant
under all defined contribution plans may not exceed the lesser of
$30,000 or 25% of the participant's base compensation and bonuses.
Benefits are generally payable upon the death, disability, or retirement of
the participant or upon termination of employment before
although benefits may also be withdrawn from the BradyGold Plan and paid
to the participant if required for certain emergencies. Under certain
specified circumstances, the BradyGold Plan allows loans to be drawn on
a participant's account. The participant is immediately fully vested
with respect to the contributions attributable to reductions in pay; all
other contributions become fully vested after five years of service.
DEFERRED COMPENSATION ARRANGEMENTS
Directors, executive officers, corporate staff officers and certain
key management employees of the Company are permitted to defer portions
of their fees, salary and bonus and to invest the deferred amounts in
"phantom stock" of the Company. "Phantom Stock" is not actual stock or
rights to acquire stock in the Company, but it gives participants the
right to share in increases in book value (as defined) of the common
stock. At the end of each fiscal year, the deferred compensation
balance (with interest) is credited to the purchase of phantom common
stock at the then book value of the common stock of the Company, and is
thereafter adjusted to reflect stock dividends and other dividends or
distributions on the Company's Class A Common Stock.
Upon the retirement, disability, or death of participant, the Company
is required to pay, each year for a period of ten years, a portion of
the book value of the phantom stock determined by the book value of the
corresponding number of common shares as of the end of each fiscal year.
The first payment must be one-tenth of the book value; the second one-
ninth; and so on, with the number of phantom shares reduced by the
equivalent in book value of each payment.
If the participant's employment ends for reasons other than his
retirement, disability or death, the book value of his phantom stock
will be determined as of the end of the fiscal year following his
termination of employment and he will receive one-tenth of such amount
each year for a period of ten years, plus interest at a rate 2% less
than the Company's short-term borrowing rate. At the request of the
participant, the Company may make payments in larger installments or in
a lump sum on a discounted or other basis.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed
entirely of outside directors and is responsible for considering and
approving compensation arrangements for senior management of the
Company, including the Company's executive officers and the chief
executive officer. It is the philosophy of the Committee to establish a
total executive compensation program which is competitive with a broad
range of companies that it considers to be of comparable size and
complexity.
The primary components of the Company's executive compensation
program are (i) base salary, (ii) annual cash incentive compensation
bonuses and (iii) long term incentive compensation in the form of stock
options. These are designed to align shareholder and management
interests, to balance the achievement of annual performance targets with
actions that focus on the long-term success of the Company, and to
attract, motivate and retain key executives who are important to the
continued success of the Company. Decisions made by the Committee
relating to the base salary compensation and the annual cash incentive
compensation plan are reviewed and approved by the full Board of
Directors.
The Committee believes that:
- The Company's pay levels are appropriately targeted to attract and
retain key executives;
- The Company's incentive plan provides strong incentives for
management to increase shareholder value; and
- The Company's total executive compensation program is a cost-
effective strategy to increase shareholder value.
BASE SALARY
Consistent with the Committee's philosophy, base salaries are
generally maintained at or modestly above competitive base salary
levels. Competitive salary level is defined as the average base salary
for similar responsibilities in a group of companies selected by the
Committee that the Committee considers to be of comparable size and
complexity. In setting base salaries for Fiscal 1994, the Committee
reviewed compensation survey data and was satisfied that the base salary
levels set would achieve the Company's objectives. Specific increases
reflect the Committee's subjective evaluation of individual performance.
ANNUAL INCENTIVE COMPENSATION
The Incentive Compensation Plan (the "Bonus Plan") provides for the
annual payment of cash bonuses. When viewed together with the Company's
base salary, the purpose of the Bonus Plan is to provide a balance
between fixed compensation and variable, results-oriented compensation.
The Bonus Plan is designed to reward superior results and performance
with superior compensation. The Bonus Plan has both an objective and
subjective element. Components of the objective element include the
Company's profitability and sales growth. Components of the subjective
element include the achievement of certain agreed upon individual goals.
STOCK OPTIONS
In 1989 the Board approved the W.H. Brady Co. 1989 Non-Qualified
Stock Option Plan (the "Option Plan") under which 500,000 shares of
Class A Non-Voting Common Stock are available for grant. The Option
Plan assists executive officers, corporate staff officers and key
management employees in becoming shareholders with an important stake in
the Company's future, aligning their personal financial interest with
that of all shareholders. Stock options are typically granted annually
and have a term of ten years. Generally the options become one-third
exercisable one year after the date of the grant and one-third
additional in each of the succeeding two years so that at the end of
three years after the date of the grant they are fully exercisable. All
grants under the Option Plan are at market price on the date of the
grant and have value only if the price of W.H. Brady Co. Class A Common
Stock, after the vesting requirement passes, has increased to a greater
value than at the grant date.
COMPLIANCE WITH NEW TAX REGULATIONS REGARDING EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, added by the Omnibus
Budget Reconciliation Act of 1993, generally disallows a tax deduction
to public companies for compensation over $1 million paid to the
corporation's chief executive officer and the other named executive
officers. Qualifying performance-based compensation will not be subject
to the deduction limit if certain requirements are met. The Company's
executive compensation program, as currently constructed, is not likely
to generate non-deductible compensation in excess of these limits. The
Compensation Committee will continue to review these evolving tax
regulations as they apply to the Company's executive compensation
program. It is the Compensation Committee's intent to preserve the
deductibility of executive compensation to the extent reasonably
practicable and to the extent consistent with its other compensation
objectives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mrs. Hudson received $175,000 in base salary from January 1, 1994
through the end of the fiscal year. She was paid a bonus attributable
to Fiscal 1994 of $175,000. Mrs. Hudson was awarded the maximum bonus
because certain objective sales growth and profitability goals were met,
as well as criteria for the subjective portion of the bonus including:
(i) re-energizing the Company to drive growth and global expansion
(ii) increasing cross-divisional cooperation and teamwork
(iii) continuing emphasis on earnings while refocusing on asset
utilization
(iv) facilitating the Company's long-range strategic planning
Included in the terms of Mrs. Hudson's employment offer was a
granting of options to purchase 25,000 shares of Class A Common Stock.
Although he retired in December 1993, base salary was owed to Mr.
Gengler for the entire fiscal year. Mr. Gengler received $307,084 in
base salary in Fiscal 1994. In addition, $139,583 base salary owed to
Mr. Gengler for the period August 1994 to December 1994 was accelerated
and paid in July 1994. Mr. Gengler did not receive a bonus in Fiscal 1994.
No stock option grants were awarded to Mr. Gengler in Fiscal 1994.
The Committee believes these awards are consistent with the
objectives of the various plans and with the overall compensation policy
of the Board of Directors.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
The Compensation Committee believes the executive compensation
programs and practices described above are competitive. They are
designed to provide increased compensation with improved financial
results and provide additional opportunity for capital accumulation, but
only if shareholder value is increased.
Peter J. Lettenberger, Chairman
Richard A. Bemis
Roger D. Peirce
<TABLE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth the current beneficial ownership of
shareholders who are known by the Company to own five percent (5%) of
any class of the Company's voting shares on September 30, 1994.
<CAPTION> Amount of
Title of Name and Address of Beneficial Percent of
Class Beneficial Owner Ownership Ownership
<S> <C> <C> <C>
Class B William H. Brady, Jr.(1) 1,574,866 89%
Common Marital Trust
Stock c/o Quarles & Brady
Attn: Peter J. Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
William H. Brady, Jr.(1) 194,448 11%
Non-QTIP Marital Trust
c/o Quarles & Brady
Attn: Peter J. Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
The trustees of both trusts are Robert C. Buchanan, Irene B. Brady,
Roger D. Pierce, Peter J. Lettenberger, and Michael S. Joyce, each of
whom shares voting and dispositive power. The vested beneficiary is Irene B.
Brady; the contingent remainder beneficiaries are William H. Brady, III and
Elizabeth B. Lurie.
</TABLE>
<TABLE>
(b) Security Ownership of Management
The following table sets forth the current beneficial ownership of
each class of equity securities of the Company by each Director or
Nominee and by all Directors and Officers of the Company as a group as
of September 30, 1994. Except as otherwise indicated, all shares are
owned directly.
<CAPTION>
Title Name of Beneficial Amount of Percent
of Owner & Nature of Beneficial of
Beneficial Ownership Ownership Ownership
<S> <C> <C> <C>
Class A Peter J. Lettenberger (1)(2)(3) 1,109,940 20.3%
Common Robert C. Buchanan (1)(4) 848,681 15.5%
Stock Roger D. Peirce (1) 848,431 15.5%
Michael S. Joyce (1) 848,431 15.5%
Elizabeth B. Lurie (2)(5) 568,415 10.4%
William H. Brady III (6) 345,824 6.3%
Katherine M. Hudson (7) 25,013 0.5%
Paul G. Gengler (8) 14,486 0.3%
Richard A. Bemis 500 *
Gary R. Nei 500 *
All Officers and Directors
as a Group (19 persons)(9) 1,843,839 33.7%
Class B Peter J. Lettenberger (1) 1,769,314 100%
Common Robert C. Buchanan (1) 1,769,314 100%
Stock Roger D. Peirce (1) 1,769,314 100%
Michael S. Joyce (1) 1,769,314 100%
All Officers and Directors
as a Group 1,769,314 100%
6% Peter J. Lettenberger (1)(2) 2,751 69.1%
Cumulative Robert C. Buchanan (1) 1,920 48.2%
Preferred Roger D. Peirce (1) 1,920 48.2%
Stock Michael S. Joyce (1) 1,920 48.2%
Elizabeth B. Lurie (2)(5) 1,066 26.8%
William H. Brady III (2)(6) 998 25.1%
All Officers and Directors
as a Group 3,221 80.8%
1979 Series William H. Brady III (2)(6) 8,071 36.7%
Cumulative Elizabeth B. Lurie (2)(5) 8,071 36.7%
Preferred Peter J. Lettenberger (2) 5,529 25.2%
All Officers and Directors
as a Group 10,613 38.3%
6% Peter J. Lettenberger (2) 2,600 100%
Cumulative Elizabeth B. Lurie (2) 2,600 100%
Preferred William H. Brady III (2) 2,600 100%
Stock, All Officers and Directors
1972 Series as a Group (2) 2,600 100%
* Indicates less than one tenth of one percent.
(1) The amount shown includes shares held directly by the William
H. Brady, Jr. Marital Trust (the "Marital Trust") and the William H.
Brady, Jr. Non-QTIP Marital Trust (the "Non-QTIP Trust")(collectively,
the "Trusts"). The Marital Trust owns 687,781 shares of Class A Common
Stock, 1,574,866 shares of Class B Common Stock, and 1,709 shares of 6%
Cumulative Preferred Stock. The Non-QTIP Trust owns 160,650 shares of
Class A Common Stock, 194,448 shares of Class B Common Stock, and 211
shares of 6% Cumulative Preferred Stock. The Trustees of both Trusts
are Robert C. Buchanan, Irene B. Brady, Roger D. Peirce, Peter J.
Lettenberger, and Michael S. Joyce, each of whom shares voting and
dispositive power. All of the Trustees except Mrs. Brady disclaim
beneficial ownership of these shares. Irene B. Brady is the widow of
William H. Brady, Jr. and the vested beneficiary of the Trusts;
she is the parent of William H. Brady, III and Elizabeth Brady Lurie
(who are contingent remainder beneficiaries of the Trusts) and the
grandparent of Elizabeth Irene Pungello.
(2) William H. Brady III, Elizabeth B. Lurie and Peter J.
Lettenberger are among the directors of the W.H. Brady Foundation, Inc.
(the "Foundation") which owns 5,529 shares of the 1979 Series,
Cumulative Stock, 763 shares of the 6% Cumulative Preferred Stock and
2,600 shares of the 6% Cumulative Preferred Stock, 1972 Series. Mr.
Lettenberger and Mrs. Lurie are also trustees of the Irene B. Brady
Revocable Trust of 1986 (the "1986 Trust"), which owns 259,941 shares of
Class A Common Stock and 68 shares of 6% Cumulative Preferred Stock.
All such persons disclaim beneficial ownership of shares held by the
Foundation and the 1986 Trust.
(3) In addition to shares beneficially owned as a trustee of the
Trusts and the 1986 Trust and as a director of the Foundation, Mr.
Lettenberger owns directly 1,567.5 shares of Class A Common Stock.
(4) In addition to shares beneficially owned as a trustee of the
Trusts, Mr. Buchanan owns directly 250 shares of Class A Common Stock.
(5) In addition to the shares owned as a trustee of the 1986
Trust and as a director of the Foundation, Mrs. Lurie owns directly
145,740 shares of Class A Common Stock, or 2.7% of the number of such
shares outstanding, 235 shares of 6% Cumulative Preferred Stock and
2,542 shares of 1979 Series Preferred Stock. She is the mother of
Elizabeth Irene Pungello, who is the beneficiary of the Elizabeth Irene
Pungello Irrevocable Trust (the trustees of which are Nicholas M.
Daniels and Shy Lurie, Mrs. Lurie's husband) which owns 162,734 shares
of the Class A Common Stock, or 3.0% of the number of such shares
outstanding. She disclaims ownership of these shares.
(6) In addition to shares owned as a director of the Foundation,
Mr. Brady owns 345,824 shares of Class A Common Stock, 235 shares of 6%
Cumulative Preferred Stock, and 2,542 shares of 1979 Series Cumulative
Stock.
(7) Mrs. Hudson owns 12.8427 shares of Class A Common Stock
indirectly through an employee benefit plan and holds a vested option to
acquire an additional 25,000 shares of Class A Common Stock.
(8) Mr. Gengler owns 520 shares of Class A Common Stock directly
and his spouse owns 300 shares of Class A Common Stock. He also
beneficially owns 13,666 shares of Class A Common Stock through vested
options. He holds options for an additional 4,334 shares of Class A
Common Stock that fully vest by October 1995.
(9) The amount shown for all officers and directors as a group
(19 persons) includes options to acquire a total of 73,566 shares of
Class A Common Stock which are currently exercisable or will be
exercisable within 60 days. It does not include other options for Class
A Common Stock which have been granted but vest over the next three
years.
</TABLE>
(c) Changes in Control
No arrangements are known to the Company which may, at a subsequent
date, result in a change in control of the Company.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under terms of an employment agreement with William H. Brady, Jr.,
the Company paid approximately $24,000 to Mr. Brady's beneficiaries in
1994. No further liabilities exist under the terms of this agreement.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1) The consolidated financial statements, together with the
independent Auditors' Report thereon of Deloitte & Touche LLP,
presented on Pages 23 through 35 of the Company's 1994 Annual
Report is incorporated herein by reference.
2) Consolidated Financial Statement Schedules--
Schedule IV Indebtedness to Related Parties - Not
Current
Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation and Amortization
of Property, Plant and Equipment
Schedule VIII Valuation and Qualifying Accounts
Schedule X Supplementary Income Statement Information
Independent Auditors' Report on Financial Statement Schedules
All other schedules are omitted as they are not required, or
the required information is shown in the consolidated
financial statements or notes thereto.
3) Exhibits
3.1(1) Restated Articles of Incorporation of W.H. Brady Co.
3.2(2) By-laws of W.H. Brady Co., as amended.
10.1(1) Employment Agreement dated November 3, 1975, between W.H.
Brady Co. and William H. Brady, Jr.
10.2(2) W.H. Brady Co. Four Square Plan, as amended.
10.3(2) Executive Additional Compensation Plan, as amended.
10.4(2) Form of Executive's Deferred Compensation Agreement,
as amended.
10.5(2) Forms of Director's Deferred Compensation Agreement,
as amended.
10.6(4) W.H. Brady Co. 1989 Non-Qualified Stock Option Plan.
10.7 Incentive Compensation Plan.
10.8(4) Supplemental Executive Retirement Plan dated March 27,
1992 between W.H. Brady Co. and Paul Gengler.
10.9(4) W.H. Brady Co. Automatic Dividend Reinvestment Plan.
10.10 Supplemental Executive Retirement Plan between W.H. Brady
Co. and Katherine M. Hudson
10.11 Supplemental Executive Retirement Plan dated September 23,
1994 between W.H. Brady Co. and Donald P. DeLuca.
13.1 Annual Report to Shareholders for year ended July 31,
1994.
18.1(3) Letter regarding change in accounting method.
22.1 Subsidiaries of W.H. Brady Co.
23.1 Consent of Deloitte & Touche LLP, Independent Auditor.
(1) Incorporated by reference to Registrant's Registration
Statement No. 2-91287 on Form S-1.
(2) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended July 31, 1989.
(3) Incorporated by reference to Exhibit 18 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1989.
(4) Incorporated by reference to Registrant's Annual Report
on form 10-K for the Fiscal year ended July 31, 1992.
<TABLE>
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES - NOT CURRENT
<CAPTION>
Balance at Additions to Reductions of Balance at
Category Beginning of Period Indebtedness Indebtedness End of
(Dollars in Thousands) Period
Year ended July 31, 1992:
<S> <C> <C> <C> <C>
Management $11945 $2261 $1285 $12921
Directors 2257 319 203 2373
Trustees 56 0 22 34
Former
Chairman 111 0 71 40
Total $14369 $2580 $1581 $15368
Year ended July 31, 1993:
<S> <C> <C> <C> <C>
Management $12921 $1179 $1532 $12568
Directors 2373 525 506 2392
Trustees 34 0 16 18
Former
Chairman 40 0 16 24
Total $15368 $1704 $2070 $15002
Year ended July 31, 1994:
<S> <C> <C> <C> <C>
Management $12568 $2468 $1775 $13261
Directors 2392 349 207 2534
Trustees 18 0 18 0
Former
Chairman 24 0 24 0
Total $15002 $2817 $2024 $15795
Note: The indebtedness represents amounts due under different deferred
compensation plans.
Reductions of indebtedness are payments to retired or deceased
participants of the various categories.
</TABLE>
<TABLE>
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Bal. at Other Bal. at
Beginning Additions Retire- Deduc- End of
of Period At Cost ments tions(4) Period
Classification (3) (Dollars in thousands)
Year Ended July 31, 1992:
<S> <C> <C> <C> <C> <C>
Land $ 2967 $ 2243 $ (1) $ 5211
Buildings & Improvements 28770 8533 (437) 37740
Machinery & Equipment 56980 14820 1946 $3875 65979
Construction in Progress 11104 (1522) (317) 9899
$ 99821 $24074 $ 1191(1)(2) $3875 $118829
Year Ended July 31, 1993:
Land $ 5211 -- $ 547 $ 4664
Buildings & Improvements 37740 $ 4544 4811 37473
Machinery & Equipment 65979 13773 10950 68802
Construction in Progress 9899 (6037) 55 3807
$118829 $12280 $16363 (1)(2) $114746
Year Ended July 31, 1994:
Land $ 4664 -- $ (25) 4689
Buildings & Improvements 37473 $ 666 (292) 38431
Machinery & Equipment 68802 8661 4887 72576
Construction in Progress 3807 (2861) 7 939
$114746 $ 6466 $ 4577 (2) $116635
(1) Includes $1,199 (1992) and $13,873 (1993) of retirements due to
sale of business units.
(2) Includes foreign currency translation adjustments of
$(1,607)(1992), $2,535 (1993) and $(971)(1994).
(3) Cost is being depreciated using the straight line method over the
estimated useful lives, which range as follows:
Buildings & Improvements 10 to 40 years
Machinery & Equipment 3 to 10 years
(4) Nonrecurring charge - See Note 2 to the Consolidated Financial
Statements.
</TABLE>
<TABLE>
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Additions
Bal. at Charged to Bal. at
Beginning Costs and Retire- End of
Of Period Expenses ments Period
(Dollars in Thousands)
Classification
Year Ended July 31, 1992:
<S> <C> <C> <C> <C>
Buildings & Improvements $10616 $1095 $ 11 $11700
Machinery & Equipment 29817 7355 1510 35662
$40433 $8450 $1521 (1)(2) $47362
Year Ended July 31, 1993:
Buildings & Improvements $11700 $1356 $1036 $12020
Machinery & Equipment 35662 8492 8790 35364
$47362 $9848 $9826 (1)(2) $47384
Year Ended July 31, 1994:
Buildings & Improvements $12020 $1321 $ (58) $13399
Machinery & Equipment 35364 8004 4475 38893
$47384 $9325 $4417 (1) $52292
(1) Includes foreign currency translation adjustments of $(876)(1992),
$1,329 (1993) and $(371)(1994).
(2) Includes $1,103 (1992) and $5,486 (1993) of retirements due to
sale of business units.
</TABLE>
<TABLE>
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year ended July 31,
1992 1993 1994
(Dollars in Thousands)
<S> <C> <C> <C
Description
Valuation accounts deducted in balance
sheet from assets to which they apply--
Accounts receivable--allowance for losses:
Balances at beginning of period $ 987 $1320 $1247
Additions--Charged to expense 750 758 725
Deductions--Bad debts written off, net of
recoveries (417) (831) (407)
Balances at end of period $1320 $1247 $1565
</TABLE>
<TABLE>
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
Charged to costs and expenses
Year ended July 31,
1992 1993 1994
(Dollars in thousands)
<S> <C> <C> <C>
Maintenance and repairs $ 4196 $ 4344 $ 3767
Advertising costs $20442 $21234 $27303
Note: Amounts for taxes other than payroll taxes and income taxes,
amortization of intangible assets, and royalties are not
presented, as such amounts are less than one percent of net
sales.
</TABLE>
DELOITTE & TOUCHE LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4496
Telephone (414) 271-3000
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-30258 of W.H. Brady Co. on Form S-8 of our reports dated September 12,
1994, appearing in and incorporated by reference in the Annual Report on
Form 10-K of W.H. Brady Co. for the year ended July 31, 1994.
/S/ Deloitte & Touche LLP
Milwaukee, Wisconsin
October 26, 1994
Deloitte & Touche LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4496
Telephone (414) 271-3000
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of W.H. Brady Co.:
We have audited the consolidated financial statements of W.H. Brady Co. and
subsidiaries as of July 31, 1994 and 1993 and for each of the three years in
the period ended July 31, 1994, and have issued our report thereon dated
September 12, 1994; such consolidated financial statements and report are
included in your 1994 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the consolidated financial
statement schedules of W.H. Brady Co. and subsidiaries, listed in Item 14.
These consolidated financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such consolidated financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information
set forth therein.
/S/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 12, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized this
14th day of October, 1994.
W.H. BRADY CO.
By /S/ D.P. DeLuca
D.P. DeLuca, Senior Vice President,
Treasurer, and Assistant Secretary
(Principal Accounting Officer)
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/S/ K.M. Hudson President and Director 10/14/94
K.M. Hudson (Principal Executive Officer)
/S/ P.J. Lettenberger Director 10/14/94
P.J. Lettenberger
/S/ R.A. Bemis Director 10/14/94
R.A. Bemis
Director
W.H. Brady III
Director
E.B. Lurie
Director
F.W. Harris
/S/ R.C. Buchanan Director 10/14/94
R.C. Buchanan
/S/ R.D. Peirce Director 10/14/94
R.D. Peirce
/S/ M.S. Joyce Director 10/14/94
M.S. Joyce
Director
G.E. Nei
SCHEDULE OF SUBSIDIARIES OF W.H. BRADY CO.
Name Jurisdiction of Incorporation
Brady Coated Products, Inc. Wisconsin
Brady Financial Co. Delaware
Brady International Co. Wisconsin
Brady International Sales, Inc. U.S. Virgin Islands
Brady Medical Products Co. Wisconsin
Brady Service Co. Wisconsin
Brady USA, Inc. Wisconsin
Nippon Brady K.K. Japan
Revere-Seton Inc. Canada
Seton GmbH Germany
Seton, Ltd. England
Seton S.A. France
Tricor Direct Inc./Doing
Business As Delaware
Seton
Seton Name Plate Company
Worldmark of Wisconsin Inc. Delaware
W.H. Brady, Pty. Ltd. Australia
W.H. Brady, N.V. Belgium
W.H. Brady, Inc. Canada
W.H. Brady, Ltd. England
W.H. Brady, S.A.R.L. France
W.H. Brady, GmbH Germany
W.H. Brady, Pte. Ltd. Singapore
Brady AB Sweden
Corporate Profile
W.H. Brady Co. manufactures and markets coated films and
industrial identification products.
Headquartered in Milwaukee, Wisconsin, the
81-year-old Company has operations worldwide.
Driving the Company is its focus on quality,
innovation and performance in all it does. Using
total-quality-assurance methods, extensive research and
development resources and people committed to doing their best
and improving
their best, Brady is a leader in its markets.
Financial Highlights 1
President's Letter 2
Customer Focus 6
Financial Review, 1994 17
Corporate Data 36
Shareholder Services 37
<TABLE>
Financial Highlights
<CAPTION>
Percent
(Dollars in Thousands, Increase
Except Per Share Amounts) 1994 1993 (Decrease)
<S> <C> <C> <C>
Net sales $255,841 $242,970 5.3%
Income before income taxes $29,902 $25,829 15.8%
Pre-tax profit margin 11.7% 10.6%
Net income $18,540 $16,856 10.0%
After-tax profit margin 7.2% 6.9%
Return on average
stockholders'
investment 13.6% 13.6%
Net income per Common Share
Class A Nonvoting $2.55 $2.33
Class B Voting $2.45 $2.23
Working capital $100,023 $77,943 28.3%
Stockholders' investment $145,129 $128,068 13.3%
Research and development $10,318 $12,132 (15.0%)
Capital expenditures $6,466 $12,280 (47.3%)
Depreciation and amortization $9,435 $10,173 (7.3%)
</TABLE>
President's Letter
Since joining W.H. Brady Co. in January 1994, I've gotten to know
our Company very well-from our people and processes to our
products and customers. I'm pleased to report that Brady is in a
strong competitive position.
Fiscal 1994 was a record year for us financially. And our efforts
in process improvement, cost reduction, increased teamwork and
new product development should help us continue to improve.
Record Financial Results. Sales for the year ended July 31, 1994,
increased to $255,841,000 from the prior year's sales of
$242,970,000, a 5.3-percent increase. On a more comparable basis,
sales increased 11.5 percent, as last year's sales included
revenues of $13.5 million from three divested units.
Net income for fiscal 1994 was $18,540,000 or $2.55 per share, up
10 percent from $16,856,000 or $2.33 per share in 1993. Excluding
the financial impact of divested units in 1993, net income rose
15.9 percent. Net income for 1994 was affected by a higher net
effective tax rate of 38.0 percent. The prior year's 34.7-percent
rate was lower due to the reversal of previously accrued income
taxes for potential tax liabilities settled in favor
of the Company.
Sales for the fourth quarter were $66,209,000, an 8.6-percent
increase over sales of $60,963,000 for the previous year.
Net income for the fourth quarter was $4,936,000 or $0.67 per
share, compared to $5,901,000 or $0.81 per share for the previous
year. The prior year's net income included $1,472,000 or $0.20
per share of onetime gains related to divestitures and
tax-related issues. Excluding these effects, net income was up
11.4 percent in the fourth quarter over the previous year's
fourth quarter.
All three operating groups posted sales increases for the year,
with our international subsidiaries showing excellent growth.
International sales now account for 37.1 percent of total sales,
up from 32.0 percent last year.
Operations Review. Our European operations showed great
improvement in 1994. Despite the effects of foreign exchange
rates and sluggish European economies, Brady's European sales
increased about 20 percent. Sales were especially strong in
Belgium, Germany and England.
Keys to the revenue growth for our traditional Brady-European
operations were new portable printing systems and
customer-printable label products developed within a cohesive
European marketing plan. Also we made strides in improving our
service to local markets, including cutting lead times and
bolstering research and development support through our European
Research and Innovation Center in Belgium. Our Seton Direct
Marketing Group was strong in Europe due to the addition of new
products and expansion of its catalogs. Through its operation in
France, Seton began marketing to companies in the Netherlands
this year.
Seton's operation in Canada also fared well in fiscal 1994, due
to the addition of new products, including an expanded catalog
and service improvements. Based in Toronto, Canada, Revere-Seton
has begun providing same-day delivery of products to companies in
Toronto-a service which has been well received.
Our performance in the U.S. improved, driven by new products. Key
contributors were new portable printing systems, tapes, aluminum
and plastic signs and regulatory compliance products. Seton is
revising its mailing plan and adding more products to its catalog
to bolster its U.S. results next year. We expect increased
interdivisional cooperation and sharing of resources in the
traditional Brady U.S. operations will speed new product
development and strengthen our marketing efforts in 1995. The
I.D. Pro labeling system, one of the key new products developed
in 1994, is expected to do well in 1995 as interest in the
electrical market has been high since the product was introduced
in the spring of 1994.
Our Asian-Pacific sales, while still relatively small, rose by
almost 60 percent due to our efforts in Australia, Japan and
Singapore. Brady-Australia's increase was due in large part to
our strengthened commitment to the distributor network which we
established in fiscal 1993. Our Singapore operation, which was
started in fiscal 1992, drove sales increases in all product
areas through our investments in increased sales staff and our
efforts to market across the region. During the year we
introduced new semiconductor tape and reel products to capitalize
on the continued rapid growth of the semiconductor market.
Our profitability has also improved. Cost of goods sold as a
percent of sales declined as the result of cost-reduction efforts
throughout the Company, including process improvements, improved
purchasing efforts and teamwork. As an example, in our Industrial
Products Division alone there was $1.3 million in cost reduction
from process improvement, yield improvement and supplier programs
during the year.
We are also pleased to report three more Brady operations have
been registered to the standards of the International
Organization for Standardization, Switzerland, this year. This
summer W.H. Brady N.V., Belgium, was certified in ISO 9002, the
Signmark Division of Brady USA, Inc., was certified in ISO 9001,
and the Industrial Products Division of Brady USA, Inc., was
certified in ISO 9001. This brings to seven the number of
ISO-certified Brady operations. The benefits of the ISO process
and certification include improved documentation of procedures in
all areas, greater quality awareness and a competitive advantage.
While the Company started the year with three fewer operations,
the Brady team was successful in moving the Company well beyond
prior- year levels. Looking forward in fiscal 1995, we are
focusing on building bridges across divisional lines to better
leverage our assets, speed new product introductions and further
enhance our service to our customers.
Focus on the Future. We are focusing on three themes at Brady,
all of which support long-term value creation for our
shareholders:
1) strategic initiatives to create growth, 2) improved asset
utilization, and 3) teamwork.
We are measuring our performance based on value creation in
excess of our cost of capital. Starting in fiscal 1995, our
Company's management incentive compensation program will be tied
to the shareholder value created, thus aligning the interests of
management and shareholders. We will make decisions which
maximize our Company's long-term success.
In fiscal 1995 we are working to do more where we are and to
extend our reach globally. Seton will increase its number of
mailings to Holland and will also begin selling to companies in
Belgium, Switzerland, Austria, Denmark and Italy. Teamwork
throughout the Company will play a key part in these efforts.
Traditional Brady divisions and Seton together are expanding
efforts in Italy and Australia and looking at opportunities in
Latin America and the Far East.
It's been a great year for W.H. Brady Co. and a great one for me,
too. The Company is in excellent financial shape. We have a great
line of high-performance identification, safety and specialty
tape products serving thousands of companies worldwide. And we
have a truly outstanding team of people at Brady who will take
the Company forward with new products, improved service and
processes and new markets with an ever-present focus on
shareholder value creation.
Katherine M. Hudson
President and Chief Executive Officer
October 1994
INNOVATION
Since it was founded in 1914, W.H. Brady Co. has been serving an
ever-widening customer base. Innovation plays a large part in that growth
and success. As customers' needs for identification or tape products or
printing systems change, Brady is there with products and services to meet
those needs.
BOEING
Sticking Together
Chemistry
Boeing Company, U.S.A. Boeing, the leading manufacturer of aircraft, has
been a Brady customer for more than 15 years. Boeing has depended on
Brady's custom-engineered wire-identification products to label the wiring
throughout its airplanes-from the cockpit's electrical controls to the engines'
wiring. Brady's products withstand tremendous heat, crystallizing cold, and
the deteriorating effects of grease, hydraulic fluid and aircraft fuel to
maintain legible identification.
As Boeing has grown, so has its industrial identification needs. W.H. Brady
Co. has been there working hand in hand with Boeing engineers developing
innovative products to meet those changing needs.
Brady's printable fluid-line tape was created specifically to satisfy Boeing's
needs for labeling aircraft hydraulic lines and fuel lines. The tape withstands
a variety of oils and chemicals including Skydrol, a harsh chemical used in
hydraulic fluid.
The newest of Boeing's family, the 777 jet, has also benefited from the
teamwork of Boeing engineering and Brady's innovation. The 777
development utilized the most advanced design technology available. And it
incorporated Brady's state-of-the-art printing and adhesive chemistry
products, helping Boeing cut production time and cost and improve
manufacturing flexibility.
(Photo cutline: Boeing uses Brady identification products to label thousands
of wiring, hydraulic and fuel lines throughout its airplanes.)
IBM
Meeting the Challenge
Specifications
IBM, Toronto, Canada. When IBM needed the world's thinnest label for
PCMCIA (Personal Computer Memory Card International Association) card
identification, it called on Brady_and Brady responded.
PCMCIA cards are each the size of a credit card and provide additional
features and capabilities for portable and personal computers. The cards
were developed by IBM Canada Ltd. in Toronto and are manufactured at its
wholly-owned subsidiary, Celestica Inc., Toronto.
While standard labels in the industry are between 3.5 mils and 20 mils in
thickness, IBM needed a label with a total thickness of 2 mils
(two-thousandths of an inch) or less to identify the cards.
Brady representatives from Canada and Milwaukee worked together to
address processing, printing, adhesion, materials and other IBM
specifications in the project. The solution: a subsurface-printable system
including an adhesive that would bind permanently at 0.5 mils thickness and
a compatible ink and ultra-thin base material.
"We had to make several enhancements and modifications to our print line
and finishing line to ensure a high-quality printed product for our customer,"
said Ed Wright, general manager of Brady-Canada. "The end result was a
success."
In fiscal 1994 Brady-Canada began reaching beyond its region into other
possible markets for the ultra-thin label. "We originally developed the
product as a one-color ultra-thin label for IBM in Canada. We have since
expanded the line in addition to expanding sales worldwide," Wright said.
In July 1994, W.H. Brady Co. introduced a compact, automatic applicator to
be used in conjunction with the ultra-thin labels. The applicator allows
customers to cleanly and precisely apply labels to their memory cards on the
assembly line. "We merely coupled one outstanding product with another,"
Wright said.
(Photo cutline: "It was a real team effort between IBM and W.H. Brady to
develop this ultra-thin label. Everyone at Brady was extremely responsive to
our special labeling requirements," said Al Kerklaan, IBM Development
Design Services.)
(Photo cutline: Brady team members from Canada and the U.S. worked
together to create an ultra-thin label for IBM PCMCIA cards.)
THOMSON
Taking the Heat
High-Performance
Thomson Consumer Electronics, Marion, Indiana.
Thomson Consumer Electronics, a world leader in television manufacturing,
produces televisions under the General Electric, RCA and ProScan labels.
Searching for a low-cost supplier who could meet its labeling needs for
cathode-ray- tube manufacturing, Thomson contacted Brady's Industrial
Products Division.
Thomson needed a product that could survive the CRT manufacturing
process including exposure to harsh chemicals and temperatures of more
than 400 degrees Celsius. The product had to be flexible, maintain a color or
whiteness, perform with low particle emission and be absent of
contaminants harmful to CRT functionality. Brady technical service
representatives worked closely with Thomson's imaging technology and
engineering team to develop a line of products to meet these needs. Brady's
high-temperature labels are pressure sensitive, adhere to glass and a variety
of metal surfaces and withstand acidic and alkaline substances and
extremely high temperatures.
At Thomson's small-television manufacturing plant, Brady's XB-521
high-temperature labels are used as position markers to help in manual
operations. The labels, in various colors and shapes, are used to identify the
top of the glass panel. By using the markers, Thomson reduces chances of
panel rotation and other mistakes that wouldn't show up until the final half
of the manufacturing process.
In Thomson's highly automated large-set manufacturing plant, Thomson
uses Brady's XB-520 high-temperature barcode labels. These machine-read
labels identify the top of the glass panels for the 31-inch and 35-inch
televisions and contain information about the date, time and shift every CRT
is produced. The labels allow managers to track product quality and to
identify when and where problems occur.
(Photo cutline: "Basically, we had a reverse engineering situation. We
simply told Brady what the labels had to do," said Barry Snitzer, Thomson
Consumer Electronics, Senior Member, Technical Staff.)
(Photo cutline: Brady-engineered barcode labels withstand exposure to the
chemicals and extreme heat inherent in Thomson's CRT manufacturing
process.)
SEMCO
Friendly Foil
Research
Semco, Incorporated, U.S.A. When SEMCO, a leading manufacturer of
cooling systems, embarked on developing next- generation air-conditioning
technology, it looked to W.H. Brady Co.'s Coated Products Division as its
coating expert.
In 1990, SEMCO set out to expand its desiccant-based technologies and
convert from solvent-based to environmentally friendly water-based
coatings. "Brady not only produced pressure-sensitive materials, but also
offered custom coating services, including water-based coating," said Gary
Mills, SEMCO purchasing manager. "Brady's extensive coating experience
along with its strengths in research and development and reputation for
high-quality coating made Brady the perfect partner in this project."
Brady development chemists and process engineers worked closely with
SEMCO personnel to develop a desiccant and water- based formulation
which could be coated onto aluminum foil at Brady to provide increased
absorbency, consistency and high durability as part of temperature- and
moisture-stabilizing air-handling units. SEMCO forms the desiccant-coated
aluminum foil into a wheel, up to 14 feet in diameter. This wheel is integral
to the air-control system, as it extracts moisture from the air, reducing
relative humidity and air temperature.
"The development has been a success," Mills said. "This new water-based
coating is not only better for the environment, but it is also proving to
outperform solvent coating formulations, from the standpoint of efficiency
as well as overall quality."
Expanding on this success, SEMCO began pilot installations in 1994
introducing desiccant-based cooling systems. This new product is capable of
augmenting and even replacing freon-based methods of cooling.
SEMCO and Brady continue with their search for better materials and their
applications in the heating, ventilating and air conditioning industry. Through
the research capability of Brady and the marketing strength of SEMCO, more
safe, effective and environmentally responsible products find their way to
market.
(Photo cutline: Brady applies a water-based desiccant coating to aluminum
foil for SEMCO's environmentally friendly cooling systems.)
(Photo cutline: "Tapping Brady's coating expertise, we have developed
high-performance cooling systems using wheels as small as 12 inches in
diameter, expanding desiccant's cooling availability to the residential as well
as commercial and industrial markets," commented Gary Mills, SEMCO, Inc.)
DYNA-CRAFT
The Leading Edge
Precision
Dyna-Craft, Inc., U.S.A. When Dyna-Craft needed an improved tape system
for its leadframe manufacturing, Brady applied its expertise in coating and
converting to develop the solution.
Dyna-Craft leadframes are used by semiconductor companies to connect the
leads from a silicon chip to an external circuit. A leadframe's leads must be
precisely and accurately positioned to make the needed connection with the
silicon chip. To ensure that correct positioning is maintained even through
handling and processing, Dyna-Craft needed a high- performance tape which
it could apply to the leads during manufacturing to stabilize and reinforce
them.
Tape requirements included high bond strength, extremely high purity and
resistance to the effects of humidity and heat. It also had to be easily
integrated into Dyna-Craft's manufacturing line, be compatible with many
leadframe styles and be economical.
Chemists and materials scientists at Brady developed a tape meeting
Dyna-Craft's needs. And Brady Coated Products Co.'s clean-room slitting
operations ensure the tape's high quality is protected through finishing.
"Because the tape becomes encapsulated in an integrated circuit, the tape's
purity, chemical, electronic and mechanical properties are essential," said
Cyndie Arretche, Dyna-Craft purchasing manager.
(Photo cutline: Researchers at Brady developed a high-performance tape
used by DCI in the manufacture of its leadframes--specialized frameworks
used by the semiconductor industry to connect the leads from a silicon chip
to an external circuit.)
(Photo cutline: "Brady's leadframe tape has proven to be an excellent
product in helping us ensure total quality of our leadframes," said Cyndie
Arretche, Dyna-Craft.)
SERVICE
W.H. Brady Co. realizes that meeting our customers' needs requires more
than high-quality products; it also requires exceptional service.
PCA
Paper Chase
Coordination
Packaging Corporation of America, U.S.A. To help companies keep up with
changing governmental regulations and provide a safe workplace, Brady
offers a full safety identification product line including signs, labels, tags,
lockout/tagout devices and other products.
But Brady takes its customer focus even further, Brady's Signmark Division
offers turnkey labeling through its Safety Identification Services group.
In fiscal 1994, Packaging Corporation of America's paper mill in Counce,
Tenn., looked to Brady for engineering, production and installation of safety
products for its plant. Brady's Pulp and Paper industry Specialist Herb
Raschka came up with a workable solution resulting in a cost-effective and
professionally identified facility. Brady SIS Coordinator Ray Simonson spent
nine weeks at the site, collecting data, ordering products, smoothing out any
project problems that arose and keeping the project on schedule. The Brady
Customer Service Department and Signmark Manufacturing Cell 140 worked
closely to ship product quickly.
For the installation, Brady employees teamed up with six PCA mill
employees from the various production departments and 12 college student
employees to install 20,000 pipemarkers and 800 tank signs at the plant.
Near the end of the project, Brady sponsored a picnic to thank the PCA
employees for their hard work.
(Photo cutline: "Line and tank identification is a very important element of
the safety program at Counce. Proper knowledge of the tank or line content
assures the correct safety precautions are taken prior to working on the mill
systems," remarked Joe Milligan, PCA Maintenance Department.)
(Photo cutline: Brady and PCA employees joined forces to install
pipemarkers and signs at a PCA paper mill.)
PEPSICO
Shaping Up, Shipping Out
Integration
PepsiCo Food Systems Worldwide, Milwaukee, Wisconsin. Meeting
customers' needs requires more than high-quality products; it also requires
exceptional service. For PepsiCo Food Systems Worldwide's Milwaukee
distribution center, Brady helped integrate its barcode labels, software and
printing systems with the PFS information system to support their
warehouse- automation efforts.
"By barcode-labeling boxes in the warehouse, we direct an item to go to a
particular Taco Bell, Pizza Hut, KFC or Hot'n Now restaurant in our
seven-state Midwestern region," said Ellen Moodie, senior operations
manager in Milwaukee for PFS, a division of PepsiCo, Inc. "We use about
8,000 barcode labels a day."
Warehouse specialists pick a box (containing hot sauce, oil, cups, napkins or
other dry goods), label it and place it on a multi-tiered conveyor system.
Further down the line, an automatic barcode scanner reads the box's label
and diverts the box-based on the information contained in the barcode-to the
correct semitrailer. The automated system has added flexibility, increased
efficiency and improved accuracy.
"Brady was very supportive of our efforts," Moodie said. "An applications
engineer from Brady's Auto ID Group dissected our label information on our
computer system and customized a software program for us which enabled
us to print barcodes. Brady also designed a custom label format for our
process and provided us with printers that met our needs of durability and
high-quality printing."
Brady is working with a second PFS distribution center to set up a similar
program.
(Photo cutline: "Our Brady contacts served as partners with us in this
project. They helped us come up with a solution that would work and then
stayed on to implement and maintain it. Throughout the whole process
Brady has been there to provide us with the service we need," said Ellen
Moodie, PepsiCo Food Systems.)
(Photo cutline: PepsiCo Food Systems Worldwide's Milwaukee distribution
center found the support it needed for its warehouse-automation efforts:
Brady integrated barcode labels, software and printing systems to enable
more efficient order routing.
AMG
Rapid Response
Just-in-Time
AMG Industries, Inc., Queensbury, N.Y. Seton Name Plate Co., Branford,
Conn., the direct-marketing subsidiary of W.H. Brady Co., recently began
using "just-in-time" manufacturing techniques as part of its continuous
improvement process. The results have been reduced inventory and shorter
lead times.
AMG Industries, Inc. was one of Seton's first customers to benefit from
improved lead times. AMG, a nationwide original equipment manufacturer
and general contractor, purchases pipemarkers, engraved plates and valve
tags to use at construction sites.
When AMG Project Coordinator Brian Walker placed a rush order for Opti-
Code Pressure sensitive pipemarkers in May 1994, he was quoted Seton's
then-standard rush lead time of four working days. However, the Seton
screen printing team that was to produce the product was operating at a
new level.
The team, made up of production art, screen-marking, screen-printing,
finishing and machine maintenance employees, had redesigned their areas to
optimize work flow, staggered work schedules to ensure job coverage and
implemented the use of kanbans to switch from a "push-through" to a "pull-
through" manufacturing strategy. As a result, AMG's order was completed
in just two days, with no need for special "rush" handling.
The just-in-time philosophy is one of ongoing continuous improvement. The
screen-printing team's current goal is to ship every order within 24 hours.
(Photo cutline: Brady's direct-marketing subsidiary, Seton, uses just-in-time
manufacturing techniques to continuously improve its service. The screen
printing team, pictured, has cut its lead time in half.)
(Photo cutline: "The turnaround of the order was exceptional. Getting the
pipemarkers so quickly helped me do my job, keeping our construction
project moving ahead," commented Brian Walker, AMG Project Coordinator.)
GLOBAL REACH
W.H. Brady Co. is committed to global leadership in its markets. With
operations in the United States, Canada, Singapore, Japan, Australia,
Belgium, England, Germany, France, Sweden, Italy, New Zealand and Hong
Kong, Brady continues to strive for optimum effectiveness as a worldwide
provider of identification, safety and specialty tape products.
VIDEO AKTUELL
Astonishing Response
Attitude
Video Aktuell GmbH, Limburg, Germany. The Seton-Germany team is
justifiably proud of the unsolicited praise they recently received from a
valued customer.
Video Aktuell GmbH, along with its German and Austrian partner, Video
Ring, is Europe's largest video leasing and sales company. Together these
partners supply more than 660 video shops in Germany and about 50 in
Austria with video films and equipment as well as compact discs and CD
players.
Tommy Neis, general manager of Video Aktuell (and the Baron of Fordyce,
Scotland), felt compelled to write a letter to Seton-Germany's sales
manager, Susan Joslin, following receipt of some post and chain and sign
samples they had ordered.
"We were astonished to receive the goods the following day," Neis wrote.
Their next order, placed two weeks later, also received 24-hour turnaround.
Neis explained that Seton's service was in marked contrast to the two-week
delay that is customary with mail order companies.
In a follow-up phone call, Neis stated that he felt a need to confirm Seton's
"positive attitude toward the customer."
(Photo cutline: Supplying video stores in Germany and Austria, Video
Aktuell GmbH contacted Seton to order posts and chains (typically used to
direct customer traffic). Video Aktuell has no idea that Seton would be so
quick to respond and fill its order.)
(Photo cutline: "For such customer service we admire you and thank you
very much. Of course we will remain your customer," said Tommy Neis,
Video Aktuell GmbH.)
VERBATIM
Worldwide Support
Partnership
Verbatim Corporation, Limerick, Ireland. In fiscal 1994, Brady continued its
effort to be the leading supplier to microfloppy disk manufacturers. Verbatim
Corporation in Limerick, Ireland, a producer of media-storage products (such
as diskettes, tapes and optical disks) for the computer industry, is one of
Brady-Europe's largest customers.
"Brady and Verbatim have been doing business since it first made diskettes,
15 years ago," said Terry Mockler, European sales manager for Brady's
specialty tape products.
Verbatim purchases Brady's A-rings, double-sided adhesive polyester rings
that are used in 3.5-inch microfloppy disks. All the products that Brady
produces for Verbatim are custom-made for their specific automated
manufacturing equipment.
"Because the diskette-production process runs high volumes at very high
speeds and cannot tolerate down time, it is essential that we provide
extremely reliable, consistent product," Mockler said.
Brady is the preferred supplier of media-storage component products for
Verbatim Corporation worldwide, which includes meeting the needs of its
United States, Europe and Mexico manufacturing locations. A Brady support
team-including employees in research and development, engineering,
customer service and manufacturing-is working in conjunction with Verbatim
worldwide on cost reduction and product improvement.
"Brady is a progressive company who through design change and other
innovative ideas has maintained a competitive edge in support of the floppy
disk industry," said the senior corporate buyer of Verbatim, Charlotte, N.C.
(Photo cutline: Brady and Verbatim have worked together for more than 15
years--with Brady supplying custom-made adhesive-coated polyester rings,
critical to Verbatim's worldwide diskette manufacturing operations.)
(Photo cutline: "We have met Verbatim-Ireland's stringent demands for
just-in-time deliveries by setting up dedicated warehousing and distribution
from our Belgian facility," said Terry Mockler, Brady Europe.)
Brady USA, Inc.
Coated Products Division produces specialized adhesive and top-coated
materials.
Industrial Products Division manufactures identification products, industrial
labeling and printing systems for customers primarily in electrical and
electronic markets.
Signmark Division manufactures products for facility and safety
identification-including signs, pipemarkers and lockout devices.
Nameplate Division produces custom-printed faceplates and nameplates for a
variety of original equipment manufacturers.
Brady Coated Products Co. produces specialized adhesive products for
audio/video, data-storage and semiconductor industries.
Brady Medical Products Co. produces medical dressings for healthcare
markets.
Brady International Co. directs Brady's international sales and manufacturing
operations located throughout the world.
Seton direct-marketing companies market identification products through
operations in the United States, Canada, Germany, France and England. In
fiscal 1995, Seton is expanding operations to include Australia and Italy.
Table of Contents
Selected Financial Information 18
Management's Discussion and Analysis of
Results of Operations and Financial Condition 20
Consolidated Balance Sheets 23
Consolidated Statements of Income 24
Consolidated Statements of
Stockholders' Investment 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27
Independent Auditors' Report 35
Corporate Data 36
Shareholder Services 37
<TABLE>
W. H. Brady Co. and Subsidiaries
Selected Financial Information
Years Ended July 31, 1984 through 1994
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
Operating Data
1994 1993 1992 1991
<S> <C> <C> <C> <C>
Net Sales $255,841 $242,970 $235,965 $211,063
Operating Expenses:
Cost of products sold 118,116 114,301 110,130 96,797
Research and development 10,318 12,132 10,001 9,176
Selling, general and
administrative 97,932 92,449 93,931 84,936
Nonrecurring charges (1,236) 6,562
Total operating
expenses 226,366 217,646 220,624 190,909
Operating income 29,475 25,324 15,341 20,154
Other income and (expense):
Investment and other
income, net 837 559 239 2,845
Interest expense (410) (54) (219) (548)
Net other income 427 505 20 2,297
Income before income taxes,
extraordinary items and
cumulative effect of changes
in accounting principles 29,902 25,829 15,361 22,451
Income taxes 11,362 8,973 6,972 7,054
Income before extraordinary
item and cumulative effect
of changes in accounting
principles 18,540 16,856 8,389 15,397
Extraordinary item:
Gain on proceeds of
officer's life insurance
policies, net
Income before cumuilative
effect of changes in
accounting pricinples 18,540 16,856 8,389 15,397
Cumulative effect of
changes in accounting
principles for:
Postretirement benefits (3,995)
Income taxes 661
Catalog costs
Net income $18,540 $16,856 $5,055 $15,397
Net income per Common Share:
Class A Nonvoting $2.55 $2.33 $0.69 $2.14
Class B Voting $2.45 $2.23 $0.59 $2.04
Cash Dividends on:
Class A Common Stock $0.68 $0.60 $0.56 $0.48
Class B Common Stock $0.58 $0.50 $0.46 $0.38
Working capital $100,023 $77,636 $66,093 $70,883
Total assets 202,509 178,656 173,054 156,812
Long-term debt, less
current maturities 1,855 1,978 2,524 1,982
Stockholders' investment 145,129 128,068 119,771 115,260
<CAPTION>
Operating Data
Net Sales 1990 1989 1988 1987
<S> <C> <C> <C> <C>
Operating Expenses: $191,161 $174,174 $153,016 $126,420
Cost of products sold
Research and development 84,952 75,620 67,302 56,284
Selling, general and 7,355 6,168 5,879 5,383
administrative
Nonrecurring charges 76,596 71,292 63,986 50,108
Total operating 6,465
expenses
168,903 159,545 137,167 111,775
Operating income
Other income and (expense): 22,258 14,629 15,849 14,645
Investment and other
income, net
Interest expense 4,004 2,380 1,901 2,082
Net other income (646) (356) (477) (348)
3,358 2,024 1,424 1,734
Income before income taxes,
extraordinary items and
cumulative effect of changes
in accounting principles
25,616 16,653 17,273 16,379
Income taxes
10,606 6,778 6,968 7,535
Income before extraordinary
item and cumulative effect
of changes in accounting
principles
Extraordinary item: 15,010 9,875 10,305 8,844
Gain on proceeds of
officer's life insurance
policies, net
4,625
Income before cumuilative
effect of changes in
accounting pricinples
Cumulative effect of 15,010 14,500 10,305 8,844
changes in accounting
principles for:
Postretirement benefits
Income taxes
Catalog costs
Net income 1,233
$15,010 $15,733 $10,305 $8,844
Net income per Common Share:
Class A Nonvoting
Class B Voting $2.09 $2.10 $1.36 $1.17
Cash Dividends on: $1.99 $2.00 $1.26 $1.07
Class A Common Stock
Class B Common Stock $0.40 $0.28 $0.24 $0.20
$0.30 $0.18 $0.14 $0.10
Working capital
Total assets $67,797 $53,056 $42,492 $44,176
Long-term debt, less 147,197 129,890 117,201 104,398
current maturities
Stockholders' investment 3,298 3,637 3,086 3,851
103,784 89,443 84,987 76,044
Operating Data
1986 1985
Net Sales $108,364 $100,099
Operating Expenses:
Cost of products sold 49,385 47,808
Research and development 5,004 4,154
Selling, general and
administrative 38,019 30,007
Nonrecurring charges
Total operating
expenses 92,408 81,969
Operating income 15,956 18,130
Other income and (expense):
Investment and other
income, net 1,764 1,956
Interest expense (400) (445)
Net other income 1,364 1,511
Income before income taxes,
extraordinary items and
cumulative effect of changes
in accounting principles 17,320 19,641
Income taxes 7,873 8,865
Income before extraordinary
item and cumulative effect
of changes in accounting
principles 9,447 10,776
Extraordinary item:
Gain on proceeds of
officer's life insurance
policies, net
Income before cumuilative
effect of changes in
accounting pricinples 9,447 10,776
Cumulative effect of
changes in accounting
principles for:
Postretirement benefits
Income taxes
Catalog costs
Net income $9,447 $10,776
Net income per Common Share:
Class A Nonvoting $1.26 $1.43
Class B Voting $1.16 $1.33
Cash Dividends on:
Class A Common Stock $0.10 $0.10
Class B Common Stock -- --
Working capital $40,701 $38,167
Total assets 94,477 82,758
Long-term debt, less
current maturities 4,548 5,013
Stockholders' investment 66,791 57,074
</TABLE>
CORPORATE DATA
Domestic Locations
Milwaukee, Wisconsin
W.H. Brady Co.
Brady Coated Products Co.
Brady Financial Co.
Brady Medical Products Co.
Brady Service Co.
Brady USA, Inc.
Coated Products Division
Industrial Products Division
Signmark Division
Hillsborough, North Carolina
Brady USA, Inc.
Nameplate Division
International Locations
Chipping Norton, Australia
W.H. Brady Pty. Ltd.
Zele, Belgium
W.H. Brady N.V.
Rexdale, Ontario, Canada
W.H. Brady Inc.
Banbury, Oxon, England
W.H. Brady Co., Ltd.
Paris, France
W.H. Brady S.A.R.L.
Rodermark, Germany
W.H. Brady GmbH
Kowloon, Hong Kong
W.H. Brady Co.
Milano, Italy
W.H. Brady N.V.
Yokohama, Japan
Nippon Brady K.K.
Auckland, New Zealand
W.H. Brady Pty. Ltd.
Singapore
W.H. Brady Pte. Ltd.
Upplands-Vasby, Sweden
Brady AB
DIRECT MARKETING LOCATIONS
Branford, Connecticut
Seton Name Plate Co.
Markham, Ontario, Canada
Revere-Seton, Inc.
Banbury, Oxon, England
Seton, Ltd.
Langen, Germany
Seton, GmbH
Roubaix, France
Seton S.A.
OFFICERS
Katherine M. Hudson
President, Chief Financial Officer
Donald P. DeLuca
Senior Vice President
Treasurer and Chief Financial Officer
Richard L. Fisk
Vice President - Direct Marketing
James M. Sweet
Vice President - Human Resources
Donald E. Rearic
President, Brady Financial Co.
Thomas E. Scherer
Controller
Peter J. Lettenberger
Secretary
Partner - Quarles & Brady
DIRECTORS
Richard A. Bemis
Director
President - Bemis Manufacturing Company
William H. Brady, III
Director
President - Brady Audio Consulting
Robert C. Buchanan
Director
President and CEO - Fox Valley Corporation
Frank W. Harris
Director
Professor of Polymer Science -
University of Akron
Katherine M. Hudson
President and CEO-W.H. Brady Co.
Michael S. Joyce
Director
President and CEO-
The Lynde & Harry Bradley Foundation
Peter J. Lettenberger
Director
Partner-Quarles & Brady
Elizabeth Brady Lurie
Director
President and Administrator-
W.H. Brady Foundation
Gary E. Nei
Director
Chief Executive Officer-Eon Laboratories, Inc.
Roger D. Peirce
Director
Vice Chairman and CEO (retired) - Super Steel
Products Corporation
SHAREHOLDER SERVICES
Common Stock Listing
As of September 30, 1994, there were 304 Class A Nonvoting Common Stock
shareholders of record and two Class B Voting Common Stock shareholders.
W.H. Brady Co. Class A Nonvoting Common Stock trades on the over-the-counter
market under the symbol BRCOA. Trading information is carried by the National
Association of Securities Dealers' Automated Quotation System (NASDAQ).
Shareholder Account Records
Shareholder account records are maintained in the corporate general office.
Shareholder inquiries should be directed to: Donald P. DeLuca, Senior Vice
President, W.H. Brady Co., 727 West Glendale Avenue, P.O. Box 571, Milwaukee,
Wisconsin 53201-0571, (414) 332-8100.
<TABLE>
Quarterly Stock Data
<CAPTION>
1994 1993 1992
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 49 44 3/4 36 1/2 34 3/4 34 3/4 32
3rd Quarter 48 43 1/2 37 1/4 34 36 31 1/2
2nd Quarter 46 1/2 36 37 3/4 35 1/2 34 3/4 29
1st Quarter 37 34 1/2 37 1/4 33 1/4 42 30 7/8
</TABLE>
Dividend Policy
W.H. Brady Co. has paid consecutive quarterly dividends since it went public in
1984. Dividends are normally paid on the last day of October, January, April
and July. The Board of Directors voted a quarterly dividend of 20 cents per
share of Class A Nonvoting Common Stock to shareholders of record on October
10, 1994.
Shareholders may have their dividends reinvested in Brady stock. Brochures
about this program are available through the Investor Services Unit of the
stock transfer agent, Firstar Trust Company, by calling (800) 637-7549.
Stock Transfer Agent
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Additional Information Available
If your stock is held in a street name and you wish to receive information
directly from the Company, please contact Donald P. DeLuca at the above
address. Your name will be added to the mailing list.
Form 10-K
A copy of the W.H. Brady Co. 1994 Annual Report on Form 10-K, to be filed with
the Securities and Exchange Commission, is also available without charge upon
written request.
Annual Meeting
The annual meeting of W.H. Brady Co. will be held at 9:00 a.m. on Friday,
November 18, 1994, at the University Club, 924 East Wells Street, Milwaukee,
Wisconsin 53202.
W.H. Brady Co.
Incentive Compensation Plan
Adopted August 1, 1993
1. Purpose
The purpose of this Incentive Compensation Plan (the "Plan")
is to provide incentive and reward to those employees of
W.H. Brady Co. and its subsidiaries (the "Company")
responsible for directing functions where the decisions
involved have a significant bearing on the success and
profitability of the Company and who have demonstrated
exceptional ability, industry and service. The Plan is to
motivate individuals to maximize profitability and
shareholder value through group and individual performance.
The incentive reward is to be in the form of supplemental
compensation in addition to the individual's regular base
compensation and will vary based upon the individual's
ability to affect the Company's and operating group's
profitability or objectives.
1. Participants and Eligibility Requirements
A. Levels of Participants
This Incentive Compensation Plan will encompass four
levels of management employees as designated by the
President:
Level 1 - Chief Executive Officer
Chief Operating Officer
Other Elected Officers
Department Heads
<TABLE>
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1994 AND 1993
(Dollars in Thousands)
<CAPTION>
ASSETS 1994 1993
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 66,107 $ 42,366
(Note 1)
Accounts receivable, less allowance for losses
($1,565 and $1,247, respectively) 32,308 30,522
Inventories (Note 1):
Finished products 16,717 13,466
Work-in-process 2,534 2,698
Raw materials and supplies 4,486 6,569
Total inventories 23,737 22,733
Prepaid expenses and other current assets 9,611 10,025
(Notes 1, 3 and 4)
Total current assets 131,763 105,646
OTHER ASSETS (Note 4) 6,403 6,893
PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 5):
Cost:
Land 4,689 4,664
Buildings and improvements 38,431 37,473
Machinery and equipment 72,576 68,802
Construction in progress 939 3,807
116,635 114,746
Less accumulated depreciation 52,292 47,384
Net property, plant and equipment 64,343 67,362
TOTAL $202,509 $179,901
See notes to consolidated financial statements.
</TABLE>
<TABLE>
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 18,540 $ 16,856 $ 5,055
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,325 9,848 8,450
Amortization 110 325 294
Write down of machinery and equipment 3,875
Cumulative effect of change in method of
accounting for income taxes (661)
Cumulative effect of change in method of
accounting for postretirement benefits 3,995
Gain on sale of businesses (1,963)
Loss on sale of equipment 194 51 34
Provision for losses on accounts receivable 725 758 750
Changes in operating assets and liabilities
(net of effects of business disposals in 1993):
Accounts receivable (2,169) (2,917) (4,532)
Inventory (928) (3,583) (1,826)
Prepaid expenses and other assets 1,305 1,981 (2,433)
Accounts payable and accrued liabilities 3,325 (890) 5,925
Income taxes 1,852 2,139 (77)
Deferred income taxes (413) (608) (1,476)
Other liabilities 1,202 (415) 1,062
Net cash provided by operating activities 33,068 21,582 18,435
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (6,466) (12,280) (24,074)
Proceeds from sale of property, plant and
equipment 458 570 475
Proceeds from sale of businesses 10,327
Proceeds from sale of temporary investments 6,113
Net cash used in investing activities (6,008) (1,383) (17,486)
FINANCING ACTIVITIES:
Payment of dividends (4,999) (4,400) (4,101)
Proceeds from issuance of common stock 1,063 646 355
Proceeds from long-term borrowings 217 139 1,610
Principal payments on long-term debt (495) (711) (2,453)
Net cash used in financing activities (4,214) (4,326) (4,589)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 895 (2,026) 2,281
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 23,741 $ 13,847 $ (1,359)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 42,366 28,519 29,878
CASH AND CASH EQUIVALENTS, END OF YEAR $ 66,107 $ 42,366 $ 28,519
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 237 $ 436 $ 309
Income taxes, net of refunds 10,601 9,110 9,839
See notes to consolidated financial statements.
</TABLE>
<TABLE>
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JULY 31, 1994, 1993, AND 1992
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
NET SALES $255,841 $242,970 $235,965
OPERATING EXPENSES:
Cost of products sold 118,116 114,301 110,130
Research and development 10,318 12,132 10,001
Selling, general and administrative 97,932 92,449 93,931
Nonrecurring charge (credit)
(Note 2) (1,236) 6,562
Total operating expenses 226,366 217,646 220,624
OPERATING INCOME 29,475 25,324 15,341
OTHER INCOME AND (EXPENSE):
Investment and other income - net 837 559 239
Interest expense (410) (54) (219)
Net other income 427 505 20
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 29,902 25,829 15,361
INCOME TAXES (Notes 1 and 4) 11,362 8,973 6,972
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 18,540 16,856 8,389
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES FOR:
Postretirement benefits (net of income taxes of $2,663)
(Note 3) (3,995)
Income taxes (Notes 1 and 4) 661
NET INCOME $18,540 $16,856 $5,055
"NET INCOME PER COMMON SHARE (Notes 1, 6 and 8):"
Class A nonvoting:
Income before cumulative effect
of changes in accounting
principles (includes $.10
preferential dividend) $ 2.55 $ 2.33 $1.16
Cumulative effect of changes in accounting principles for:
Postretirement benefits (Note 3) (0.56)
Income taxes (Note 4) 0.09
Net income $ 2.55 $ 2.33 $0.69
Class B voting - net income $ 2.45 $ 2.23 $0.59
See notes to consolidated financial statements.
</TABLE>
<TABLE>
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
YEARS ENDED JULY 31, 1994, 1993 AND 1992
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
Additional Earnings Cumulative
Preferred Common Paid-in Retained in the Translation
Stock Stock Capital Business Adjustments
<S> <C> <C> <C> <C> <C>
Balances at
August 1, 1991 $2,855 $72 $4,385 $105,320 $2,628
Net income 5,055
Net currency
translation adjustment 3,106
Issuance of 15,100 shares of Class A
common stock under stock
option plan 355
Tax benefit from exercise of
stock options 96
Cash dividends on preferred stock:
1979 series - $10 a share 220
6% and 1972 series - $6 a share (39)
Cash dividends on common stock:
Class A - $.56 a share (3,028)
Class B - $.46 a share (814)
Balances at
July 31, 1992 2,855 72 4,836 106,274 5,734
Net income 16,856
Net currency translation adjustment (4,894)
Issuance of 26,000 shares of Class A
common stock under stock
option plan 646
Tax benefit from exercise of
stock options 89
Cash dividends on preferred stock:
1979 series - $10 a share (220)
6% and 1972 series - $6 a share (39)
Cash dividends on common stock:
Class A - $.60 a share (3,256)
Class B - $.50 a share (885)
Balances at
July 31, 1993 2,855 72 5,571 118,730 840
Net income 18,540
Net currency translation adjustment 2,323
Issuance of 39,650 shares of Class A common stock
under stock option plan 1,063
Tax benefit from exercise of
stock options 134
Cash dividends on preferred stock:
1979 series - $10 a share (220)
6% and 1972 series - $6 a share (39)
Cash dividends on common stock:
Class A - $.68 a share (3,714)
Class B - $.58 a share (1,026)
Balances at
July 31, 1994 $2,855 $72 $6,768 $132,271 $3,163
See notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1994 1993
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,678 $ 8,577
Wages and amounts withheld from employees 10,479 8,374
Taxes, other than income taxes 1,962 1,676
Accrued income taxes 2,999 2,392
Other current liabilities (Note 3) 6,217 6,206
Current maturities on long-term debt (Note 5) 405 478
Total current liabilities 31,740 27,703
LONG-TERM DEBT, less current maturities (Note 5) 1,855 1,978
OTHER LIABILITIES (Note 3) 23,785 22,152
Total liabilities 57,380 51,833
STOCKHOLDERS' INVESTMENT (Note 6):
Preferred stock (aggregate liquidation preference of
$3,026 at July 31, 1994) 2,855 2,855
Common stock:
Class A Nonvoting - Issued and outstanding 5,476,812
and 5,437,162 shares, respectively, (aggregate liquidation
preference of $27,384 at July 31, 1994) 54 54
Class B Voting - Issued and outstanding
1,769,314 shares 18 18
Additional paid-in capital 6,768 5,571
Earnings retained in the business 132,271 118,730
Cumulative translation adjustments 3,163 840
Total stockholders' investment 145,129 128,068
TOTAL $202,509 $179,901
</TABLE>
<TABLE>
4. INCOME TAXES
Deferred income taxes result from timing differences in the recognition of
revenues and expenses for financial statement and income tax purposes. These
differences relate principally to depreciation and certain expenses not
deductible for tax reporting until paid.
Pre-tax income consists of the following:
<CAPTION>
Year Ended July 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
United States $21,565 $22,220 $12,298
Foreign 8,337 3,609 3,063
Total $29,902 $25,829 $15,361
</TABLE>
<TABLE>
4. INCOME TAXES
The approximate tax effects of temporary differences are as follows:
<CAPTION>
July 31, 1994
Assets Liabilities Total
(Dollars in thousands)
<S> <C> <C> <C>
Inventories $ 1,659 $ 1,659
Prepaid catalog costs $ (612)
Employee benefits (505) (505)
Tax loss carryforwards 397 397
Allowance for doubtful accounts 324 324
Other, net 644 644
Current 3,024 (1,117) 1,907
Excess of tax over book depreciation (4,517) (4,517)
Deferred compensation 6,001 6,001
Postretirement benefits 3,129 3,129
Tax loss carryforwards 1,550 1,550
Less valuation allowance (1,550) (1,550)
Other, net 259 259
Noncurrent 9,389 (4,517) 4,872
Total $12,413 $(5,634) $ 6,779
</TABLE>
<TABLE>
<CAPTION>
"July 31, 1993"
Assets Liabilities Total
(Dollars in thousands)
<S> <C> <C> <C>
Inventories $ 1,021 $ 1,021
Prepaid catalog costs $ (684) (684)
Employee benefits (659) (659)
Tax loss carryforwards 591 591
Less valuation allowance (364) (364)
Other, net 1,085 1,085
Current 2,333 (1,343) 990
Excess of tax over book depreciation (3,949) (3,949)
Deferred compensation 5,881 5,881
Postretirement benefits 2,957 2,957
Tax loss carryforwards 1,821 1,821
Less valuation allowance (1,457) (1,457)
Other, net 123 123
Noncurrent 9,325 (3,949) 5,376
Total $11,658 $(5,292) $ 6,366
</TABLE>
<TABLE>
4. INCOME TAXES
At July 31, 1994 and 1993, $1,907,000 and $990,000, respectively, of net
deferred tax assets were included in prepaid expenses and other current assets.
At July 31, 1994 and 1993, $4,872,000 and $5,376,000 respectively, of net
deferred tax assets were included in other assets.
A reconciliation of the tax computed by applying the statutory U.S. Federal
income tax rate to income before taxes to the total tax provision is as follows:
<CAPTION>
Year Ended July 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Tax at statutory rate $10,466 $8,782 $5,223
State income taxes, net of Federal tax
benefit 1,271 841 726
International losses with no related tax
benefits 175 351 478
International rate differential (226) 126 110
Rate variances arising from foreign
subsidiary distributions 174 157 (122)
Provision for future settlements (730) 730
Other, net (498) (554) (173)
Total income tax provision $11,362 $8,973 $6,972
Effective tax rate 38.0 % 34.7 % 45.4 %
The Company's policy is to remit earnings from foreign subsidiaries only to the
extent any resultant foreign income taxes are creditable in the United States.
Accordingly, the Company does not currently provide for the additional United
States and foreign income taxes which would become payable upon remission of
undistributed earnings of foreign subsidiaries.
The cumulative undistributed earnings of such companies at July 31, 1994
amounted to approximately $8,400,000. If all such undistributed earnings were
remitted, an additional provision for foreign income taxes of approximately
$200,000 would be required.
</TABLE>
<TABLE>
4. INCOME TAXES
Effective August 1, 1991, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The Company
elected to reflect the effect of this accounting principle change as a
cumulative effect adjustment as of August 1, 1991.
Income taxes consist of the following:
<CAPTION>
Year Ended July 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Currently payable:
Federal $ 6,987 $6,612 $ 5,800
Foreign 2,755 1,869 1,279
State 2,033 1,100 1,369
11,775 9,581 8,448
Deferred (credit):
Federal (448) (376) (1,557)
Foreign 112 (165) 350
State (77) (67) (269)
(413) (608) (1,476)
Total $11,362 $8,973 $ 6,972
</TABLE>
<TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<CAPTION>
July 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
6.25% Industrial Development Revenue Bonds payable
on December 1, 2001 $1,000 $1,000
6.375% Industrial Development Revenue Bonds
payable in quarterly installments of $33,000
to January 1, 1995" 100 233
6.75% Industrial Development Revenue Bonds payable
in annual installments ranging from $120,000 in
1995 to $140,000 in 1997 385 495
Other 775 728
2,260 2,456
Less current maturities 405 478
$1,855 $1,978
</TABLE>
<TABLE>
7. DOMESTIC AND FOREIGN OPERATIONS
Data with respect to operations located outside the United States which have
translated into U.S. dollars is as follows:
<CAPTION>
Year Ended July 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Current assets $ 41,702 $38,497 $36,576
Other assets 4,833 3,949 2,928
Property, plant and equipment 8,474 8,070 9,207
Total assets $ 55,009 $50,516 $48,711
Current liabilities $ 38,645 $34,081 $33,776
Long-term debt 590 492 796
Other liabilities 66 197 147
Stockholders' investment 15,708 15,746 13,992
Total liabilities and stockholders'
investment $ 55,009 $50,516 $48,711
Net sales $102,919 $83,854 $76,827
W. H. Brady Co. equity in net income $ 5,470 $ 1,666 $ 1,692
</TABLE>
<TABLE>
7. DOMESTIC AND FOREIGN OPERATIONS
The Company operates predominantly in a single industry as a manufacturer and
distributor of identification products. Operations are conducted in the United
States and through subsidiaries located in Canada, Europe, Australia, Japan and
Singapore. Transfers between geographic areas primarily represent intercompany
export sales of U.S. produced goods and are based on established sales prices
between the related corporations. In computing operating income for non-U.S.
subsidiaries, no allocations of general corporate expenses, interest or income
taxes have been made.
Identifiable assets of subsidiaries are those assets related to the operation
of those subsidiaries. United States assets consist of all other operating
assets of the Company.
<CAPTION>
United Elimi- Consoli-
States Europe Other nations dated
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
Sales to unaffiliated
customers $161,024 $64,634 $30,183 $255,841
Transfers between
geographic areas 18,965 7,828 275 $(27,068) 0
Net sales $179,989 $72,462 $30,458 $(27,068) $255,841
Operating income $ 20,039 $ 9,154 $ 821 $ (539) $ 29,475
Identifiable assets $166,501 $36,412 $14,130 $(14,534) $202,509
Year ended July 31, 1993:
Sales to unaffiliated
customers $166,017 $53,912 $23,041 $242,970
Transfers between
geographic areas 17,448 6,572 329 $(24,349)
Net sales $183,465 $60,484 $23,370 $(24,349) $242,970
Operating income $ 21,292 $ 5,117 $ (479) $ (606) $ 25,324
Identifiable assets $164,371 $36,537 $13,979 $(34,986) $179,901
Year ended July 31, 1992:
Sales to unaffiliated
customers $165,136 $51,869 $18,960 $235,965
Transfers between
geographic areas 16,734 5,782 216 $(22,732)
Net sales $181,870 $57,651 $19,176 $(22,732) $235,965
Operating income $ 11,841 $ 5,071 $ (871) $ (700) $ 15,341
Identifiable assets $180,108 $37,155 $11,102 $(55,311) $173,054
</TABLE>
W. H. BRADY CO.
Years Ended July 31, 1994 and 1993
W. H. BRADY CO. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets - July 31, 1994 and 1993 2
Consolidated Statements of Income - Years Ended
July 31, 1994, 1993 and 1992 3
Consolidated Statements of Stockholders' Investment -
Years Ended July 31, 1994,
1993 and 1992 4
Consolidated Statements of Cash Flows - Years Ended
July 31, 1994, 1993 and 1992 5-6
Notes to Consolidated Financial Statements 7-16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of W. H. Brady Co.:
We have audited the accompanying consolidated balance sheets of W. H. Brady Co.
and subsidiaries as of July 31, 1994 and 1993, and the related statements of
income, stockholders' investment and cash flows for each of the three years in
period ended July 31, 1994. These financial statements are the responsbility of
the Company's management. Our responsbility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence'
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies at July 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 1, 3 and 4 to the consolidated financial statements, the
companies changed their methods of accounting for postretirement benefits other
than pensions and accounting for income taxes effective August 1, 1991, to
conform with Statement of Financial Accounting Standards No. 106 and No. 109,
respectively.
September 12, 1994
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of W. H. Brady Co. and its subsidiaries, all
of which are wholly-owned. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents - The Company considers all highly liquid investments with
maturities of three months or less when acquired to be cash equivalents. The
carrying amounts of cash equivalents approximate fair value because they mature
in three months or less.
Inventories - Inventories are stated at the lower of cost or market. Cost has
been determined using the last-in, first-out (LIFO) method for domestic
inventories (approximately 65% and 68% of total inventories at July 31, 1994
and 1993, respectively) and the first-in, first-out method for other
inventories. The difference between the carrying value of domestic inventories
stated at LIFO cost and the value of such inventories stated at replacement
cost was $5,777,000 at July 31, 1994 and $4,718,000 at July 31, 1993.
Depreciation - The cost of buildings and improvements and machinery and
equipment is being depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes.
Catalog Costs - Catalog costs are initially capitalized and amortized over the
estimated useful lives of the publications (generally eight months). At July
31, 1994 and 1993, $2,325,000 and $2,743,000, respectively, of prepaid catalog
costs were included in prepaid expenses and other current assets.
Foreign Currency Translation - Foreign currency assets and liabilities are
translated into United States dollars at end of period rates of exchange, and
income and expense accounts are translated at the weighted average rates of
exchange for the period. Resulting translation adjustments are included as a
separate component of stockholders' investment.
Income Taxes - Effective August 1, 1991, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities. See Note 4.
Reclassifications - Certain reclassifications have been made to the 1993
consolidated financial statements to conform to those used in 1994.
2. NONRECURRING CHARGE (CREDIT)
During fiscal 1992 the Company recorded a nonrecurring charge of $6,562,000
representing the writedown to estimated net realizable value of a portion of
the Company's investment in two domestic manufacturing operations and a foreign
markketing operation which was sold during 1992. The writedown related
primarily to the carrying value of certain inventories and machinery and
equipment.
During fiscal 1993, the Company sold the two domestic manufacturing operations
and a direct marketing subsidiary. The nonrecurring credit of $1,236,000 in
1993 represents the excess of proceeds over the net carrying amount of net
assets disposed of offset by provision for a severance and other related
disposition expenses.
3. EMPLOYEE BENEFIT PLANS
The Company provides postretirement medical, dental and vision benefits for all
regular full and part-time domestic employees (including spouses) who retire on
or after attainment of age 55 with 15 years of credited service. Credited
service begins accruing at the later of age 40 or date of hire. All active
employees first eligible to retire after July 31, 1992, will be covered by an
unfunded, contributory postretirement healthcare plan where employer
contributions will not exceed a Defined Dollar Benefit amount, regardless of
the cost of the program. Employer contributions to the plan will be based on
the employee's age and service at retirement. Employee contributions range
from 10% at age 55 with 15 years of credited service to 90% at age 65 with 25
years of credited service. For all current retirees and those active employees
eligible to retire as of July 31, 1994, the retirees contribution rate ranges
from 10% to 30%. The medical plan benefits are subject to lifetime maximum
benefits of $1,000 before age 65 and $50,000 after age 65.
Effective August 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106 (SFAS No. 106), "Employers' Accounting for
Postretirement Benefits Other than Pensions." The Company had previously
provided for postretirement health care benefits on a pay-as-you-go basis. In
connection with the adoption of SFAS No. 106, the Company elected to recognize
as expense during 1992 the entire accumulated postretirement benefit obligation
(transition obligation) aggregating $6,658,000 as of August 1, 1991 rather than
amortizing such amount to expense over a twenty year period. The Company will
continue to fund benefit costs on a pay-as-you-go basis. During the years
ended July 31, 1994 and 1993, the Company made benefit payments totalling
$186,000 and $153,000 respectively.
<TABLE>
The following table sets forth the plan's status reconciled with amounts
recognized in the accompanying consolidated balance sheets at July 31, 1994 and
1993 (Dollars in thousands):
<CAPTION> <C> <C>
1994 1993
Accumulated postretirement benefit obligation:
Retirees $2,607 $2,576
Fully eligible active plan participants 2,225 2,014
Other active plan participants 1,448 1,434
6,280 6,024
Unrecognized net gain 1,543 1,370
Accrued postretirement benefit cost $7,823 $7,394
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net periodic postretirement benefit cost included the
following components:
Service cost - benefits attributed
to service during the period $209 $ 210 $179
Interest cost on accumulated postretirement
benefit obligation 469 462 601
Amortization of (gain) (64) (58)
Periodic postretirement benefit cost prior
to curtailment 614 614 780
Effective curtailment (gain) due primarily
to disposition of operations (185)
Net periodic postretirement benefit cost $614 $ 429 $780
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 13% in 1994, gradually declining to 6%
by the year 2000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 8% in 1994 and 1993.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of July 31, 1994 would be
increased by $90,000. The effect of this change on the sum of the service
cost and interest cost would not be material.
During 1993 the Company had a curtailment gain which represented the
accumulated postretirement benefit obligation of employees who were employed at
operations disposed of in 1993.
The Company has retirement and profit sharing plans covering substantially all
full-time domestic employees and certain of its foreign subsidiaries.
Contributions to the plans are determined annually based on earnings of the
respective companies and employee contributions. At July 31, 1994 and 1993,
$3,109,000 and $2,757,000 respectively, of accrued profit sharing contributions
were included in other current liabilities.
The Company also has deferred compensation plans for directors, officers and
key executives utilizing the phantom stock plan concept. At July 31, 1994 and
1993, $15,795,000 and $14,984,000, respectively, of deferred compensation was
included in other liabilities.
The amounts charged to income for the plans described above were $5,660,000 in
1994, $4,443,000 in 1993 and $5,491,000 in 1992.
The Company has a voluntary employee benefit trust for the purpose of funding
employee medical benefits and certain other employee benefits. At July 31,
1994 and 1993, $4,145,000 and $4,543,000, respectively, of payments to the
trust to fund such benefits were included in prepaid expenses and other current
assets.
5. LONG-TERM DEBT
Industrial Development Revenue Bonds and the covering mortgage and loan
agreements require, among other provisions, that the Company maintain minimum
net working capital of $8,000,000 and a defined net worth of $16,000,000. The
bonds are collateralized by first mortgages on certain property with a net
carrying amount of approximately $11,400,000 at July 31, 1994. The Company's
Industrial Development Revenue Bonds approximate fair value.
<TABLE>
Maturities on long-term debt are as follows:
<CAPTION>
Fiscal Year Ending July 31,
(Dollars in thousands)
<S> <C>
1995 $ 405
1996 334
1997 316
1998 149
1999 56
Thereafter 1,000
</TABLE>
<TABLE>
6. STOCKHOLDERS' INVESTMENT
Information as to the Company's capital stock at July 31, 1994 is as follows:
<CAPTION>
Shares
Authorized Outstanding Amount
(Dollars in thousands)
<S> <C> <C> <C>
Preferred Stock, $.01 par value 5,000,000 0
Cumulative Preferred Stock,
$100 par value:
6% Cumulative 5,000 3,984 $ 399
1972 Series 10,000 2,600 260
1979 Series 30,000 21,963 2,196
$ 2,855
Common Stock, $.01 par value:
Class A Nonvoting 10,000,000 5,476,812 $ 54
Class B Voting 10,000,000 1,769,314 18
$ 72
</TABLE>
Each share of $100 par value Cumulative Preferred Stock is entitled to receive
cumulative cash dividends and may be redeemed, under certain circumstances, by
the Company at par value plus accrued dividends plus a premium of 6% of the par
value. Such shares, which are held by the initial holder thereof, are subject
to redemption only if the holder consents thereto.
Before any dividend may be paid on the Class B Common Stock, holders of the
Class A Common Stock are entitled to receive an annual, noncumulative cash
dividend of $.10 per share. Thereafter, any further dividend in that fiscal
year must be paid on each share of Class A Common Stock and Class B Common
Stock on an equal basis.
Holders of the Class A Common Stock are not entitled to any vote on corporate
matters, unless, in each of the three preceding fiscal years, the $.10
preferential dividend described above has not been paid in full. Holders of
the Class A Common Stock are entitled to one vote per share for the entire
fiscal year immediately following the third consecutive fiscal year in which
the preferential dividend is not paid in full. Holders of Class B Common Stock
are entitled to one vote per share for the election of directors and for all
other purposes.
Upon liquidation, dissolution or winding up of the Company, and after
distribution of any amounts due to holders of Cumulative Preferred Stock,
holders of the Class A Common Stock are entitled to receive the sum of $5.00
per share before any payment or distribution to holders of the Class B Common
Stock. Thereafter, holders of the Class B Common Stock are entitled to receive
a payment or distribution of $5.00 per share. Thereafter, holders of the Class
A Common Stock and Class B Common Stock share equally in all payments or
distributions upon liquidation, dissolution or winding up of the Company.
The preferences in dividends and liquidation rights of the Class A Common Stock
over the Class B Common Stock will terminate at any time that the voting rights
of Class A Common Stock and Class B Common Stock become equal.
The Company has a Nonqualified Stock Option Plan (the Plan) under which 500,000
shares of Class A Nonvoting Common Stock were made available for grant.
Options are issued at an option price equal to the market price at the grant
date. Options granted prior to 1992 become exercisable once the employees
have been continuously employed for six months after the grant date. Generally
options granted in 1992 and thereafter will not be exercisable until one year
after the date of grant, to the extent of one-third per year.
<TABLE>
Transactions with respect to the Plan are summarized as follows:
<CAPTION>
Option Options
Price Outstanding
<S> <C> <C>
Balance, August 1, 1991 $20.50 - $28.125 113,900
Options granted 29.8125 43,750
Options exercised 20.50 - 28.125 (15,100)
Balance, July 31, 1992 20.50 - 29.8125 142,550
Options granted 37.125 40,750
Options exercised 20.50 - 29.8125 (26,000)
Options cancelled 20.50 - 29.8125 (7,500)
Balance, July 31, 1993 20.50 - 37.125 149,800
Options granted 36.50 - 43.00 78,400
Options exercised 20.50 - 37.125 (39,650)
Options cancelled 28.125 - 37.125 (9,750)
Balance, July 31, 1994
(93,733 options exercisable) 20.50 - 43.00 178,800
Available for grant after July 31, 1994 225,350
</TABLE>
8. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income (after deducting
the applicable Preferred Stock dividends and preferential Class A Common Stock
dividends) by the weighted average Common Shares outstanding of 7,226,038 for
1994; 7,194,545 for 1993 and 7,176,169 for 1992. The preferential dividend on
the Class A Common Stock of $.10 per share has been added to the net income per
Class A Common Share for all years presented.
<TABLE>
9. COMMITMENTS
The Company has entered into various noncancellable operating lease agreements.
Rental expense charged to operations was $2,788,000 in 1994; $2,871,000 in 1993
and $2,217,000 in 1992. Future minimum lease payments required under such
leases in effect at July 31, 1994, are as follows (by fiscal year):
<S> <C>
1995 $2,086,000
1996 1,832,000
1997 1,444,000
1998 599,000
1999 459,000
Thereafter 1,767,000
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Supplemental Executive Retirement Plan (the "SERP") is
entered into this 23rd day of September, 1994, between W.H. Brady
Co. (the "Company") and DONALD P. DeLUCA ("Executive"):
1. Objectives. This SERP is intended to provide for a payment
after retirement to the Executive, who is currently the Senior
Vice President of W.H. Brady Co., in recognition of his past and
future years of service with the Company and the limitations
imposed on his and the Company's contributions to the Company's
Profit Sharing Plan.
2. Bookkeeping Account. The Company shall cause a bookkeeping
reserve account (the "Account") to be established for the
Executive solely as a device for determining the amounts which
may become payable to the Executive hereunder. Such Account
shall not constitute or be treated as a trust fund of any kind,
it being expressly provided that the amounts credited to the
Account shall at all times be and remain the sole property of the
Company. The Executive shall have no proprietary rights of any
nature with respect thereto, unless and until such time as a
payment thereof is made to the Executive (or beneficiary) as
provided herein. Amounts shall be credited to the Executive's
Account as follows:
(a) Provided only that the Executive is in the employment
of the Company as of July 31, 1995, $50,000 shall be credited to
the Account. If the Executive is in the employment of the
Company as of July 31, 1996, an additional $50,000 shall be
credited to the Account and an additional $50,000 shall be
credited to the Account as of July 31, 1997, 1998,and 1999 if the
Executive is in the employment of the Company as of those dates.
(b) Interest shall accrue on the balance in the Executive's
Account at the prime rate (base rate on corporate loans) in
effect July 31 of each year as reported by the principal bank or
financial institution with which the Company is doing business,
and shall be credited to the Account annually as of July 31 of
each year, until all distributions to which the Executive, the
Executive's estate or beneficiary is entitled, shall have been
made. However, the interest rate used shall never be less than
six percent (6%) or more than ten percent (10%). If a lump sum
amount distribution is made as of a date other than July 31,
interest shall be credited to the Account as of such payment date
based on the interest rate for the prior July 31.
3. Vesting. The Executive shall at all times have a 100%
vested interest in the Account balance established for the
Executive under this SERP.
4. Benefit Payment.
(a) Payment shall be made over a 10 year period commencing
on August 1 of the year following the Executive's termination of
employment with the Company (the "First Payment Date"), with the
first payment being one-tenth of the amount credited to the
Executive's Account, and therefore an amount shall be paid to the
Executive as of the first day of each August thereafter in an
amount equal, as nearly as possible, to the amount paid on the
First Payment Date plus any interest credited to the Account in
the period intervening since the last payment, until a total of
ten payments have been made. Such 10 payments, regardless of the
total amount thereof, shall constitute full payment of all
amounts due the Executive under this SERP.
(b) The Executive shall have the right to designate a
beneficiary or beneficiaries to receive a distribution with
respect to any portion of such Executive's Account remaining
unpaid at the Executive's death. Such designation shall be
effected by filing written notification with the Company in the
form prescribed by it and may be changed from time to time by
similar action. If the Executive fails to make such a
designation, any such distribution shall be paid to the
Executive's estate or its successors. The amount remaining in
the Account shall be paid to the beneficiary or the Executive's
estate for the balance of the applicable ten year period in the
same manner and amount as it would have been paid to the
Executive.
(c) The Company may, in its uncontrolled discretion, and in
lieu of the annual payments provided for in this paragraph and
upon such terms and conditions as the Board of Directors of the
Company may determine, pay the Executive or his beneficiary the
amount credited to the Account (1) in larger installments,
including a lump sum, or (2) in some other manner; provided,
however, that the payments cannot be made in smaller amounts or
over a period longer than provided in paragraph 4(a), without the
Executive's consent.
5. Claim Procedure. The Company shall provide adequate notice
in writing to the Executive or the Executive's beneficiary (a
"Claimant") if any claim for benefits under this SERP has been
denied setting forth specific reasons for such denial and
advising the Claimant of the procedures to be followed to obtain
a full and fair review by the Company or some other fiduciary
named by it of the decision denying the claim. The Company or
such other named fiduciary, acting as administrator for this
SERP, shall have full and complete discretionary authority to
construe and interpret this SERP, to adopt and modify claim
procedure rules, and to decide any matter presented through the
claim review procedure. Any final decision on review by such
administrator in good faith and in the exercise of its
discretionary authority shall be final and binding on all parties
and not subject to reversal if challenged in litigation unless
proven to be arbitrary and capricious based on the evidence
considered by the administrator at the time of such final
decision.
6. Miscellaneous.
(a) Neither the Company nor the Executive nor any
beneficiary shall have the power to transfer, assign, encumber,
commute or anticipate any amounts payable hereunder.
(b) The Company shall have the right to withhold from any
amounts payable hereunder, or any amounts otherwise payable, any
taxes or other amounts required by any governmental authority to
be withheld.
(c) Every person receiving or claiming payments under this
SERP shall be conclusively presumed to be mentally competent
until the date on which the Company receives a written notice, in
a form and manner acceptable to it, that such person is
incompetent and that a guardian, conservator, or other person
legally vested with the care of such person's estate has been
appointed. In the event a guardian or conservator of the estate
of any person receiving or claiming payments under this SERP
shall be appointed by a court of competent jurisdiction, payments
may be made to such guardian or conservator provided that proper
proof of appointment and continuing qualification is furnished in
a form and manner acceptable to the Company. Any such payment so
made shall be a complete discharge of any liability therefor.
(d) Participation in this SERP or the payment of any
benefits hereunder, shall not be construed as giving to the
Executive any right to be retained in the service of the Company
or its subsidiaries, limiting in any way the right of the Company
or its subsidiaries to terminate the Executive's employment at
any time, evidencing any agreement or understanding, express or
implied, that the Company or its subsidiaries will employ the
Executive in any particular position or at any particular rate of
compensation and/or guaranteeing the Executive any right to
receive a salary increase in any year, such increase being
granted only at the sole discretion of the Board.
(e) None of the payments made hereunder shall be taken into
account under any other pension, profit sharing or welfare
benefit plan or program of the Company.
(f) The schedule attached is an example of the anticipated
Contributions, Interest and Payments to be made provided that the
Executive's employment terminates on July 31, 2005.
W.H. BRADY CO.
By /S/ Katherine M. Hudson
/S/ Donald P. DeLuca
Donald P. DeLuca
<TABLE>
W.H. BRADY CO.
DONALD P. DELUCA - SERP
<CAPTION>
Fiscal
Year Contribution 8% Interest Payment Balance
<S> <C> <C> <C> <C>
7/31/95 $ 50,000 - $ $ 50,000
7/31/96 50,000 $ 4,000 104,000
7/31/97 50,000 8,320 162,320
7/31/98 50,000 12,986 225,306
7/31/99 50,000 18,024 293,330
7/31/00 23,466 316,796
7/31/01 25,344 342,140
7/31/02 27,371 369,511
7/31/03 29,561 399,072
7/31/04 31,926 430,998
7/31/05 34,480 465,478
8/01/05 46,548 418,930
8/01/06 33,514 80,062 372,382
8/01/07 29,791 76,339 325,834
8/01/08 26,067 72,615 279,286
8/01/09 22,343 68,891 232,738
8/01/10 18,619 65,167 186,190
8/01/11 14,895 61,443 139,642
8/01/12 11,171 57,719 93,094
8/01/13 7,448 53,996 46,546
8/01/14 3,724 50,270 0
$250,000 $383,050 $633,050
</TABLE>
November 30, 1993
PRIVATE & CONFIDENTIAL
Ms. Katherine M. Hudson
7436 East River Road
Rush, New York 14543
Dear Ms. Hudson:
This letter is to confirm our discussions regarding the
terms of W.H. Brady Co.'s (the "Company") offer of employment to
you. Subject to your acceptance, as set forth below, your
employment would be on the following terms:
1. Title and Term. You will be employed as President and Chief
Executive Officer of the Company, starting as of January 1,
1994 (the "Effective Date"). There would be no fixed term
of employment.
2. Compensation.
(a) Base Salary. The Company will pay you an initial base
salary at the rate of $300,000 per annum, payable
according to the regular payroll practices of the
Company. Beginning in 1994, the rate of your base
salary will be subject to review in accordance with the
Company's regular annual review process.
(b) Bonus. In addition to your base salary, you will also
become covered immediately on the Effective Date under
the Company's Incentive Compensation Plan, adopted
August 1, 1993, (and as amended from time to time)
which provides for a bonus opportunity based on certain
criteria.
(c) Stock Options. Within 10 days of the Effective Date,
the Company will grant to you a stock option for 25,000
shares of the Company's Class A non-voting common stock
under the Company's Non-Qualified Stock Option Plan
(the "Plan"). The exercise price will be the fair
market value on the date of grant, as determined under
the Plan and the option will become fully exercisable
and vested six months after the date of the grant.
3. Expenses and Benefits.
(a) Expenses and Club Dues. The Company will pay or
reimburse your reasonable moving expenses for your move
from the Rochester, New York area to Wisconsin.
Further, the Company will pay or reimburse you, up to a
maximum of $10,000 in the aggregate, for your
reasonable expenses incurred in searching for a home in
Wisconsin, your reasonable temporary housing expenses
in Wisconsin for up to 6 months, and reasonable
expenses incurred by you and your family for traveling
to and from Wisconsin during this period. The Company
will pay or reimburse you for all reasonable travel and
entertainment expenses connected with the Company's
business in accordance with the Company's policy.
Additionally, the Company will pay or reimburse you for
one club membership and dues fees, the club to be
located in southeastern Wisconsin and otherwise to be
selected by you. Finally, the Company will pay or
reimburse your reasonable attorneys' fees and
disbursements incurred in connection with evaluating
and negotiating the initial terms of your employment,
not to exceed $5,000.
(b) Benefits. You will be entitled to participate in all
life, health and disability benefit programs,
retirement, vacation and other similar fringe benefit
plans currently or at any time provided by the Company
to other senior executives, on a basis commensurate
with such other senior executives and consistent with
the terms of such plans, as amended, modified or
terminated from time to time. The Company will provide
you with a Company car.
4. Special Supplemental Retirement Payments. The Company
agrees to make special annual payments to you for a period
of 10 years, commencing on the first business day in
January, 2009. The first installment payment will be a lump
sum equal to 1/10th of the Stated Amount (as hereafter
defined). The second installment payment will be made on
the first business day in January, 2010, in a lump sum equal
to 1/9th of the then remaining unpaid Stated Amount, and on
the first business day in January of each succeeding year,
another annual lump sum payment will be made equal to the
product obtained by multiplying the then remaining unpaid
Stated Amount by a fraction, the numerator of which is one
and the denominator of which is 8 for the third installment
payment, 7 for the fourth, and continuing in a similar
fashion until the first business day in January, 2018, when
the then remaining balance of the Stated Amount shall be
paid. The Stated Amount is simply a bookkeeping account
maintained by the Company solely as a measuring device for
purposes of determining the amount of payments to be made to
you under this paragraph 4. The Stated Amount is $500,000,
until January 1, 1999. On that date, the Stated Amount
shall begin to be credited with an amount equal to interest
as of the end of each calendar quarter at the prime rate
(base rate on corporate loans) in effect at the end of such
quarter (an "Interest Equivalent Credit") as reported by the
principal bank or financial institution with which the
Company is doing business. All amounts credited to the
Stated Amount as of the end of each calendar year, starting
with December 31, 1999, including any prior Interest
Equivalent Credits, shall become entitled to receive
Interest Equivalent Credits in subsequent calendar years.
An example of the calculations contemplated by this
paragraph 4 is attached and made a part of this letter.
Further, the following special conditions apply to this
Special Supplemental Retirement Payments:
(a) Should you die before payments have started, the
Company will commence making the payments on the first
business day of the first January following your date
of death, to the beneficiary or beneficiaries
designated by you in a written notice to the Company,
or to your estate if no beneficiary is designated. The
payments will be as set forth above, with the
substitution of the accelerated starting date.
However, Interest Equivalent Credits shall not begin
prior to January 1, 1999 and shall apply only to the
then remaining unpaid Stated Amount, if payments have
begun under this subsection (a) prior to January 1,
1999.
(b) Should you die after payments have started, the Company
will continue making the payments as set forth above
until completion.
(c) You are not required to remain in the Company's employ
for any length of time in order to become entitled to
the Special Supplemental Retirement Payments, nor are
you required to separate from the service of the
Company at any particular time in order to receive such
payments. Such payments will not be taken into account
as compensation under any of the Company's retirement,
welfare benefit, or fringe benefit plans or programs.
(d) You or any beneficiary entitled to the payments may
request that the payments be made in a single lump sum
equal to the Stated Amount or in a shorter series of
payments and the Company in its sole discretion may
grant or deny such request.
5. Acceleration of Special Supplemental Retirement Payment
Under Certain Circumstances In the Event of a Change in
Control. For purposes of this paragraph, a Change in
Control of the Company shall occur if and when the members
of the family of William H. Brady, Jr. and their descendants
or the W.H. Brady Foundation, Inc. no longer, directly or
indirectly, controls in excess of 50% of the voting stock of
the Company. If such a Change in Control occurs before all
the payments contemplated by paragraph 4 have been made,
then the remaining balance of the Stated Amount will be paid
to you, your beneficiary or your estate in a single cash
payment within 30 days after the Change in Control unless
you are still the President and Chief Executive Officer, in
which case the remaining balance of the Stated Amount will
be paid to you, your beneficiary or your estate in a single
cash payment within 30 days after you cease to serve in such
capacity. However, if such single cash payment would result
in disallowance of any portion of the Company's deduction
therefor under Section 162(m) of the Internal Revenue Code,
the Company may limit its payment under this paragraph 5 to
only that amount which is deductible, with the balance of
the Stated Amount to be paid as soon as deductible by the
Company.
6. Severance. If your employment is terminated by the Company
at any time without Cause as defined herein, the Company
will make severance payments to you for one year, in an
amount equal to 100% of your then current base salary,
payable in accordance with the regular payroll practices of
the Company. If you should die before all payments
contemplated by the preceding sentence have been made to
you, any remaining payments will be made to the beneficiary
or beneficiaries designated by you in a written notice to
the Company, or to your estate if no beneficiary is
designated. Any severance payments under this paragraph 6
will be in lieu of any other regular severance payments and
will not be taken into account as compensation under any of
the Company's retirement, welfare benefit, or fringe benefit
plans or programs. For purposes hereof, Cause means (i)
your willful and continued failure to substantially perform
your duties with the Company (other than any such failure
resulting from physical or mental incapacity) after written
demand for performance is given to you by the Company which
specifically identifies the manner in which the Company
believes you have not substantially performed and a
reasonable time to cure has transpired, (ii) your conviction
of a felony, or (iii) your commission of an act of
dishonesty or of any willful act of misconduct which results
in or could reasonably be expected to result in significant
injury (monetarily or otherwise) to the Company, as
determined in good faith by the Board of Directors of the
Company.
7. Confidentiality/Non-Compete Agreement. You agree to sign
the standard form of Confidential Information Agreement
required of Company executives, a copy of which is attached.
8. Entire Understanding; Withholding. This letter supersedes
any and all prior agreements or discussions between the
Company and you relating to your employment by the Company.
The Company may withhold any and all applicable taxes it
deems necessary or appropriate on all payments made under
this letter agreement.
If this letter correctly sets forth your understanding and
you wish to accept our offer of employment, please sign the
duplicate of this letter in the space provided below and return
it in the enclosed envelope. This letter will then serve as the
agreement between us.
Very truly yours,
W.H. BRADY CO.
By: /S/ P.G. Gengler
President
/S/ P.J. Lettenberger
168/lw
Attachments
18-003-346-4
I hereby accept employment with
W.H. Brady Co. on the above terms
and conditions:
Dated December 2, 1993
/S/ Katherine M. Hudson
<PAGE>
EXAMPLE
Assumptions: Stated Amount is $500,000. Special Supplemental
Retirement Payments become due because of the
executive's death in December, 2001. The Interest
Equivalent Credits which started January 1, 1999
have remained a constant 6%.
1) Stated Amount on 1/1/99 = $500,000
Interest Equivalent Credits
added 3/31, 6/30, 9/30 and
12/31 at $7,500 each $ 30,000
2) Stated Amount 12/31/99 $530,000
Add Interest Equivalent
credits during year
2000 on starting
balance of $530,000.
530,000 x 6% $ 31,800
3) Stated Amount 12/31/00 $561,800
Add Interest Equivalent
credits during year 2001
561,800 x 6% = $ 33,708
Stated Amount 12/31/01 $595,508
4) Payout to Executive's
Beneficiary Begins
January 1, 2002
1st payment, 1/10th x 595,508 = $ 59,550,80
Stated Amount 1/2/02 $595,508.00
Less payment (59,550.80)
$535,957.20
Add Interest Equivalent
credits during year 2002
535,957.20 x 6% = 32,157.43
Stated Amount 12/31/02 $568,114.63
5) 2nd payment, 1/9th x 568,114.63 = $ 63,123.85
on January 1, 2003
Stated Amount 1/2/03 $568,114.63
Less payment (63,123.85)
$504,990.78
Add Interest Equivalent
credits during year 2003
504,990.78 x 6% = 30,299.45
Stated Amount 12/31/03 $535,290.23
6) 3rd Payment, 1/8th x $535,290.23 = $ 66,911.28
Stated Amount 1/2/04 $535,290.23
Less payment (66,911.28)
$468,378.95
Add Interest Equivalent
credits during year 2004
468,378.95 x 6% = 28,102.74
Stated Amount 12/31/04 $496,481.69
7) 4th Payment, 1/7th x $496,481.69 = $ 70,925.96
(etc., until all of the funds credited to the Stated Amount
are paid.)
<PAGE>
CONFIDENTIAL INFORMATION AGREEMENT
W.H. Brady Co. (the Company) is engaged in the development,
manufacture and sale of a variety of products based upon
experimental and inventive work and has accumulated substantial
information not generally known relating to existing and
contemplated products, manufacturing procedures, methods,
machines, compositions, technology, formulas, know how, research
and development programs and plans, sales methods, customer
lists, customer usages and requirements and other confidential
business information, trade secrets and data (hereinafter
referred to as Confidential Information) which represents in part
or has resulted from the composite knowledge and experience of
its personnel arising through their mutual efforts and
contributions to the conduct and success of the Company's
business.
I am now employed or am desirous of being employed by the Company
in a capacity which, by the nature of my duties I have or will
have or expect to learn, receive or have access to Confidential
Information as mutually acknowledged that such Confidential
Information is vital to the personal development, advancement and
economic security of each person who looks to the Company, as an
integral part of his employment relationship, as the principal
means for providing continuing opportunities for personal growth
and promotion, and that the acquisition of such Confidential
Information by a competitor would not only injure the Company but
also put in jeopardy the investment Company personnel have in
their jobs.
DEFINITION OF TERMS:
"Company" in addition to W.H. Brady Co. shall include its
subsidiaries.
"Subsidiaries" means any corporation of which 50% or more of the
common or ordinary shares entitled to vote for the election of
directors are now or hereafter owned directly or indirectly by
the Company.
"Competitor" means any corporation, person, firm or organization
(or division or part thereof) engaged in or about to become
engaged in research and development work on or the production
and/or sale of any product in the United States or Canada which
is directly competitive with one with respect to which I acquired
Confidential Information by reason of my work with the Company.
"Competitive Product" means a product, made by a Competitor,
which is the same as or is directly competitive with one with
respect to which I acquired Confidential Information by reason of
my work with the Company.
IN CONSIDERATION OF AND AS A CONDITION TO AND AS PART OF THE
TERMS OF MY EMPLOYMENT AND/OR CONTINUED EMPLOYMENT during such
time as may be mutually agreeable and the payment of compensation
by the Company:
1. I agree that:
A. Except as required by my duties to the Company, I will
not at any time directly or indirectly disclose to or
use for others, any Confidential Information without
first obtaining the written consent of the Company to
do so.
B. All records of Confidential Information prepared by me
or which come into my possession or to which I have
access during my employment by the Company are and
shall remain the property of the Company, and upon
termination of my employment, I will not remove any
such records or copies thereof but all thereof shall be
left with the Company.
2. In addition to and independent of the other provisions
hereof, I further agree that I will not, for a period of two
(2) years (or if employed by the Company less than two
years, then for such shorter period equivalent to the
duration of my employment but in no event less than twelve
months) from the date of termination of employment with the
Company:
A. Render services, directly or indirectly, to any
Competitor in connection with the development,
manufacture, and merchandising or promotion of
Competitive Products.
B. Render services, directly or indirectly, to any
Competitor except that I may accept employment with a
business entity which is diversified and made up of
separate divisions and which, as to part of its
business, is not a Competitor, provided the Company
shall be furnished prior to such employment definite
written assurances satisfactory to it, separately from
me and such business entity that I will not be
expected, required or permitted to and in fact do not
render services directly or indirectly to a division or
part of such business entity which division part is a
Competitor during such period.
C. Engage either directly or indirectly within the United
States or America or Canada for myself or as an
investor in the development, manufacture, purchase or
sale of any Competitive Product.
If I notify an officer of the Company of the occupation I
propose to take up after termination of employment with the
Company and furnish the Company such written or oral
information as it may reasonably request concerning such
proposed occupation, the Company shall notify me promptly
and in any event within 30 days after receipt of the
requested information whether or not it considers such
occupation based upon the information so furnished or
derived from its independent investigation, comes within the
provisions of this paragraph 2 or if it considers such
occupation to come within the provisions of this paragraph 2
whether it will waive any of the provisions thereof.
The validity of this paragraph 2 shall be determined by the
law of the forum in which enforcement is sought by the
Company. Paragraphs 1 and 2 hereof are separate and
divisible, one from the other.
3. If I am unable to obtain employment consistent with my
training and education solely because of the provisions of
paragraph 2, said provisions shall be binding only for so
long as the Company shall make payments to me equal to my
monthly base pay at the date of termination of my employment
with the Company (exclusive of extra compensation or other
employment benefits) for each month or portion thereof in
which I have been unable to obtain employment solely because
of the provisions of paragraph 2 and so notify the Company
in writing, setting forth my efforts to obtain such
employment and advising that although I have conscientiously
sought such employment, I have been unable to obtain the
same solely because of the provisions of said paragraph 2.
The Company's obligation to make the monthly payments shall
terminate (i) upon giving me a written release from all
obligations under paragraph 2 or (ii) upon my obtaining
employment. I agree to promptly give written notice to the
Company when I secure employment.
The Company's obligation to make the monthly payments shall
in no event continue for more than 24 months (or for such
shorter period not less than 12 months equivalent to the
duration of employment if employed less than two years)
immediately following the termination of my employment with
the Company, and in no event shall the Company be liable,
under this agreement, for any amount in excess thereof.
All payments due hereunder shall be made in accordance with
the Company's established procedures.
4. In the event I fail to observe any of the provisions of this
Agreement, I agree to pay the Company on demand all sums
expended by it in attempting to secure new employment for
me, including amounts paid to organizations engaged in such
business and the amount of any salary continuation payments
paid me following the effective date of the termination of
my employment, it being recognized that such amounts and
such payments will be expended or made by the Company in
reliance upon my full and faithful observance of the terms
hereof, such right of recoupment being in addition to all
other rights of the Company to enforce this Agreement.
5. I agree to notify any prospective employer of the existence
of this agreement.
IN WITNESS WHEREOF, I have hereunto sat my hand and seal this
second day of December, 1993, and hereby certify that I HAVE READ
AND FULLY UNDERSTAND THE MEANING AND IMPORT OF THIS AGREEMENT,
AND THAT I HAVE RECEIVED A COPY THEREOF.
/S/ Katherine M. Hudson
(seal)
Accepted for the Company
by
Title
Date
