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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
/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, 1996
Commission File Number 0-12730
W.H. BRADY CO.
(Exact name of registrant as specified in charter)
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WISCONSIN 39-0178960
(State of Incorporation) (IRS Employer Identification No.)
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6555 West Good Hope Road
Milwaukee, WI 53223
(Address of Principal Executive Offices and Zip Code)
(414) 358-6600
(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 / / No /X/
As of September 30, 1996, there were outstanding 20,131,551 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. 1996 Annual Report, Incorporated into Part II & IV
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INDEX
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PART I
ITEM 1. BUSINESS
General Development of Business................................................... I-1
Financial Information About Industry Segments..................................... I-1
Narrative Description of Business:
Overview....................................................................... I-1
Business Strategy.............................................................. I-1
Growth Strategy................................................................ I-2
Products....................................................................... I-2
Marketing and Sales............................................................ I-5
Manufacturing Process and Raw Materials........................................ I-5
Technology and Product Development............................................. I-6
International Operations....................................................... I-6
Competition.................................................................... I-6
Backlog........................................................................ I-6
Environment.................................................................... I-7
Employees...................................................................... I-7
Acquisitions................................................................... I-7
Financial Information About Foreign and Domestic Operations and Export Sales........ I-7
ITEM 2. PROPERTIES.................................................................. I-7
ITEM 3. LEGAL PROCEEDINGS........................................................... I-7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... I-7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....... II-1
ITEM 6. SELECTED FINANCIAL DATA..................................................... II-1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................ II-1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. II-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE........................................................................ II-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... III-1
ITEM 11. EXECUTIVE COMPENSATION..................................................... III-3
Summary Compensation Table........................................................ III-3
Stock Options..................................................................... III-4
Common Stock Price Performance Graph.............................................. III-6
Compensation of Directors......................................................... III-6
Termination of Employment Arrangements............................................ III-6
Compensation Committee Interlocks and Insider Participation....................... III-7
Profit Sharing and Employee Thrift Plan........................................... III-7
Deferred Compensation Arrangements................................................ III-8
Compensation Committee Report on Executive Compensation........................... III-8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. III-10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. III-12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K............. IV-1
SIGNATURES.......................................................................... IV-5
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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
The Company, a Wisconsin corporation, currently operates 16 manufacturing
facilities worldwide. Eight are located in the United States and one each in
Australia, Belgium, Canada, England, Japan, Korea, Scotland and Singapore. The
Company also sells through subsidiaries or sales offices in Brazil, England,
France, Germany, Hong Kong, Italy, Korea, Malaysia, New Zealand, Spain, Sweden,
and Taiwan. The Company's executive offices are located at 6555 West Good Hope
Road, Milwaukee, Wisconsin 53223, and its telephone number is (414) 358-6600.
The Company's Internet address is hhtp://www.whbrady.com.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
OVERVIEW
W.H. Brady is a leading international manufacturer and marketer of high
performance identification solutions and specialty coated materials. The
Company's products consist of over 30,000 stock and custom items as well as
complete identification systems that are used by the Company's customers to
create a safer work environment for employees, improve production and operating
efficiencies and increase the utilization of assets through tracking and
inventory process controls. Major product categories include: industrial and
facility identification products; safety and regulatory compliance products; and
OEM components.
The Company's markets include a wide variety of industrial, commercial,
governmental, public utility, medical equipment, computer and consumer product
markets. The need for the Company's products is driven by specification of
customer engineering departments, by regulatory compliance requirements imposed
by agencies such as OSHA and the EPA, or by the need to identify, direct, warn,
inform and protect employees and customers. The Company markets and sells its
products domestically and internationally through multiple channels including
direct sales, distributor sales, mail-order catalog marketing and electronic
access through the Internet. The Company has a broad customer base, which in
fiscal 1996 consisted of more than 50,000 customers, with the largest customer
representing less than 3% of net sales. International sales represented 43.6%,
41.1% and 37.1% of net sales in fiscal 1996, 1995 and 1994, respectively.
BUSINESS STRATEGY
W.H. Brady's objective is to be the leading source of high performance
identification products and specialty coated materials to niche markets
worldwide. The Company expects to accomplish this objective by offering a broad
range of high quality, innovative products to a widely diversified customer base
in a prompt and responsive manner. Underlying the Company's business strategy is
a Company-wide commitment to enhancing shareholder value. The Company's
long-term focus on activities that will create sustainable value for its
shareholders drives decision making at all levels of the Company. The majority
of the Company's employees participate in an incentive plan that is focused upon
the creation of shareholder value. This incentive plan serves to motivate
employees, foster a team-oriented work environment and maximize the utilization
of assets. Key elements of the Company's business strategy include:
Product innovation. The Company continually seeks to improve existing
products and to develop innovative products to satisfy its customers'
requirements and expectations. W.H. Brady's commitment to product innovation is
reflected in research and development efforts that include two facilities and
approximately 100 employees primarily dedicated to research and development
activities.
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Breadth of product line. The Company's products include over 30,000 stock
and custom items. The number of products offered allows W.H. Brady to serve as a
one-stop shopping network for its customers. Additionally, management believes
that the Company competes in a broader range of identification markets than any
of its competitors.
Focus on customers. The Company seeks to provide "seamless" customer
service and to offer rapid response to customer orders and inquiries. To meet
this goal, the Company has streamlined its manufacturing processes to shorten
lead-times and has increased its investment in telecommunications and management
information systems worldwide.
Niche markets. The Company strives to be a major player in niche markets
that allow the Company to leverage its capabilities in specialty materials,
die-cut parts and distributed printing systems. By focusing on specific markets
and value-added product applications, the Company has established leading
positions in the electrical and safety markets with certain of its products such
as wire and pipe markers and safety signs.
GROWTH STRATEGY
The major elements of the Company's strategy for growth include:
Increased market penetration. The Company seeks to increase market
penetration in existing domestic and international markets through new product
development and increased sales and marketing efforts. To achieve this
objective, the Company is actively expanding its current sales force and is
pursuing additional niche distribution channels.
Geographic expansion. W.H. Brady's international sales have increased from
$50,707,000 or 26.5% of net sales in fiscal 1990 to $156,761,000, or 43.6%, of
net sales in fiscal 1996. The Company believes that international markets
continue to represent a significant growth opportunity. Accordingly, the Company
is actively seeking to increase its penetration in established markets in
Europe, Japan, Hong Kong, and Korea and to enter new emerging markets elsewhere
in the Pacific Rim and in Latin America.
New products and new markets. The Company seeks to leverage its strong
product innovation and development activities by introducing new products and by
exploring new applications for its products in existing new markets.
Strategic acquisitions and joint ventures. W.H. Brady's recent growth has
occurred principally through strategic acquisitions, innovative product
development and improvement, market expansion and increased market penetration.
Although the Company intends to continue such internal growth, the Company also
intends, where practical, to fill product lines or market sectors, open new
geographic markets and strengthen systems offerings through the pursuit of
strategic acquisitions and joint ventures.
PRODUCTS
The Company's products consist of over 30,000 stock and custom items as
well as complete identification systems that are used by the Company's customers
to create a safer work environment for employees, improve product and operating
efficiencies and increase the utilization of assets through tracking and
inventory process controls. Major product categories include: industrial and
facility identification products including pipe and valve markets, wire markers,
computer printable labels, storage markers, asset identification markers,
informational signs, stand-alone printing systems and automatic identification
and data collection systems; safety and regulatory compliance products including
safety signs, lockout/tagout products and traffic control products; and OEM
components including specialty tapes, computer application products and die-cut
tapes.
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 most significant types of products are described below.
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INDUSTRIAL AND FACILITY IDENTIFICATION PRODUCTS
Pipe and Valve Markers
The Company manufactures both self-adhesive and mechanically applied stock
and custom designed pipe markers and plastic and metal valve tags for the
identification of piping and control valves. These products are designed to help
identify and provide information as to the contents, direction of flow and
special hazardous properties of materials contained in piping systems and to
facilitate repair or maintenance of the system.
Wire Markers
W.H. Brady offers a broad range of wire-marking products. These products
help mark and identify wires, cables and other potential hazards. Such products
may be utilized in virtually every industrial and electrical market to specify
the origination or destination of wiring and to facilitate repair or maintenance
of wiring systems.
Computer Printable Labels
W.H. Brady offers a complete line of printable labels that are compatible
with the thermal transfer, laser and dot matrix printers sold by the Company.
The products are used primarily by industrial customers to print identification
labels on-site using personal computers.
Storage Markers
The Company produces signs, self-adhesive and self-aligning die cut numbers
and letters used for the systematic identification of facilities, bins and
shelving. Storage marker products are primarily used by industrial companies in
factories, warehouses, stockrooms and other facilities.
Asset Identification Markers
W.H. Brady offers a wide range of asset identification products to its
industrial and commercial customers. These include self-adhesive or mechanically
mounted labels made of aluminum, brass, stainless steel, polycarbonate, vinyl,
polyester, mylar and paper. These products are also offered in tamper-evident
varieties.
Informational Signs
The Company produces a wide range of informational signs for both indoor
and outdoor use. These signs are utilized by a broad range of industrial and
commercial customers and are available in Braille and with other features for
compliance with the Americans with Disabilities Act ("ADA") regulations. Signs
may be stock items or custom ordered for any informational requirement.
Stand-Alone Printing Systems
The Company designs and develops computer software, portable printers,
lettering machines and other electromechanical devices to serve the growing and
specialized needs of customers. Industrial labeling systems, tapes, ribbons and
label stocks provide customers with the resources and flexibility to produce
signs or labels on demand at their site.
Automatic Identification and Data Collection Systems
W.H. Brady's automatic identification and data collection systems allow
accurate tracking of manufacturing, warehousing, receiving and shipping data.
The Company's software applications, fixed station terminals, high-speed
printers and associated customized consumable products allow its customers to
have a higher degree of knowledge and control over asset management and all
phases of inventory control, including receiving, warehousing, work-in-process,
finished goods and shipping.
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Other
The Company also offers bar-coding products and readers, sign making kits,
stenciling materials, barricading products, visual warning systems and floor
marking products.
SAFETY AND REGULATORY COMPLIANCE PRODUCTS
Safety 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, OSHA and a variety of industry
associations. The Company's sign products are categorized by type of message to
be conveyed, including admittance, directional and exit signs; electrical hazard
warnings; energy conservation messages; fire protection and fire equipment
signs; hazardous waste labels; hazardous and toxic material warning signs;
personal hazard warnings; housekeeping and operational warnings; pictograms;
radiation and laser signs; safety practices signs and regulatory markings.
Lockout/Tagout Products
W.H. Brady offers a wide variety of lockout/tagout products. Under current
OSHA regulations, all energy sources must be "locked out" while machines are
being serviced or maintained. The Company's products allow its customers to
comply with these regulations and to ensure worker safety for a wide variety of
energy and fluid transmission systems and operating machinery.
Traffic Control Products
The Company offers a wide variety of traffic control devices, including
directional and warning signs, barriers and cones and other traffic control
devices.
Other
The Company also offers safety hard-hat labels, safety badges, photo
identification kits, ergonomic products, first aid cabinets/kits, body
harnesses, anti-slip coatings and alarm security systems, among others.
OEM COMPONENTS
Specialty Tapes
The Company's OEM component products include specialty tapes and related
products that are used in a variety of audio, video and computer applications,
as well as surface mount technology products. These specialty 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.
Computer Application Products
The Company's computer application products include reinforcing rings for
floppy discs and components of micro-floppy discs. Its audio industry products
include cassette leader and splicing tapes and conductive splicing tapes. Video
products include splicing and leader tapes, conductive/reflective sensing tapes
and other specialty components used in video cassettes. The Company's leadframe
tape and electronic adhesive film are used within semiconductors to reinforce
and/or bond components while its surface mount carrier and cover tapes are used
to package surface-mounted-device electronic components.
Die-Cut Tapes
The Company's precision die-cut tapes are used to seal, insulate, protect,
shield or provide other mechanical performance properties in the assembly of
electronic, telecommunications and other equipment.
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OTHER PRODUCTS
The Company also sells a variety of other products, none of which
individually accounts for a material portion of its sales, including:
temperature indicating labels, hospital and clinical labels, packing and
shipping goods, name plates and quality and production control products, among
others.
MARKETING AND SALES
The Company's products are sold in a wide variety of industrial,
commercial, governmental, public utility, medical equipment, computer and
consumer product markets. W.H. Brady has a diverse customer base that consisted
of over 50,000 customers in fiscal 1996. 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 not material adverse effect upon the
Company's business. In fiscal 1996, no single customer accounted for more than
3% of the Company's net sales.
The Company seeks to offer the right product with rapid response times and
superior service so that it can provide solutions to the customer that are
better, faster and more economical than those available from competitors or on a
do-it-yourself basis. The Company markets and sells its products domestically
and internationally through multiple channels including direct sales,
distributor sales, mail-order catalog marketing and electronic access through
the Internet. The Company currently has over 2,500 established relationships
with a broad range of electrical, safety, industrial and other domestic and
international distributors. To support its distributor network, the Company
employs a 330 person internal sales force. The Company's sales force seeks to
establish and foster ongoing relationships with the end-users (and distributors)
by providing technical support and product application advice.
The Company also direct markets its products and those of other
manufacturers by catalog sales in both domestic and international markets. Such
products include industrial and facility identification products, safety and
regulatory compliance products and OEM component products, among others.
International catalog operations are conducted through offices in Canada, Italy,
Australia, Germany, France, and England and include foreign language catalogs.
Currently, the Company is establishing operations in Brazil.
MANUFACTURING PROCESS AND RAW MATERIALS
The Company manufactures the majority of the products it sells, while
purchasing certain items such as printers and related supplies from other
manufacturers, often on a proprietary basis. 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 uses. The
Company's manufacturing processes include compounding, coating and converting.
The compounding process involves the mixing of chemical batches for primers, top
coatings and adhesives, in solvent- or water-based materials. The coatings and
adhesives are applied to a wide variety of materials including paper, metal and
metal foil, plastic film and cloth. The converting process may include
embossing, perforating, laminating, die cutting or slitting. The Company also
utilizes various graphic techniques to print or mark the materials as required.
The Company seeks to optimize the performance, quality and durability of
its products, while continually improving manufacturing processes, shortening
lead times and lowering manufacturing processes. The Company produces the
majority of its own adhesive stocks and top-coated materials through an
integrated manufacturing process. These integrated manufacturing processes
permit it to achieve greater flexibility in product design and manufacture and
to improve its ability to provide specialized products designed to meet the
needs of specific applications. W.H. Brady's "cellular" manufacturing processes
and "just-in-time" inventory control allow it to attain profitability in small
orders by emphasizing flexibility and the maximization of assets through quick
turn-around and delivery. Most of the Company's manufacturing facilities have
received ISO 9001 or 9002 registration.
The materials used in the products manufactured by the Company 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
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purchases its raw materials from many suppliers and is not dependent upon any
single supplier for any of its base supply materials.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company focuses its research and development efforts on applications in
the science of surface chemistry, such as 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 that
are adhesively fastened.
The Company possesses patents covering various aspects of adhesive
chemistry, electronic circuitry, computer-generated wire markers, and systems
for aligning letters and patterns. Although 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 such patents. The Company's business
is not dependent on any single patent or group of patents.
The Company conducts most of its research and development activities at its
approximately 39,600 sq. ft. Frederic S. Tobey Research and Innovation Center in
Milwaukee, Wisconsin. The Company spent approximately $11,300,000, $10,400,000,
and $10,300,000 in fiscal 1996, 1995, and 1994, respectively, on its research
and development activities, all of which were Company sponsored. In fiscal 1996,
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.
INTERNATIONAL OPERATIONS
In Fiscal 1996, 1995, and 1994, international sales accounted for 43.6%,
41.1%, and 37.1%, respectively, of the Company's net sales The Company's global
infrastructure now supports sales and operations through subsidiaries in
Australia, Belgium, Brazil, Canada, England, France, Germany, Italy, Japan,
Korea, Singapore and Sweden and sales offices in Hong Kong, Italy, New Zealand,
Malaysia, Spain and Taiwan. Several of these locations manufacture or have the
capability to manufacture certain of the products they sell. The Company opened
new operations in Australia, Brazil, England, Italy, Korea, Malaysia and Taiwan
in the last two years. The Company expects to continue to expand its
international operations as appropriate.
COMPETITION
The markets for most of the Company's products are highly competitive.
However, the Company believes that it is the leading domestic producer of
self-adhesive wire markers, pipe markers, audio and video leader and splicing
tapes and reinforcing rings for floppy disks and believes that it is a leading
domestic producer of safety signs. The Company competes for business principally
on the basis of product quality, performance, range of products offered 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 greater resources. Notwithstanding the
resources of these competitors, management believes that the Company competes in
a broader range of identification markets than any of its competitors.
BACKLOG
As of July 31, 1996, the amount of the Company's backlog orders believed to
be firm was $15.2 million. This compares with approximately $14.6 million and
$17.4 million of backlog orders as of July 31, 1995 and 1994, 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.
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ENVIRONMENT
At present, the manufacturing processes for the Company's adhesive-based
products utilize certain evaporative 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.
EMPLOYEES
As of July 31, 1996, the Company employed approximately 2,400 individuals.
The Company has never experienced a material 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 labor requirements, the
Company maintains an active college recruiting program for sales, technical and
administrative personnel.
ACQUISITIONS
Effective November 15, 1995, the Company acquired the common stock of
TechPress II Limited located in Middlesex, England, a marketer of printing and
labeling systems, for cash of $4,277,000 and a payable of $389,000.
Effective January 2, 1996, the Company acquired the common stock of The
Hirol Company located in Fort Lauderdale, Florida, a manufacturer of die-cut
parts for the electronic, telecommunications and medical testing markets, for
cash of $10,800,000.
On April 8, 1996, the Company completed its acquisition of Varitronic
Systems, Inc. (VSI) located in Minneapolis, Minnesota, for cash of approximately
$40,700,000. VSI manufactures and markets supply-consuming lettering, labeling,
signage and presentation systems and supplies.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
See Note 7 to Notes to Consolidated Financial Statements on Page 32 of the
W.H. Brady Co. 1996 Annual Report.
ITEM 2 PROPERTIES
The Company currently operates in 16 manufacturing facilities. Eight are
located in the United States, and one each in Australia, Belgium, Canada,
England, Japan, Korea, Scotland and Singapore. The Company's primary research
facility of approximately 39,600 square feet is located in Milwaukee, Wisconsin.
The Company's present operating facilities contain a total of approximately
1,080,000 square feet of space, of which approximately 420,000 square feet is
leased. The Company believes that its equipment and facilities are modern, well
maintained and adequate for its present needs.
ITEM 3 LEGAL PROCEEDINGS
The Company is, and may in the future be, party to litigation arising in
the course of its business. The Company is not currently a party to any material
pending legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
W.H. Brady Co. Class A Nonvoting Common Stock trades on the NASDAQ National
Market under the symbol BRCOA. There are no established public trading markets
for the Company's Class B Voting Common Stock.
Stock price disclosure required by this item is incorporated by reference
to Page 36 of the W.H. Brady Co. 1996 Annual Report.
(b) Holders
The number of holders of record of the Company's Class A and Class B Common
Stock as of September 12, 1996, was 496 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 $.033 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:
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YEAR
ENDING
YEAR ENDED 7/31/95 YEAR ENDED 7/31/96 7/31/97
---------------------------------------- ---------------------------------------- -------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
------- ------- ------- ------- ------- ------- ------- ------- -------
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Class A................. $ .07 $ .07 $ .07 $ .07 $ .10 $ .10 $ .10 $ .10 $ .13
Class B................. .04 .07 .07 .07 .07 .10 .10 .10 .10
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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. 1996 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. 1996 Annual Report.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to Pages
23 through 34 of the W.H. Brady Co. 1996 Annual Report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME AGE TITLE
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Katherine M. Hudson........... 49 President, CEO and Director
Senior Vice President, Treasurer, Assistant Secretary,
Donald P. DeLuca.............. 56 and Director
Mary T. Arnold................ 53 Vice President, Research and Development
Richard L. Fisk............... 52 Vice President, Seton Group
David R. Hawke................ 42 Vice President, Graphics Group
Vice President, Identification Systems & Specialty Tapes
David W. Schroeder............ 41 Group
Peter J. Lettenberger......... 59 Secretary and Director
William H. Brady III.......... 54 Director
Elizabeth B. Lurie............ 51 Director
Robert C. Buchanan............ 56 Director
Roger D. Peirce............... 59 Director
Richard A. Bemis.............. 55 Director
Frank W. Harris............... 54 Director
Gary E. Nei................... 52 Director
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KATHERINE M. HUDSON -- Mrs. Hudson joined the Company in January 1994, as
President, Chief Executive Officer and Director. Before joining W.H. Brady Co.,
she was a Vice President at Eastman Kodak Company and General Manager of its
Professional, Printing and Publishing Image Division. Her 24 years at Eastman
Kodak Company included positions in finance, communication and public affairs,
information systems and the management of instant photography and printing. She
is also a director of Apple Computer, Inc. and Case Corporation and serves on
the Alverno College Board of Trustees, the Advisory Council for the Indiana
University School of Business, the Wisconsin Export Strategy Commission, and the
Governor's Commission on the Glass Ceiling.
DONALD P. DELUCA -- Mr. DeLuca joined the Company as Vice President-Finance
and Chief Financial Officer in May 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 and GAN National Insurance Company and serves on the Wisconsin
Council on Economic Education and the Issuer's Affairs Committee of the Board of
Governors of the NASD.
MARY T. ARNOLD -- Dr. Arnold joined the Company in February 1993. In March
1995, she was appointed to her present position. Prior to joining Brady, Dr.
Arnold served in various capacities at G. E. Appliances, a unit of General
Electric 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.
DAVID W. HAWKE -- Mr. Hawke joined the Company in 1979. He served as
General Manager of the Industrial Products Division from 1985 to 1991. From 1991
to February 1995, he served as Managing Director-European Operations. In March
1995, he was appointed to his present position.
DAVID W. SCHROEDER -- Mr. Schroeder joined the Company in June 1991 as
General Manager of the Industrial Products Division. He was appointed to his
present position in March 1995. Before joining the Company, he served as
President and Chief Executive Officer of Uniroyal Adhesives & Sealants Co., Inc.
from 1988 to May 1991.
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
III-1
<PAGE> 12
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.
WILLIAM H. BRADY III -- Mr. Brady has been a director of the Company since
January of 1979. Mr. Brady is a private investor.
ELIZABETH B. LURIE -- Ms. Lurie has been a director of the Company since
January of 1979. Ms. Lurie is President of the W.H. Brady Foundation, Inc., a
private charitable foundation. Ms. Lurie is also President of Continuity, Inc.,
which provides communications consulting services to various public policy
organizations and individuals. Until December 31, 1995, Continuity, Inc. also
operated a retail fine arts and fine crafts business located in Maggie Valley,
NC. Ms. Lurie serves as a director and officer of National Empowerment
Television, Inc., (Washington, DC), and Independent Women's Forum, Inc.
(Washington, DC). Ms. Lurie is also a director of Free Congress Research and
Education Foundation, Inc. (Washington, DC).
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, chairing that
committee 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 trustee and director of The Northwestern Mutual Life
Insurance Company and Firstar Corporation, respectively.
ROGER D. PEIRCE -- Mr. Peirce has served as a director and a member of the
compensation committee of the Company since September, 1988. Mr. Peirce is a
private investor and consultant. He was President of Valuation Research
Corporation from April, 1995 to May, 1996. From September 1986 to December 1993,
he was President of Super Steel Products Corp. in Milwaukee, Wisconsin. Prior to
that he was a managing partner for Arthur Andersen & Co., independent certified
public accountants.
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
the 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.
GARY E. NEI -- Mr. Nei has been a Director of the Company since November
1992, and a member of its audit committee since November 1994. Mr. Nei is
Chairman of B&B Publishing, a publishing company in Walworth, Wisconsin. He is
also a director of DIFCO Inc. and Uroquest, 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.
SECTION 16A BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During fiscal year 1996, Frank W. Harris, a director of the Company,
purchased 350 shares of the Company's Class A Common Stock on May 31, 1996, and
reported such transaction on a Form 4 during the month of July, 1996.
III-2
<PAGE> 13
ITEM 11 EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended July 31, 1996, to those persons who,
as of the end of fiscal 1996, were the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ---------------
OTHER ANNUAL OPTIONS/SAR ALL OTHER
FISCAL SALARY BONUS COMPENSATION (# OF COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) SHARES)(3) ($)(4)
- ---------------------------------- ------ ------- ------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
K. M. Hudson...................... 1996 342,500 174,505 5,381 36,000 41,412(5)
President & Chief Executive
Officer 1995 315,000 369,914 4,163 30,000 87,333(5)
1994 175,000 175,000 -- 75,000 400,366(5)
D. P. DeLuca...................... 1996 238,842 77,294 5,001 18,000 69,436(6)
Senior Vice President, Treasurer & 1995 217,875 175,273 4,480 12,000 64,349(6)
Chief Financial Officer 1994 182,750 127,925 2,825 7,500 18,161(6)
D. W. Schroeder................... 1996 190,558 75,804 4,214 12,000 12,632
Vice President, ISST Group 1995 170,449 124,446 2,979 6,000 12,394
1994 157,279 90,404 2,887 5,250 12,775
R. L. Fisk........................ 1996 197,631 51,575 3,835 27,000 13,743
Vice President, Seton Group 1995 189,954 156,861 3,425 9,000 13,691
1994 182,577 127,804 3,097 7,500 15,462
D. R. Hawke....................... 1996 175,558 53,452 -- 12,000 26,076(7)
Vice President, Graphics Group 1995 160,939 112,497 -- 6,000 202,113(7)
1994 147,468 95,855 -- 5,250 62,459(7)
</TABLE>
- -------------------------
(1) Reflects bonus earned during fiscal year 1996 which was paid during the next
fiscal year.
(2) The amounts shown represent costs to the Company for expenses associated
with the use of a company car.
(3) Options issued in fiscal 1996, 1995 and 1994 adjusted for the 200% stock
dividend paid on December 15, 1995.
(4) All other compensation for fiscal 1996 for Mrs. Hudson, and Messrs. DeLuca,
Schroeder, Fisk and Hawke, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift (i.e.
"BradyGold") Plan for each named executive officer of $12,000 each and (ii)
the cost of group term life insurance for each named executive officer of
$1,705, $3,311, $632, $1,743 and $570, respectively.
All other compensation for fiscal 1995 for Mrs. Hudson, and Messrs. DeLuca,
Schroeder, Fisk and Hawke, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift (i.e.
"BradyGold") Plan for each named executive officer of $12,000 each and (ii)
the cost of group term life insurance for each named executive officer of
$1,544, $2,349, $394, $1,691, and $480, respectively.
All other compensation for fiscal 1994 for Mrs. Hudson, and Messrs. DeLuca,
Schroeder, Fisk and Hawke, 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, $14,620,
$12,582, $14,606 and $11,798, respectively and (ii) the cost of group term
life insurance for each named executive officer of $660, $1,022, $193, $856
and $246, respectively.
(5) Fiscal 1996 includes relocation expenses of $3,112 and $24,595 accrued, but
not paid, for the current year's portion of a Supplemental Executive
Retirement Plan (SERP). Fiscal 1995 includes relocation expenses of $50,586
and $23,203 accrued, but not paid, for that year's portion of the SERP.
Fiscal 1994 includes $386,706 accrued, but not paid, for that year's portion
of the SERP.
III-3
<PAGE> 14
(6) Fiscal 1996 includes $54,125 accrued, but not paid, for the current year's
portion of a Supplemental Executive Retirement Plan (SERP). Fiscal 1995
includes $50,000 accrued, but not paid, for that year's portion of the SERP.
Fiscal 1994 includes relocation expenses of $2,519.
(7) Fiscal 1996 includes relocation expenses of $1,743 and expatriation expenses
of $11,764 related to Mr. Hawke's Belgium assignment. Fiscal 1995 includes
relocation expenses of $25,282 and expatriation expenses of $164,351. Fiscal
1994 includes relocation expenses of $1,104 and expatriation expenses of
$49,311.
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal
1996 to or by the executive officers named in the Summary Compensation Table
above, and the value of unexercised options held by such persons at July 31,
1996. Stock Appreciation Rights are not available under any of the Company's
plans.
OPTION GRANTS IN FISCAL 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE
NAME GRANTED(#)(1) FISCAL 1996 PRICE($/SH)(2) EXPIRATION DATE
- ------------------------------------ ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
K. M. Hudson........................ 36,000 10.9% 25.1667 November 6, 2005
D. P. DeLuca........................ 18,000 5.5% 25.1667 November 6, 2005
D. W. Schroeder..................... 12,000 3.6% 25.1667 November 6, 2005
R. L. Fisk.......................... 12,000 3.6% 25.1667 November 6, 2005
15,000.... 4.5% 23.8333 August 1, 2005
D. R. Hawke......................... 12,000 3.6% 25.1667 November 6, 2005
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED RATES
OF STOCK PRICE APPRECIATION(3)
-----------------------------------------------
0% 5% 10%
NAME $25.1667($) $41($)(6) $65 1/4($)(6)
- -------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
K. M. Hudson...................................... 0 569,999 1,442,999
D. P. DeLuca...................................... 0 284,999 721,499
D. W. Schroeder................................... 0 190,000 481,000
R. L. Fisk........................................ 0 415,625 1,051,625
D. R. Hawke....................................... 0 190,000 481,000
All Shareholders' Gains (increase in market value of
W.H. Brady Co. Common Stock at assumed rates
of stock price appreciation)(4)(6)........................... $317,788,185 $804,506,904
All Optionees' Gains (as a percent of all
shareholders' gains)(5)(6)................................... 1.64% 1.64%
</TABLE>
- -------------------------
(1) The options granted November 6, 1995, become exercisable as follows: 33 1/3%
of the shares on November 6, 1996; 33 1/3% of the shares on November 6,
1997; and 33 1/3% of the shares on November 6, 1998. These options have a
term of ten years.
Mr. Fisk's option grant on August 1, 1995, became exercisable August 1,
1996, and has 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 approximately 0%, 63% and 159%
for assumed annual rates of appreciation of 0%, 5% and 10%, respectively,
compounded annually for the ten year option term.
III-4
<PAGE> 15
(4) Calculated from the $25.1667 exercise price applicable to the options
granted on November 6, 1995 based on the 20,070,875 shares of Class A Common
Stock outstanding on November 6, 1995.
(5) Represents potential realizable value for all options granted in fiscal 1996
as compared to the increase in market value of W.H. Brady Co. Class A Common
Stock at assumed rates of stock price appreciation.
(6) The Company disavows the ability of any valuation model to predict or
estimate the Company's future stock price or to place a reasonably accurate
present value on these options because any model depends on assumptions
about the stock's future price movement that the Company is unable to
predict.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND VALUE OF OPTIONS AT END OF FISCAL 1996
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SHARES OPTIONS AT
ACQUIRED JULY 31, 1996
ON VALUE ----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#)
- ----------------------------------------------------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C>
K. M. Hudson......................................... 0 0 85,000 56,000
D. P. DeLuca......................................... 0 0 39,000 28,500
D. W. Schroeder...................................... 0 0 16,750 17,750
R. L. Fisk........................................... 0 0 26,000 35,500
D. R. Hawke.......................................... 0 0 26,250 17,250
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT JULY 31, 1996(1)
----------------------------
EXERCISABLE UNEXERCISABLE
NAME ($) ($)
- --------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
K. M. Hudson......................................................... 617,086 121,666
D. P. DeLuca......................................................... 445,594 72,625
D. W. Schroeder...................................................... 165,802 41,104
R. L. Fisk........................................................... 260,510 60,458
D. R. Hawke.......................................................... 299,969 36,312
</TABLE>
- -------------------------
(1) Represents the closing price for the Company's Class A Common Stock on July
31, 1996 of $21 3/4 less the exercise price for all outstanding exercisable
and unexercisable options for which the exercise price is less than such
closing price.
III-5
<PAGE> 16
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,
1991, 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.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
W.H. BRADY CO. VERSUS PUBLISHED INDICES (S&P 500 AND NASDAQ-US)
FISCAL YEAR ENDING JULY 31,
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) BRADY S&P 500 NASDAQ- US
<S> <C> <C> <C>
F91 100 100 100
F92 89 113 117
F93 91 123 143
F94 126 129 147
F95 189 163 206
F96 176 190 225
</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 $1,250 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 is 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.
III-6
<PAGE> 17
In the event of a change in control of the Company, Mrs. Hudson's SERP may
accelerate and become payable in 30 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 one-tenth of the balance
in the account; the second payment will be one-ninth; 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
credited a deferred compensation account with $125,000 on July 31 of each year
(1992-1994), $100,000 on July 31, 1995 and 1996, and will credit $100,000 on
July 31, 1997. Interest accrues on the balance in the account at 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 1996, 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
Substantially 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 retirement, 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
III-7
<PAGE> 18
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 shareholder value enhancement plan cash 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
1996, the Committee reviewed compensation
III-8
<PAGE> 19
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 Shareholder Value Enhancement Plan
The shareholder value enhancement 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 100%
objective. It stresses maximization of Company profitability and increasing
shareholder value.
Stock Options
In 1989 the Board approved the W.H. Brady Co. 1989 Non-Qualified Stock
Option Plan (the "Option Plan") under which 1,500,000 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 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 $342,500 in base salary in fiscal 1996, an increase of
8.7% over the prior year's base salary. She was paid a bonus attributable to
fiscal 1996 of $174,505, $195,409 less than the prior year's bonus. The bonus
was determined in accordance with the Company's objective Bonus Plan, discussed
above. Mrs. Hudson's compensation reflects:
(i) a sales increase of $45,180,000, or 14.4%, and a $116,000, or 0.4%,
increase in profits over similar amounts from the prior year; the
stock price decreased from $23.75 to $21.75
(ii) the successful acquisition of TechPress II Limited, The Hirol Company
and Varitronic Systems, Inc.
(iii) continued efforts to focus the Company's resources on sustainable
value-enhancing long-term growth
(iv) continued improvement in intercompany teamwork.
During fiscal 1996, Mrs. Hudson was awarded options to purchase 36,000
shares of Class A Common Stock.
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.
III-9
<PAGE> 20
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
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, 1996.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OWNERSHIP
- ----------------------------------- ------------------------- --------- ---------
<S> <C> <C> <C>
Class B Common Stock............... William H. Brady, Jr.(1) 1,574,866 89%
Marital Trust
c/o Quarles & Brady
Attn: Peter J.
Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
William H. Brady, Jr.(1)
Non-QTIP Marital Trust 194,448 11%
c/o Quarles & Brady
Attn: Peter J.
Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
</TABLE>
- -------------------------
(1) The trustees of both trusts are Robert C. Buchanan, Irene B. Brady, Roger D.
Peirce, Peter J. Lettenberger, and Richard A. Bemis, 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.
III-10
<PAGE> 21
(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, 1996.
Except as otherwise indicated, all shares are owned directly.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT OF
OWNER & NATURE OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNERSHIP OWNERSHIP OWNERSHIP
- ------------------------------------- -------------------------------------- --------- ----------
<S> <C> <C> <C>
Class A Common Stock................. Peter J. Lettenberger (1)(2)(3) 3,377,856 16.8%
Richard A. Bemis(1)(4) 2,619,171 13.0%
Robert C. Buchanan(1)(5) 2,620,471 13.0%
Roger D. Peirce (1)(6) 2,618,171 13.0%
Elizabeth B. Lurie(2)(7) 1,505,870 7.5%
William H. Brady III(8) 1,037,472 5.2%
Katherine M. Hudson(9) 113,161 0.6%
Donald P. DeLuca(10) 47,000 0.2%
Gary R. Nei 4,500 * %
Frank W. Harris 1,850 * %
All Officers and Directors as a Group 5,465,457 26.8%
(16 persons)(11)
Class B Common Stock................. Peter J. Lettenberger(1) 1,769,314 100 %
Robert C. Buchanan(1) 1,769,314 100 %
Roger D. Peirce(1) 1,769,314 100 %
Richard A. Bemis(1) 1,769,314 100 %
All Officers and Directors as a Group 1,769,314 100 %
6% Cumulative Preferred Stock........ Peter J. Lettenberger(1)(2) 2,751 69.1%
Robert C. Buchanan(1) 1,920 48.2%
Roger D. Peirce(1) 1,920 48.2%
Richard A. Bemis(1) 1,920 48.2%
Elizabeth B. Lurie(2)(7) 1,066 26.8%
William H. Brady III(8)(6) 235 5.9%
All Officers and Directors as a Group 3,221 80.8%
1979 Series Cumulative Preferred
Stock.............................. Elizabeth B. Lurie(2)(7) 8,071 36.7%
Peter J. Lettenberger(2) 5,529 25.2%
William H. Brady III(8) 2,542 11.6%
All Officers and Directors as a Group 10,613 48.3%
6% Cumulative Preferred Stock 1972
Series............................. Peter J. Lettenberger(2) 2,600 100 %
Elizabeth B. Lurie(2) 2,600 100 %
All Officers and Directors as a 2,600 100 %
Group(2)
</TABLE>
- -------------------------
* 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 1,744,325 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 870,846 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 Irene B. Brady, Robert C.
Buchanan, Roger D. Peirce, Peter J. Lettenberger, and Richard A. Bemis,
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
III-11
<PAGE> 22
beneficiary of the Marital Trust; 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. See also
note (7).
(2) 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 757,823 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 14,861.76 shares of Class A Common Stock.
(4) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Bemis owns 4,000 shares of Class A Common Stock directly.
(5) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Buchanan owns directly 1,800 shares of Class A Common Stock, 2,000 shares
through his Keogh plan, and 1,500 shares as trustee of a trust.
(6) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Peirce owns 1,000 shares of Class A Common Stock directly, and 1,500 shares
through his Keogh plan.
(7) In addition to the shares owned as a trustee of the 1986 Trust and as a
director of the Foundation, Mrs. Lurie owns directly 274,845 shares of
Class A Common Stock, 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 473,202 shares of the Class A
Common Stock.
(8) Mr. Brady owns 1,037,472 shares of Class A Common Stock, 235 shares of 6%
Cumulative Preferred Stock, and 2,542 shares of 1979 Series Cumulative
Stock.
(9) Mrs. Hudson owns 6,161.38 shares of Class A Common Stock directly through
an employee benefit plan and holds a vested option to acquire an additional
107,000 shares of Class A Common Stock.
(10) Mr. DeLuca owns 1,500 shares of Class A Common Stock directly and holds
vested options to acquire an additional 39,500 shares of Class A Common
Stock.
(11) The amount shown for all officers and directors as a group (16 persons)
includes options to acquire a total of 272,450 shares of Class A Common
Stock which are currently exercisable or will be exercisable within 60 days
of September 30, 1996. It does not include other options for Class A Common
Stock which have been granted at later dates.
(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
None.
III-12
<PAGE> 23
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE, 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
34 of the Company's 1996 Annual Report is incorporated herein by reference.
2) Consolidated Financial Statement Schedule --
Schedule II Valuation and Qualifying Accounts
Independent Auditors' Report on Financial Statement Schedule
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 -- See Exhibit Index at page IV-2 of this Form 10-K.
(b) Reports on Form 8-K.
None
IV-1
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S>
3.1 Restated Articles of Incorporation of W.H. Brady Co.(1)
3.2 By-laws of W.H. Brady Co., as amended.(2)
10.2 W.H. Brady Co. BradyGold Plan, as amended.(2)
10.3 Executive Additional Compensation Plan, as amended.(2)
10.4 Form of Executive's Deferred Compensation Agreement, as amended.(2)
10.5 Forms of Director's Deferred Compensation Agreement, as amended.(2)
10.6 W.H. Brady Co. 1989 Non-Qualified Stock Option Plan.(4)
10.7 Shareholder Value Enhancement (SVE) Plan.(6)
10.8 Supplemental Executive Retirement Plan dated March 27, 1992 between W.H. Brady Co.
and Paul Gengler.(4)
10.9 W.H. Brady Co. Automatic Dividend Reinvestment Plan.(4)
10.10 Supplemental Executive Retirement Plan between W.H. Brady Co. and Katherine M.
Hudson.(5)
10.11 Supplemental Executive Retirement Plan dated September 23, 1994 between W.H. Brady
Co. and Donald P. DeLuca.(5)
13.1 Annual Report to Shareholders for year ended July 31, 1995.
18.1 Letter regarding change in accounting method.(3)
21.1 Subsidiaries of W.H. Brady Co.
23.1 Consent of Deloitte & Touche LLP, Independent Auditor.
27.1 Financial Data Schedule
</TABLE>
- -------------------------
(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.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1994.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1995.
IV-2
<PAGE> 25
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1996 1995 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..................................... $1,881 $1,565 $1,247
Additions -- Charged to expense..................................... 367 463 725
Additions -- From businesses aquired................................ 130 2 2
Deductions -- Bad debts written off, net of recoveries.............. (386) (147) (407)
------ ------ ------
Balances at end of period........................................... $1,992 $1,881 $1,565
====== ====== ======
</TABLE>
IV-3
<PAGE> 26
INDEPENDENT AUDITORS' 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, 1996 and 1995 and for each of the three years in the
period ended July 31, 1996, and have issued our report thereon dated September
13, 1996; such financial statements and report are included in your 1996 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedule of W.H. Brady Co. and
subsidiaries, listed in Item 14. The consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 13, 1996
IV-4
<PAGE> 27
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 twenty-fifth day
of October, 1996
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.
<TABLE>
<C> <S> <C>
/s/ K. M. HUDSON President and Director October 25, 1996
- --------------------------------------------- (Principal Executive Officer)
K. M. Hudson
/s/ P. J. LETTENBERGER Director October 25, 1996
- ---------------------------------------------
P. J. Lettenberger
/s/ R. A. BEMIS Director October 25, 1996
- ---------------------------------------------
R. A. Bemis
Director
- ---------------------------------------------
W.H. Brady II
Director
- ---------------------------------------------
E. B. Lurie
Director
- ---------------------------------------------
F. W. Harris
/s/ R. C. BUCHANAN Director October 25, 1996
- ---------------------------------------------
R. C. Buchanan
Director
- ---------------------------------------------
R. D. Peirce
/s/ D. P. DELUCA Director October 25, 1996
- ---------------------------------------------
D. P. DeLuca
/s/ G. E. NEI Director October 25, 1996
- ---------------------------------------------
G. E. Nei
</TABLE>
IV-5
<PAGE> 1
EXHIBIT 13.1
Corporate Profile W.H. Brady Co. develops, manufactures and markets coated
materials and industrial identification and safety products. Using
total-quality-assurance methods, extensive research and development resources
and people committed to continuous improvement, Brady is a leader in its
markets. Headquartered in Milwaukee, Wisconsin, the 82-year-old company has
operations around the world.
W.H. Brady Co.
Identification Systems & Specialty Tapes Group develops, manufactures and
markets specialized adhesive and topcoated materials, precision die-cut and
slit tapes and high-performance industrial identification products from wire
markers to industrial printing and application systems. Brady Precision Tape
Co., Hirol Division, Coated Products Division and Identification Solutions
Division. Graphics Group develops, manufactures and markets safety and
facility identification products such as signs, pipe markers, lockout/tagout
devices and portable printing systems; presentation products including systems
for producing posters and signs; and digital color graphics systems to produce
large-format color banners, signs and displays. Signmark(R) Division,
Varitronic Systems, Inc., Brady Graphics Solutions Division and TechPress II
Limited. Seton Group markets a wide range of custom-manufactured and standard
identification and safety-related products globally. Service Operations provide
accounting, benefits, communication, information systems, training, treasury,
insurance, credit and other services to W.H. Brady Co. operations.
On the Cover
The cover of our annual report features three new products. Electronic adhesive
film (left) is used to attach components such as heat sinks to leadframes for
integrated circuits.
The PAM Series I Printer Applicator Machine automates circuit board labeling by
automatically printing and applying bar code labels to circuit boards. The
Brady ColorPix(TM) Color Production System (right) produces colorful
large-format banners, posters and displays.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Financial Highlights 1
Letter to Shareholders 2
Marketing Review 6
Financial Review, 1996 17
Corporate Data 35
Shareholder Services 36
</TABLE>
Fiscal 1996 was a challenging, but successful year for W.H. Brady Co. We
followed our strategy of investing in growth opportunities while controlling
costs and improving our asset utilization. The result was record financial
performance by Brady, although not to the level we are striving to reach.
Financial Highlights
W.H. Brady Co. and Subsidiaries
<TABLE>
<CAPTION>
Percent
Increase
(Dollars in Thousands, Except Per Share Amounts) 1996 1995 (Decrease)
<S> <C>
Net sales $ 359,542 $ 314,362 14.4
</TABLE>
<PAGE> 2
<TABLE>
<S><C>
Income before income taxes $ 45,433 $ 44,639 1.8
Pre-tax profit margin 12.6% 14.2%
Net income $ 28,027 $ 27,911 0.4
After-tax profit margin 7.8% 8.9%
Return on average stockholders' investment 15.6% 17.7%
Net income per Common Share
Class A Nonvoting $ 1.27 $ 1.27
Class B Voting $ 1.24 $ 1.24
Working capital $ 109,688 $ 129,938 (15.6)
Stockholders' investment $ 189,263 $ 170,823 10.8
Research and development $ 11,309 $ 10,426 8.5
Capital expenditures $ 10,470 $ 8,114 29.0
Depreciation and amortization $ 10,602 $ 9,159 15.8
</TABLE>
Letter to Our Shareholders
Financial Highlights
Our sales for the year ended July 31, 1996, increased to $359,542,000, up 14.4
percent from fiscal 1995 sales of $314,362,000. All operating groups reported
increased sales. Sales growth at our operations in Sweden, Germany and Japan
was especially strong. Overall international business accounted for 44 percent
of total sales.
Net income for the fiscal year was $28,027,000, or $1.27 per Class A Common
Share, representing a 0.4 percent increase over the fiscal 1995 net income of
$27,911,000, or $1.27 per share.
Photo Caption
Katherine M. Hudson, president and chief executive officer. The PAM Series I
Printer Applicator Machine (background) is a new product for Brady's
Identification Solutions Division. The system automates circuit board
identification.
Investments in three acquisitions, information technology, an expanded
international sales force and other growth initiatives impacted our 1996
profitability. Our challenge - and focus - is to make our investments for
future growth pay off in 1997 and beyond.
Sales for the fourth quarter ending July 31, 1996, were $97,847,000, up 17.7
percent from $83,145,000 in sales during the fourth quarter last year. Net
income for the fiscal 1996 fourth quarter was $7,931,000 or $0.36 per share, up
8.1 percent from net income of $7,334,000 or $0.33 per share during the fourth
quarter last year.
Also during fiscal 1996, stock ownership broadened. In December, we issued a
stock dividend which more than tripled the number of Class A Common Shares
held. In June, the Brady family sold 3,593,750 shares of Class A Common Stock
in a public offering. The increase in shares added significantly to our market
liquidity. The increased number of shares combined with the decrease in
per-share price due to the stock dividend enables Brady to attract a wider
range of investors.
Growth
We have four strategies for achieving growth: investing in new products and new
markets, acquisitions and joint ventures, geographic expansion and doing more
where we are.
<PAGE> 3
Over the year we brought three new companies into the Brady family. In November
1995, we purchased TechPress II Limited, Middlesex, England, a distributor of
printing and labeling systems. In January 1996, Brady acquired The Hirol
Company, Fort Lauderdale, Florida, which makes precision die-cut parts for the
telecommunications market. In April, we acquired Varitronic Systems, Inc.,
Minneapolis, Minnesota, a manufacturer of printing, labeling and signage
systems.
We took steps to establish an operation in Brazil to begin our expansion into
South American markets. And we invested in additional sales and marketing
resources to do more where we are.
We invested in information technology initiatives to provide seamless customer
service (see article on page 14) and enable our employees to communicate more
effectively and collaborate on new product development and process
improvements.
In fiscal 1996 we introduced the BP4000 thermal transfer and direct thermal
printer in Europe, the PAM Series I Printer Applicator Machine for circuit
board labeling, new labeling products for ink-jet printing, new bar code
software, a repositionable nonadhesive wire marker for global markets and
thermal-transfer printable Permasleeve(TM) wire markers. For the electronics
market, Brady introduced a new cover tape for integrated circuit packaging and
also a selection of new die-cut disk-drive parts. In the area of safety and
facility identification, we introduced the Einsign(TM) Smart Sign-Making
System, Brady Laser Signs and sign-making software earlier this fiscal year. As
a result of a strategic relationship with Fuji Photo Film Co., Ltd., Tokyo,
Japan, Brady introduced a new large-format full-color printing system called
the Brady ColorPix(TM) Color Production System.
Cost Control
To control costs, we are continually working to reduce inventory and improve
yield and delivery times. Signmark(R) Division has implemented a new printing
process to improve turnaround times and reduce costs on small orders.
Seton is targeting customers with specialized mailings based upon their
previous ordering activity or industry. In addition, Seton has implemented
mathematical modeling techniques to target customers most likely to order.
The Identification Solutions Division has negotiated significant cost
reductions on materials and improved yield on many of its products.
Resource Utilization
Although all of our operations are working to use existing assets to their full
potential, Coated Products Division leads the way in improving asset
utilization. In January, the division transitioned its workforce to a
seven-day-per-week work schedule to make the best use of our investment in
capital equipment.
We have also consolidated inventory into one warehouse in Belgium to service
customers in Belgium and France. And our Brady and Seton operations in Canada
have combined into one operation - W.H.B. Identification Solutions, Inc. to
make better use of plant, equipment and human resources.
The Identification Solutions Division and Signmark Division customer service
groups have joined together to reduce duplication of effort and better serve
customers in the electrical market.
Brady business units around the world have worked together to leverage our
purchasing power.
Looking Ahead
Our strategy going forward remains the same. We are still dedicated to creating
value for our shareholders and meeting or exceeding customers' expectations for
high-performance identification,
<PAGE> 4
safety and tape solutions.
In fiscal 1997 we will be doing more where we are by continuing our investment
in sales and marketing with specialized training for our salesforce and
information technology investments to facilitate customer-account management,
communication and collaboration. We will introduce a new version of a popular
printing system, the I.D. Pro(TM) Plus Wire Marker Printer, with new features
including faster operation and improved print quality. We will grow globally
through new startups, joint ventures and acquisitions. Fiscal 1997
globalization efforts include W.H. Brady Korea Co., Ltd., a joint venture in
South Korea; mailing into Mexico from our Seton operation in the United States;
continuing our startup in Brazil; and forming sales and service branches in
Malaysia and Taiwan.
We will continue to leverage technology, products, processes and customer
service.
We will succeed by investing in growth opportunities while controlling costs
and improving our asset utilization. We recognize the importance of growth, but
we also know it is important to maintain profitability. And we are committed to
doing just that in fiscal 1997 and beyond.
Katherine M. Hudson
President and Chief Executive Officer
October 1996
What was that name again?
Throughout fiscal 1996, several new names surfaced at W.H. Brady Co. - some
from acquisitions and new startups and others from a need to more accurately
identify an operation. Among the new names are: TechPress II Limited,
Middlesex, England, a distributor of printing systems throughout Europe, which
Brady acquired in November 1995. Hirol Division, Fort Lauderdale, Florida, a
converter of custom die-cut parts for the telecommunications market, which
Brady acquired in January 1996. Varitronic Systems, Inc., Minneapolis,
Minnesota, a manufacturer of printing and labeling systems, which Brady
acquired in April 1996.
Three existing names were changed to better represent product lines and
identify with markets. Graphics Group, formerly Signmark(R) Group, changed its
name to reflect its additional focus on graphics markets. Identification
Solutions Division, formerly Industrial Products Division, Milwaukee,
Wisconsin, is a manufacturer and marketer of industrial identification products
including specialty labels, wire markers, and printing systems. W.H.B.
Identification Solutions, Inc., Richmond Hill, Ontario, Canada, is the new name
for the combined Seton and Brady operations in Canada.
And one new operation was formed. W.H.B. do Brasil Ltda., Sao Paulo, Brazil,
is a new operation formed by Brady's Seton and Identification Systems and
Specialty Tapes Groups to enter the South American market.
Brady-Korea
W.H. Brady Korea Co., Ltd., Okcheon, Chung Buk, South Korea, is a joint venture
between Brady and Mr. Tae Seung Park, owner of the former John Lee Commercial
Corp. and Dae Yang Electron Company.
Brady-Korea will initially sell products from Brady Precision Tape Co. and the
Identification
<PAGE> 5
Solutions Division, such as leadframe tape and industrial identification
products. It plans to sell additional Brady products in the future. It will
also serve as a manufacturing base, allowing Brady to expand quickly into
additional Southeast Asian markets.
Capturing a new market often comes down to revolutionary products. At Brady,
technology plays an important role in product development. We succeed by
combining engineered systems with our continued emphasis on material
development and specialty adhesives for challenging applications.
New Products
Computer and electronic manufacturers never fear: PAM is here! One of the most
exciting technological innovations in Brady's history, The PAM Series I Printer
Applicator Machine is a revolutionary system that automates the labeling of
circuit boards.
PAM was launched this year by Identification Solutions Division, which saw an
opportunity to label components on the millions of circuit boards produced for
the computer and electronics industry each year-boards that were previously
labeled by hand. PAM prints and applies the labels, then scans them to verify
label information to begin product tracking.
"PAM is unique in this market in the sense that it is truly a turnkey system
which provides a complete identification solution for circuit board
manufacturers," said Mark Schlagenhaft, PAM specialist.
The development team that brought PAM to life worked to incorporate several
technologies. PAM uses Brady ribbons and labels, a modified thermal transfer
printer with a specialized, patented dispenser mechanism, and Microsoft
Windows(R)-based software to generate bar code labels. Add a robotic arm,
touch-screen controls, bar code scanners and a conveyor system, and PAM is
complete.
PAM was designed to be installed directly into a circuit board manufacturer's
production line. When the conveyor carries a circuit board into PAM's work
area, the machine's thermal-transfer printer prints a label. The robotic arm
moves over the label and uses vacuum suction to support the label while the
printer's dispenser plate retracts. Next, the arm rotates the label into
position and moves down to the circuit board to apply the label. A built-in
scanner scans the bar code to verify label information and begin the
data-collection process. The entire process occurs one label at a time, so that
each label has completely unique information.
"Our solution is so comprehensive that customers can turn their attention to
the product they manufacture, to meeting the needs of their customers,"
Schlagenhaft said. "They can spend less time worrying about product
identification because Brady is taking care of it for them in a
highly-automated, turnkey fashion."
Companies recognize that information is power, especially in the area of
product performance. When companies that supply components to computer and
electronics manufacturers were asked to begin providing identification systems
to track a component's performance, Brady saw an opportunity and stepped in.
The Automatic Identification and Data Collection Team creates automated
data-collection systems that supply the technology, plus a full range of
products and services, to meet those suppliers' needs.
"Essentially, we're providing a service to help our customers comply with their
customers' identification requirements," said Kevin Hayes, Identification
Solutions Division director of marketing. "We offer solutions for identifying
and tracking high-tech components throughout
<PAGE> 6
work-in-process."
Brady's automated data-collection systems do much more than just label a
component. They also track manufacturing, warehousing, receiving and shipping
data, and provide seamless, real-time integration with a customer's
manufacturing information system. Brady supplies software, fixed station
data-collection terminals, portable and radio frequency terminals, high-speed
thermal-transfer printers and specialized labeling materials. Once the system
is in place, Brady is there to service it-from project management to system
design, consulting services and ongoing support.
"Automated data-collection systems reduce customers' labor costs," Hayes said.
"But the biggest benefit by far is the accuracy of information which our
systems provide. We can help customers virtually eliminate identification
errors, saving both time and money."
Thanks to Varitronic System, Inc.'s QuikPlate(TM) system, winners can now have
a customized trophy in their hands minutes after crossing the finish line.
The QuikPlate system is a portable thermal transfer printing system that
produces high-quality trophy plates, cut to size, on the spot. The newly
developed brushed gold plate material has a permanent adhesive on the back,
making it simple to peel off the liner and secure the plate to a plaque or
trophy. Options developed for the QuikPlate system include a graphics program
and the ability to interface with a personal computer for transferring custom
graphics and data.
"The introduction of this print technology and specialty material to the awards
market allows a trophy shop to produce finished plates four to seven times
faster than current methods," said Mike Flaherty, awards market sales manager.
"That makes their customers happy, and it means that our customers, the trophy
shops, keep coming back for more. In the next year, we will be working
aggressively to market and enhance the QuikPlate system product line."
Photo captions
"PAM is not just a label; it's not just a way to print and apply a label; it's
not just a way to collect information from the bar code. It's this entire
solution that is really revolutionary." Mark Schlagenhaft, PAM specialist
"The QuickPlate(TM) system's technology has opened up an entirely new market
for us," said Mike Flaherty, awards market sales manager. "The market may be
new to us, but we're confident that with the QuickPlate system we can keep
customers in the awards business coming back for more."
"We offer customers a complete automatic identification solution," said Kevin
Hayes, director of marketing. "Our solution includes Brady printers,
specialized labeling materials, scanners and software along with project
management, system design and consulting."
W.H. Brady Co. employees leverage technology along with their skills and
creativity to capitalize on opportunities. This applies to everything from new
products and markets to processes.
Technology Highlights
Strategic relationships are one of the ways Brady finds new technologies and
applications. Its strategic relationship with Fuji Photo Film Co., Ltd., Tokyo,
Japan, is a great example. Outside of
<PAGE> 7
Japan, Brady has exclusive marketing and distribution rights to Fujifilm's
large-format, ink-jet printing system, positioning Brady to capitalize on the
international digital-printing market. The Brady ColorPix(TM) Color Production
System includes the fastest large-format ink-jet printer on the market, making
it ideal for printing colorful banners and posters.
The system features a large-format printer, pigmented ultra-violet-resistant
ink, a point-and-touch interface, a scanner, a monitor and the ability to print
with or without a computer. It prints on a variety of materials such as paper,
vinyl and a silk-like fabric in a 36-inch-wide format, perfect for posters,
banners, point-of-purchase displays, and backlit signs.
Photo caption
Pat Hay, (left) Graphics Solutions Division business unit manager, and George
Sloan, new business development manager, worked with Fujifilm to bring the
ColorPix(TM) Color Production System to market. "We've been working closely
with Fujifilm for about a year now," Sloan said. "Looking at where we started
and where we are now, it's amazing. We've crossed traditional geographical and
cultural borders and together we have developed an ideal product for the
growing digital graphics marketplace."
Brady is using its expertise in material development to develop outdoor durable
materials for use with the system. By combining the materials with the ColorPix
System, users will be able to create large-format outdoor signs that last a
minimum of two years without fading.
"Brady brought its strengths in identification and material development into
this venture," said Pat Hay, Graphics Solutions Division business unit manager.
"We have worked with Fujifilm to enhance the current system, creating an ideal
product for the graphics market. Its affordability, ease of use and especially
its outdoor durability make it a leader in its category."
Brady's Identification Solutions Division modernized a 30-year-old process when
it inaugurated a new digital imaging system for storing engineered drawings of
custom labels.
Diane Larsen, imaging specialist, said, "With the new digital imaging system,
we can significantly reduce our response time to customers. In many cases, we
can reduce confirmation of an order from approximately three days to just
minutes."
Prior to the digital system, the Identification Solutions Division stored
70,000 customer specifications and drawings on microfilm. Now, those drawings
have been transferred to an electronic file, creating a database of customer
drawings for custom orders.
Brady employees can search for a drawing using key words such as customer name,
part number, ink color, or type of material. The database includes a "split
screen" capability so customer service representatives can look at the product
drawing and an order-entry screen at the same time.
The new imaging system is more than just a database. It can generate invoices
and reports, fax credit memos and route orders. The system was designed to be
compatible with information technology standards currently being established.
In the future, it will be accessible to Brady operations around the world.
Brady added a powerful new capability this year when it acquired The Hirol
Company, which uses specialized laser prototyping and production technology.
The Fort Lauderdale, Florida-based company die-cuts materials into precise
configurations for use in many types of electronic equipment, including
cellular telephones, pagers and computers.
<PAGE> 8
"Laser technology is very precise, holding to tolerances of plus or minus two
thousandths of an inch per linear foot. And it's fast," said Jim Danser, Hirol
marketing manager.
Prototypes for testing and developing new products can be created in less than
24 hours, compared to a two- to five-day turnaround using traditional
steel-rule or rotary die-cutting production. Many of the products are
multi-layered, made from adhesive, foam, plastic or polycarbonate and are used
for cushioning and insulation.
"We're the only company in our industry that uses a laser for die cutting
components," Danser said. "We provide the quickest response to customers who
need prototypes fast, giving us a distinct advantage over our competition.
Customers come to us for prototypes and stay with us when the part moves into
production."
Brady's Canadian operation has seen the light. W.H.B. Identification Solutions
Inc. in Toronto has introduced new state-of-the-art ultra-violet-cure inks.
Converting from traditional solvent-based inks to the new UV inks enables the
operation to ship printed materials right off the press.
UV technology enabled W.H.B. Identification Solutions Inc.'s Rapid Response
Cell to reduce product lead times and enhance quality. Today, at W.H.B.
Identification Solutions, Inc., 75 percent of orders are turned around in less
than 24 hours making Brady and its customers happy.
"The investment in UV technology has boosted our production and improved the
consistency of printing, thanks to superior ink and adhesion qualities," said
Robert Cameron, general manager of the Canadian operation. "And UV processes
are better for the environment."
Other Brady operations including Seton, Identification Solutions Division and
Signmark(R) Division have been using UV printing technologies for a number of
years, achieving similar positive results in their own product lines.
In a year when "e-mail me!" became a commonly used phrase, Brady's own
employees used technology to revolutionize how they work and communicate.
Upgrades and additions to Brady information technology included the addition of
key employees at all of Brady's worldwide locations to a global e-mail network
and access to Internet e-mail.
Lotus Notes(R) was selected as Brady's groupware standard. Employees at Brady's
Milwaukee-area locations are already working with others through Lotus Notes.
Lotus Notes will soon be extended to Brady's international operations.
Another step forward was made through the Brady Employee Self Service human
resources information system, installed in February 1996. The system enables
employees to manage and update much of their own personnel information.
Also this year, Brady formed a standards team which is working to standardize
software applications on a global level so all employees worldwide can
communicate more effectively, sharing information and files with full
compatibility.
Photo captions
New imaging technology enables the Identification Solutions Division,
Milwaukee, to reduce leadtimes on custom orders. The team responsible for
upgrading the imaging process includes (back row from
<PAGE> 9
left) Karen Groth, customer service group leader; Jeff Patz, engineering
manager; Thong Phan, production supervisor; Michelle Ryan, operations
associate; (front row) Heidi Plato, senior database analyst; Diane Larsen,
imaging specialist; and Michael Sweeney, engineering technician.
Oscar Iglesias (above), laser technician, die cuts a new product which would be
difficult and costly to produce using traditional die-cutting methods. "Because
of our laser technology, we were able to provide a solution to this difficult
die-cutting job within 24 hours," said Jim Danser (left), marketing manager,
"resulting in significant new sales over the past two months alone."
Carlos Goring, a screen printer at Brady's Canadian operation, uses
ultra-violet technology to print labels in a fraction of the time needed to
print with the former solvent-based printing technology.
"Lotus Notes(R) is the best tool out there," said Gary Laszkiewicz, Lotus Notes
project champion. "Employees can do more than communicate on projects-they can
collaborate. Exciting new applications include an electronic bulletin board for
newsletters; an electronic employee handbook; and various discussion databases
for ideas and collaboration on topics such as new product development."
Every day, we aim to meet or exceed our customers' expectations by providing
premier products, personal service and on-time delivery. In 1996, we stayed a
step ahead by using technology to make our customers' lives easier in a number
of unexpected ways. . .
Technology to Serve Customers
W.H. Brady Co. customers in Europe are benefiting from "one-stop shopping"
created by a new European Distribution Center (EDC) that provides fast and
efficient service and product delivery. EDC, opened by W.H. Brady, N.V., Zele,
Belgium, in February 1996, serves customers of Brady-Belgium and W.H. Brady
S.A.R.L., Paris, as well as other Brady and Seton units in Europe.
EDC features innovative technology including Computer Associates Warehouse
Boss,(R) a warehouse management software system; Pansophic(R) Resource
Management System, an information management system; and drop-ship software
that links Brady companies in France and Belgium. Bar code and radio-frequency
equipment facilitate faster and more precise shipping of customers' orders.
There is even a special trolley which enables employees to fill twelve orders
in one "run" through EDC.
Photo caption
"Bar codes, which are used for accuracy, dominate our process," said Peter De
Winne (right), material manager, Brady-Belgium. "In addition, our automated
system generates shipping documents as orders leave the European Distribution
Center. We continue to knock down inefficient walls on our way to serving our
customers." Jef Delacourt, warehouse employee, fills customers' orders.
"Using the latest technology enables us to fill customers' orders and pack them
for shipment in one sequence, streamlining our response time without
sacrificing our high-quality service," said Peter DeWinne, warehouse material
manager.
Whether in France or Belgium, customers find that ordering from Brady is a
seamless process. Customer service representatives in both countries are linked
to EDC and have access to the same information on stock and order status.
Orders from France or Belgium immediately generate ordering and shipping
documents at EDC.
<PAGE> 10
"With this new system, we can begin filling an order as soon as the customer
places it," DeWinne said. "Orders receive virtually instantaneous attention."
It is expected that EDC will begin serving customers of W.H. Brady GmbH,
Rodermark, Germany, and other European units in fiscal 1997.
Seamless customer service: that is the "Holy Grail" for W.H. Brady Co.'s Quest
Team. Since July 1995, the Quest Team has been on a mission to develop and
implement an information technology system to help Brady business units
worldwide improve service levels to customers.
The Quest Team began its search by examining the current customer service
systems at Brady's many different business units-each with its own product
lines, customer bases and distribution channels.
Dave Gohlke, Quest project director, explained the challenge: "We had to
develop a system which was flexible enough to meet the customer-service needs
of all business units while maintaining common standards to meet our
'cross-business-unit' needs."
The system devised by the Quest Team is based on the Pansophic(R) Resource
Management System, an integrated management system that provides
up-to-the-minute information in all areas of Brady's business, from
manufacturing planning and setup to inventory and customer service. The Quest
system also incorporates custom software and a marketing and sales management
software package, which includes sales lead management and customer profiling,
among other capabilities.
The Quest system will be installed in December 1996 at W.H.B. Identification
Systems, Inc., a combined Brady-Seton business unit located in Toronto and will
be extended to Brady and Seton worldwide operations over the next two years.
Help is only a phone call away for customers with safety and facility
identification questions. A technical center, complete with an 800 number, is
providing answers to questions about safety, environmental or transportation
regulations, standards, products and good practices.
The center, fully operational in January 1996, is proving to be an invaluable
resource for Brady. Customer calls are leading to new product development;
sales leads; and the sale of more complicated products such as printing
systems, lockout devices, bar code systems and software products.
"Now when customers don't understand a safety or identification regulation,
they can turn to Brady for help," said Ken Neumann, regulatory information
manager. "We have an extensive regulatory library and can clarify the
regulation, help determine the safety or facility identification need, suggest
solutions and provide products. The two-way communication sparked by the
technical center really is a benefit to our customers. In turn, it has
strengthened our competitive edge in the marketplace."
In order to be the best, we need to take advantage of the best tools and
processes available to us while managing our investments wisely," said Gene
Wright, Seton research and development director. "This includes looking into
the future, analyzing technologies and ensuring that the processes and
technologies we invest in today don't become 'old' tomorrow."
This is exactly what Brady has done and what has prompted the company to
continue investing in on-line and Internet technologies.
"Meeting on-line challenges is not an overnight process," said Wright. "It
requires various people to develop a long-range vision of what we can
accomplish and then spinning off projects that support that vision."
One example of this is the Brady-Seton Internet team. The team's strategy is to
build and maintain
<PAGE> 11
Internet sites that add value to customers, both end users and distributors,
through application-driven product information and services facilitated by a
unique interface. Seton's site also features a secure ordering interface.
"As you might expect, looking into the future is a complicated process," said
Wright. "But our cross-divisional, cross-functional approach to developing the
best sites really helps. By sharing Seton and Brady resources and experiences
to maximize the company's investments, our on-line future is even brighter."
Photo captions
Quest Team members come from a variety of different Seton and Brady business
units worldwide. Members (back row from left) Dave Gohlke, Quest project
leader; Ann Paese, project manager; Dave Winter, chief information officer; Ann
Nettesheim, business process consultant; George Murray, project manager; (front
row) Sandra Cutts, project manager; Fred Banaszak, manufacturing system project
manager; and Greg Burke, project manager, are dedicated to finding a way to
offer seamless customer service.
Ken Neumann, (left) regulatory information manager, and Jim Morrissey,
technical specialist, use technical center resources to solve customers'
problems.
The Brady and Seton web sites are resources for customers who want information,
advice, technical support, products and more. The teams that developed these
sites are the Wisconsin Internet Team (above) including (back row from left)
Paul Meinholz, network administrator; Sherri Congleton, communications
associate; Steve Hasbrook, marketing development manager; Gene Wright, Seton
research and development director; (front row) Karen Kaminski, public relations
assistant; and Janice Greenwood, marketing support specialist; (not pictured)
Rick Stoegbauer, regional sales manager; and the Connecticut Internet Team
including (from left) Frank Bonito, division controller; Linda Moquet,
information specialist; Greg Ellal, marketing manager; and Karen Black,
customer contact analyst. See us at http://www.whbrady.com and
http://www.seton.com.
W.H. Brady Co. was founded in Wisconsin, U.S.A., in 1914 by William H. Brady.
The history of the company extended through two World Wars and peacetime
expansion and into the era of rapid technological advances at the end of the
century. In the early years, Brady produced advertising specialties such as
calendars, point-of-purchase displays and signs. As customers and markets
changed, so did the company.
Brady History
In the 1940s, it found a new niche market - making wire markers from pressure
sensitive tape used to identify the electrical control systems of military
planes and ships.
In the post-World War II era, Brady expanded dramatically and introduced new
products such as pipe markers, safety signs, and Kwik-Sign letters and numbers.
By the time the company moved to Milwaukee in 1953, it had 53 employees and was
distributing internationally. The 1950s and 1960s saw the company establish
operations in Canada, England and Belgium to supply a growing international
market.
In 1963, Brady took a step toward securing its future as an innovator by
establishing an in-house research and development operation. By 1969, the
company employed 800 and offered 10,000 stock items. International expansion
continued, with bases added in Australia, Germany, Sweden and France. In 1978,
the company built the Tobey Research and Innovation Center, named after a great
Brady inventor.
<PAGE> 12
Expansion in products, markets and geographies continued throughout the 1980s.
In 1981, the company acquired Seton, a direct-marketer of safety and
identification products. Brady expanded into Japan, Singapore and Hong Kong and
established Seton operations in Europe and Canada. Another milestone was in
1984, when W.H. Brady Co. became a publicly held company.
The 1990s have seen the company focus on and grow its core businesses of
industrial and facility identification products and specialty coated materials.
It expanded through acquisitions and new startups in Italy, Korea, Brazil and
other countries.
Using the entrepreneurial spirit to serve customers' needs is a proud Brady
tradition. Every year, Brady rededicates itself to making the highest quality
products, and delivering the best possible service, sales growth and
shareholder value.
The push card, a game of chance first used by candy companies to boost sales,
was one of the specialty advertising products Brady manufactured in its early
years.
In 1944, the Company moved in a new direction when it introduced its first wire
markers for identifying electrical control systems in military planes and
ships. Wire markers have since been a core product for Brady.
Financial
Review 1996
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 34
Corporate Data 35
Shareholder Services 36
Selected Financial Information
<TABLE>
<CAPTION>
Years ended July 31, 1987 through 1996
(Dollars in Thousands, Except Per Share Amounts) 1996 1995 1994 1993 1992
1991 1990 1989 1988 1987
<S><C>
Operating Data
Net sales $ 359,542 $ 314,362 $ 255,841 $ 242,970 $
235,965 $ 211,063 $ 191,161 $ 174,174 $153,016 $126,420
Operating expenses:
Cost of products sold 166,426 143,634 118,116
114,301 110,130 96,797 84,952 75,620 67,302
56,284
Research and development 11,309 10,426 10,318
</TABLE>
<PAGE> 13
<TABLE>
<S><C>
12,132 10,001 9,176 7,355 6,168 5,879
5,383
Selling, general and administrative 140,642 119,717
97,932 92,449 93,931 84,936 76,596
71,292 63,986 50,108
Nonrecurring charge (credit) - - -
(1,236) 6,562 - - 6,465 - -
Total operating expenses 318,377 273,777
226,366 217,646 220,624 190,909 168,903
159,545 137,167 111,775
Operating Income 41,165 40,585 29,475 25,324
15,341 20,154 22,258 14,629 15,849 14,645
Other income and (expense):
Investment and other income - net 4,570 4,609
837 559 239 2,845 4,004
2,380 1,901 2,082
Interest expense (302) (555) (410)
(54) (219) (548) (646) (356) (477)
(348)
Net other income 4,268 4,054 427
505 20 2,297 3,358 2,024 1,424
1,734
Income before income taxes, extraordinary item and
cumulative effect of changes in accounting principles 45,433
44,639 29,902 25,829 15,361 22,451
25,616 16,653 17,273 16,379
Income taxes 17,406 16,728 11,362 8,973
6,972 7,054 10,606 6,778 6,968 7,535
Income before extraordinary item and cumulative effect of changes in accounting principles
28,027 27,911 18,540 16,856 8,389
15,397 15,010 9,875 10,305 8,844
Extraordinary item:
Gain on proceeds of officer's life insurance policies, net - -
- - - - - -
4,625 - -
Income before cumulative effect of changes in accounting principles 28,027
27,911 18,540 16,856 8,389 15,397
15,010 14,500 10,305 8,844
Cumulative effect of changes in accounting principles for:
Postretirement benefits (net of income taxes of $2,663) - -
- - - (3,995) - - -
- - -
Income taxes - - - -
661 - - - - -
Catalog costs - - - -
- - - - 1,233 - -
Net income $ 28,027 $ 27,911 $ 18,540 $ 16,856 $
5,055 $ 15,397 $ 15,010 $ 15,733 $110,305 $118,844
Net income per Common Share:
Class A Nonvoting $ 1.27 $ 1.27 $ .85 $
.77 $ .23 $ .71 $ .70 $ .70 $
</TABLE>
<PAGE> 14
<TABLE>
<S><C>
.45 $ .39
Class B Voting $ 1.24 $ 1.24 $ .81 $
.74 $ .19 $ .67 $ .66 $ .67 $
.42 $ .36
Cash dividends on:
Class A Common Stock $ .40 $ .27 $ .23 $
.20 $ .19 $ .16 $ .13 $ .09 $
.08 $ .07
Class B Common Stock $ .37 $ .23 $ .19 $
.17 $ .15 $ .13 $ .10 $ .06 $
.05 $ .03
Balance Sheet (at period end)
Working capital $ 109,688 $ 129,938 $ 100,023 $
77,943 $ 66,093 $ 70,883 $ 67,797 $ 53,056 $142,492
$144,176
Total assets 261,835 230,005 202,509
179,901 173,054 156,812 147,197 129,890 117,201
104,398
Long-term debt, less current maturities 1,809 1,903
1,855 1,978 2,524 1,982 3,298
3,637 3,086 3,851
Stockholders' investment 189,263 170,823 145,129
128,068 119,771 115,260 103,784 89,443
84,987 76,044
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes appearing in this
annual report.
Overview
Between fiscal 1993 and 1995, the Company experienced net sales growth
and reduced cost of products sold and operating expenses as percentages of net
sales. It also made significant improvements in productivity and asset
utilization through the successful implementation of a team-oriented approach
to quality, growth and cost reduction. To further enhance teamwork, in February
1995, the Company's divisions and international subsidiaries were realigned
into three global groups, each headed by a Group Vice President. The groups are
(i) the Identification Systems and Specialty Tapes Group ("ISST"), (ii) the
Seton Group ("Seton"), and (iii) the Graphics Group, formerly the Signmark(R)
Group ("Graphics").
During fiscal 1996, to implement the Company's growth strategy
discussed below, the Company increased expenditures related to geographic
expansion, global information systems and sales and marketing activities. The
Company was unable to capitalize those expenditures, and, as a result, selling,
general and administrative expenses as a percentage of net sales increased to
39.1% for fiscal 1996, compared to 38.1% for fiscal 1995. Management believes
that these investments will solidify the Company's competitive position and
assist the Company in building a base for sustainable long-term growth.
The Company's growth strategy is focused on four key elements:
increasing product penetration in existing markets; introducing new products
for new markets and applications; geographic expansion in selected markets
worldwide; and strategic acquisitions and joint ventures.
The Company introduced several new products in fiscal 1996, including
label materials, software, a new line of tapes and new printing systems. The
EinsignTM Smart Sign-Making System, which enables customers to produce
high-quality signs using Company-developed software and a palmtop
<PAGE> 15
computer and laser-printing technology, was launched in January 1996. The
product was named the Product of the Year by Plant Engineering Magazine.
To increase product penetration in existing markets, the Company hired
sales, marketing and support personnel worldwide in fiscal 1996.
In January 1996, Seton-France mailed Dutch and French versions of a
safety and facility identification catalog into Belgium, the Company's first
catalog effort in the country. Seton-Italy mailed a new catalog in Italy, its
third catalog mailing since being formed in fiscal 1995. Seton in the United
States mailed a new full-line catalog in December 1995, which included 90 new
products (replacing 70 older products). In 1996, Seton and ISST jointly
established an operation in Brazil.
The Company completed the acquisitions of TechPress II Limited in
November 1995, Hirol Division in January 1996, and Varitronic Systems, Inc. in
April 1996.
Year Ended July 31, 1996, Compared to Year Ended July 31, 1995
Sales for fiscal 1996 increased by $45,180,000 or 14.4% over fiscal
1995. Sales of the Company's international operations increased 21.3% as a
result of real growth through continued market penetration in Europe and the
Far East, the acquisition of TechPress in November 1995 and fluctuations in the
exchange rates used to translate financial results into U.S. currency. Sales of
the Company's U.S. operations increased 9.5% due in part to the acquisitions of
VSI and Hirol in April 1996 and January 1996, respectively.
The cost of products sold as a percentage of sales increased from 45.7%
to 46.3% due to changes in product mix and the acquisitions. Selling, general
and administrative expenses as a percentage of sales increased from 38.1% to
39.1% of sales. This increase reflects the Company's ongoing investment in
sales and marketing activities and in building its global information
technology infrastructure. Research and development expenses increased 8.5%
over fiscal 1995, but declined as a percentage of sales.
Operating income increased to $41,165,000 in fiscal 1996, an increase
of 1.4% compared to fiscal 1995's $40,585,000 as the increase in sales was
largely offset by the increased selling, general and administrative expenses
and the increased cost of products sold mentioned above.
Investment and other income for fiscal 1996 included $1,750,000,
representing the gain on the sale of a building in Germany. Investment and
other income for fiscal 1995 included $2,033,000, representing the gain on the
divestiture of two domestic manufacturing operations and the sale of certain
real estate.
Income before income taxes increased to $45,433,000, an increase of
1.8% compared to fiscal 1995's $44,639,000.
The effective tax rate increased from 37.5% for fiscal 1995 to 38.3%
for fiscal 1996 due to higher tax rates for the Company's international
operations and a higher effective state tax rate.
Net income was $28,027,000 for fiscal 1996, compared to $27,911,000 for
fiscal 1995, because of the factors cited above.
Year Ended July 31, 1995, Compared to Year Ended July 31, 1994
Sales for fiscal 1995 increased by $58,521,000 or 22.9% over fiscal
1994. Sales of the Company's international operations increased 36.3%, 24.3% as
a result of real growth through continued market penetration in Europe and the
Far East and new Seton subsidiaries in Australia and Italy. Translation into
U.S. currency resulted in an additional 12.0% increase in international sales
due to favorable exchange rates during the year. Sales of the Company's U.S.
operations increased 15.0%, primarily from new product introductions such as
the I.D. ProTM Wire Marker Printer. This U.S. sales increase was achieved
despite the divestiture of two businesses during the year that had sales of
$7,943,000 in fiscal 1995 and $10,901,000 in fiscal 1994.
The cost of products sold decreased from 46.2% of sales to 45.7% of
sales as a result of changes in product mix and manufacturing efficiencies from
the Company's continuous-improvement efforts. Selling, general and
administrative expenses as a percentage of sales decreased slightly from 38.3%
to 38.1% of sales, as the Company's continuing cost-control efforts more than
offset the costs associated with new product introductions and the new Seton
start-ups. Research and development increased 1.1% over fiscal 1994, but
declined as a percentage of sales.
<PAGE> 16
Investment and other income for fiscal 1995 included $2,033,000
representing the gain on the divestiture of two domestic manufacturing
operations and the sale of certain real estate. Interest income increased by
$1,190,000 over fiscal 1994 because of increased levels of investment and
higher rates.
Income before income taxes for the two businesses divested in fiscal
1995 was a loss of $1,098,000 compared to fiscal 1994's full year loss of
$4,283,000.
The Company's income before income taxes increased to $44,639,000, an
increase of 49.3% compared to fiscal 1994's $29,902,000.
Net income was positively impacted by a decrease in the effective tax
rate from 38.0% for fiscal 1994 to 37.5% for fiscal 1995. This was primarily
caused by a lower effective state tax rate.
Net income for the year increased 50.5% to $27,911,000 for fiscal 1995,
compared to $18,540,000 for fiscal 1994, because of the factors cited above.
Year Ended July 31, 1994, Compared to Year Ended July 31, 1993
Sales for fiscal 1994 increased by $12,871,000 or 5.3% over fiscal
1993. Sales of the Company's international operations increased 22.1% as a
result of real growth through continued market penetration in Europe and the
Far East offset by changes in the exchange rates used to translate financial
results into U.S. currency. Foreign exchange effect resulted in a 6.5% overall
decrease in international sales. Sales of its U.S. operations decreased 2.6%
because of the divestiture of three businesses last year. Comparing only
continuing operations, sales of the Company's U.S. operations increased 6.1% as
a result of the introduction of new products.
The cost of products sold decreased from 47.0% of sales to 46.2% of
sales as a result of changes in product mix, the divestiture of three
businesses last year and increased manufacturing efficiencies from the
Company's continuous-improvement efforts. Selling, general and administrative
expenses as a percentage of sales increased from 38.1% to 38.3% of sales as a
result of costs attributable to the introduction of new products. The
completion of certain product development projects last year caused research
and development expenses to decrease 15.0% in fiscal 1994.
In fiscal 1993 the Company recorded a nonrecurring credit of $1,236,000
($742,000 after tax) primarily representing the gain on the divestiture of
three domestic operations.
Income before income taxes increased to $29,902,000 in fiscal 1994, an
increase of 15.8% compared to fiscal 1993's $25,829,000, largely as a result of
improved performance in the Company's international operations.
Net income was negatively impacted by an increase in the effective tax
rate from 34.7% in fiscal 1993 to 38.0% in fiscal 1994. The lower effective tax
rate in fiscal 1993 was due to the reversal of a $730,000 provision for future
settlement relating to the amortization of customer lists which was established
in fiscal 1992 and favorably resolved in fiscal 1993. Eliminating the effect of
this adjustment, the effective tax rate for fiscal 1993 would have been 37.6%
compared to 38.0% for the current fiscal year.
Net income was $18,540,000 for fiscal 1994, compared to $16,856,000 for
fiscal 1993, because of the factors cited above.
Liquidity
The Company's liquidity remains strong. Cash and cash equivalents were
$49,281,000 at July 31, 1996, compared to $89,067,000 at July 31, 1995, and
$66,107,000 at July 31, 1994. The decrease in fiscal 1996 was mainly due to the
acquisitions of TechPress, Hirol and VSI. Primarily because of the use of cash
and cash equivalents to fund the acquisition of VSI, working capital decreased
to $109,688,000 at July 31, 1996, from $129,938,000 at July 31, 1995.
The Company has maintained significant cash balances due in large part
to its strong operating cash flow, which totaled $34,612,000 for fiscal 1996,
$21,552,000 for fiscal 1995, and $33,068,000 for fiscal 1994. Capital
expenditures were $10,470,000 in fiscal 1996, $8,114,000 in fiscal 1995, and
$6,466,000 in fiscal 1994. Financing activities, primarily the payment of
dividends to the Company's shareholders, consumed $13,916,000 of cash in fiscal
1996, $4,659,000 in fiscal 1995, and $4,214,000 in fiscal 1994.
Long-term debt as a percentage of long-term debt plus stockholders'
investment was 0.9% at
<PAGE> 17
July 31, 1996, compared to 1.1% at July 31, 1995, and 1.3% at July 31, 1994.
The Company continues to seek opportunities to invest in new products
and new markets and in strategic acquisitions and joint ventures which fit its
growth strategy. Management believes the Company's cash and cash equivalents
and the cash flow it generates from operating activities are adequate to meet
its current investing and financing needs.
Inflation
Essentially all of the Company's revenue is derived from the sale of
its products in highly competitive markets. Because prices are influenced by
market conditions, it is not always possible to fully recover cost increases
through pricing. Changes in product mix from year to year and timing
differences in instituting price changes make it virtually impossible to
accurately define the impact of inflation on profit margins.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, 1996 and 1995
(Dollars in Thousands) 1996 1995
<S><C>
Assets
Current assets:
Cash and cash equivalents (Note 1) $ 49,281 $ 89,067
Accounts receivable, less allowance for losses ($1,992 and $1,881, respectively)
53,679 42,104
Inventories (Note 1):
Finished products 28,732 16,866
Work-in-process 3,173 1,987
Raw materials and supplies 8,792 4,246
Total inventories 40,697 23,099
Prepaid expenses and other current assets (Notes 1, 3 and 4) 12,454
10,202
Total current assets 156,111 164,472
Other assets:
Intangibles - net (Note 1) 34,212 298
Other (Note 4) 5,863 6,662
Property, plant and equipment (Notes 1 and 5):
Cost:
Land 4,735 4,417
Buildings and improvements 34,484 34,284
Machinery and equipment 78,680 69,278
Construction in progress 4,383 815
122,282 108,794
Less accumulated depreciation 56,633 50,221
Net property, plant and equipment 65,649 58,573
Total $ 261,835 $ 230,005
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $ 13,922 $ 9,252
Wages and amounts withheld from employees 14,144 14,447
Taxes, other than income taxes 1,790 1,361
Accrued income taxes 5,419 2,150
Other current liabilities (Note 3) 10,620 6,912
Current maturities on long-term debt (Note 5) 528 412
Total current liabilities 46,423 34,534
</TABLE>
<PAGE> 18
<TABLE>
<S><C>
Long-term debt, less current maturities (Note 5) 1,809 1,903
Other liabilities (Note 3) 24,340 22,745
Total liabilities 72,572 59,182
Stockholders' investment (Notes 1 and 6):
Preferred Stock (aggregate liquidation preference of $3,026 at July 31, 1996)
2,855 2,855
Common Stock:
Class A Nonvoting-Issued and outstanding 20,094,100 and 5,507,341 shares,
respectively, (aggregate liquidation preference of $33,557 at July 31,
1996) 201 55
Class B Voting-Issued and outstanding 1,769,314 shares 18
18
Additional paid-in capital 8,415 8,074
Earnings retained in the business 173,491 154,286
Cumulative translation adjustments 4,283 5,535
Total stockholders' investment 189,263 170,823
Total $ 261,835 $ 230,005
</TABLE>
See Notes to Consolidated Financial Statements.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended July 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts) 1996 1995 1994
<S><C>
Net sales $ 359,542 $ 314,362 $ 255,841
Operating expenses:
Cost of products sold 166,426 143,634 118,116
Research and development 11,309 10,426 10,318
Selling, general and administrative 140,642 119,717
97,932
Total operating expenses 318,377 273,777
226,366
Operating income 41,165 40,585 29,475
Other income and (expense):
Investment and other income-net (Note 2) 4,570 4,609
837
Interest expense (302) (555) (410)
Net other income 4,268 4,054 427
Income before income taxes 45,433 44,639 29,902
Income taxes (Notes 1 and 4) 17,406 16,728 11,362
Net income 28,027 27,911 18,540
Net income per Common Share (Notes 6 and 8):
Class A Nonvoting $ 1.27 $ 1.27 $ .85
Class B Voting $ 1.24 $ 1.24 $ .81
</TABLE>
See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders' Investment
<TABLE>
<S><C>
Additional Earnings Cumulative
Years ended July 31, 1994, 1995 and 1996 Preferred Common Paid-In Retained in
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
Translation
(Dollars in Thousands, Except Per Share Amounts) Stock Stock Capital the Business
Adjustments
<S><C>
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-$0.23 a share - - -
(3,714) -
Class B-$0.19 a share - - -
(1,026) -
Balances at July 31, 1994 2,855 72 6,768
132,271 3,163
Net income - - -
27,911
Net currency translation adjustment - - -
- - 2,372
Issuance of 30,529 shares of Class A Common Stock
under stock option plan - 1
999 - -
Tax benefit from exercise of stock options - -
307 - -
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-$0.27 a share - - -
(4,398) -
Class B-$0.23 a share - - -
(1,239) -
Balances at July 31, 1995 2,855 73 8,074
154,286 5,535
Net income - - -
28,027
Net currency translation adjustment - - -
- - (1,252)
Issuance of 25,049 shares of Class A Common Stock
under stock option plan - -
372 - -
</TABLE>
<PAGE> 20
<TABLE>
<S><C>
Tax benefit from exercise of stock options - -
115 - -
Common Stock dividend - 146 (146)
- - -
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-$0.40 a share - - -
(7,678) -
Class B-$0.37 a share - - -
(885) -
Balances at July 31, 1996 $ 2,855 $ 219 $ 8,415 $
173,491 $ 4,283
</TABLE>
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended July 31, 1996, 1995 and 1994
(Dollars in Thousands) 1996 1995 1994
<S><C>
Operating activities:
Net income $ 28,027 $ 27,911 $ 18,540
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,978 9,049
9,325
Amortization 624 110
110
Loss on sale of business - 413
- -
(Gain)/Loss on sale of property, plant and equipment
(2,222) (2,209) 194
Provision for losses on accounts receivable 367
463 725
Writedown of long-term investment 550 -
- -
Changes in operating assets and liabilities
(net of effects of business acquisitions and
disposals):
Accounts receivable (1,786) (12,554)
(2,169)
Inventory (3,978) 473
(928)
Prepaid expenses and other assets (972)
(1,385) 1,305
Accounts payable and accrued liabilities
309 1,361 3,325
Income taxes 1,815 (1,605)
1,852
</TABLE>
<PAGE> 21
<TABLE>
<S><C>
Deferred income taxes (453)
212 (413)
Other liabilities 2,353 (687)
1,202
Net cash provided by operating activities 34,612 21,552
33,068
Investing activities:
Acquisitions of businesses, net of cash acquired (53,167) -
- -
Purchases of property, plant and equipment (10,470) (8,114)
(6,466)
Proceeds from sale of property, plant and equipment 4,563
6,227 458
Proceeds from sale of businesses - 6,315 -
Purchase of other long-term investment - (750) -
Net cash (used in) provided by investing activities (59,074) 3,678
(6,008)
Financing activities:
Payment of dividends (8,822) (5,896) (4,999)
Proceeds from issuance of Common Stock 372 1,306
1,063
Proceeds from long-term borrowings - -
217
Principal payments on long-term debt (5,466) (69)
(495)
Net cash used in financing activities (13,916) (4,659) (4,214)
Effect of exchange rate changes on cash (1,408) 2,389 895
Net (decrease) increase in cash and cash equivalents (39,786) 22,960
23,741
Cash and cash equivalents, beginning of year 89,067 66,107
42,366
Cash and cash equivalents, end of year $ 49,281 $ 89,067 $ 66,107
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 245 $ 116 $ 237
Income taxes, net of refunds 15,569 17,174
10,601
Acquisitions:
Fair value of assets acquired, net of cash $ 36,587
Liabilities assumed (15,966)
Goodwill 32,546
Net cash paid for acquisitions $ 53,167
</TABLE>
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements Years Ended July 31, 1996, 1995 and
1994
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts
<PAGE> 22
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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments - The Company believes the carrying amount
of its financial instruments (cash and cash equivalents, accounts receivable
and accounts payable) is a reasonable estimate of the fair value of these
instruments.
Cash Equivalents - The Company considers all highly liquid investments with
maturities of three months or less when acquired to be cash equivalents.
Inventories - Inventories are stated at the lower of cost or market. Cost has
been determined using the last-in, first-out (LIFO) method for certain domestic
inventories (approximately 49% and 62% of total inventories at July 31, 1996
and 1995, respectively) and the first-in, first-out (FIFO) 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 $5,508,000 at July 31, 1996, and $5,204,000 at July 31, 1995.
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.
Intangible Assets - The excess of cost over fair value of the net assets of
businesses acquired is amortized using the straight-line method over various
periods ranging from 20 to 40 years.
Catalog Costs - Catalog costs are initially capitalized and amortized over the
estimated useful lives of the publications (generally eight months). At July
31, 1996 and 1995, $4,619,000 and $4,436,000, 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.
Hedging - The Company enters into forward foreign exchange contracts to hedge
committed intercompany foreign currency transactions. Such exchange contracts
generally have maturities of six months or less. At July 31, 1996, exchange
contracts aggregating approximately $3,960,000 were outstanding.
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.
Accounting Standards to be Adopted - In 1995, the Financial Accounting
Standards Board (FASB) issued
<PAGE> 23
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement will be adopted by the Company in the fiscal year beginning
August 1, 1996. The adoption of this statement is not expected to have a
material impact on the consolidated financial statements.
In 1995, the FASB also issued SFAS No. 123, "Accounting for Stock Based
Compensation." Under the accounting and disclosure requirements promulgated in
the statement, the Company must adopt the provisions in its fiscal year
beginning August 1, 1996. The Company is currently evaluating the accounting
and disclosure alternatives provided for under the provisions of the statement.
NOTE 2
ACQUISITIONS AND DISPOSITION OF BUSINESSES
During fiscal 1995, the Company sold two businesses and certain real
estate which resulted in a gain of $2,033,000 which is included in other income
in the accompanying financial statements.
Effective November 15, 1995, the Company acquired the common stock of
TechPress II Limited located in Middlesex, England, a marketer of printing and
labeling systems, for cash of $4,277,000 and a payable of $389,000.
Effective January 2, 1996, the Company acquired the common stock of The
Hirol Company located in Fort Lauderdale, Florida, a manufacturer of die-cut
parts for the electronic, telecommunications and medical testing markets, for
cash of $10,800,000.
On April 8, 1996, the Company completed its acquisition of Varitronic
Systems, Inc. (VSI) located in Minneapolis, Minnesota, for cash of
approximately $40,700,000. VSI manufactures and markets supply-consuming
lettering, labeling, signage and presentation systems and supplies.
The above acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the results of operations have been
included since the dates of acquisition in the accompanying financial
statements. The unaudited pro forma results of operations assuming the
acquisitions had been consummated as of August 1, 1994, are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands
Except Per Share Data) 1996 1995
<S><C>
Net Sales $ 389,992 $ 370,749
Net Income 26,551 26,419
Net Income Per Common Share
Class A Nonvoting $ 1.21 $ 1.20
Class B Voting 1.18 1.17
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions
actually been made at the beginning of fiscal 1995. The unaudited pro forma
results include nonrecurring charges at VSI which decreased net earnings by
approximately $1,730,000 and $1,005,000 in fiscal 1996 and 1995, respectively.
NOTE 3
EMPLOYEE BENEFIT PLANS
The Company provides postretirement medical, dental and vision benefits
for substantially 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. 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 are
based on the employee's age and service at retirement.
Effective August 1, 1991, the Company adopted Statement of Financial
Accounting Standards
<PAGE> 24
No. 106 (SFAS No. 106), "Employers' Accounting for Postretirement Benefits
Other than Pensions." In connection with the adoption of SFAS No. 106, the
Company elected to recognize as expense the entire accumulated postretirement
benefit obligation (transition obligation) rather than amortizing such amount
to expense over a 20 year period. The Company funds benefit costs on a
pay-as-you-go basis. During the years ended July 31, 1996 and 1995, the
Company made benefit payments totalling $209,000 and $165,000, respectively.
The following table sets forth the plan's status reconciled with
amounts recognized in the accompanying consolidated balance sheets at July 31,
1996 and 1995.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
<S><C>
Accumulated postretirement
benefit obligation:
Retirees $ 3,251 $ 3,387
Fully eligible active plan
participants 837 1,077
Other active plan participants 2,164 1,790
6,252 6,254
Unrecognized net gain 2,293 1,882
Accrued postretirement benefit cost $ 8,545 $ 8,136
(Dollars in Thousands) 1996 1995 1994
Net periodic postretirement benefit cost
included the following components:
Service cost-benefits attributed
to service during the period $ 246 $230 $
209
Interest cost on accumulated
postretirement benefit obligation 478
469 469
Amortization of (gain) (106) (103)
(64)
Periodic postretirement benefit cost
prior to curtailment 618 596 614
Effective curtailment (gain) due
primarily to disposition
of operations - (93) -
Net periodic postretirement
benefit cost $ 618 $503 $ 614
</TABLE>
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation were 8% in 1996 and gradually
declining to 5.5% by the year 2000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 8% in 1996 and 1995.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefit obligation as of July 31, 1996, would be
increased by $85,000. The effect of this change on the sum of the service cost
and interest cost would not be material.
During 1995, the Company had a curtailment gain which represents the
accumulated postretirement benefit obligation of employees who were employed at
the disposed operations.
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,
1996 and 1995, $3,939,000 and $397,000, 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
<PAGE> 25
utilizing the phantom stock plan concept. At July 31, 1996 and 1995,
$18,080,000 and $17,015,000, respectively, of deferred compensation was
included in current and other long-term liabilities.
The amounts charged to income for the plans described above were
$6,545,100 in 1996, $6,188,000 in 1995 and $5,660,000 in 1994.
The Company has a voluntary employee benefit trust for the purpose of
funding employee medical benefits and certain other employee benefits. At July
31, 1996 and 1995, $1,995,000 and $2,738,000, respectively, of payments to the
trust to fund such benefits were included in prepaid expenses and other current
assets.
NOTE 4
INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended July 31,
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal $ 10,573 $ 10,194 $ 6,987
Foreign 5,376 4,518 2,755
State 1,910 1,804 2,033
17,859 16,516 11,775
Deferred (credit):
Federal (807) (382) (448)
Foreign 469 662 112
State (115) (68) (77)
(453) 212 (413)
Total $ 17,406 $ 16,728 $ 11,362
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended July 31,
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
United States $ 31,481 $ 32,074 $ 21,565
Foreign 13,952 12,565 8,337
Total $ 45,433 $ 44,639 $ 29,902
</TABLE>
The approximate tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
July 31, 1996
(Dollars in Thousands) Assets Liabilities Total
<S> <C> <C> <C> <C>
Inventories $ 1,563 $ - $ 1,563
Prepaid catalog costs - (660) (660)
Employee benefits (229) (229)
Allowance for doubtful accounts 387 - 387
Other, net 1,336 - 1,336
Current 3,286 (889) 2,397
Excess of tax over
book depreciation - (4,467) (4,467)
Deferred compensation 5,633 - 5,633
Postretirement benefits 3,445 - 3,445
Tax loss carryforwards 3,920 - 3,920
</TABLE>
<PAGE> 26
<TABLE>
<S><C>
Less valuation allowance (3,920) - (3,920)
Other, net 654 - 654
Noncurrent 9,732 (4,467) 5,265
Total $ 13,018 $ (5,356) $ 7,662
July 31, 1995
(Dollars in Thousands) Assets Liabilities Total
Inventories $ 1,724 $ - $ 1,724
Prepaid catalog costs - (944) (944)
Employee benefits - (100) (100)
Tax loss carryforwards 105 - 105
Allowance for doubtful accounts 307 - 307
Other, net 272 - 272
Current 2,408 (1,044) 1,364
Excess of tax over
book depreciation - (3,695) (3,695)
Deferred compensation 5,383 - 5,383
Postretirement benefits 3,316 - 3,316
Tax loss carryforwards 1,563 - 1,563
Less valuation allowance (1,563) - (1,563)
Other, net 199 - 199
Noncurrent 8,898 (3,695) 5,203
Total $ 11,306 $ (4,739) $ 6,567
</TABLE>
At July 31, 1996 and 1995, $2,397,000 and $1,364,000, respectively, of
net deferred tax assets were included in prepaid expenses and other current
assets. At July 31, 1996 and 1995, $5,265,000 and $5,203,000, 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 income taxes to the total income tax
provision is as follows:
<TABLE>
<CAPTION>
Year ended July 31,
(Dollars in Thousands) 1996 1995 1994
<S><C>
Tax at statutory rate $ 15,902 $ 15,624 $ 10,466
State income taxes, net of
Federal tax benefit 1,505 1,177 1,271
International losses with
no related tax benefits 664 613 175
International rate differential 138 169 (226)
Rate variances arising from
foreign subsidiary distributions (493) (558)
174
Other, net (310) (297) (498)
Total income tax provision $ 17,406 $ 16,728 $ 11,362
Effective tax rate 38.3% 37.5% 38.0%
</TABLE>
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,
1996, amounted to approximately $23,600,000. If all such undistributed earnings
were remitted, an additional provision for foreign income taxes of
approximately $500,000 would be required.
<PAGE> 27
NOTE 5
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31,
(Dollars in Thousands) 1996 1995
<S> <C> <C>
6.25% Industrial Development
Revenue Bonds payable on
December 1, 2001 $ 1,000 $ 1,000
6.75% Industrial Development
Revenue Bonds payable in 1997 140 265
Other 1,197 1,050
2,337 2,315
Less current maturities 528 412
$ 1,809 $ 1,903
</TABLE>
The Industrial Development Revenue Bonds and the covering mortgage and
loan agreements require, among other provisions, that the Company maintain
minimum net working capital of $5,000,000 and a defined net worth of
$10,000,000. The bonds are collateralized by first mortgages on certain
property with a net carrying amount of approximately $5,454,000 at July 31,
1996. The Company's Industrial Development Revenue Bonds approximate fair
value.
Maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year ending July 31,
<S> <C>
1997 $ 528
1998 372
1999 337
2000 90
2001 10
Thereafter 1,000
</TABLE>
NOTE 6
STOCKHOLDERS' INVESTMENT
On November 17, 1995, at a Special Meeting of Shareholders, the
Company's shareholders approved a proposal to amend the Company's Restated
Articles of Incorporation to increase the number of authorized shares of Class
A Common Stock from 10,000,000 shares to 100,000,000 shares. Also on November
17, 1995, the shareholders approved, and the Board of Directors declared, a
common stock dividend of two shares of Class A Common Stock on each outstanding
share of Class A Common Stock and Class B Common Stock. The common stock
dividend was paid on December 15, 1995, to shareholders of record at the close
of business on December 1, 1995. Accordingly, net income per share amounts,
dividends per share and weighted average shares included in the accompanying
consolidated financial statements have been adjusted to reflect the common
stock dividend.
Information as to the Company's capital stock at July 31, 1996, is as
follows:
<TABLE>
<CAPTION>
Shares Shares
(Dollars in Thousands) Authorized Outstanding Amount
<S> <C> <C>
Preferred Stock,
$.01 par value 5,000,000 0 $ 0
Cumulative Preferred Stock
6% Cumulative 5,000 3,984 399
1972 Series 10,000 2,600 260
1979 Series 30,000 21,963 2,196
</TABLE>
<PAGE> 28
<TABLE>
<S><C>
$ 2,855
Common Stock,
$.01 par value:
Class A Nonvoting 100,000,000 20,094,100 $ 201
Class B Voting 10,000,000 1,769,314 18
$ 219
</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 $.0333 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
$.0333 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 $1.67
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 $1.67 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
1,500,000 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.
Transactions with respect to the Plan are summarized as follows:
<TABLE>
<CAPTION>
Option Options
(Dollars in Thousands) Price Outstanding
<S><C>
Balance, August 1, 1993 $ 6.83 - $ 12.38 449,400
Options granted $12.17 - $14.33 235,200
Options exercised $ 6.83 - $ 12.38 (118,950)
Options cancelled $ 9.38 - $ 12.38 (29,250)
Balance, July 31, 1994 $ 6.83 - $ 14.33 536,400
Options granted $15.67 114,750
Options exercised $ 6.83 - $ 12.38 (91,587)
Options cancelled $ 9.94 - $ 15.67 (41,406)
Balance, July 31, 1995 $ 6.83 - $ 15.67 518,157
Options granted $23.83 - $25.17 330,000
Options exercised $ 6.83 - $1 5.67 (33,449)
</TABLE>
<PAGE> 29
<TABLE>
<S><C>
Options cancelled $12.17 -$25.17 (6,600)
Balance, July 31, 1996 $ 6.83 - $25.17 808,108
(366,294 options exercisable)
Available for grant after
July 31, 1996 279,306
</TABLE>
NOTE 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, Brazil, Japan, Korea 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
operations of those subsidiaries. Corporate assets consist primarily of cash
and cash equivalents.
Information with respect to operations located outside the United
States which have been translated into U.S. dollars are as follows:
<TABLE>
<CAPTION>
Year ended July 31,
(Dollars in Thousands) 1996 1995 1994
<S><C>
Current assets $ 60,570 $ 48,812 $ 39,716
Other assets 4,012 470 366
Property, plant and equipment 11,087 11,656 8,474
Total assets $ 75,669 $ 60,938 $ 48,556
Current liabilities $ 29,158 $ 26,342 $ 20,488
Other liabilities 18,367 15,510 15,947
Stockholders' investment 28,144 19,086 12,121
Total liabilities and
stockholders' investment $ 75,669 $ 60,938 $
48,556
Net sales $ 156,762 $ 129,267 $ 95,104
W.H. Brady Co. equity in
net income $ 8,266 $ 7,385 $ 5,470
</TABLE>
<TABLE>
<CAPTION>
Corporate Assets
(Dollars in Thousands) United States Europe Other and Eliminations
Consolidated
<S><C>
Year ended July 31, 1996:
Sales to unaffiliated customers $ 202,780 $ 110,312 $
46,450 $ - $ 359,542
Transfers between geographic areas 24,104 204
96 (24,404) -
Net sales $ 226,884 $ 110,516 $ 46,546 $ (24,404)$
359,542
Operating income $ 28,313 $ 12,420 $ (40) $
472 $ 41,165
Identifiable assets $ 172,760 $ 43,450 $ 16,947 $
</TABLE>
<PAGE> 30
<TABLE>
<S><C>
37,258 $ 270,415
Year ended July 31, 1995:
Sales to unaffiliated customers $ 185,123 $ 88,723 $
40,516 $ - $ 314,362
Transfers between geographic areas 20,975 197
100 (21,272) -
Net sales $ 206,098 $ 88,920 $ 40,616 $ (21,272)$
314,362
Operating income $ 27,693 $ 12,509 $ 545 $
(162) $ 40,585
Identifiable assets $ 103,031 $ 34,112 $ 16,147 $
76,715 $ 230,005
Year ended July 31, 1994:
Sales to unaffiliated customers $ 161,024 $ 64,634 $
30,183 $ - $ 255,841
Transfers between geographic areas 18,965 159
128 (19,252) -
Net sales $ 179,989 $ 64,793 $ 30,311 $ (19,252)$
255,841
Operating income $ 20,318 $ 7,605 $ 2,091 $
(539) $ 29,475
Identifiable assets $ 110,430 $ 24,963 $ 11,805 $
55,311 $ 202,509
</TABLE>
NOTE 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
21,847,180 for 1996; 21,799,929 for 1995; 21,678,114 for 1994. The
preferential dividend on the Class A Common Stock of $.0333 per share has been
added to the net income per Class A Common Share for all years presented.
NOTE 9
COMMITMENTS
The Company has entered into various noncancellable operating lease
agreements. Rental expense charged to operations was $4,689,000 for 1996;
$3,057,000 in 1995; and $2,788,000 in 1994. Future minimum lease payments
required under such leases in effect at July 31, 1996, are as follows (by
fiscal year):
<TABLE>
<CAPTION>
(Dollars) Year ending July 31,
<S> <C>
1997 $ 7,571,000
1998 4,754,000
1999 3,204,000
2000 1,864,000
2001 1,287,000
Thereafter 2,705,000
</TABLE>
<PAGE> 31
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, 1996 and 1995, and the related
consolidated statements of income, stockholders' investment and cash flows for
each of the three years in the period ended July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility 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,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 1996, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 13, 1996
Corporate Data
W.H. BRADY CO. OPERATIONS
Brady AB
Upplands-VSsby, Sweden
Brady Financial Co.
Glendale, Wisconsin, USA
Brady International Co.
Milwaukee, Wisconsin, USA
Brady Investment Co.
Henderson, Nevada, USA
Brady Precision Tape Co.
Cedarburg, Wisconsin, USA
Brady USA, Inc.
Milwaukee, Wisconsin, USA
Brady Service Co.
Milwaukee, Wisconsin, USA
<PAGE> 32
W.H. Brady
Asia-Pacific Pte. Ltd.
Singapore
W.H. Brady Co. Ltd.
Banbury, Oxon, England
W.H. Brady Co. sales office
Kowloon, Hong Kong
W.H.Brady Co. sales office
Seoul, South Korea
W.H.B. do Brasil Ltda.
Sao Paulo, Brazil
W.H. Brady GmbH
Rodermark, Germany
W.H.B. Identification
Solutions, Inc.
Richmond Hill, Ontario, Canada
W.H. Brady Pte. Ltd.
Singapore
W.H. Brady Pty. Ltd.
Chipping Norton, Australia
W.H. Brady Pty. Ltd. sales office
Auckland, New Zealand
W.H. Brady, N.V.
Zele, Belgium
W.H. Brady, N.V. sales office
Saronno, Italy
W.H. Brady S.A.R.L.
Paris, France
Nippon Brady K.K.
Yokohama, Japan
Seton Australia Pty. Ltd.
Chipping Norton, Australia
Seton
Branford, Connecticut, USA
Seton GmbH
Langen, Germany
Seton Italia Srl
<PAGE> 33
Saronno, Italy
Seton Limited
Banbury, Oxon, England
Seton S.A.
Roubaix, France
Hirol
Fort Lauderdale, Florida, USA
Hirol U.K. Ltd.
Livingston, West Lothian, Scotland
TechPress II Limited
Sunbury on Thames,
Middlesex, England
Varitronic Systems, Inc.
Minneapolis, Minnesota, USA
OFFICERS
Katherine M. Hudson
President and
Chief Executive Officer
Donald P. DeLuca
Senior Vice President,
Chief Financial Officer
and Treasurer
Mary T. Arnold
Vice President
Research and Development
Richard L. Fisk
Vice President
Seton Group
David R. Hawke
Vice President
Graphics Group
David W. Schroeder
Vice President
Identification Systems
and Specialty Tapes Group
Donald E. Rearic
President
Brady Financial Co.
<PAGE> 34
Thomas E. Scherer
Vice President and Controller
Peter J. Lettenberger
Secretary
Partner, Quarles & Brady
BOARD OF DIRECTORS
Richard A. Bemis
President
Bemis Manufacturing Company
William H. Brady, III
Investor
Robert C. Buchanan
President and CEO
Fox Valley Corporation
Donald P. DeLuca
Senior Vice President,
CFO and Treasurer
W.H. Brady Co.
Frank W. Harris
Professor of Polymer Science
University of Akron
Katherine M. Hudson
President and CEO
W.H. Brady Co.
Peter J. Lettenberger
Partner
Quarles & Brady
Elizabeth Brady Lurie
President and Administrator
W.H. Brady Foundation
Gary E. Nei
Chairman
B & B Publishing
Roger D. Peirce
Corporate Director
and Advisor
SHAREHOLDER SERVICES
<PAGE> 35
COMMON STOCK LISTING
As of September 12, 1996, there were 496 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
NASDAQ National Market under the symbol BRCOA. Trading information is carried
by the National Association of Securities Dealers.
QUARTERLY STOCK DATA
<TABLE>
<CAPTION>
1996 1995 1994
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
4th Quarter $26.75 $20.00 $23.83 $17.67 $16.33 $14.92
3rd Quarter $25.50 $19.00 $17.67 $15.67 $16.00 $14.50
2nd Quarter $27.00 $21.00 $16.17 $15.67 $15.50 $12.00
1st Quarter $24.52 $23.67 $16.33 $15.67 $12.33 $11.58
</TABLE>
DIVIDEND POLICY
Dividends are normally paid on the last day of October,
January, April and July. The Board of Directors voted a quarterly dividend of
13# per share of Class A Nonvoting Common Stock to shareholders of record on
October 4, 1996.
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
FORM 10-K AND ADDITIONAL INFORMATION AVAILABLE
A copy of the W.H. Brady Co. 1996 Annual Report on Form 10-K,
to be filed with the Securities and Exchange Commission, is also available
without charge upon request.
If your stock is held in a street name and you wish to receive
shareholder publications directly from the Company, please contact Donald P.
DeLuca, chief financial officer, at W.H. Brady Co., P.O. Box 571, Milwaukee,
Wisconsin 53201-0571, 414/358-6600. Your name will be added to the mailing
list.
COMPANY NEWS
W.H. Brady Co. issues many of its corporate news releases
through PR Newswire. You can obtain faxed copies of recent news releases by
calling Company News On-Call at 800/758-5804. This electronic, menu-driven
system will request a six-digit code (952350) which will enable you to request
specific Brady releases to be sent to your fax machine.
News releases and other Brady information, including the
corporate brochure, are also available at http://www.whbrady.com on the
Internet World Wide Web.
ANNUAL MEETING
The annual meeting of W.H. Brady Co. will be held at 9 a.m. on
Friday, November 15, 1996, at the Milwaukee Hilton, 509 West Wisconsin Avenue,
Milwaukee, Wisconsin 53203.
<PAGE> 36
Design: Thiel Visual Design
In keeping with W.H. Brady Co.'s policy of environmental stewardship, this
entire annual report is printed on recycled paper and is recyclable.
W.H. Brady Co.
P.O. Box 571
Milwaukee, Wisconsin USA 53201-0571
(414) 358-6600
http://www.whbrady.com
(c) 1996 W.H. Brady Co. All Rights Reserved.
10-FC-96-BEM
Printed in U.S.A.
<PAGE> 1
EXHIBIT 21.1
SCHEDULE OF SUBSIDIARIES OF W.H. BRADY CO.
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
STATE (COUNTRY) SECURITIES
NAME OF COMPANY OF INCORPORATION OWNED
- --------------- ---------------- ----------
<S> <C> <C>
W. H. BRADY CO. WISCONSIN PARENT
BRADY FINANCIAL CO. DELAWARE 100%
TRICOR DIRECT INC.- DELAWARE 100%
DOING BUSINESS AS
SETON
SETON NAME PLATE COMPANY
D&G SIGN AND LABEL CO.
THE HIROL COMPANY
WORLDMARK OF WISCONSIN INC. DELAWARE 100%
VARITRONIC SYSTEMS, INC. MINNESOTA 100%
BRADY INVESTMENT CO. NEVADA 100%
BRADY INTERNATIONAL SALES, INC. U.S. VIRGIN ISLANDS 100%
BRADY INTERNATIONAL CO. WISCONSIN 100%
BRADY MEDICAL PRODUCTS CO. WISCONSIN 100%
BRADY PRECISION TAPE CO. WISCONSIN 100%
BRADY SERVICE CO. WISCONSIN 100%
BRADY USA, INC. WISCONSIN 100%
W.H. BRADY, PTY. LTD. AUSTRALIA 100%
SETON AUSTRALIA PTY. LTD. AUSTRALIA 100%
W.H. BRADY, N.V. BELGIUM 100%
W.H.B. DO BRASIL LTDA. BRAZIL 100%
W.H. BRADY IDENTIFICATION SOLUTIONS, INC. CANADA 100%
1167232 ONTARIO, INC. CANADA 100%
W.H. BRADY, LTD. ENGLAND 100%
SETON, LTD. ENGLAND 100%
TECH PRESS II LTD. ENGLAND 100%
W.H. BRADY, S.A.R.L. FRANCE 100%
SETON S.A. FRANCE 100%
W.H. BRADY, GMBH GERMANY 100%
SETON, GMBH GERMANY 100%
SETON ITALIA SRL ITALY 100%
NIPPON BRADY K.K. JAPAN 100%
W. H. BRADY KOREA CO., LTD. KOREA 70%
HIROL UK LTD. SCOTLAND 100%
W. H. BRADY ASIA-PACIFIC PTE. LTD. SINGAPORE 100%
W.H. BRADY, PTE. LTD. SINGAPORE 100%
BRADY AB SWEDEN 100%
NYBYGGAREN 29:782 AB SWEDEN 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
W.H. BRADY CO.:
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 13, 1996,
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, 1996.
/S/ DELOITTE & TOUCHE LLP
MILWAUKEE, WISCONSIN
OCTOBER 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 49,281
<SECURITIES> 0
<RECEIVABLES> 55,671
<ALLOWANCES> 1,992
<INVENTORY> 40,697
<CURRENT-ASSETS> 156,111
<PP&E> 122,282
<DEPRECIATION> 56,633
<TOTAL-ASSETS> 261,835
<CURRENT-LIABILITIES> 46,423
<BONDS> 1,809
2,855
0
<COMMON> 219
<OTHER-SE> 186,189
<TOTAL-LIABILITY-AND-EQUITY> 261,835
<SALES> 359,542
<TOTAL-REVENUES> 359,542
<CGS> 166,426
<TOTAL-COSTS> 166,426
<OTHER-EXPENSES> 151,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302
<INCOME-PRETAX> 45,433
<INCOME-TAX> 17,406
<INCOME-CONTINUING> 28,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,027
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
