<PAGE> 1
PROSPECTUS FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION STATEMENT NO. 333-04155
3,125,000 SHARES
W.H. BRADY LOGO
CLASS A NONVOTING COMMON STOCK
-------------------------
All of the shares of Class A Common Stock offered to the public hereby are
outstanding shares of W.H. Brady Co. which are being sold by the Selling
Shareholders as set forth under "Principal and Selling Shareholders." The
Company will not receive any part of the proceeds from the sale of such shares.
The Company's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "BRCOA." On June 18, 1996, the last sale price for the Class A
Common Stock was $22.00 per share, as reported on the Nasdaq National Market.
The voting power of the Company is vested in the Class B Common Stock, and the
Class A Common Stock has no voting rights, except as may be required by law,
unless in each of the three preceding fiscal years certain dividends have not
been paid in full. See "Description of Capital Stock."
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $22.00 $1.05 $20.95
- ------------------------------------------------------------------------------------------------
Total(3)............................... $68,750,000 $3,281,250 $65,468,750
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $350,000, payable by the Selling
Shareholders.
(3) A Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to 468,750 additional shares of Class A Common Stock on the same
terms and conditions as set forth above, to cover over-allotments, if any.
If all such shares are purchased by the Underwriters, such Selling
Shareholder will receive all of the net proceeds from the sale of such
shares and the Company will not receive any of such proceeds. If the
Underwriters exercise the over-allotment option in full, the total Price to
Public will be $79,062,500, the total Underwriting Discounts and Commissions
will be $3,773,438 and the total Proceeds to Selling Shareholders will be
$75,289,062. See "Underwriting."
-------------------------
The shares of Class A Common Stock offered hereby are offered by the
several Underwriters, subject to prior sale, when, as and if delivered by and
accepted by the Underwriters, and subject to their right to reject orders in
whole or in part. It is expected that delivery of the certificates representing
shares of Class A Common Stock will be made on or about June 24, 1996 through
The Depository Trust Company or at the offices of Robert W. Baird & Co.
Incorporated, Milwaukee, Wisconsin.
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS JUNE 19, 1996.
<PAGE> 2
INDUSTRIAL AND FACILITY
IDENTIFICATION PRODUCTS
[PHOTO] [PHOTO]
- - W.H. Brady Co. wire markers may be used in virtually every industrial and
electrical market. The markers resist environmental hazards including heat,
abrasion and chemical corrosion.
- - W.H. Brady Co. provides complete printing systems for designing and printing
bar-code labels on demand. Systems include a printer, consumable
materials and bar-code software.
- - The Company designs and develops printing systems and materials that
accommodate a broad spectrum of labeling applications. Systems range from small
portable models to larger bench-top units.
- - W.H. Brady Co. produces a large stock of pre-printed pipemarkers made from
materials that withstand a wide range of environmental conditions. The Company
can also produce custom pipemarker legends with variable information.
[PHOTO] [PHOTO]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ
STOCK MARKET'S NATIONAL MARKET (THE "NASDAQ NATIONAL MARKET") IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 3
SAFETY AND REGULATORY
COMPLIANCE PRODUCTS
[PHOTO] [PHOTO]
- - The Company offers a broad range of stock sign products for various
purposes and environmental conditions--indoors and out. It also has
extensive custom capabilities and offers rapid response to customer orders.
- - W.H. Brady Co. carries a full range of lockout/tagout products to meet the
lockout/tagout requirements of health and safety regulatory bodies
worldwide.
- - The Company manufactures safety and accident prevention signs which meet
standards promulgated by a variety of international safety standards
associations. The product line includes printing systems which enable
customers to print their own signs on demand.
- - W.H. Brady Co. offers a broad range of asset identification labels. They
come in a variety of sizes and colors.
[PHOTO] [PHOTO]
<PAGE> 4
PRODUCTS FOR THE
ORIGINAL EQUIPMENT MANUFACTURER
[PHOTO] [PHOTO]
- - W.H. Brady Co. produces high-quality components and develops materials to
meet the specifications of semiconductor manufacturers throughout the world.
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'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.
[PHOTO] [PHOTO]
RESEARCH & DEVELOPMENT
<PAGE> 5
[PHOTOS]
Locations
AUSTRALIA ITALY
W.H. Brady Pty. Ltd. W.H. Brady, N.V.
2 Pat Devlin Close Sales Office
Chipping Norton, NSW 2170 Via Lazzaroni 7
Australia 21047 Saronno VA
Italy
Seton Australia Pty. Ltd.
2 Pat Devlin Close Seton Italia Srl
Chipping Norton, NSW 2170 Via Lazzaroni 7
Australia 21047 Saronno VA
Italy
BELGIUM
W.H. Brady, N.V. JAPAN
Industriepark Lindestrant 20 Nippon Brady K.K.
B9240 Zele, Belgium Sumitomo Fudosan Shin
Yokohama Bldg. 8F
CANADA 2-5-5 Shin Yokohama
W.H. Brady, Inc. Kohoku-ku, Yokohama
56 Leek Crescent Kanagawa 222, Japan
Richmond Hill, Ontario L4B 1H1
Canada NEW ZEALAND
W.H. Brady Pty. Ltd.
Seton, Inc. Sales Office
56 Leek Crescent P.O. Box 100868
Richmond Hill, Ontario L4B 1H1 North Shore Mail Centre
Canada Auckland, New Zealand
ENGLAND SINGAPORE
W.H. Brady Co. Ltd. W.H. Brady Pte. Ltd.
Wildmere Industrial Estate 55 Ayer Rajah Crescent #03-25
Banbury, Oxfordshire, OX16 7JU Ayer Rajah Industrial Estate
England Singapore 139949
Seton Limited SCOTLAND
Canada Close Hirol U.K.
Banbury, Oxon OX16 7RT 5 Rennie Square
England Brucefield Industrial Estate
Livingston, West Lothian
TechPrint Lettering Systems Limited Scotland EH54 9DF
Summit House, Brooklands Close,
Sunbury on Thames SOUTH KOREA
Middlesex TW16 7eH W.H. Brady Co.
England Sales Office
Hanaro B/D 609
FRANCE 194-4 Insadong
W.H. Brady S.A.R.L. Jongro-Ku
2, Place Marcel Rebuffat Seoul, South Korea
BP 362 Parc de Villejust
F-91959 Les Ulis Cedex SWEDEN
France Brady AB
Karins Vag 5
Seton S.A. 194 54 Upplands Vasby
113, Rue Horace Vernet BP 181 Sweden
59054 Roubaix, France
UNITED STATES
GERMANY W.H. Brady Co. Headquarters
W.H. Brady GmbH 6555 W. Good Hope Road
Odenwaldstrasse 71 P.O. Box 571
63322 Rodermark, Germany Milwaukee, WI 53201-0571
Seton GmbH Brady USA, Inc.
Otto-Hahn-Str. 5-7 2221 W. Camden Road
63222 Langen, Germany Glendale, WI 53209
HONG KONG 2230 W. Florist Avenue
W.H. Brady Co. Glendale, WI 53209
Sales Office
Room 702, 7/F 3328 W. Cameron Avenue
Bank of Communications Bldg. Glendale, WI 53209
No. 563 Nathan Road
Kowloon, Hong Kong Brady Financial Co.
5150 N. Port Washington Road
Glendale, WI 53217
Brady Precision Tape Co.
N144 W5690 Pioneer Road
Cedarburg, WI 53012
Seton
20 Thompson Road
Branford, CT 06405
The Hirol Company
6500 N.W. 12th Ave., Suite #120
Fort Lauderdale, FL 33309
Varitronic Systems, Inc.
300 Interchange Tower
600 South County Road 18
Minneapolis, MN 55426
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company under the Exchange Act can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Northeast Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048, and Midwest Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Additionally, such material is available at the
Internet web site maintained by the Commission at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto referred to herein
as the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Class A Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement which may be inspected and copied
in the manner and at the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act (File No. 0-12730) are incorporated into this
Prospectus by reference:
1. Annual Report on Form 10-K for fiscal year ended July 31, 1995.
2. Quarterly Reports on Form 10-Q for the quarters ended October 31,
1995, January 31, 1996 and April 30, 1996.
3. The Company's Current Reports on Form 8-K dated January 5, 1996,
January 29, 1996, February 9, 1996, February 27, 1996 and April 18,
1996 (as amended on June 18, 1996), all of which relate to Varitronic
Systems, Inc. and the Company's Current Report on Form 8-K dated June
17, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of the offering shall be deemed to be incorporated herein by reference and to be
a part hereof from the date of filing of such documents. The information
contained in this Prospectus does not purport to be comprehensive and should be
read together with the information contained in the documents incorporated by
reference herein. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents which are
incorporated herein by reference (other than exhibits not specifically
incorporated by reference into the text of such documents). Requests should be
directed to W.H. Brady Co., at its principal executive offices, 6555 West Good
Hope Road, Milwaukee, Wisconsin 53223, attention: Donald P. DeLuca, telephone
(414) 358-6600.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless the context otherwise indicates, (i) all
financial and per share information contained herein has been adjusted for a
stock dividend of two shares of Class A Nonvoting Common Stock, par value $.01
per share (the "Class A Common Stock"), on each share of Class A Common Stock
and Class B Voting Common Stock, par value $.01 per share (the "Class B Common
Stock") (the Class A Common Stock and Class B Common Stock are collectively
referred to as the "Common Stock"), paid December 15, 1995; (ii) references in
this Prospectus to "W.H. Brady" or the "Company" and the description of the
Company's business refer to W.H. Brady Co. and its consolidated subsidiaries and
do not include Varitronic Systems, Inc. ("VSI") and (iii) pro forma consolidated
financial data presented herein gives effect to the acquisitions of VSI, The
Hirol Company and TechPress II Limited (collectively, the "Recent
Acquisitions").
THE COMPANY
OVERVIEW
W.H. Brady Co. 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 including pipe and valve markers, 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.
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 the Occupational Safety and Health Administration ("OSHA")
and the Environmental Protection Agency ("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 1995 consisted of more than 50,000 customers, with the
largest customer representing less than 2% of net sales. International sales
represented 44.5% of net sales in the first nine months of fiscal 1996 and
41.1%, 37.1% and 32.0% of net sales in fiscal 1995, 1994 and 1993, respectively.
Management believes the Company's focus on product innovation and
continuous product and process improvement has been key to the Company's
success. The Company has committed significant resources to research and
development, with expenditures of $8.0 million in the first nine months of
fiscal 1996 and $10.4 million, $10.3 million and $12.1 million in fiscal 1995,
1994 and 1993, respectively.
The Company applies its coating and converting expertise to manufacture
the majority of the products it sells. However, it also purchases certain
products from other manufacturers, often on a proprietary basis. The Company
(including VSI) currently operates 14 manufacturing facilities worldwide. Eight
are located in the United States and one each in Australia, Belgium, Canada,
England, Japan and Singapore. The Company also has sales offices in France,
Germany, Hong Kong, Italy, Korea, New Zealand and Sweden.
The Company seeks to compete in its markets by providing a broad range
of high quality, innovative products to a diversified customer base in a prompt
and responsive manner as part of its overall business strategy. Key elements of
the Company's growth strategy include (i) increasing product penetration in
4
<PAGE> 8
existing markets, (ii) introducing new products for new markets and
applications, (iii) geographic expansion in selected markets worldwide and (iv)
strategic acquisitions and joint ventures.
Underlying the Company's business strategy is a firm-wide commitment to
enhancing shareholder value by utilizing an incentive system based on economic
value-added principles. From fiscal 1993 to fiscal 1995 net sales increased from
$243.0 million to $314.4 million while net income increased from $16.9 million
to $27.9 million, representing compound annual growth rates of 13.7% and 28.7%,
respectively, over this period. Due in part to the Company's aggressive
investments in geographic expansion, global information systems and sales and
marketing activities, the Company anticipates that its compound annual growth
rate in net income over the period from fiscal 1993 to fiscal 1996 will decline
relative to the rate referred to above.
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 http://www.whbrady.com.
RECENT ACQUISITIONS
On April 8, 1996, the Company completed its acquisition of VSI. VSI
develops, manufactures and markets supply-consuming lettering, labeling, signage
and presentation systems that enhance the quality, professionalism and
effectiveness of a wide range of communications. It also offers a broad range of
consumable supplies and accessories that are used with all of its products. Its
manufacturing facilities are located in the Minneapolis, Minnesota area. VSI has
previously supplied the Company with the Labelizer(R) PLUS and the LabelLite(TM)
printers and related supplies. These items accounted for approximately $16.8
million or 5.3% of the Company's fiscal 1995 net sales. In January 1996, the
Company acquired The Hirol Company, Fort Lauderdale, Florida ("Hirol"); and, in
November 1995, the Company acquired TechPress II Limited, Middlesex, England
("TechPress"). All three acquisitions were cash-for-stock transactions. See
"Recent Developments."
THE OFFERING
<TABLE>
<S> <C>
Class A Nonvoting Common Stock offered by the Selling
Shareholders............................................... 3,125,000 shares
Class A Nonvoting Common Stock to be outstanding before
and after the Offering(1).................................. 20,091,100 shares
Class B Voting Common Stock to be outstanding before and
after the Offering(1)...................................... 1,769,314 shares
Total Common Stock to be outstanding before and after the
Offering(1)................................................ 21,860,414 shares
Use of Proceeds.............................................. The Company will not
receive any proceeds from
the sale of the shares of
Class A Nonvoting Common
Stock (see "Principal and
Selling Shareholders").
Nasdaq National Market symbol................................ BRCOA
</TABLE>
- ----------------------------
(1) Based upon shares of Common Stock outstanding as of May 15, 1996. In
addition, at that date options covering 811,108 shares of Class A Nonvoting
Common Stock were outstanding.
5
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
---------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996(3)
-------- -------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $211,063 $235,965 $242,970 $255,841 $314,362 $231,217 $261,695
Operating income..................... 20,154 15,341 25,324 29,475 40,585 31,246 28,884
Net income(1)........................ 15,397 5,055 16,856 18,540 27,911 20,577 20,096
PER SHARE DATA:
Net income per Class A
Common Share(1)(2)................. $ 0.71 $ 0.23 $ 0.77 $ 0.85 $ 1.27 $ 0.94 $ 0.91
Net income per Class B
Common Share(1)(2)................. 0.67 0.19 0.74 0.81 1.24 0.91 0.88
Cash dividends per Class A
Common Share....................... 0.16 0.19 0.20 0.23 0.27 0.20 0.30
Average Common Shares
outstanding........................ 21,475 21,529 21,584 21,678 21,800 21,791 21,842
</TABLE>
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
---------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 35,991 $ 28,519 $ 42,366 $ 66,107 $ 89,067 $ 93,696 $ 42,787
Working capital...................... 70,883 66,093 77,943 100,023 129,938 126,970 103,575
Total assets......................... 156,812 173,054 179,901 202,509 230,005 234,048 256,884
Long-term debt, less current
maturities......................... 1,982 2,524 1,978 1,855 1,903 1,880 2,031
Stockholders' investment............. 115,260 119,771 128,068 145,129 170,823 164,874 183,163
</TABLE>
- ----------------------------
(1) In fiscal 1992, the cumulative effect of changes in accounting principles
resulted in a $3.3 million ($0.16 per share) reduction in net income. The
Company also recorded a nonrecurring charge of $6.6 million ($3.8 million
after-tax, $0.17 per share) during fiscal 1992, representing a writedown of
a portion of its investment in two domestic operations and a loss on the
sale of a foreign manufacturing operation.
(2) Net income per share of Class B Common Stock was computed by dividing net
income (after deducting the applicable preferred stock dividends and
preferential Class A Common Stock dividends) by the weighted average number
of shares of Common Stock outstanding. To compute net income per share of
Class A Common Stock, the preferential dividend on the Class A Common Stock
of $0.03 per share has been added back to the net income per share of Class
B Common Stock as computed above.
(3) Includes the results of operations of Hirol, TechPress and VSI from the
respective dates of acquisition.
6
<PAGE> 10
RISK FACTORS
Prospective investors should consider carefully, in addition to the
other information contained in this Prospectus, the following factors in
evaluating the Company and its business before purchasing the Class A Common
Stock offered hereby.
INTERNATIONAL OPERATIONS
The Company realized approximately 41.1%, 37.1% and 32.0% of its net
sales in fiscal 1995, 1994 and 1993, respectively, from operations outside the
United States. Variations in the economic or political conditions in the
countries with which the Company does business may impact the level of the
Company's international sales and profitability. In addition, fluctuations in
currency exchange rates can adversely affect the Company's sales, profitability
and financial position. The Company engages in limited foreign currency hedging
and does not speculate in such currencies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company."
SOURCES OF SUPPLY
The Company is, in part, dependent upon the continuing availability of
products and raw materials provided by single source suppliers. However, no such
product accounted for more than 3% of the Company's fiscal 1995 net sales.
VOTING RIGHTS
Voting control of the Company is vested in the holders of Class B Common
Stock. Purchasers of Class A Common Stock will not be entitled to vote on any
corporate matters, except upon nonpayment of dividends for three consecutive
years and as otherwise required by law. See "Principal and Selling Shareholders"
and "Description of Capital Stock."
7
<PAGE> 11
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
On April 8, 1996, the Company consummated its acquisition of all of the
stock of VSI for approximately $40.7 million in cash.
VSI, headquartered in Minneapolis, Minnesota, develops, manufactures and
markets supply-consuming lettering, labeling, signage and presentation systems
that enhance the quality, professionalism and effectiveness of a wide range of
communications. It also offers a broad range of consumable supplies and
accessories that are used with all of its products. Its manufacturing facilities
are located in the Minneapolis area. VSI has previously supplied the Company
with the Labelizer(R) PLUS and the LabelLite(TM) printers and related supplies.
These items accounted for approximately $16.8 million or 5.3% of the Company's
fiscal 1995 net sales. VSI's net sales for the 12 months ended July 31, 1995
were $49.5 million.
In January 1996, the Company acquired Hirol, based in Fort Lauderdale,
Florida for approximately $10.8 million in cash. Hirol manufactures die-cut
parts for the electronics, telecommunications and medical testing markets with
customers throughout the world. Its products range from plastic and felt parts
for cellular phones to radio-frequency shielding products. Hirol's net sales for
the 12 months ended July 31, 1995 were $7.4 million. In November 1995, the
Company acquired TechPress, based in Middlesex, England for approximately $4.3
million in cash and $0.4 million in a note payable. TechPress operates as
TechPrint Systems Limited, marketing a variety of printing systems throughout
the United Kingdom. TechPress' net sales for the 12 months ended July 31, 1995
were $12.6 million. The purchase prices of these acquisitions are subject to
adjustment based on the final determinations of net worth of the respective
companies. In management's opinion, such adjustments, if any, will not be
material.
The purchase prices for the Recent Acquisitions were funded through the
use of the Company's cash and cash equivalents.
8
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF VARITRONIC SYSTEMS, INC.
The following summary consolidated financial information was derived
from the consolidated financial statements of VSI. The consolidated financial
statements of VSI for each of the fiscal years in the three-year period ended
July 31, 1995 have been audited by Coopers & Lybrand L.L.P., independent
accountants. The consolidated financial statements of VSI for the six months
ended January 31, 1995 and 1996 are unaudited but, in the opinion of management
of VSI, reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly such information for those periods.
Results of interim periods are not necessarily indicative of results to be
expected for the year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED JULY 31, JANUARY 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $45,423 $44,819 $49,525 $23,986 $25,504
Gross margin............................. 17,874 17,461 16,068 8,859 9,200
Income from operations................... 3,612 2,580 931(1) 2,050 2,284
Net income............................... 2,621 1,690 543 1,276 1,501
Net income per common share.............. 0.94 0.65 0.23 0.55 0.65
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
----------------------------- JANUARY 31,
1993 1994 1995 1996
------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 335 $ 210 $ 1,347 $ 2,906
Working capital........................... 16,455 14,466 17,366 18,793
Total assets.............................. 24,037 25,940 27,565 27,424
Long-term debt, net of current
maturities.............................. -- -- 3,300 2,800
Stockholders' equity...................... 19,563 18,731 18,580 19,967
</TABLE>
- ----------------------------
(1) Includes a charge to earnings of $1,647,000 in fiscal 1995. VSI terminated
42 full-time employees in August 1995 pursuant to a plan of termination in
place as of July 31, 1995, and recorded a related charge of $247,000 in
general and administrative expenses. A charge of $1,145,000 was recorded in
cost of sales to increase inventory valuation reserves, and $255,000 was
recorded in marketing and sales expenses to reflect a decrease in the value
of certain assets which support a product introduced for sale during fiscal
1995.
9
<PAGE> 13
SUMMARY PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
The summary pro forma unaudited consolidated financial information and
accompanying notes presented below reflect the results of operations of the
Company after giving effect to the Recent Acquisitions as if such transactions
had occurred at the beginning of each of the respective periods presented.
The information presented below should be read in conjunction with the
historical financial statements of the Company and VSI filed with the Commission
and appearing elsewhere herein or incorporated herein by reference. See also the
Company's Current Report on Form 8-K filed April 18, 1996 incorporated herein by
reference for a complete presentation of the pro forma unaudited consolidated
financial information as of July 31, 1995.
Management believes that the assumptions used in preparing the
information presented below provide a reasonable basis on which to present the
pro forma financial data. The information presented below is provided for
informational purposes only and should not be construed to be indicative of the
Company's results of operations had the Recent Acquisitions been consummated on
or as of the dates assumed and are not intended to project the Company's results
of operations for any future period or as of any future date. Certain of the pro
forma adjustments are based on estimates and may be revised when final
information becomes available. In management's opinion, such adjustments, if
any, will not be material.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JULY 31, 1995 APRIL 30, 1996
------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................. $ 370,749 $292,145
Operating income(1)(2).................................... 42,736 28,612
Net income................................................ 26,419 18,373
PER SHARE DATA:
Net income per Class A Common Share....................... $1.20 $0.83
Net income per Class B Common Share....................... 1.17 0.80
</TABLE>
- ----------------------------
(1) The historical results of VSI include a charge to earnings of $1,647,000 in
fiscal 1995. VSI terminated 42 full-time employees in August 1995 pursuant
to a plan of termination in place as of July 31, 1995, and recorded a
related charge of $247,000 in general and administrative expenses. A charge
of $1,145,000 was recorded in cost of sales to increase inventory valuation
reserves, and $255,000 was recorded in marketing and sales expenses to
reflect a decrease in the value of certain assets which support a product
introduced for sale during fiscal 1995.
(2) Nine months ended April 30, 1996 includes a charge against earnings
aggregating approximately $2,900,000 as a result of expenses incurred in
connection with the purchase of VSI.
10
<PAGE> 14
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDENDS
The Company's Class A Common Stock is traded on the Nasdaq National
Market under the symbol "BRCOA." The following table sets forth, for the periods
indicated, the high and low closing sale prices as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1994
First Quarter.......................................................... $12.33 $11.58
Second Quarter......................................................... 15.50 12.00
Third Quarter.......................................................... 16.00 14.50
Fourth Quarter......................................................... 16.33 14.92
FISCAL 1995
First Quarter.......................................................... $16.33 $15.67
Second Quarter......................................................... 16.17 15.67
Third Quarter.......................................................... 17.67 15.67
Fourth Quarter......................................................... 23.83 17.67
FISCAL 1996
First Quarter.......................................................... $24.52 $23.67
Second Quarter......................................................... 27.00 21.00
Third Quarter.......................................................... 25.50 19.00
Fourth Quarter (through June 18, 1996)................................. 26.75 20.00
</TABLE>
On June 18, 1996, the last sale price for shares of Class A Common Stock
of the Company, as reported on the Nasdaq National Market, was $22.00. As of May
1, 1996, there were 476 registered holders of the Class A Common Stock.
In fiscal 1994 and 1995, the Company paid cash dividends of $0.23 and
$0.27, respectively, per share of Class A Common Stock. The Company paid cash
dividends of $0.30 per share of Class A Common Stock through the first three
quarters of fiscal 1996. The payment of future dividends is at the discretion of
the Board of Directors and will depend upon, among other things, future
earnings, capital requirements, the general financial condition of the Company,
general business conditions and other factors.
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 $0.03 per share (subject to an adjustment in the event of future
stock splits, stock dividends or similar events 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.
11
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
The following table sets forth selected consolidated financial
information of the Company. The income statement data in the table for the three
years ended July 31, 1995, and the balance sheet data as of July 31, 1994 and
1995, have been derived from the Company's consolidated financial statements
appearing elsewhere herein, which have been audited by Deloitte & Touche LLP,
independent auditors. The income statement data in the table for the two years
ended July 31, 1992, and the balance sheet data as of July 31, 1991, 1992 and
1993, have been derived from the Company's audited consolidated financial
statements which are not included herein. The Company's financial statements and
the related selected financial data for the nine months ended April 30, 1995 and
1996 are unaudited but, in the opinion of management of the Company, reflect all
adjustments (which include only normal recurring adjustments) necessary to
present fairly such information for those periods. Results of interim periods
are not necessarily indicative of results to be expected for the year. For a
presentation of summary pro forma unaudited consolidated financial information
which reflects the Recent Acquisitions, see "Recent Developments--Summary Pro
Forma Unaudited Consolidated Financial Information." The following data are
qualified by reference to, and should be read in conjunction with, the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996(3)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales...................................... $211,063 $235,965 $242,970 $255,841 $314,362 $231,217 $261,695
Operating expenses:
Cost of products sold........................ 96,797 110,130 114,301 118,116 143,634 106,215 122,002
Research and development..................... 9,176 10,001 12,132 10,318 10,426 7,790 7,999
Selling, general and administrative.......... 84,936 93,931 92,449 97,932 119,717 85,966 102,810
Nonrecurring charge (credit)................. -- 6,562 (1,236) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses................... 190,909 220,624 217,646 226,366 273,777 199,971 232,811
-------- -------- -------- -------- -------- -------- --------
Operating income............................... 20,154 15,341 25,324 29,475 40,585 31,246 28,884
Other income (expense):
Investment and other income, net............. 2,845 239 559 837 4,609 3,362 4,009
Interest expense............................. (548) (219) (54) (410) (555) (293) (181)
-------- -------- -------- -------- -------- -------- --------
Net other income........................... 2,297 20 505 427 4,054 3,069 3,828
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and accounting
changes...................................... 22,451 15,361 25,829 29,902 44,639 34,315 32,712
Income taxes................................... 7,054 6,972 8,973 11,362 16,728 13,738 12,616
-------- -------- -------- -------- -------- -------- --------
Income before accounting changes............... 15,397 8,389 16,856 18,540 27,911 20,577 20,096
Accounting changes............................. -- (3,334) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income(1).................................. $ 15,397 $ 5,055 $ 16,856 $ 18,540 $ 27,911 $ 20,577 $ 20,096
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net income per Class A Common Share(1)(2)...... $0.71 $0.23 $0.77 $0.85 $1.27 $0.94 $0.91
Net income per Class B Common Share(1)(2)...... 0.67 0.19 0.74 0.81 1.24 0.91 0.88
Cash dividends per Class A Common Share........ 0.16 0.19 0.20 0.23 0.27 0.20 0.30
Average Common Shares outstanding.............. 21,475 21,529 21,584 21,678 21,800 21,791 21,842
</TABLE>
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 35,991 $ 28,519 $ 42,366 $ 66,107 $ 89,067 $ 93,696 $ 42,787
Working capital................................ 70,833 66,093 77,943 100,023 129,938 126,970 103,575
Total assets................................... 156,812 173,054 179,901 202,509 230,005 234,048 256,884
Long-term debt, less current maturities........ 1,982 2,524 1,978 1,855 1,903 1,880 2,031
Stockholders' investment....................... 115,260 119,771 128,068 145,129 170,823 164,874 183,163
</TABLE>
- ----------------------------
(1) In fiscal 1992, the cumulative effect of changes in accounting principles
resulted in a $3.3 million ($0.16 per share) reduction in net income. The
Company also recorded a nonrecurring charge of $6.6 million ($3.8 million
after-tax, $0.17 per share) during fiscal 1992, representing a writedown of
a portion of its investment in two domestic operations and a loss on the
sale of a foreign manufacturing operation.
(2) Net income per share of Class B Common Stock was computed by dividing net
income (after deducting the applicable preferred stock dividends and
preferential Class A Common Stock dividends) by the weighted average number
of shares of Common Stock outstanding. To compute net income per share of
Class A Common Stock, the preferential dividend on the Class A Common Stock
of $0.03 per share has been added back to the net income per share of Class
B Common Stock as computed above.
(3) Includes the results of operations of Hirol, TechPress and VSI from the
respective dates of acquisition.
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Information of the Company above, and the
consolidated financial statements and related notes thereto, which appear
elsewhere in this Prospectus.
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 and 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 new 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 39.3% for the
first nine months of fiscal 1996, compared to 37.2% for the same period in
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.
To increase product penetration in existing markets, the Company hired
approximately 200 sales, marketing and support personnel worldwide through the
first nine months of fiscal 1996.
The Company introduced several new products in fiscal 1996, including
label materials, software, a new line of tapes and two new printing systems. The
Einsign(TM) Smart Sign-Making System, which enables customers to produce
high-quality signs using Company-developed software and a palmtop computer and
laser-printing technology, was launched in January 1996. The product was named
the Product of the Year by Plant Engineering Magazine.
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). Currently, Seton and ISST are jointly
involved in establishing an operation in Brazil.
The Company completed the acquisitions of TechPress in November 1995,
Hirol in January 1996 and VSI in April 1996. See "Recent Developments."
13
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth the percentage of certain income
statement items to net sales derived from the Company's consolidated statements
of income and the percentage changes in the dollar amounts of such items as
compared to prior periods:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-------------------------------
NINE MONTHS
PERCENTAGE OF NET SALES YEARS ENDED ENDED
--------------------------------------------- JULY 31, APRIL 30,
NINE MONTHS --------------- -----------
YEARS ENDED JULY 31, ENDED APRIL 30, 1994 1995 1996
------------------------- --------------- OVER OVER OVER
1993 1994 1995 1995 1996 1993 1994 1995
----- ----- ----- ----- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 5.3% 22.9% 13.2%
Cost of products sold..... 47.0 46.2 45.7 45.9 46.6 3.3 21.6 14.9
Research and
development............. 5.0 4.0 3.3 3.4 3.1 (15.0) 1.0 2.7
Selling, general and
administrative.......... 38.1 38.3 38.1 37.2 39.3 5.9 22.2 19.6
Nonrecurring (credit)..... (0.5) -- -- -- -- -- -- --
Total operating
expenses................ 89.6 88.5 87.1 86.5 89.0 4.0 20.9 16.4
Operating income.......... 10.4 11.5 12.9 13.5 11.0 16.4 37.7 (7.6)
Other income (expense).... 0.2 0.2 1.3 1.3 1.5 (15.4) 849.4 24.7
Income before income
taxes................... 10.6 11.7 14.2 14.8 12.5 15.8 49.3 (4.7)
Income taxes.............. 3.7 4.4 5.3 5.9 4.8 26.6 47.2 (8.2)
Net income................ 6.9 7.2 8.9 8.9 7.7 10.0 50.5 (2.3)
</TABLE>
Nine Months Ended April 30, 1996 Compared to Nine Months Ended April
30, 1995
For the nine months ended April 30, 1996, revenues of $261,695,000 were
13.2% higher than the same period last year. Net sales of the Company's
international operations increased 25.4% for the nine months ended April 30,
1996 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.
Net sales of the Company's U.S. operations increased 5.0% for the nine months
ended April 30, 1996 primarily due to the acquisitions of VSI and Hirol in April
1996 and January 1996, respectively.
The cost of products sold as a percentage of net sales increased to
46.6% for the nine months ended April 30, 1996 from 45.9% for the same period in
1995, due to changes in product mix and the Recent Acquisitions. Selling,
general and administrative expenses as a percentage of net sales increased to
39.3% for the nine months ended April 30, 1996 compared to 37.2% for the same
period last year. These increases reflect the Company's ongoing investment in
sales and marketing activities and in building its global information-technology
infrastructure. Research and development expenses increased 2.7% for the nine
months ended April 30, 1996 over the same period last year.
Operating income was $28,884,000 for the nine months ended April 30,
1996 compared to $31,246,000 for the same period last year as a result of the
increased selling, general and administrative expenditures and the increased
cost of products sold mentioned above.
Investment and other income for the nine months ended April 30, 1996
included $1,750,000 ($950,000 after-tax) representing the gain on the sale of a
building in Germany during the first fiscal quarter. Investment and other income
for the nine months ended April 30, 1995 included approximately $1,500,000
($900,000 after-tax) from the sale of two businesses and two buildings. As a
result of the use of cash and cash equivalents to fund the Recent Acquisitions,
the Company expects interest income will decrease during the
14
<PAGE> 18
fourth quarter of fiscal 1996 relative to each of the first three quarters of
fiscal 1996. Income before income taxes decreased 4.7% for the nine months ended
April 30, 1996.
The effective tax rate for the nine months ended April 30, 1996 was
38.6% compared to 40.0% for the nine months ended April 30, 1995.
Net income for the nine months ended April 30, 1996 decreased 2.3% to
$20,096,000 from $20,577,000 for the same period last year.
Year Ended July 31, 1995 Compared to Year Ended July 31, 1994
Net sales for fiscal 1995 increased by $58,521,000 or 22.9% over fiscal
1994. Net sales of the Company's international subsidiaries 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. Net sales of the
Company's U.S. operations increased 15.0%, primarily from new product
introductions such as the I.D. Pro(TM) Wire Marker Printer. This U.S. sales
increase was achieved despite the divestiture of two businesses during the year
that had combined net 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 net sales to 45.7% of
net 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 net sales decreased slightly from
38.3% to 38.1% of net 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 1.0% over fiscal 1994, but
declined as a percentage of net sales.
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
Net sales for fiscal 1994 increased by $12,871,000 or 5.3% over fiscal
1993. Net sales of the Company's international subsidiaries 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. This foreign exchange effect resulted in a 6.5% overall
decrease in international net sales. Net sales of the Company's U.S. operations
decreased 2.6% because of the divestiture of three businesses in fiscal 1993.
Comparing only continuing operations, net sales of the Company's U.S. operations
increased 6.1% primarily as a result of the introduction of new products.
The cost of products sold decreased from 47.0% of net sales to 46.2% of
net 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 net sales increased from 38.1% to 38.3% as a result of costs
attributable to the introduction of new products. The completion of certain
product development projects in fiscal 1993 caused research and development
expenses to decrease 15.0% in fiscal 1994.
15
<PAGE> 19
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 $25,829,000 in fiscal 1993, 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 for the year increased 10.0% to $18,540,000 for fiscal 1994,
compared to $16,856,000 for fiscal 1993, because of the factors cited above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity remains strong. Cash and cash equivalents
decreased to $42,787,000 at April 30, 1996 from $89,067,000 at July 31, 1995,
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 $103,575,000 at April 30, 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 $18,803,000 for the nine months
ended April 30, 1996, $21,552,000 for fiscal 1995 and $33,068,000 for fiscal
1994. Capital expenditures were $7,494,000 in the nine months ended April 30,
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 $6,786,000 of cash in the first nine months of 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 1.1% at each of April 30, 1996 and July 31, 1995. 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. The
Company believes that its cash and cash equivalents and the cash flow it
generates from operating activities are adequate to meet the Company's 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.
RECENT ACCOUNTING PRONOUNCEMENTS
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" and FAS No. 123, "Accounting for
Stock-based Compensation" were issued in 1995. The statements are not expected
to have a material impact on the Company. The Company intends to continue to
account for stock-based compensation under Accounting Principles Board Opinion
No. 25 as allowed by FAS No. 123.
16
<PAGE> 20
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 1995 consisted of more than 50,000 customers, with the largest customer
representing less than 2% of net sales. International sales represented 44.5% of
net sales in the first nine months of fiscal 1996 and 41.1%, 37.1% and 32.0% of
net sales in fiscal 1995, 1994 and 1993, 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.
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.
17
<PAGE> 21
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 $129,239,000 or 41.1%
of net sales in fiscal 1995. 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 and new markets.
Strategic acquisitions and joint ventures. W.H. Brady's recent growth
has occurred principally through 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 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 including pipe and valve markers, 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.
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.
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<PAGE> 22
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.
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
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<PAGE> 23
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.
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
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<PAGE> 24
that consisted of over 50,000 customers in fiscal 1995. No material part of the
Company's business is dependent upon a single customer or group of customers,
and the loss of a particular customer would have no material adverse effect upon
the Company's business. In fiscal 1995, no single customer accounted for more
than 2% 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 distribution 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, Sweden, Germany, France and England and include foreign language
catalogs. Currently, the Company's Seton and ISST groups are jointly
establishing a catalog operation in Brazil.
MANUFACTURING PROCESSES 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 costs. 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 purchases its raw materials from many suppliers and is not
dependent upon any single supplier for any of its base supply materials.
The Company (including VSI) currently operates 14 manufacturing
facilities worldwide. Eight are located in the United States, and one each in
Australia, Belgium, Canada, England, Japan and Singapore. The Company's primary
research facility of approximately 30,000 square feet is located in Milwaukee,
Wisconsin. The Company's present operating facilities contain a total of
approximately 960,000 square feet of space. All of the Company's facilities are
owned by the Company, except for a total of approximately 400,000 square feet
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<PAGE> 25
of leased space. The Company believes that its equipment and facilities are
modern, well maintained and adequate for its present needs.
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 30,000 sq. ft. Fredric S. Tobey Research and Innovation Center
in Milwaukee, Wisconsin. The Company spent $8.0 million for the first nine
months in fiscal 1996 and $10.4 million, $10.3 million and $12.1 million in
fiscal 1995, 1994 and 1993, respectively, on its research and development
activities, all of which were Company sponsored. In fiscal 1995, 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
W.H. Brady's international sales have increased from $50,707,000 or
26.5% of net sales in fiscal 1990 to $129,239,000 or 41.1% of net sales in
fiscal 1995. For the first nine months of 1996, international sales accounted
for 44.5% of net sales and in fiscal 1995, 1994 and 1993, international sales
accounted for 41.1%, 37.1% and 32.0%, respectively, of the Company's net sales.
The Company's global infrastructure now supports sales and operations through
subsidiaries in Australia, Belgium, Canada, England, France, Germany, Italy,
Japan, Singapore and Sweden and sales offices in Hong Kong, Italy, Korea and New
Zealand. Several of these locations manufacture or have the capability to
manufacture certain of the products they sell. The Company opened new facilities
in Australia, England, Italy and Sweden in 1995 and 1996, and 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.
ENVIRONMENT
At present, the manufacturing processes for the Company's adhesive-based
products utilize certain evaporative organic solvents which, unless controlled,
would be vented into the atmosphere. Emissions of these
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<PAGE> 26
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.
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 a party to any material pending
legal proceedings.
EMPLOYEES
As of April 30, 1996, the Company (including VSI) 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.
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<PAGE> 27
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- --------------------------------------------------------
<S> <C> <C>
Katherine M. Hudson...... 49 President, Chief Executive Officer and Director
Donald P. DeLuca......... 55 Senior Vice President, Treasurer,
Assistant Secretary and Director
Mary T. Arnold........... 53 Vice President, Research and Development
Richard L. Fisk.......... 52 Vice President, Seton Group
David R. Hawke........... 41 Vice President, Graphics Group
David W. Schroeder....... 40 Vice President, ISST Group
James M. Sweet........... 42 Vice President, Human Resources
Peter J. Lettenberger.... 58 Secretary and Director
William H. Brady III..... 53 Director
Elizabeth B. Lurie....... 50 Director
Robert C. Buchanan....... 56 Director
Roger D. Peirce.......... 58 Director
Richard A. Bemis......... 55 Director
Frank W. Harris.......... 54 Director
Gary E. Nei.............. 52 Director
</TABLE>
Mrs. Hudson joined the Company in January 1994 as President, Chief
Executive Officer and Director. Before joining W.H. Brady, she was a Vice
President at Eastman Kodak Company and General Manager of its Professional
Printing and Publishing Imaging 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.
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 W.H. 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.
Dr. Arnold joined the Company in February 1993. In March 1995, she was
appointed to her present position. Prior to joining W.H. Brady, Dr. Arnold
served in various technical capacities at GE Appliances, a unit of General
Electric Company.
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.
Mr. Hawke joined the Company in 1979. He served as General Manager of
the Industrial Products Division from 1987 to 1991. From 1991 to February 1995,
he served as Managing Director -- European Operations. In March 1995, he was
appointed to his present position.
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<PAGE> 28
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.
Mr. Sweet joined the Company in 1985. In November 1987 he was appointed
Director, Personnel. In August of 1989 he was appointed Vice President, Human
Resources.
Mr. Lettenberger has served as a Director and Secretary of the Company
since January 1977. Mr. Lettenberger has been a member of the Company's audit
and compensation committees since April 1977 and October 1978, respectively, and
has been chairman of the compensation committee since June 1985. He is a partner
of Quarles & Brady, general counsel to Company, which firm he joined in 1964. He
is also a director of Electronic Tele-Communications, Inc.
Mr. Brady has been a Director of the Company since January 1979. Mr.
Brady is a private investor.
Ms. Lurie has been a Director of the Company since 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).
Mr. Buchanan has been a Director of the Company since November 1987 and
a member of its audit committee since June 1988 (chairman since June 1990). Mr.
Buchanan is President and CEO of the Fox Valley Corporation in Appleton,
Wisconsin, having assumed that position November 1, 1980. He is also a trustee
and director of The Northwestern Mutual Life Insurance Company and Firstar
Corporation, respectively.
Mr. Peirce has served as a Director and a member of the compensation
committee of the Company since September 1988. Mr. Peirce was President of
Valuation Research Corporation until May 1996, having assumed that position in
April 1995. 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.
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.
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.
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. Executive 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.
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<PAGE> 29
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth at May 15, 1996, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby assuming that the
Underwriters' over-allotment is not exercised, certain information with respect
to the beneficial ownership of the Common Stock by (i) each Selling Shareholder,
(ii) each person who is known by the Company to be the beneficial owner of more
than five percent of the Common Stock, (iii) each of the Company's Directors,
(iv) each of the Company's executive officers named under "Management" and (v)
all Directors and officers of the Company as a group. Except where otherwise
noted, each party included in the table has sole voting and investment power
with respect to the shares beneficially owned. The William H. Brady, Jr. Marital
Trust and the William H. Brady, Jr. Non-QTIP Marital Trust own 25.9% and 4.3% of
the Class A Common Stock, and 89.0% and 11.0% of the Class B Common Stock,
respectively.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE THE OFFERING SHARES AFTER THE OFFERING
-------------------- OFFERED --------------------
NAME SHARES PERCENT FOR SALE SHARES PERCENT
- ------------------------------------------------------ --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Class A Common Stock
William H. Brady, Jr. Marital Trust(1).............. 5,213,075 25.9% 3,000,000 2,213,075 11.0%
William H. Brady, Jr. Non-QTIP Marital Trust(1)..... 870,846 4.3% -- 870,846 4.3%
Irene B. Brady Revocable Trust of 1986(1)........... 779,823 3.9% -- 779,823 3.9%
Peter J. Lettenberger(2)(3)(4)...................... 4,839 0.0% -- 4,839 0.0%
Richard A. Bemis(2)(5).............................. 4,000 0.0% -- 4,000 0.0%
Robert C. Buchanan(2)(5)............................ 2,700 0.0% -- 2,700 0.0%
Roger D. Peirce(2)(5)............................... 1,500 0.0% -- 1,500 0.0%
Elizabeth B. Lurie(3)(6)............................ 399,845 2.0% 125,000 274,845 1.4%
William H. Brady, III............................... 1,037,472 5.2% -- 1,037,472 5.2%
Katherine M. Hudson(7).............................. 91,109 0.5% -- 91,109 0.5%
Donald P. DeLuca(8)................................. 40,055 0.2% -- 40,055 0.2%
Gary E. Nei......................................... 4,500 0.0% -- 4,500 0.0%
Frank W. Harris..................................... 1,500 0.0% -- 1,500 0.0%
All Officers and Directors as a Group (17
persons)(9)....................................... 1,704,618 8.5% -- 1,704,618 8.5%
Class B Common Stock
William H. Brady, Jr. Marital Trust(1).............. 1,574,866 89.0% -- 1,574,866 89.0%
William H. Brady, Jr. Non-QTIP Marital Trust(1)..... 194,448 11.0% -- 194,448 11.0%
</TABLE>
- ----------------------------
(1) Robert C. Buchanan, Irene B. Brady, Roger D. Peirce, Peter J. Lettenberger
and Richard A. Bemis are trustees of 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 trustees share
voting and dispositive power. All of the trustees except Mrs. Brady disclaim
beneficial ownership of these shares. Mr. Lettenberger and Elizabeth B.
Lurie are also trustees of the Irene B. Brady Revocable Trust of 1986 (the
"1986 Trust"). Irene B. Brady is the widow of William H. Brady, Jr. and the
vested beneficiary of the Marital Trust; she is the parent of William H.
Brady, III and Ms. Lurie (who are contingent remainder beneficiaries of the
Trusts) and the grandparent of Elizabeth Irene Pungello. Mr. Lettenberger
and Ms. Lurie disclaim beneficial ownership of shares held by the 1986
Trust.
(2) The amount shown does not include shares held by the Trusts. The Marital
Trust owns 5,213,075 shares of Class A Common Stock and 1,574,866 shares of
Class B Common Stock. The Non-QTIP Trust owns 870,846 shares of Class A
Common Stock and 194,448 shares of Class B Common Stock. 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. All of the trustees except Mrs. Brady disclaim beneficial
ownership of these shares.
(3) This amount does not include shares held by the 1986 Trust, which owns
779,823 shares of Class A Common Stock. Elizabeth B. Lurie and Peter J.
Lettenberger, the trustees, disclaim beneficial ownership of shares held by
the 1986 Trust.
26
<PAGE> 30
(4) In addition to shares beneficially owned as a trustee of the Trusts and the
1986 Trust, Mr. Lettenberger owns directly 4,839 shares of Class A Common
Stock.
(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 and 600 shares
through his Keogh Plan; he is also the trustee of an account held by his
daughter, Emily Buchanan, which owns 300 shares; Mr. Peirce owns 1,500
shares of Class A Common Stock; and Mr. Bemis owns 4,000 shares of Class A
Common Stock.
(6) In addition to the shares owned as a trustee of the 1986 Trust, Mrs. Lurie
owns directly 399,845 shares of Class A Common 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. She disclaims ownership of these shares.
(7) Mrs. Hudson owns 6,109 shares of Class A Common Stock and vested options to
acquire an additional 85,000 shares of Class A Common Stock.
(8) Mr. DeLuca owns 1,500 shares of Class A Common Stock and vested options to
acquire an additional 39,000 shares of Class A Common Stock.
(9) The amount shown for all executive officers and directors as a group (17
persons) includes options to acquire a total of 237,795 shares of Class A
Common Stock which are currently exercisable or will be exercisable within
60 days. It does not include other options for Class A Common Stock which
have been granted, but vest at times after May 15, 1996. Additionally, the
amount shown does not include shares held by the Marital Trust, the Non-QTIP
Trust or the 1986 Trust. If the shares owned by the Marital Trust, the
Non-QTIP Trust and the 1986 Trust were included, the officers and Directors
would beneficially own 8,568,362 shares of Class A Common Stock, or 42.6%.
27
<PAGE> 31
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under the Company's Restated Articles of Incorporation, the authorized
capital stock of the Company consists of 100 million shares of Class A Common
Stock, $.01 par value; 10 million shares of Class B Common Stock, $.01 par
value; 45,000 shares of Cumulative Preferred Stock, $100 par value (the
"Cumulative Preferred Stock"); and 5 million shares of Preferred Stock, $.01 par
value (the "Preferred Stock"), issuable in series. The Cumulative Preferred
Stock is divided into series as follows: 5,000 shares of 6.0% Cumulative
Preferred Stock (entitled to a $6.00 per annum cumulative dividend, payable
quarterly), 10,000 shares of Cumulative Preferred Stock, 1972 Series (also
entitled to cumulative dividends at $6.00 per annum, payable quarterly) and
30,000 shares of Cumulative Preferred Stock, 1979 Series (entitled to cumulative
dividends of $10.00 per annum, payable quarterly). Of these series, 3,984, 2,600
and 21,963 shares, respectively, are currently issued and outstanding. There is
no Preferred Stock outstanding. As of May 15, 1996, there were outstanding
20,091,100 shares of Class A Common Stock issued and outstanding and 1,769,314
shares of Class B Common Stock issued and outstanding. The Company furnishes its
shareholders with annual reports containing audited financial statements and
quarterly reports containing unaudited financial information. No shareholder of
the Company has cumulative voting rights or preemptive or other rights to
subscribe for additional shares of the Company. All of the outstanding shares
are fully paid and non-assessable, except for certain statutory liability that
may be imposed by Section 180.0622(2)(b) of the Wisconsin Business Corporation
Law ("WBCL") for certain unpaid wage claims of employees.
COMMON STOCK
The following is a brief description of the Company's Common Stock. The
rights of holders of the Common Stock are subject to the rights of holders of
the Company's Cumulative Preferred Stock and Preferred Stock.
Holders of the Class A Common Stock are not entitled to vote on any
corporate matters, except as may be required by law, unless, in each of the
three proceeding fiscal years, the $0.03 preferential dividend described below
has not been paid in full. Holders of the Class A Common Stock are entitled to
one vote per share for the election of directors and for all other purposes 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.
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 $0.03 per share (subject to adjustment in the event of stock splits,
stock dividends or similar events involving shares of Class A Common Stock).
Thereafter, any further dividend in that fiscal year must be paid on all shares
of Common Stock on an equal basis.
Subject to the prior rights of any shares of Cumulative Preferred Stock
and/or Preferred Stock, upon liquidation, dissolution, or winding up of the
Company, holders of the Class A Common Stock are entitled to receive the sum of
$1.67 per share (subject to adjustment in the event of stock splits, stock
dividends or similar events involving shares of Class A Common Stock) before any
payment or distribution to holders of the Class B Common Stock. Holders of the
Class B Common Stock are then entitled to receive a payment or distribution of
$1.67 per share (subject to adjustment for stock splits, stock dividends or
similar transactions involving shares of the Class B Common Stock). Thereafter,
holders of the Common Stock share on a pro rata basis 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, other than as
required by law or upon nonpayment of dividends as described above.
The transfer agent for the Class A Common Stock is Firstar Trust
Company, Milwaukee, Wisconsin.
28
<PAGE> 32
CUMULATIVE PREFERRED STOCK
The following is a brief description of the Company's Cumulative
Preferred Stock. The Restated Articles of Incorporation authorize the Company's
Board of Directors to issue from time to time, without shareholder approval, the
remaining unissued Cumulative Preferred Stock.
No dividends may be paid and no distributions may be made on the Common
Stock (except dividends payable in Common Stock) and no shares of Common Stock
may be purchased or acquired for value by the Company (except shares acquired in
exchange for, or through application of the proceeds or sale of, shares of
Common Stock), unless (a) all accrued dividends on all classes of the Cumulative
Preferred Stock have been paid and (b) the net assets of the Company which would
remain after the dividend, distribution or acquisition relating to the Common
Stock would be at least twice the amount payable to holders of the Cumulative
Preferred Stock in the event of voluntary liquidation, or unless authorized by
the affirmative vote or written consent of the holders of at least two-thirds of
the outstanding shares of the Cumulative Preferred Stock.
In the event of dissolution, liquidation or winding up of the affairs of
the Company and after payment of all the debts of the Company, the Cumulative
Preferred Stock must be redeemed at par value plus accrued but unpaid dividends,
if any, before any payment may be made on account of the Common Stock, and, in
the case of a voluntary dissolution, a premium of $6.00 per share must also be
paid on each share of Cumulative Preferred Stock before any payment may be made
on account of the Common Stock. The Cumulative Preferred Stock is subject to
redemption at the option of the Company on any quarterly dividend paying date at
par plus all accrued and unpaid dividends plus a premium of $6.00 per share,
except that Cumulative Preferred Stock that is owned by the initial holder
thereof is subject to redemption only if the initial holder consents to the
redemption.
The Cumulative Preferred Stock has no voting power except as otherwise
provided by law, unless four quarterly dividends are unpaid in whole or in part.
Whenever four quarterly dividend payments, whether consecutive or not, are
unpaid in whole or in part, the holders of all series of Cumulative Preferred
Stock, voting separately as one class, are entitled to elect and maintain in
office such number of the directors as constitutes a maximum minority of the
entire board of directors of the Company (i.e., one less than half of the then
current number of directors) until all accrued and unpaid dividends have been
paid. The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Cumulative Preferred Stock, voting as a class, is also
required to make certain amendments to the Articles of Incorporation affecting
the rights of the Cumulative Preferred Stock and to allow any merger or
consolidation of the Company, and any sale, lease, exchange or other disposition
of all or substantially all of its assets.
PREFERRED STOCK
The Restated Articles of Incorporation authorize the Company's Board of
Directors to issue from time to time Preferred Stock in series and to fix the
powers, preferences, rights, qualifications, limitations or restrictions of any
series with respect to the rate of dividend, price and terms of redemption, the
amounts payable in the event of voluntary or involuntary liquidation, any
sinking fund provisions for redemption or repurchase, the terms and conditions
of conversion into any other class or series of the stock of the Company and
voting rights, if any. Except for the Cumulative Preferred Stock specifically
designated in the Restated Articles of Incorporation and described above, no
series of Preferred Stock is issued and outstanding at this time.
The Company's Board of Directors, without shareholder approval, could
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power and liquidation rights of the holders of Common Stock.
29
<PAGE> 33
ADDITIONAL TERMS AND CERTAIN STATUTORY PROVISIONS
The provisions of the Company's Restated Articles of Incorporation, the
Company's By-Laws and Wisconsin statutory law described in this section may
delay or make more difficult acquisitions or changes of control of the Company
not approved by the Company's Board of Directors. Such provisions could have the
effect of discouraging third parties from making proposals involving an
acquisition or change of control of the Company, although such proposals, if
made, might be considered desirable by a majority of the Company's shareholders.
Such provisions may also have the effect of making it more difficult for third
parties to cause the replacement of the current management of the Company
without the concurrence of the Board of Directors.
Voting control of the Company is vested in the holders of Class B Common
Stock. As a result, the holders of the Class B Common Stock will be able to
elect or remove all of the Company's Board of Directors and, except as otherwise
required by applicable law or the Restated Articles of Incorporation, will be
able to determine the outcome of all matters submitted for shareholder
consideration. Such control may have the effect of discouraging certain types of
transactions involving an actual or potential change of control of the Company,
including transactions in which the holders of Class A Common Stock might
otherwise receive a premium for their shares over then-current market prices.
Section 180.1150 of the WBCL provides that the voting power of shares of
Wisconsin corporations such as the Company held by any person or persons acting
as a group in excess of 20% of the voting power in the election of directors is
limited to 10% of the full voting power of those shares. This restriction does
not apply to shares acquired directly from the Company or in certain specified
transactions or shares for which full voting power has been restored pursuant to
a vote of shareholders.
Sections 180.1140 to 180.1144 of the WBCL contain certain limitations
and special voting provisions applicable to specified business combinations
involving Wisconsin corporations such as the Company and a significant
shareholder, unless the board of directors of the corporation approves the
business combination or the shareholder's acquisition of shares before such
shares are acquired. Similarly, Sections 180.1130 to 180.1133 of the WBCL
contain special voting provisions applicable to certain business combinations,
unless specified minimum price and procedural requirements are met. Following
commencement of a takeover offer, Section 180.1134 of the WBCL imposes special
voting requirements on certain share repurchases effected at a premium to the
market and on certain asset sales by the corporation, unless, as it relates to
the potential sale of assets, the corporation has at least three independent
directors and a majority of the independent directors vote not to have the
provision apply to the corporation.
The foregoing description of certain provisions of the Restated Articles
of Incorporation and By-Laws of the Company and certain sections of the WBCL
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Restated Articles of Incorporation and the By-laws
of the Company, including definitions of certain terms in each respective
document and the WBCL.
30
<PAGE> 34
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Shareholders have agreed to sell to each of the underwriters named below
(the "Underwriters"), and the Underwriters have severally agreed to purchase,
the respective number of shares of Class A Common Stock set forth opposite each
Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Robert W. Baird & Co. Incorporated................................................. 768,000
A.G. Edwards & Sons, Inc. ......................................................... 768,000
Piper Jaffray Inc. ................................................................ 768,000
Dean Witter Reynolds Inc. ......................................................... 69,000
Hambrecht & Quist LLC.............................................................. 69,000
Morgan Stanley & Co. Incorporated.................................................. 69,000
Oppenheimer & Co., Inc............................................................. 69,000
Prudential Securities Incorporated................................................. 69,000
Smith Barney Inc. ................................................................. 69,000
Advest, Inc. ...................................................................... 37,000
William Blair & Company............................................................ 37,000
The Chicago Corporation............................................................ 37,000
Cowen & Company.................................................................... 37,000
Crowell, Weedon & Co. ............................................................. 37,000
First of Michigan Corporation...................................................... 37,000
Janney Montgomery Scott Inc. ...................................................... 37,000
Legg Mason Wood Walker Incorporated................................................ 37,000
McDonald & Company Securities Inc. ................................................ 37,000
Raymond James & Associates, Inc. .................................................. 37,000
The Robinson-Humphrey Company, Inc. ............................................... 37,000
---------
Total......................................................................... 3,125,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated to
purchase all the shares of Class A Common Stock offered hereby, excluding shares
covered by the over-allotment option granted to the Underwriters, if any are
purchased.
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Class A Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not in excess of $.60 per
share. The Underwriters may allow and such dealers may reallow a concession of
not in excess of $.10 per share to other dealers. The public offering price and
concessions and reallowances to dealers may be changed by the Underwriters after
the Class A Common Stock is released for sale to the public.
The Marital Trust, a Selling Shareholder, has granted to the
Underwriters an option, exercisable within 30 days after the date of the initial
public offering, to purchase up to an additional 468,750 shares of Class A
Common Stock to cover over-allotments, at the same price per share to be paid by
the Underwriters for the other shares offered hereby. If the Underwriters
purchase any such additional shares pursuant to this option, each of the
Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any, in
connection with the offering.
The Company, the Selling Shareholders and the Underwriters have agreed
to indemnify, or to contribute to payments made by, each other for certain civil
liabilities, including certain civil liabilities under the Securities Act.
31
<PAGE> 35
The Selling Shareholders have agreed not to sell, contract to sell or
otherwise dispose of any shares of Class A Common Stock for a period of 90 days
after the date of this Prospectus without the prior written consent of Robert W.
Baird & Co. Incorporated.
In general, the rules of the Commission will prohibit the Underwriters
from making a market in the Class A Common Stock during a specified period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit "passive market
making" under certain conditions. These exemptions permit an Underwriter to
continue to make a market provided, among other things, that its bid not exceed
the highest bid by a market maker not connected with the offering and that its
net purchases on any one trading day not exceed prescribed limits. Pursuant to
these exemptions, certain Underwriters, selling group members or their
respective affiliates may have engaged in passive market making in the Class A
Common Stock.
From time to time, Robert W. Baird & Co. Incorporated has performed
financial advisory services for the Company, including in connection with the
Company's acquisition of VSI.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Quarles & Brady. Peter J. Lettenberger, a partner of Quarles & Brady,
is the Secretary and a Director of the Company and is a trustee of the Trusts.
Mr. Lettenberger is also a shareholder of the Company. See "Principal and
Selling Shareholders." The validity of the shares offered hereby will be passed
upon for the Underwriters by Foley & Lardner, Milwaukee, Wisconsin.
EXPERTS
The consolidated financial statements and the related financial
statement schedule of the Company for each of the fiscal years in the three-year
period ended July 31, 1995 included and incorporated by reference in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are included and incorporated by reference herein
and have been so included and incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheets as of July 31, 1995 and 1994 and the
consolidated statements of operations, cash flows and stockholders' equity and
the related financial schedule of VSI for each of the three years in the period
ended July 31, 1995 incorporated by reference in this prospectus have been
incorporated by reference in reliance on the report of Coopers & Lybrand L.L.P.
independent public accountants, given on the authority of the firm as experts in
accounting and auditing.
32
<PAGE> 36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets
July 31, 1994 and 1995
April 30, 1996 (Unaudited)....................................................... F-2
Consolidated Statements of Income
Years Ended July 31, 1993, 1994 and 1995 and For The Nine Months Ended April 30,
1995 and 1996 (Unaudited)....................................................... F-3
Consolidated Statements of Stockholders' Investment
Years Ended July 31, 1993, 1994 and 1995 and For the Nine Months Ended April 30,
1996 (Unaudited)................................................................ F-4
Consolidated Statements of Cash Flows
Years Ended July 31, 1993, 1994 and 1995 and For The Nine Months Ended April 30,
1995 and 1996 (Unaudited)....................................................... F-5
Notes to Consolidated Financial Statements.......................................... F-6
</TABLE>
33
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and stockholders of W. H. Brady Co.:
We have audited the accompanying consolidated balance sheets of W. H.
Brady Co. and subsidiaries as of July 31, 1994 and 1995, and the related
statements of income, stockholders' investment and cash flows for each of the
three years in the period ended July 31, 1995. 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,
1994 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended July 31, 1995, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 12, 1995
F-1
<PAGE> 38
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31,
-------------------- APRIL 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)................................. $ 66,107 $ 89,067 $ 42,787
Accounts receivable, less allowance for losses ($1,565, $1,881, and
$2,297 and respectively)......................................... 32,308 42,104 55,978
Inventories (Note 1):
Finished products................................................ 16,717 16,866 22,140
Work-in-process.................................................. 2,534 1,987 3,957
Raw materials and supplies....................................... 4,486 4,246 14,048
-------- -------- --------
Total inventories.............................................. 23,737 23,099 40,145
Prepaid expenses and other current assets (Notes 1, 3 and 4)....... 9,611 10,202 10,852
-------- -------- --------
Total current assets........................................... 131,763 164,472 149,762
OTHER ASSETS (Note 4)................................................ 6,403 6,960 43,300
PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 5):
Cost:
Land............................................................... 4,689 4,417 4,939
Buildings and improvements......................................... 38,431 34,284 34,682
Machinery and equipment............................................ 72,576 69,278 78,252
Construction in progress........................................... 939 815 2,606
-------- -------- --------
116,635 108,794 120,479
Less accumulated depreciation...................................... 52,292 50,221 56,657
-------- -------- --------
Net property, plant and equipment................................ 64,343 58,573 63,822
-------- -------- --------
TOTAL................................................................ $202,509 $230,005 $ 256,884
======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable................................................... $ 9,678 $ 9,252 $ 16,166
Wages and amounts withheld from employees.......................... 10,479 14,447 14,327
Taxes, other than income taxes..................................... 1,962 1,361 1,988
Accrued income taxes............................................... 2,999 2,150 2,712
Other current liabilities (Note 3)................................. 6,217 6,912 10,626
Current maturities on long-term debt (Note 5)...................... 405 412 368
-------- -------- --------
Total current liabilities...................................... 31,740 34,534 46,187
LONG-TERM DEBT, less current maturities (Note 5)..................... 1,855 1,903 2,031
OTHER LIABILITIES (Note 3)........................................... 23,785 22,745 25,503
-------- -------- --------
Total liabilities.............................................. 57,380 59,182 73,721
-------- -------- --------
STOCKHOLDERS' INVESTMENT
(Notes 1 and 6)
Preferred Stock (Aggregate liquidation preference of $3,026
at April 30, 1996)............................................. 2,855 2,855 2,855
Common Stock:
Class A Nonvoting -- Issued and outstanding 5,476,812;
5,507,341; and 20,090,300 shares, respectively, (aggregate
liquidation preference of $27,537 at July 31, 1995, and
$33,491 at April 30, 1996).................................. 54 55 201
Class B Voting -- Issued and outstanding 1,769,314 shares...... 18 18 18
Additional paid-in capital....................................... 6,768 8,074 8,250
Earnings retained in the business................................ 132,271 154,286 167,811
Cumulative translation adjustments............................... 3,163 5,535 4,028
-------- -------- --------
Total stockholders' investment................................. 145,129 170,823 183,163
-------- -------- --------
TOTAL................................................................ $202,509 $230,005 $ 256,884
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 39
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, NINE MONTHS ENDED
-------------------------------- APRIL 30,
1993 1994 1995 --------------------------
-------- -------- -------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................... $242,970 $255,841 $314,362 $ 231,217 $ 261,695
OPERATING EXPENSES:
Cost of products sold................. 114,301 118,116 143,634 106,215 122,002
Research and development.............. 12,132 10,318 10,426 7,790 7,999
Selling, general and administrative... 92,449 97,932 119,717 85,966 102,810
Nonrecurring (credit)(Note 2)......... (1,236)
-------- -------- -------- -------- --------
Total operating expenses......... 217,646 226,366 273,777 199,971 232,811
-------- -------- -------- -------- --------
OPERATING INCOME........................ 25,324 29,475 40,585 31,246 28,884
OTHER INCOME AND (EXPENSE):
Investment and other income -- net
(Note 2)........................... 559 837 4,609 3,362 4,009
Interest expense...................... (54) (410) (555) (293) (181)
-------- -------- -------- -------- --------
Net other income................. 505 427 4,054 3,069 3,828
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES.............. 25,829 29,902 44,639 34,315 32,712
INCOME TAXES (Notes 1 and 4)............ 8,973 11,362 16,728 13,738 12,616
-------- -------- -------- -------- --------
NET INCOME.............................. $ 16,856 $ 18,540 $ 27,911 $ 20,577 $ 20,096
======== ======== ======== ======== ========
NET INCOME PER COMMON SHARE (Notes 6, 8
and 10):
Class A Nonvoting..................... $0.77 $0.85 $1.27 $0.94 $0.91
======== ======== ======== ======== ========
Class B Voting........................ $0.74 $0.81 $1.24 $0.91 $0.88
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 40
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL EARNINGS RETAINED TRANSLATION
PREFERRED STOCK COMMON STOCK PAID-IN CAPITAL IN THE BUSINESS ADJUSTMENTS
--------------- ------------ --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Balances at August 1, 1992............ $ 2,855 $ 72 $ 4,836 $ 106,274 $ 5,734
Net income............................ 16,856
Net currency translation adjustment... (4,894)
Issuance of 26,000 shares of Class A
Common Stock under stock option
plan................................ 646
Tax benefit from exercise of stock
options............................. 89
Cash dividends on Preferred Stock:
1979 series -- $10.00 a share....... (220)
6% and 1972 series -- $6.00 a
share............................. (39)
Cash dividends on Common Stock:
Class A -- $0.20 a share............ (3,256)
Class B -- $0.17 a share............ (885)
------- ---- ------- --------- -------
Balances at July 31, 1993............. 2,855 72 5,571 118,730 840
Net income............................ 18,540
Net currency translation adjustment... 2,323
Issuance of 39,650 shares of Class A
common stock under stock option
plan................................ 1,063
Tax benefit from exercise of stock
options............................. 134
Cash dividends on Preferred Stock:
1979 series -- $10.00 a share....... (220)
6% and 1972 series -- $6.00 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 -- $10.00 a share....... (220)
6% and 1972 series -- $6.00 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 (unaudited)................ 20,096
Net currency translation adjustment... (1,507)
Issuance of 29,649 shares of Class A
Common Stock under stock option
plan................................ 322
Cash dividends on Preferred Stock:
1979 series -- $7.50 a share........ (164)
6% and 1972 series -- $4.50 a
share............................. (30)
Cash dividends on Common Stock:
Class A -- $0.30 a share............ (5,669)
Class B -- $0.27 a share............ (708)
Common Stock dividend (Note 10)....... 146 (146)
------- ---- ------- --------- -------
Balances at April 30, 1996
(unaudited)......................... $ 2,855 $219 $ 8,250 $ 167,811 $ 4,028
======= ==== ======= ========= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 41
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, NINE MONTHS ENDED APRIL
------------------------------ 30,
1993 1994 1995 -------------------------
-------- ------- ------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 16,856 $18,540 $27,911 $ 20,577 $ 20,096
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 9,848 9,325 9,049 7,041 6,731
Amortization.................................... 325 110 110 79 242
Loss/(Gain) on sale of businesses............... (1,963) 413 (700)
(Gain)/Loss on sale of property, plant and
equipment..................................... 51 194 (2,209) (557) (1,899)
Provision for losses on accounts receivable..... 758 725 463 519 612
Changes in operating assets and liabilities (net
of effects of business disposals in 1993 and
1995, and acquired businesses in 1996):
Accounts receivable............................. (2,917) (2,169) (12,554) (12,788) (4,362)
Inventory....................................... (3,583) (928) 473 1,920 (5,755)
Prepaid expenses and other assets............... 1,981 1,305 (1,385) (1,569) 1,596
Accounts payable and accrued liabilities........ (890) 3,325 1,361 3,926 (3,098)
Income taxes.................................... 2,139 1,852 (1,605) 3,584 1,859
Deferred income taxes........................... (608) (413) 212 (36) (2)
Other liabilities............................... (415) 1,202 (687) 829 2,783
-------- ------- ------- ------- --------
Net cash provided by operating activities......... 21,582 33,068 21,552 22,825 18,803
INVESTING ACTIVITIES:
Purchases of property, plant and equipment........ (12,280) (6,466) (8,114) (5,704) (7,494)
Proceeds from sales of property, plant and
equipment....................................... 570 458 6,227 4,035 3,458
Proceeds from sale of businesses.................. 10,327 6,315 8,375
Purchase of businesses............................ (53,963)
Purchase of other long-term investment............ (750) (750)
-------- ------- ------- ------- --------
Net cash provided by (used in) investing
activities...................................... (1,383) (6,008) 3,678 5,956 (57,999)
FINANCING ACTIVITIES:
Payment of dividends.............................. (4,400) (4,999) (5,896) (4,376) (6,571)
Proceeds from issuance of Common Stock............ 646 1,063 1,306 914 322
Proceeds from long-term borrowings................ 139 217
Principal payments on long-term debt.............. (711) (495) (69) (383) (537)
-------- ------- ------- ------- --------
Net cash used in financing activities............. (4,326) (4,214) (4,659) (3,845) (6,786)
EFFECT OF EXCHANGE RATE CHANGES ON CASH............. (2,026) 895 2,389 2,653 (298)
-------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 13,847 23,741 22,960 27,589 (46,280)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 28,519 42,366 66,107 66,107 89,067
-------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 42,366 $66,107 $89,067 $ 93,696 $ 42,787
======== ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................ $ 436 $ 237 $ 116 $ 112 $ 257
Income taxes, net of refunds.................... 9,110 10,601 17,174 9,752 10,500
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 42
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of W. H. Brady Co. and its subsidiaries, all of
which are wholly-owned. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Unaudited Nine Month Periods -- Detailed footnote information for the
nine month periods is not presented. In the opinion of management, this
unaudited interim financial information reflects all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation thereof.
The results of operations for the nine months ended April 30, 1996 are not
necessarily indicative of results expected for the year ending July 31, 1996.
Cash Equivalents -- The Company considers all highly liquid investments
with maturities of three months or less when acquired to be cash equivalents.
The carrying amounts of cash equivalents approximate fair value because they
mature in three months or less.
Inventories -- Inventories are stated at the lower of cost of market.
Cost has been determined using the last-in, first-out (LIFO) method for domestic
inventories (approximately 65% and 62% of total inventories of July 31, 1994 and
1995, respectively) and the first-in, first-out method for other inventories.
The difference between the carrying value of domestic inventories stated at LIFO
cost and the value of such inventories stated at replacement cost was $5,777,000
at July 31, 1994, and $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.
Catalog Costs -- Catalog costs are initially capitalized and amortized
over the estimated useful lives of the publications (generally eight months). At
July 31, 1994 and 1995, $2,325,000 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, 1995
exchange contracts aggregating approximately $4,500,000 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.
2. DISPOSITIONS AND NONRECURRING (CREDIT)
During fiscal 1993, the Company sold two domestic manufacturing
operations and a direct marketing subsidiary. The nonrecurring credit of
$1,236,000 in 1993 represents the excess of proceeds over the net carrying
amounts of net assets disposed of, offset by provision for severance and other
related disposition expenses.
F-6
<PAGE> 43
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
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.
3. EMPLOYEE BENEFIT PLANS
The Company provides postretirement medical, dental and vision benefits
for all regular full- and part-time domestic employees (including spouses) who
retire on or after attainment of age 55 with 15 years of credited service.
Credited service begins accruing at the later of age 40 or date of hire. All
active employees first eligible to retire after July 31, 1992, will be covered
by an unfunded, contributory postretirement healthcare plan where employer
contributions will not exceed a Defined Dollar Benefit amount, regardless of the
cost of the program. Employer contributions to the plan are based on an
employee's age and service at retirement.
Effective August 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106 (SFAS No. 106), "Employers' Accounting for
Postretirement Benefits Other than Pensions." 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 twenty year period. The Company funds benefit
costs on a pay-as-you-go basis. During the years ended July 31, 1994 and 1995,
the Company made benefit payments totalling $185,000 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, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $2,607 $3,387
Fully eligible active plan participants................ 2,225 1,077
Other active plan participants......................... 1,448 1,790
------ ------
6,280 6,254
Unrecognized net gain.................................... 1,543 1,882
------ ------
Accrued postretirement benefit cost...................... $7,823 $8,136
====== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------
1993 1994 1995
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic postretirement benefit cost included the following
components:
Service cost -- benefits attributed to service during the period.... $ 210 $209 $ 230
Interest cost on accumulated postretirement benefit obligation...... 462 469 469
Amortization of (gain).............................................. (58) (64) (103)
----- ---- -----
Periodic postretirement benefit cost prior to curtailment........... 614 614 596
Effective curtailment (gain) due primarily to disposition of
operations....................................................... (185) (93)
----- ---- -----
Net periodic postretirement benefit cost.............................. $ 429 $614 $ 503
===== ==== =====
</TABLE>
The assumed healthcare cost trend rates used in measuring the
accumulated postretirement benefit obligation were 8.0% in 1995, gradually
declining to 5.5% by the year 2000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 8.0% in 1994 and 1995.
F-7
<PAGE> 44
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
If the healthcare cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of July 31, 1995 would be
increased by $90,000. The effect of this change on the sum of service cost and
interest cost would not be material.
During 1993 and 1995, the Company had curtailment gains which represent
the accumulated postretirement benefit obligation of employees who were employed
at operations disposed of in those years.
The Company has retirement and profit sharing plans covering
substantially all full-time domestic employees and certain of its foreign
subsidiaries. Contributions to the plans are determined annually based on
earnings of the respective companies and employee contributions. At July 31,
1994 and 1995, $3,109,000 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 utilizing the phantom stock plan concept. At July 31, 1994
and 1995, $15,795,000 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
$4,443,000 in 1993, $5,660,000 in 1994, and $6,188,000 in 1995.
The Company has a voluntary employee benefit trust for the purpose of
funding employee medical benefits and certain other employee benefits. At July
31, 1994 and 1995 $4,145,000 and $2,738,000, respectively, of payments to the
trust to fund such benefits were included in prepaid expenses and other current
assets.
4. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------
1993 1994 1995
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal........................................... $6,612 $ 6,987 $10,194
Foreign........................................... 1,869 2,755 4,518
State............................................. 1,100 2,033 1,804
------ ------- -------
9,581 11,775 16,516
Deferred (credit):
Federal........................................... (376) (448) (382)
Foreign........................................... (165) 112 662
State............................................. (67) (77) (68)
------ ------- -------
(608) (413) 212
Total............................................... $8,973 $11,362 $16,728
====== ======= =======
</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.
F-8
<PAGE> 45
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
Pre-tax income consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States...................................... $22,220 $21,565 $32,074
Foreign............................................ 3,609 8,337 12,565
------- ------- -------
Total.............................................. $25,829 $29,902 $44,639
======= ======= =======
</TABLE>
The approximate tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
JULY 31, 1994
---------------------------------
ASSETS LIABILITIES TOTAL
------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Inventories....................................... $ 1,659 $ 1,659
Prepaid catalog costs............................. $ (612) (612)
Employee benefits................................. (505) (505)
Tax loss carryforwards............................ 397 397
Allowance for doubtful accounts................... 324 324
Other, net........................................ 644 644
------- ------- -------
Current...................................... 3,024 (1,117) 1,907
------- ------- -------
Excess of tax over book depreciation.............. (4,517) (4,517)
Deferred compensation............................. 6,001 6,001
Postretirement benefits........................... 3,129 3,129
Tax loss carryforwards............................ 1,550 1,550
Less valuation allowance.......................... (1,550) (1,550)
Other, net........................................ 259 259
------- ------- -------
Noncurrent................................... 9,389 (4,517) 4,872
------- ------- -------
Total............................................. $12,413 $(5,634) $ 6,779
======= ======= =======
</TABLE>
F-9
<PAGE> 46
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, 1995
---------------------------------
ASSETS LIABILITIES TOTAL
------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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, 1994 and 1995, $1,907,000 and $1,364,000, respectively, of
net deferred tax assets were included in prepaid expenses and other current
assets. At July 31, 1994 and 1995, $4,872,000 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>
YEARS ENDED JULY 31,
--------------------------------
1993 1994 1995
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate.......................... $8,782 $10,466 $15,624
State income taxes, net of Federal tax
benefit...................................... 841 1,271 1,177
International losses with no related tax
benefits..................................... 351 175 613
International rate differential................ 126 (226) 169
Rate variances arising from foreign subsidiary
distributions................................ 157 174 (558)
Provision for future settlements............... (730)
Other, net..................................... (554) (498) (297)
------ ------- -------
Total income tax provision..................... $8,973 $11,362 $16,728
====== ======= =======
Effective tax rate............................. 34.7% 38.0% 37.5%
====== ======= =======
</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, 1995
amounted to approximately $14,000,000. If all such undistributed earnings were
remitted, an additional provision for foreign income taxes of approximately
$200,000 would be required.
F-10
<PAGE> 47
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31,
------------------
1994 1995
------ ------
(IN THOUSANDS)
<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
annual installments of $125,000 in 1996, and $140,000 in
1997..................................................... 385 265
Other...................................................... 875 1,050
------ ------
2,260 2,315
Less current maturities.................................... 405 412
------ ------
$1,855 $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 $5,657,000 at July 31, 1995. The
Company's Industrial Development Revenue Bonds approximate fair value.
Maturities on long-term debt are as follows (by fiscal year):
<TABLE>
<S> <C>
1996.............................................................. $ 412,000
1997.............................................................. 349,000
1998.............................................................. 231,000
1999.............................................................. 255,000
2000.............................................................. 68,000
Thereafter........................................................ 1,000,000
</TABLE>
6. STOCKHOLDERS' INVESTMENT
Information as to the Company's capital stock at July 31, 1995 is as
follows:
<TABLE>
<CAPTION>
SHARES SHARES
AUTHORIZED OUTSTANDING AMOUNT
---------- ----------- -----------
<S> <C> <C> <C>
Preferred Stock, $.01 par value.............. 5,000,000 0 $ 0
Cumulative Preferred Stock, $100 par value:
6% Cumulative.............................. 5,000 3,984 $ 399
1972 Series................................ 10,000 2,600 260
1979 Series................................ 30,000 21,963 2,196
-----------
$ 2,855
-----------
Common Stock, $.01 par value:
Class A Nonvoting.......................... 10,000,000 5,507,341 $ 55
Class B Voting............................. 10,000,000 1,769,314 18
-----------
$ 73
-----------
</TABLE>
F-11
<PAGE> 48
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
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 $0.03 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
$0.03 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 of 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 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.
F-12
<PAGE> 49
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
Transactions with respect to the Plan are summarized as follows (All
option prices and share data have been adjusted for the common stock dividend
discussed in Note 10):
<TABLE>
<CAPTION>
OPTIONS
OPTION PRICE OUTSTANDING
------------ -----------
<S> <C> <C>
Balance, August 1, 1992............................... $6.83-$9.94 427,650
Options granted....................................... 12.38 122,250
Options exercised..................................... 6.83-9.94 (78,000)
Options cancelled..................................... 6.83-9.94 (22,500)
--------
Balance, July 31, 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
(294,027 options exercisable)......................... 6.83-15.67 518,157
================ ========
Available for grant after July 31, 1995............... 602,706
========
</TABLE>
7. DOMESTIC AND FOREIGN OPERATIONS
The Company operates predominantly in a single industry as a
manufacturer and distributor of identification products. Operations are
conducted in the United States and through subsidiaries located in Canada,
Europe, Australia, Japan and Singapore. Transfers between geographic areas
primarily represent intercompany export sales of goods produced in the U.S. 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.
F-13
<PAGE> 50
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
Identifiable assets of subsidiaries are those assets related to the
operations of those subsidiaries. Corporate assets consist primarily of cash and
cash equivalents.
<TABLE>
<CAPTION>
CORPORATE
UNITED ASSETS AND
STATES EUROPE OTHER ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1993:
Sales to unaffiliated customers......... $166,017 $53,912 $23,041 $242,970
Transfers between geographical areas.... 14,266 169 81 $(14,516)
-------- ------- ------- ------------ ------------
Net sales............................... $180,283 $54,081 $23,122 $(14,516) $242,970
======== ======= ======= ========= =========
Operating income........................ $ 21,292 $ 5,117 $ (479) $ (606) $ 25,324
======== ======= ======= ========= =========
Identifiable assets..................... $134,453 $23,152 $11,329 $ 10,967 $179,901
======== ======= ======= ========= =========
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..................... $112,161 $26,921 $11,855 $ 51,572 $202,509
======== ======= ======= ========= =========
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..................... $106,371 $36,586 $16,259 $ 70,789 $230,005
======== ======= ======= ========= =========
</TABLE>
F-14
<PAGE> 51
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
Information with respect to operations located outside the United States
which have been translated into U.S. Dollars are as follows.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets.................................................. $38,497 $41,702 $ 51,727
Other assets.................................................... 3,949 4,833 8,805
Property, plant and equipment................................... 8,070 8,474 11,656
------- ------- --------
Total assets.................................................... $50,516 $55,009 $ 72,188
======= ======= ========
Current liabilities............................................. $34,081 $38,645 $ 44,575
Long-term debt.................................................. 492 590 763
Other liabilities............................................... 197 66 743
Stockholders' investment........................................ 15,746 15,708 26,107
------- ------- --------
Total liabilities and stockholders' investment.................. $50,516 $55,009 $ 72,188
======= ======= ========
Net sales....................................................... $77,203 $95,104 $129,267
======= ======= ========
W. H. Brady Co. equity in net income............................ $ 1,666 $ 5,470 $ 7,385
======= ======= ========
</TABLE>
8. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income (after
deducting the applicable Preferred Stock dividends and preferential Class A
Common Stock dividends) by the weighted average Common Shares outstanding of
21,583,635 for 1993; 21,678,114 for 1994; 21,799,929 for 1995. The preferential
dividend on the Class A Common Stock of $0.03 per share has been added to the
net income per Class A Common Share for all years presented.
9. COMMITMENTS
The Company has entered into various non-cancellable operating lease
agreements. Rental expense charged to operations was $2,871,000 in 1993;
$2,788,000 in 1994; $3,057,000 for 1995. Future minimum lease payments required
under such leases in effect at July 31, 1995, are as follows (by fiscal year):
<TABLE>
<S> <C>
1996.............................................................. $4,014,000
1997.............................................................. 3,231,000
1998.............................................................. 1,492,000
1999.............................................................. 641,000
2000.............................................................. 596,000
Thereafter........................................................ 1,439,000
</TABLE>
10. SUBSEQUENT EVENTS (UNAUDITED)
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
F-15
<PAGE> 52
W. H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED APRIL 30, 1995 AND 1996 IS
UNAUDITED)
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.
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. The purchase prices of these acquisitions are subject to change
based on the final determination of net worth of the respective companies.
On April 8, 1996, the Company completed its acquisition of Varitronic
Systems, Inc. for cash of approximately $40.7 million. Varitronic Systems, Inc.
manufactures and markets supply-consuming lettering, labelling, 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 pro
forma results assuming the acquisitions had been consummated as of the beginning
of the periods presented are not significant.
F-16
<PAGE> 53
------------------------------------------------------
------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 7
Recent Developments................... 8
Price Range of Class A Common Stock
and Dividends....................... 11
Selected Consolidated Financial
Information of the Company.......... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Company........ 13
Business.............................. 17
Management............................ 24
Principal and Selling Shareholders.... 26
Description of Capital Stock.......... 28
Underwriting.......................... 31
Legal Matters......................... 32
Experts............................... 32
Index to Consolidated Financial
Statements.......................... 33
</TABLE>
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3,125,000 SHARES
W.H. BRADY LOGO
CLASS A NONVOTING
COMMON STOCK
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PROSPECTUS
-------------------------
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS,
INC.
PIPER JAFFRAY INC.
JUNE 19, 1996
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