<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 January 31, 1997
----------------
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 February 21, 1997,there were outstanding 20,138,053 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
<TABLE>
<CAPTION>
Page
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<S> <C> <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 6. Exhibits and Reports on Form 8-K 10
Signatures 10
</TABLE>
<PAGE> 3
W. H. BRADY CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS January 31, 1997 July 31, 1996
------ ---------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 56,352 $ 49,281
Accounts receivable, less allowance for losses ($1,994
and $1,992, respectively) 58,536 53,679
Inventories 43,825 40,697
Prepaid expenses and other current assets 12,248 12,454
--------------- ------------
Total current assets 170,961 156,111
Other assets:
Intangibles - net 33,705 34,212
Other 6,190 5,863
--------------- ------------
39,895 40,075
Property, plant and equipment:
Cost:
Land 5,195 4,735
Buildings and improvements 38,241 34,484
Machinery and equipment 79,221 78,680
Construction in progress 3,431 4,383
--------------- ------------
126,088 122,282
Less accumulated depreciation 61,129 56,633
--------------- ------------
Net property, plant and equipment 64,959 65,649
--------------- ------------
Total $ 275,815 $ 261,835
LIABILITIES AND STOCKHOLDERS' INVESTMENT =============== ============
----------------------------------------
Current liabilities:
Accounts payable $ 17,021 $ 13,922
Wages and amounts withheld from employees 15,517 14,144
Taxes, other than income taxes 1,983 1,790
Accrued income taxes 6,205 5,419
Other current liabilities 8,379 10,620
Current maturities on long-term debt 345 528
--------------- ------------
Total current liabilities 49,450 46,423
Long-term debt, less current maturities 3,381 1,809
Other liabilities 26,427 24,340
--------------- ------------
Total liabilities 79,258 72,572
Stockholders' investment:
Preferred stock 2,855 2,855
Class A nonvoting common stock - Issued and outstanding
20,138,053 and 20,094,100 shares, respectively 201 201
Class B voting common stock - issued and outstanding
1,769,314 shares 18 18
Additional paid-in capital 8,874 8,415
Earnings retained in the business 181,097 173,491
Cumulative translation adjustments 3,512 4,283
--------------- ------------
Total stockholders' investment 196,557 189,263
--------------- ------------
Total $ 275,815 $ 261,835
=============== ============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
3
<PAGE> 4
W.H. BRADY CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EARNINGS RETAINED
IN THE BUSINESS
(Dollars in Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
January 31 January 31
1997 1996 1997 1996
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $ 109,898 $ 87,820 $ 207,119 $ 167,043
Operating expenses:
Cost of products sold 50,614 41,204 95,419 77,292
Research and development 4,013 2,832 7,550 5,505
Selling, general and administrative 44,072 35,322 82,356 67,942
---------- --------- --------- ----------
Total operating expenses 98,699 79,358 185,325 150,739
Operating income: 11,199 8,462 21,794 16,304
Investment and other income-net 174 1,104 445 3,672
Interest expense (44) (66) (143) (117)
---------- --------- --------- ----------
Income before taxes 11,329 9,500 22,096 19,859
Income taxes 4,487 3,625 8,724 7,649
Net income $ 6,842 $ 5,875 $ 13,372 $ 12,210
Earnings retained in business at beginning of period $ 177,168 $ 158,550 $ 173,491 $ 154,286
Less dividends:
Preferred stock (65) (65) (130) (130)
Common stock (2,848) (2,185) (5,636) (4,191)
--------- --------- -------- ---------
Earnings retained in business at end of period $ 181,097 $ 162,176 $ 181,097 $ 162,716
========= ========= ======== =========
Net Income Per Common Share:
Net Income - Class A Nonvoting $ 0.31 $ 0.26 $ 0.61 $ 0.55
========= ========= ======== =========
Net Income - Class B Voting $ 0.31 $ 0.26 $ 0.58 $ 0.52
========= ========= ======== =========
</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>
(UNAUDITED)
Six Months Ended
January 31
1997 1996
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<S> <C> <C>
Operating Activities:
Net Income $ 13,372 $ 12,210
Adjustments to Reconcile Net Income to Net Cash Provided
by (Used in) Operating Activities:
Depreciation & Amortization 7,185 4,345
Loss (Gain) on Sale of Property, Plant & Equipment 29 (1,853)
Provision for Losses on Accounts Receivable 389 445
Changes in Operating Assets & Liabilities
(Excluding purchases of businesses in 1996):
(Increase) Decrease in Accounts Receivable (5,798) (6,720)
(Increase) Decrease in Inventory (3,580) (3,536)
(Increase) Decrease in Prepaid Expense (90) (869)
Increase (Decrease) in Accounts Payable and Other Liabilities 3,129 4,119
Increase (Decrease) in Income Taxes 621 682
--------- --------
Net Cash Provided by Operating Activities 15,257 8,823
Investing Activities:
Purchases of Property, Plant and Equipment (4,669) (5,315)
Proceeds from Sale of Property, Plant and Equipment-Net 575 199
Purchases of Businesses 0 (15,077)
Other Investments 280 0
--------- --------
Net Cash (Used in) Investing Activities (3,814) (20,193)
Financing Activities:
Payment of Dividends (5,766) (4,321)
Proceeds from Issuance of Common Stock 459 211
Principal Payments on Long-Term Debt (276) (74)
Proceeds from Issuance of Long-Term Debt 991 0
--------- --------
Net Cash (Used in) Financing Activities (4,592) (4,184)
Effect of Exchange Rate Changes On Cash 220 (623)
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 7,071 (16,177)
Cash and Cash Equivalents at Beginning of Year 49,281 89,067
--------- --------
Cash and Cash Equivalents at End of Period $ 56,352 $ 72,890
Supplemental Disclosures of Cash Flow Information: ======== =======
Cash Paid During the Year For:
Interest $ 148 $ 83
Income Taxes 8,503 6,359
Receivable Relating to Sale of German Building 0 3,152
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE> 6
W.H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended January 31, 1997
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 except for a restructuring charge in fiscal 1997, necessary
to present fairly the financial position of the Company as of January 3l, 1997
and July 3l, 1996, and its results of operations and its cash flows for the
three months and six months ended January 31, 1997 and 1996. The consolidated
balance sheet at July 31, 1996 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.
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 Class A and Class B common
shares outstanding (adjusted for the stock dividend discussed in Note B) of
21,892,256 for the three months and six months ended January 31, 1997, and
21,837,040 for the same period in 1996. 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 17, 1996 has been added to the net earnings
per Class A common share for the six months ended January 31, 1997. The net
earnings per Class A common share for the six months ended January 31, 1996
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
Six Months Ended January 31, 1997
NOTE D - Intangible Assets
The excess of cost over fair value of the net assets of businesses
acquired is amortized using the straight-line method over various periods
ranging from 20 to 40 years. The weighted average amortization period is 35
years.
The carrying value of intangible assets is periodically reviewed by the
Company and impairments are recognized when the expected future operating cash
flows derived from such intangible assets is less than their carrying value.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the three months ended January 31, 1997, revenues of $109,898,000 were
25.1% higher than the same quarter of the previous year. For the six months
ended January 31, 1997, revenues of $207,119,000 were 24.0% higher than the
same period last year. Sales of the Company's international operations
increased 15.7% for the quarter and 15.4% for the six months ended January 31,
1997. This increase was a result of real growth through continued market
penetration in Europe and the Far East (12.7% for the quarter and 10.0% for the
six months) and the acquisition of Techpress II Limited and the startup of the
Company's Korean joint venture (3.6% for the quarter and 6.5% for the six
months) offsetting the negative effect of fluctuations in the exchange rates
used to translate financial results into U.S. currency (0.6% for the quarter
and 1.1% for the six months). Sales of the Company's U.S. operations increased
33.5% for the quarter and 31.0% for the six months ended January 31, 1997.
This increase was a result of the acquisitions of Varitronic Systems Inc. and
The Hirol Company (18.3% for the quarter and 20.2% for the six months) and
growth in the sales of the Company's core products (15.2% for the quarter and
10.8% for the six months).
The cost of products sold as a percentage of sales was 46.1% for both the
quarter and the six months ended January 31, 1997 compared to 46.9% and 46.3%
for the same periods last year. Reduced costs in the periods due to changes in
the product mix were offset by increased amortization expenses and a second
quarter charge of $1,200,000 ($715,000 after tax) for restructuring the
Company's European operations and consolidating the Hirol Division's production
operations into the Company's existing operations in the United States and in
the United Kingdom. Selling, general and administrative expenses as a
percentage of sales were 40.1% for the quarter compared to 40.2% for the same
quarter of the previous year. For the six months ended January 31, 1997, this
percentage was 39.8% compared to 40.7% for the same period last year. The
decrease resulted from spreading fixed costs over a larger sales base and less
spending on investments in sales and marketing activities compared to last year
offsetting a second quarter charge of about $300,000 ($180,000 after tax) for
the restructuring mentioned above. Research and development expenses increased
41.7% for the quarter and 37.1% for the six months ended January 31, 1997, over
the same periods last year because of higher costs for these items in
operations acquired by the Company during the past year.
Operating income was $11,199,000 for the quarter and $21,794,000 for the
six months ended January 31, 1997 compared to $8,462,000 and $16,304,000 for
the same periods last year because of the factors cited above.
Investment and other income decreased $930,000 for the three months and
$3,227,000 for the six months ended January 31, 1997. These decreases are the
result of lower investment income because of lower cash balances as a result of
the acquisitions in the last year and foreign exchange losses. In addition,
investment and other income for the six months ended January 31, 1996, included
$1,750,000 ($950,000 after tax) from the gain on the sale of a building in
Germany during that period.
8
<PAGE> 9
Income before income taxes increased 19.3% for the quarter and increased
11.3% for the six months ended January 31, 1997, compared to prior year
results. Excluding the restructuring charge and the gain on the sale of the
German building, income before income taxes increased 35.0% for the quarter and
30.3% for the six months ended January 31. 1997, compared to prior year results.
Net income for the three months ended January 31, 1997, increased 16.5%
to $6,842,000 compared to $5,875,000 for the same quarter of the previous year.
For the six months ended January 31, 1997, net income increased 9.5% to
$13,372,000 from $12,210,000 for the same period last year. Excluding the
$895,000 restructuring charge and the $950,000 gain on the sale of the building
in Germany, net income increased 31.7% for the quarter and 26.7% for the six
months ended January 31, 1997.
Financial Condition
The Company's liquidity remains strong. The current ratio as of January
31, 1997, was 3.5 to 1. Cash and cash equivalents were $56,352,000 at January
31, 1997, compared to $49,281,000 at July 31, 1996. Working capital increased
$11,823,000 during the six months and equaled $121,511,000 as of January 31,
1997. The Company believes this amount is adequate to meet its current and
anticipated operating needs.
The Company has maintained significant cash balances due in large part to
its strong operating cash flow, which totaled $15,256,000 for the six months
ended January 31, 1997, compared to $8,823,000 for the same period last year.
Capital expenditures were $4,669,000 in the six months ended January 31, 1997,
compared to $5,315,000 in the first six months last year. Financing
activities, primarily the payment of dividends to the Company's stockholders,
consumed $4,592,000 of cash in the first six months of fiscal 1997, compared to
$4,184,000 for the same period last year. Increased dividend payments were
partially offset by borrowing by the Company's new Korean joint venture.
Long-term debt as a percentage of long-term debt plus stockholders'
investment was 1.7% at January 31, 1997, compared to 0.9% at July 31, 1996, as
a result of borrowing by the Company's new Korean joint venture.
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
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K.
The Company was not required to file and did not file a report
on form 8-K during the quarter ended January 31, 1997.
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: Feburary 28, 1997 /s/ K. M. Hudson
----------------
K. M. Hudson
President
Date: February 28, 1997 /s/ F. M. Jaehnert
-------------------
F. M. Jaehnert
Vice President & Chief Financial Officer
(Principal Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 56,352
<SECURITIES> 0
<RECEIVABLES> 60,530
<ALLOWANCES> 1,994
<INVENTORY> 43,825
<CURRENT-ASSETS> 170,961
<PP&E> 126,088
<DEPRECIATION> 61,129
<TOTAL-ASSETS> 275,815
<CURRENT-LIABILITIES> 49,450
<BONDS> 3,381
2,855
0
<COMMON> 219
<OTHER-SE> 193,483
<TOTAL-LIABILITY-AND-EQUITY> 275,815
<SALES> 207,119
<TOTAL-REVENUES> 207,119
<CGS> 95,419
<TOTAL-COSTS> 95,419
<OTHER-EXPENSES> 89,906
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 22,096
<INCOME-TAX> 8,724
<INCOME-CONTINUING> 13,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,372
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
