<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1996
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
------ -------
Commission File Number 0-12730
W. H. BRADY CO.
-------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0178960
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6555 WEST GOOD HOPE ROAD, MILWAUKEE, WISCONSIN 53223
----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(414) 358-6600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of May 15, 1996, there were outstanding 20,091,100 (adjusted for the
stock dividend discussed in Note B) shares of Class A Common Stock and
1,769,314 shares of Class B Common Stock. The Class B Common Stock, all of
which is held by an affiliate of the Registrant, is the only voting stock.
<PAGE> 2
FORM 10-Q
W. H. BRADY CO.
INDEX
Page
<TABLE> ----
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements
of Income and Earnings Retained in the Business 4
Unaudited Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. Other Information
Item 5. Other Information 10-11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE> 3
W. H. BRADY CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS April 30,1996 July 31, 1995
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 42,787 $ 89,067
Accounts receivable, less allowance for losses ($2,297 and $1,881, respectively) 55,978 42,104
Inventories 40,145 23,099
Prepaid expenses and other current assets 10,852 10,202
-------- --------
TOTAL CURRENT ASSETS 149,762 164,472
OTHER ASSETS 43,300 6,960
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land 4,939 4,417
Buildings and improvements 34,682 34,284
Machinery and equipment 78,252 69,278
Construction in progress 2,606 815
-------- --------
120,479 108,794
Less accumulated depreciation 56,657 50,221
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 63,822 58,573
-------- --------
TOTAL $256,884 $230,005
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 16,166 $ 9,252
Wages and amounts withheld from employees 14,327 14,447
Accrued income taxes 2,712 2,150
Other current liabilities 12,614 8,273
Current maturities on long-term debt 368 412
-------- --------
TOTAL CURRENT LIABILITIES 46,187 34,534
LONG-TERM DEBT, LESS CURRENT MATURITIES 2,031 1,903
OTHER LIABILITIES 25,503 22,745
-------- --------
TOTAL LIABILITIES 73,721 59,182
STOCKHOLDERS' INVESTMENT:
Preferred stock 2,855 2,855
Class A nonvoting common stock - Issued and outstanding 20,090,300 and
5,507,341 shares, respectively 201 55
Class B voting common stock - issued and outstanding 1,769,314 shares 18 18
Additional paid-in capital 8,250 8,074
Earnings retained in the business 167,811 154,286
Cumulative translation adjustments 4,028 5,535
-------- --------
TOTAL STOCKHOLDER'S INVESTMENT 183,163 170,823
-------- --------
TOTAL $256,884 $230,005
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
W. H. BRADY CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 94,652 $ 83,321 $261,695 $231,217
OPERATING EXPENSES:
Cost of products sold 44,710 37,156 122,002 106,215
Research and development 2,494 2,543 7,999 7,790
Selling, general and administrative 34,868 29,899 102,810 85,966
-------- -------- -------- --------
Total operating expenses 82,072 69,598 232,811 199,971
OPERATING INCOME: 12,580 13,723 28,884 31,246
Investment and other income - net 337 2,234 4,009 3,362
Interest expense (64) (101) (181) (293)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 12,853 15,856 32,712 34,315
INCOME TAXES 4,967 6,312 12,616 13,738
NET INCOME $ 7,886 $ 9,544 $ 20,096 $ 20,577
EARNINGS RETAINED IN BUSINESS AT
BEGINNING OF PERIOD $162,176 $140,448 $154,286 132,271
LESS DIVIDENDS:
Preferred stock (65) (65) (194) (194)
Common stock (2,186) (1,455) (6,377) (4,182)
-------- -------- -------- --------
EARNINGS RETAINED IN BUSINESS AT
END OF PERIOD $167,811 $148,472 $167,811 148,472
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
Net Income - Class A Nonvoting $ 0.36 $ 0.44 $ 0.91 $ 0.94
======== ======== ======== ========
Net Income - Class B Voting $ 0.36 $ 0.44 $ 0.88 $ 0.91
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30
-----------------------
(Unaudited)
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 20,096 $ 20,577
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in)
Operating Activities:
Depreciation & Amortization 6,973 7,120
Loss (Gain) on Sale of Equipment (1,899) (557)
Loss (Gain) on Sale of Business 0 (700)
Provision for Losses on Accounts Receivable 612 519
Changes in Operating Assets & Liabilities (Excluding sale of
businesses in 1995 and purchases of businesses in 1996)
(Increase) Decrease in Accounts Receivable (4,362) (12,788)
(Increase) Decrease in Inventory (5,755) 1,920
(Increase) Decrease in Prepaid Expense 1,596 (1,569)
Increase (Decrease) in Accounts Payment and Other Liabilities (317) 4,755
Increase (Decrease) in Income Taxes 1,859 3,548
-------- --------
Net Cash Provided by Operating Activities 18,803 22,825
INVESTING ACTIVITIES:
Purchases of Businesses (53,963) 0
Purchases of Property, Plant and Equipment (7,494) (5,704)
Proceeds from Sale of Property, Plant and Equipment - Net 3,458 4,035
Proceeds from Sale of Business 0 8,375
Purchase of Other Long-Term Investment 0 (750)
-------- --------
Net Cash Provided by (Used in) Investing Activities (57,999) 5,956
FINANCING ACTIVITIES:
Principal Payments on Long-Term Debt (537) (383)
Payment of Dividends (6,571) (4,376)
Proceeds from Issuance of Common Stock 322 914
-------- -------
Net Cash Used in Financing Activities (6,786) (3,845)
Effect of exchange rate changes on cash (298) 2,653
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (46,280) 27,589
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 89,067 66,107
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,787 $ 93,696
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year For:
Interest $ 257 112
Income Taxes 10,500 9,752
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
W.H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended April 30, 1996
NOTE A - Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of the Company, the
foregoing statements contain all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the financial position of the
Company as of April 30, 1996, and July 3l, 1995, and its results of operations
and its cash flows for the three months and nine months ended April 30, 1996,
and l995. The consolidated balance sheet at July 31, l995, has been taken from
the audited financial statements of that date and condensed.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report.
It is not practical to segregate the amounts of raw material, work in
process or finished goods at the respective interim balance sheet dates.
NOTE B - Capital Stock and Share Data
On November 17, 1995, at a Special Meeting of Shareholders, the Company's
shareholders approved a proposal to amend the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Class A Common
Stock from 10,000,000 shares to 100,000,000 shares. Also on November 17, 1995,
the shareholders approved, and the Board of Directors declared, a common stock
dividend of two shares of Class A Common Stock on each outstanding share of
Class A Common Stock and Class B Common Stock. The common stock dividend was
paid on December 15, 1995, to shareholders of record at the close of business
on December 1, 1995. Accordingly, amounts per share and number of shares
included in the condensed consolidated financial statements have been adjusted
to reflect the common stock dividend. In connection with the common stock
dividend, $146,000 was transferred from additional paid in capital to Class A
Nonvoting Common Stock, reflecting the par value of the new shares issued.
NOTE C - Net Earnings Per Common Share
Net earnings per common share were computed by dividing net earnings
(after deducting the applicable preferred stock and preferential Class A Common
Stock dividends) by the weighted average number of shares of Class A and Class
B Common Stock outstanding (adjusted for the stock dividend discussed in Note
B) of 21,842,145 for the three months and nine months ended April 30, 1996,
and 21,790,988 for the same period in 1995. The preferential dividend on the
Class A Common Stock of $0.0333 per share (adjusted for the stock dividend
discussed in Note B) declared on September 19, 1995, has been added to the net
earnings per Class A Common Stock for the nine months ended April 30, 1996.
The net earnings per share of Class A Common Share for the nine months ended
April 30, 1995, includes $0.0333 per share (adjusted for the stock dividend
discussed in Note B) relating to preferential dividends declared in that
period.
6
<PAGE> 7
W.H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended April 30, 1996
NOTE D - Acquisitions
Effective November 15, 1995, the Company acquired the common stock of
Techpress II Limited located in Middlesex, England, a marketer of printing and
labeling systems, for cash of $4,277,000 and a payable of $389,000. Effective
January 2, 1996, the Company acquired the common stock of The Hirol Company
located in Fort Lauderdale, Florida, a manufacturer of die-cut parts for the
electronic, telecommunications and medical testing markets, for cash of
$10,800,000. On April 8, 1996, the Company completed its acquisition of
Varitronic Systems, Inc. located in Minneapolis, Minnesota, for cash of
approximately $40,700,000. Varitronic Systems, Inc. manufactures and markets
supply-consuming lettering, labeling, signage and presentation systems and
supplies. The puchase prices of these acquisitions are subject to change based
on the final determination of net worth of the respective companies.
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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the three months ended April 30, 1996, revenues of $94,652,000 were
13.6% higher than the same quarter of the previous year. For the nine months
ended April 30, 1996 revenues of $261,695,000 were 13.2% higher than the same
period last year. Sales of the Company's international operations increased
17.9% for the quarter and 25.4% for the nine months as a result of real growth
through continued market penetration in Europe and the Far East, the
acquisition of Techpress II Limited, and fluctuations in the exchange rates
used to translate financial results into U.S. currency. Sales of the Company's
U.S. operations increased 11.1% for the quarter and 5.0% for the nine months
primarily from the acquisition of Varitronic Systems, Inc. and The Hirol
Company.
The cost of products sold as a percentage of sales was 47.2% for the
quarter and 46.6% for the nine months ended April 30, 1996. For the same
periods last year, these percentages were 44.6% and 45.9%. These increases
from period to period were caused by changes in product mix and the
acquisitions. Selling, general and administrative expenses as a percentage of
sales were 36.8% for the quarter compared to 35.9% for the same quarter of the
previous year. For the nine months ended April 30, 1996, this percentage was
39.3% compared to 37.2% for the same period last year. These increases
reflect the Company's on-going investment in sales and marketing activities and
in building its global information-technology infrastructure. Research and
development expenses decreased 1.9% for the quarter and increased 2.7% for the
nine months ended April 30, 1996, over the same periods last year.
Operating income was $12,580,000 for the quarter and $28,884,000 for the
nine months ended April 30, 1996, compared to $13,723,000 and $31,246,000 for
the same periods 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 sale of a
building in Germany during the first fiscal quarter. Last year's investment
and other income for the quarter and the nine months included approximately
$1,500,000 ($900,000 after tax) from the sale of two businesses and two
buildings. Income before income taxes decreased 18.9% for the quarter and 4.7%
for the nine months ended April 30, 1996.
Net income for the quarter decreased 17.4% to $7,886,000 compared to
$9,544,000 for the same quarter of the previous year. For the nine months
ended April 30, 1996, net income decreased 2.3% to $20,096,000 from $20,577,000
for the same period last year.
Financial Condition
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 II Limited, The Hirol Company, and
Varitronic Systems, Inc. Primarily because of the acquisition of Varitronics
Systems, Inc., working capital decreased to $103,575,000 at April 30, 1996,
from $129,938,000 at July 31, 1995.
8
<PAGE> 9
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. Capital expenditures were $7,494,000 in the nine months
ended April 31, 1996. 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.
Long-term debt as a percentage of long-term debt plus stockholders'
investment was 1.1% at April 30, 1996, and July 31, 1995.
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.
9
<PAGE> 10
PART II
ITEM 5. Other Information
The Company makes the following CAUTIONARY STATEMENTS FOR THE PURPOSES
OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. These statements may be referred to during verbal
presentation of forward-looking information by authorized
representatives of the Company
The Company wishes to caution readers that the following factors, among
others, sometimes have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of the Company:
INTERNATIONAL OPERATIONS AND EXCHANGE RATES
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 international
business may impact the level of the Company's international sales and
profitability.
Further, as a result of the Company's significant international sales,
a significant portion of the Company's revenues and expenses are
denominated in currencies other than U.S. dollars. As a result,
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.
TECHNOLOGY CHANGES
As technological advancements are made in the product requirements of
the Company's customers, the Company must continue to develop new
products to keep pace with such advancements. If the Company were unable
to develop new products, its ability to continue to serve existing
customers would be impaired.
Additionally, the direct marketing industry may be affected by ongoing
technological developments in distribution and marketing methods such as
on-line catalogs and Internet shopping. As a result, the Company's
future success will depend on its ability to keep pace with technological
developments and respond to new customer requirements.
SOURCES OF SUPPLY
The Company is, in part, dependent upon the continuing availability of
products and raw materials provided by single source suppliers. The
inability of the Company to obtain products or raw materials on a timely
basis or the termination of such relationships would have an adverse
effect on the Company.
10
<PAGE> 11
STATUS OF ECONOMY
The Company's products are sold to a wide range of customers in many
industries. Thus, any general downturn in domestic or international economic
conditions or rates of growth could impact the Company's sales and levels of
profitability.
EXPENSE STRUCTURE
The Company's expense structure for certain costs is based on the
Company's expected level of sales and growth. To the extent that the Company's
actual level of sales or growth is different from that which it expects, the
Company's ability to timely adjust its cost structure to those levels will
impact the Company's results of operations.
PRODUCT MIX
The Company's profitability is impacted by the mix of products it sells.
Certain of the Company's products have lower profit margins than others. If
the Company's actual mix of products sold is different from the expected mix,
the Company's expected profit margins would be affected by such changes.
BACKLOG
Because of the nature of the products sold by the Company and the delivery
requirements of customers, most of the Company's orders are filled on a current
basis, and the Company has relatively short production cycles and low levels of
order backlog. This low level of long-term orders and backlog makes it more
difficult to predict accurately future sales than would be the case if the
Company had a higher level of long-term orders and backlog.
ACQUISITIONS
The Company has in the past expanded through both internal growth and
acquisitions. The extent to which the Company varies its rate of acquisitions
and the profitability of the companies it acquires will impact the Company's
overall profitability.
11
<PAGE> 12
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K.
(1) A report on form 8-K dated February 27, 1996, was filed
relating to the Company entering into an Agreement and Plan
of Merger with Varitronic Systems, Inc., Minneapolis, MN, to
acquire all the outstanding common stock of Varitronics for
$17.50 per share in cash.
(2) A report on form 8-K dated April 18, 1996, was filed
relating to the consummation of the Company's acquisition of
Varitronic Systems, Inc., filing the required audited
financial statements of Varitronics and presenting the
required unaudited consolidated pro forma condensed financial
statements.
12
<PAGE> 13
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
W.H. BRADY CO.
Date: May 20, 1996 /s/ K. M. Hudson
--------------------------------
K. M. Hudson
President
Date: May 20, 1996 /s/ D. P. DeLuca
--------------------------------
D. P. DeLuca
Senior Vice President and
Assistant Secretary
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1995
<CASH> 42,787
<SECURITIES> 0
<RECEIVABLES> 58,275
<ALLOWANCES> 2,297
<INVENTORY> 40,145
<CURRENT-ASSETS> 149,762
<PP&E> 120,479
<DEPRECIATION> 56,657
<TOTAL-ASSETS> 256,884
<CURRENT-LIABILITIES> 46,187
<BONDS> 2,031
2,855
0
<COMMON> 219
<OTHER-SE> 180,089
<TOTAL-LIABILITY-AND-EQUITY> 256,884
<SALES> 261,695
<TOTAL-REVENUES> 261,695
<CGS> 122,002
<TOTAL-COSTS> 122,002
<OTHER-EXPENSES> 110,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> 32,712
<INCOME-TAX> 12,616
<INCOME-CONTINUING> 20,96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,096
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
</TABLE>
