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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JULY 31, 1997
Commission File Number 0-12730
W.H. BRADY CO.
(Exact name of registrant as specified in charter)
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WISCONSIN 39-0178960
(State of Incorporation) (IRS Employer Identification No.)
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6555 WEST GOOD HOPE ROAD
MILWAUKEE, WI 53223
(Address of Principal Executive Offices and Zip Code)
(414) 358-6600
(Registrant's Telephone Number)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Nonvoting Common Stock, Par Value $.01 per share
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]
As of September 30, 1997, there were outstanding 20,181,753 shares of Class
A Nonvoting Common Stock (the "Class A Common Stock"), and 1,769,314 shares of
Class B Common Stock. The Class B Common Stock, all of which is held by
affiliates of the Registrant, is the only voting stock.
DOCUMENTS INCORPORATED BY REFERENCE
W.H. Brady Co. 1997 Annual Report, Incorporated into Part II & IV
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INDEX
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PAGE
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PART I
ITEM 1. BUSINESS
General Development of Business........................... I-1
Financial Information About Industry Segments............. I-1
Narrative Description of Business:
Overview............................................... I-1
Business Strategy...................................... I-1
Growth Strategy........................................ I-2
Products............................................... I-2
Marketing and Sales.................................... I-5
Manufacturing Process and Raw Materials................ I-5
Technology and Product Development..................... I-6
International Operations............................... I-6
Competition............................................ I-6
Backlog................................................ I-6
Environment............................................ I-7
Employees.............................................. I-7
Acquisitions........................................... I-7
Financial Information About Foreign and Domestic Operations
and Export Sales.......................................... I-7
ITEM 2. PROPERTIES.......................................... I-7
ITEM 3. LEGAL PROCEEDINGS................................... I-7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... I-7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... II-1
ITEM 6. SELECTED FINANCIAL DATA............................. II-1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... II-1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... II-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... II-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT................................................ III-1
ITEM 11. EXECUTIVE COMPENSATION............................. III-3
Summary Compensation Table................................ III-3
Stock Options............................................. III-4
Common Stock Price Performance Graph...................... III-6
Compensation of Directors................................. III-6
Termination of Employment and Change in Control
Arrangements........................................... III-6
Compensation Committee Interlocks and Insider
Participation.......................................... III-7
Profit Sharing and Employee Thrift Plan................... III-7
Deferred Compensation Arrangements........................ III-8
Compensation Committee Report on Executive Compensation... III-8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ III-10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... III-12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K............................................... IV-1
SIGNATURES.................................................. IV-5
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PART I
W.H. Brady Co. and Subsidiaries is referred to herein as the "Company" or
"Brady".
ITEM 1 BUSINESS
(a) General Development of Business
The Company, a Wisconsin corporation, currently operates 16 manufacturing
facilities worldwide. Eight are located in the United States and one each in
Australia, Belgium, Canada, England, France, Japan, Korea and Singapore. The
Company also sells through subsidiaries or sales offices in Brazil, England,
France, Germany, Hong Kong, Italy, Malaysia, Sweden and Taiwan. The Company's
executive offices are located at 6555 West Good Hope Road, Milwaukee, Wisconsin
53223, and its telephone number is (414) 358-6600. The Company's Internet
address is hhtp://www.whbrady.com.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
OVERVIEW
W. H. Brady is a leading international manufacturer and marketer of high
performance identification solutions and specialty coated materials. The
Company's products consist of over 30,000 stock and custom items as well as
complete identification systems that are used by the Company's customers to
create a safer work environment for employees, improve production and operating
efficiencies and increase the utilization of assets through tracking and
inventory process controls. Major product categories include: industrial and
facility identification products; safety and regulatory compliance products; and
OEM components.
The Company's markets include a wide variety of industrial, commercial,
governmental, public utility, medical equipment, computer and consumer product
markets. The need for the Company's products is driven by specification of
customer engineering departments, by regulatory compliance requirements imposed
by agencies such as OSHA and the EPA, or by the need to identify, direct, warn,
inform and protect employees and customers. The Company markets and sells its
products domestically and internationally through multiple channels including
direct sales, distributor sales, mail-order catalog marketing and electronic
access through the Internet. The Company has a broad customer base, which in
fiscal 1997 consisted of more than 100,000 customers, with the largest customer
representing less than 4% of net sales. Sales from international operations
represented 42.5%, 43.6% and 41.1% of net sales in fiscal 1997, 1996 and 1995,
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 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 110 employees primarily dedicated to research and development
activities.
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Breadth of product line. The Company's products include over 30,000 stock
and custom items. The number of products offered allows W. H. Brady to serve as
a one-stop shopping network for its customers. Additionally, management believes
that the Company competes in a broader range of identification markets than any
of its competitors.
Focus on customers. The Company seeks to provide "seamless" customer
service and to offer rapid response to customer orders and inquiries. To meet
this goal, the Company has streamlined its manufacturing processes to shorten
lead-times and has increased its investment in telecommunications and management
information systems worldwide.
Niche markets. The Company strives to be a major player in niche markets
that allow the Company to leverage its capabilities in specialty materials,
die-cut parts and distributed printing systems. By focusing on specific markets
and value-added product applications, the Company has established leading
positions in the electrical and safety markets with certain of its products such
as wire and pipe markers and safety signs.
GROWTH STRATEGY
The major elements of the Company's strategy for growth include:
Increased market penetration. The Company seeks to increase market
penetration in existing domestic and international markets through new product
development and increased sales and marketing efforts. To achieve this
objective, the Company is actively expanding its current sales force and is
pursuing additional niche distribution channels.
Geographic expansion. Sales from W. H. Brady's international operations
have increased from $50,707,000 or 26.5% of net sales in fiscal 1990 to
$181,068,000, or 42.5%, of net sales in fiscal 1997. The Company believes that
international markets continue to represent a significant growth opportunity.
Accordingly, the Company is actively seeking to increase its penetration in
established markets in Europe, Japan, Hong Kong, and Korea and to enter new
emerging markets elsewhere in the Pacific Rim and in Latin America.
New products and new markets. The Company seeks to leverage its strong
product innovation and development activities by introducing new products and by
exploring new applications for its products in existing new markets.
Strategic acquisitions and joint ventures. W. H. Brady's recent growth has
occurred principally through strategic acquisitions, innovative product
development and improvement, market expansion and increased market penetration.
Although the Company intends to continue such internal growth, the Company also
intends, where practical, to fill product lines or market sectors, open new
geographic markets and strengthen systems offerings through the pursuit of
strategic acquisitions and joint ventures.
PRODUCTS
The Company's products consist of over 30,000 stock and custom items as
well as complete identification systems that are used by the Company's customers
to create a safer work environment for employees, improve product and operating
efficiencies and increase the utilization of assets through tracking and
inventory process controls. Major product categories include: industrial and
facility identification products including pipe and valve 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.
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INDUSTRIAL AND FACILITY IDENTIFICATION PRODUCTS
Pipe and Valve Markers
The Company manufactures both self-adhesive and mechanically applied stock
and custom designed pipe markers and plastic and metal valve tags for the
identification of piping and control valves. These products are designed to help
identify and provide information as to the contents, direction of flow and
special hazardous properties of materials contained in piping systems and to
facilitate repair or maintenance of the system.
Wire Markers
W. H. Brady offers a broad range of wire-marking products. These products
help mark and identify wires, cables and other potential hazards. Such products
may be utilized in virtually every industrial and electrical market to specify
the origination or destination of wiring and to facilitate repair or maintenance
of wiring systems.
Computer Printable Labels
W. H. Brady offers a complete line of printable labels that are compatible
with the thermal transfer, laser and dot matrix printers sold by the Company.
The products are used primarily by industrial customers to print identification
labels on-site using personal computers.
Storage Markers
The Company produces signs, self-adhesive and self-aligning die cut numbers
and letters used for the systematic identification of facilities, bins and
shelving. Storage marker products are primarily used by industrial companies in
factories, warehouses, stockrooms and other facilities.
Asset Identification Markers
W. H. Brady offers a wide range of asset identification products to its
industrial and commercial customers. These include self-adhesive or mechanically
mounted labels made of aluminum, brass, stainless steel, polycarbonate, vinyl,
polyester, mylar and paper. These products are also offered in tamper-evident
varieties.
Informational Signs
The Company produces a wide range of informational signs for both indoor
and outdoor use. These signs are utilized by a broad range of industrial and
commercial customers and are available in Braille and with other features for
compliance with the Americans with Disabilities Act ("ADA") regulations. Signs
may be stock items or custom ordered for any informational requirement.
Stand-Alone Printing Systems
The Company designs and develops computer software, portable printers,
lettering machines and other electromechanical devices to serve the growing and
specialized needs of customers. Industrial labeling systems, tapes, ribbons and
label stocks provide customers with the resources and flexibility to produce
signs or labels on demand at their site.
Automatic Identification and Data Collection Systems
W. H. Brady's automatic identification and data collection systems allow
accurate tracking of manufacturing, warehousing, receiving and shipping data.
The Company's software applications, fixed station terminals, high-speed
printers and associated customized consumable products allow its customers to
have a higher degree of knowledge and control over asset management and all
phases of inventory control, including receiving, warehousing, work-in-process,
finished goods and shipping.
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Other
The Company also offers bar-coding products and readers, sign making kits,
stenciling materials, barricading products, visual warning systems and floor
marking products.
SAFETY AND REGULATORY COMPLIANCE PRODUCTS
Safety Signs
The Company manufactures safety and accident prevention signs for use in a
broad range of industrial, commercial, governmental and institutional
applications. These signs are either self-adhesive or mechanically mounted, are
designed for both indoor and outdoor use and are manufactured to meet standards
promulgated by the National Safety Council, OSHA and a variety of industry
associations. The Company's sign products are categorized by type of message to
be conveyed, including admittance, directional and exit signs; electrical hazard
warnings; energy conservation messages; fire protection and fire equipment
signs; hazardous waste labels; hazardous and toxic material warning signs;
personal hazard warnings; housekeeping and operational warnings; pictograms;
radiation and laser signs; safety practices signs and regulatory markings.
Lockout/Tagout Products
W. H. Brady offers a wide variety of lockout/tagout products. Under current
OSHA regulations, all energy sources must be "locked out" while machines are
being serviced or maintained. The Company's products allow its customers to
comply with these regulations and to ensure worker safety for a wide variety of
energy and fluid transmission systems and operating machinery.
Traffic Control Products
The Company offers a wide variety of traffic control devices, including
directional and warning signs, barriers and cones and other traffic control
devices.
Other
The Company also offers safety hard-hat labels, safety badges, photo
identification kits, ergonomic products, first aid cabinets/kits, body
harnesses, anti-slip coatings and alarm security systems, among others.
OEM COMPONENTS
Specialty Tapes
The Company's OEM component products include specialty tapes and related
products that are used in a variety of audio, video and computer applications,
as well as surface mount technology products. These specialty tape products are
characterized by high performance adhesives, most of which are formulated by the
Company, to meet high-tolerance requirements of the industries in which they are
used.
Computer Application Products
The Company's computer application products include reinforcing rings for
floppy discs and components of micro-floppy discs. Its audio industry products
include cassette leader and splicing tapes and conductive splicing tapes. Video
products include splicing and leader tapes, conductive/reflective sensing tapes
and other specialty components used in video cassettes. The Company's leadframe
tape and electronic adhesive film are used within semiconductors to reinforce
and/or bond components while its surface mount carrier and cover tapes are used
to package surface-mounted-device electronic components.
Die-Cut Tapes
The Company's precision die-cut tapes are used to seal, insulate, protect,
shield or provide other mechanical performance properties in the assembly of
electronic, telecommunications and other equipment.
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OTHER PRODUCTS
The Company also sells a variety of other products, none of which
individually accounts for a material portion of its sales, including:
temperature indicating labels, hospital and clinical labels, packing and
shipping goods, name plates and quality and production control products, among
others.
MARKETING AND SALES
The Company's products are sold in a wide variety of industrial,
commercial, governmental, public utility, medical equipment, computer and
consumer product markets. W. H. Brady has a diverse customer base that consisted
of over 100,000 customers in fiscal 1997. No material part of the Company's
business is dependent upon a single customer or group of customers, and the loss
of a particular customer would have not material adverse effect upon the
Company's business. In fiscal 1997, no single customer accounted for more than
4% of the Company's net sales.
The Company seeks to offer the right product with rapid response times and
superior service so that it can provide solutions to the customer that are
better, faster and more economical than those available from competitors or on a
do-it-yourself basis. The Company markets and sells its products domestically
and internationally through multiple channels including direct sales,
distributor sales, mail-order catalog marketing and electronic access through
the Internet. The Company currently has over 2,500 established relationships
with a broad range of electrical, safety, industrial and other domestic and
international distributors. To support its distributor network, the Company
employs an internal sales force of over 300 people. 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 Australia,
Brazil, Canada, England, France, Germany and Italy and include foreign language
catalogs. Currently, the Company is establishing operations in Mexico.
MANUFACTURING PROCESS AND RAW MATERIALS
The Company manufactures the majority of the products it sells, while
purchasing certain items such as printers and related supplies from other
manufacturers, often on a proprietary basis. Products manufactured by the
Company generally require a high degree of precision and the application of
adhesives with chemical and physical properties suited for specific uses. The
Company's manufacturing processes include compounding, coating and converting.
The compounding process involves the mixing of chemical batches for primers, top
coatings and adhesives, in solvent-or water-based materials. The coatings and
adhesives are applied to a wide variety of materials including paper, metal and
metal foil, plastic film and cloth. The converting process may include
embossing, perforating, laminating, die cutting or slitting. The Company also
utilizes various graphic techniques to print or mark the materials as required.
The Company seeks to optimize the performance, quality and durability of
its products, while continually improving manufacturing processes, shortening
lead times and lowering manufacturing processes. The Company produces the
majority of its own adhesive stocks and top-coated materials through an
integrated manufacturing process. These integrated manufacturing processes
permit it to achieve greater flexibility in product design and manufacture and
to improve its ability to provide specialized products designed to meet the
needs of specific applications. W. H. Brady's "cellular" manufacturing processes
and "just-in-time" inventory control allow it to attain profitability in small
orders by emphasizing flexibility and the maximization of assets through quick
turn-around and delivery. Most of the Company's manufacturing facilities have
received ISO 9001 or 9002 registration.
The materials used in the products manufactured by the Company consist
primarily of paper, plastic sheets and films (primarily polyesters and
polycarbonates), metal and metal foil, cloth, fiberglass, inks, dyes, adhesives,
pigments, natural and synthetic rubber, organic chemicals, polymers and
solvents. The Company
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purchases its raw materials from many suppliers and is not dependent upon any
single supplier for any of its base supply materials.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company focuses its research and development efforts on applications in
the science of surface chemistry, such as coatings, adhesives and physical
bonding. This dedication to surface chemistry, in combination with a
manufacturing technology oriented to adhesives and graphics, has led to the
development of many proprietary release coatings, adhesives and products that
are adhesively fastened.
The Company possesses patents covering various aspects of adhesive
chemistry, electronic circuitry, computer-generated wire markers, and systems
for aligning letters and patterns. Although the Company believes that its
patents are a significant factor in maintaining its market position as to
certain products, technology in the areas covered by many of the patents is
evolving rapidly and may limit the value of such patents. The Company's business
is not dependent on any single patent or group of patents.
The Company conducts most of its research and development activities at its
approximately 39,600 sq. ft. Frederic S. Tobey Research and Innovation Center in
Milwaukee, Wisconsin. The Company spent approximately $16,300,000, $11,300,000,
and $10,400,000 in fiscal 1997, 1996, and 1995, respectively, on its research
and development activities, all of which were Company sponsored. In fiscal 1997,
approximately 110 employees were engaged in research and development activities
for the Company. Additional research projects were conducted under contract with
universities, other institutions and consultants.
INTERNATIONAL OPERATIONS
In Fiscal 1997, 1996, and 1995, sales from international operations
accounted for 42.5%, 43.6%, and 41.1%, respectively, of the Company's net sales
The Company's global infrastructure now supports sales and operations through
subsidiaries in Australia, Belgium, Brazil, Canada, England, France, Germany,
Italy, Japan, Korea, Singapore and Sweden and sales offices in Hong Kong,
Malaysia and Taiwan. Several of these locations manufacture or have the
capability to manufacture certain of the products they sell. The Company
acquired or opened new operations in Australia, Brazil, England, France, Italy,
Korea, Malaysia and Taiwan in the last three years. The Company expects to
continue to expand its international operations as appropriate.
COMPETITION
The markets for most of the Company's products are highly competitive.
However, the Company believes that it is the leading domestic producer of
self-adhesive wire markers, pipe markers, audio and video leader and splicing
tapes and reinforcing rings for floppy disks and believes that it is a leading
domestic producer of safety signs. The Company competes for business principally
on the basis of product quality, performance, range of products offered and to a
lesser extent, on price. Product quality is determined by factors such as
suitability of component materials for various applications, adhesive
properties, graphics quality, durability, product consistency and workmanship.
Competition in many of the Company's product markets is highly fragmented,
ranging from smaller companies offering only one or a few types of products to
some of the world's major adhesive and electrical product companies offering a
wide range of competing products. A number of the Company's competitors are
larger than the Company and have greater resources. Notwithstanding the
resources of these competitors, management believes that the Company competes in
a broader range of identification markets than any of its competitors.
BACKLOG
As of July 31, 1997, the amount of the Company's backlog orders believed to
be firm was $19.9 million. This compares with approximately $15.2 million and
$14.6 million of backlog orders as of July 31, 1996 and 1995, respectively.
Average delivery time for the Company's orders varies from one day to twelve
weeks, depending on the type of product, and whether the product is stock or
custom designed and manufactured.
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ENVIRONMENT
At present, the manufacturing processes for the Company's adhesive-based
products utilize certain evaporative solvents which, unless controlled, would be
vented into the atmosphere. Emissions of these substances are regulated at the
federal, state and local levels. During the past several years, the Company has
implemented a number of procedures to reduce atmospheric emissions and/or to
recover solvents.
EMPLOYEES
As of July 31, 1997, the Company employed approximately 2,500 individuals.
The Company has never experienced a material work stoppage due to a labor
dispute, is not a party to any labor contracts and considers its relations with
employees to be excellent. To meet present and future labor requirements, the
Company maintains an active college recruiting program for sales, technical and
administrative personnel.
ACQUISITIONS
Effective November 15, 1995, the Company acquired the common stock of
TechPress II Limited located in Middlesex, England, a marketer of printing and
labeling systems, for cash of $4,277,000 and a payable of $389,000.
Effective January 2, 1996, the Company acquired the common stock of The
Hirol Company located in Fort Lauderdale, Florida, a manufacturer of die-cut
parts for the electronic, telecommunications and medical testing markets, for
cash of $10,800,000.
On April 8, 1996, the Company completed its acquisition of Varitronic
Systems, Inc. (VSI) located in Minneapolis, Minnesota, for cash of approximately
$40,700,000. VSI manufactures and markets supply-consuming lettering, labeling,
signage and presentation systems and supplies.
On April 30, 1997, the Company acquired the common stock of Signals S.A. a
direct marketer located in La Rochelle, France, for cash of approximately
$9,600,000.
(d)FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
See Note 7 to Notes to Consolidated Financial Statements on Page 28 of the
W. H. Brady Co. 1997 Annual Report.
ITEM 2 PROPERTIES
The Company currently operates in 16 manufacturing facilities. Eight are
located in the United States, and one each in Australia, Belgium, Canada,
England, France, Japan, Korea and Singapore. The Company's primary research
facility of approximately 39,600 square feet is located in Milwaukee, Wisconsin.
The Company's present operating facilities contain a total of approximately
1,130,000 square feet of space, of which approximately 450,000 square feet is
leased. The Company believes that its equipment and facilities are modern, well
maintained and adequate for its present needs.
ITEM 3 LEGAL PROCEEDINGS
The Company is, and may in the future be, party to litigation arising in
the course of its business. The Company is not currently a party to any material
pending legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
W.H. Brady Co. Class A Nonvoting Common Stock trades on the NASDAQ National
Market under the symbol BRCOA. There are no established public trading markets
for the Company's Class B Voting Common Stock.
Stock price disclosure required by this item is incorporated by reference
to Page 30 of the W.H. Brady Co. 1997 Annual Report.
(b) Holders
The number of holders of record of the Company's Class A and Class B Common
Stock as of September 30, 1997, was 463 and 2, respectively.
(c) Dividends
The Company has followed a practice of paying quarterly dividends on its
outstanding common stock. Before any dividend may be paid on the Class B Common
Stock, holders of the Class A Common Stock are entitled to receive an annual,
non-cumulative cash dividend of $.033 per share (subject to adjustment in the
event of future stock splits, stock dividends or similar event involving shares
of Class A Common Stock). Thereafter, any further dividend in that fiscal year
must be paid on all shares of Class A Common Stock and Class B Common Stock on
an equal basis.
During its two most recent fiscal years and for the first quarter of the
current year, the Company declared the following dividends per share on its
Class A and Class B Common Stock:
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YEAR
ENDING
YEAR ENDED 7/31/96 YEAR ENDED 7/31/97 7/31/98
------------------------------------- ------------------------------------- -------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A................. $.10 $.10 $.10 $.10 $.13 $.13 $.13 $.13 $.15
Class B................. .07 .10 .10 .10 .10 .13 .13 .13 .12
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ITEM 6 SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to Pages
14 and 15 of the W.H. Brady Co. 1997 Annual Report.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to Pages
16 through 18 of the W.H. Brady Co. 1997 Annual Report.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to Pages
19 through 30 of the W.H. Brady Co. 1997 Annual Report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME AGE TITLE
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Katherine M. Hudson.................. 50 President, CEO and Director
Mary T. Arnold....................... 54 Vice President, Research and Development
Richard L. Fisk...................... 53 Vice President, Direct Marketing Group
David R. Hawke....................... 43 Vice President, Graphics Group
Frank M. Jaehnert.................... 40 Vice President & Chief Financial Officer
Michael O. Oliver.................... 44 Vice President, Human Resources
Vice President, Identification Systems & Specialty Tapes
David W. Schroeder................... 42 Group
Peter J. Lettenberger................ 60 Secretary and Director
Robert C. Buchanan................... 57 Director
Roger D. Peirce...................... 60 Director
Richard A. Bemis..................... 56 Director
Frank W. Harris...................... 55 Director
Gary E. Nei.......................... 53 Director
</TABLE>
KATHERINE M. HUDSON -- Mrs. Hudson joined the Company in January 1994, as
President, Chief Executive Officer and Director. Before joining W. H. Brady Co.,
she was a Vice President at Eastman Kodak Company and General Manager of its
Professional, Printing and Publishing Image Division. Her 24 years at Eastman
Kodak Company included positions in finance, communication and public affairs,
information systems and the management of instant photography and printing. She
is also a director of Case Corporation and serves on the Alverno College Board
of Trustees, the Advisory Council for the Indiana University School of Business,
and the Medical College of Wisconsin Board.
MARY T. ARNOLD -- Dr. Arnold joined the Company in February 1993. In March
1995, she was appointed to her present position. Prior to joining Brady, Dr.
Arnold served in various capacities at G. E. Appliances, a unit of General
Electric Company.
RICHARD L. FISK -- Mr. Fisk joined the Company in 1979 and was appointed to
his present position in August 1987. He previously served as General Manager of
Seton Name Plate Co., a wholly-owned subsidiary of the Company.
DAVID W. HAWKE -- Mr. Hawke joined the Company in 1979. He served as
General Manager of the Industrial Products Division from 1985 to 1991. From 1991
to February 1995, he served as Managing Director -- European Operations. In
March 1995, he was appointed to his present position.
FRANK M. JAEHNERT -- Mr. Jaehnert joined the Company in 1995 as Finance
Director of the Identification Systems & Specialty Tapes Group. He was appointed
to his present position in November 1996. Before joining the Company, he held
various financial and executive positions for Robert Bosch GmbH from 1983 to
1995.
MICHAEL O. OLIVER -- Mr. Oliver joined the Company in 1997 as Vice
President -- Human Resources. Prior to joining Brady, he held various management
positions with Unilever from 1990 to 1997.
DAVID W. SCHROEDER -- Mr. Schroeder joined the Company in June 1991 as
General Manager of the Industrial Products Division. He was appointed to his
present position in March 1995. Before joining the Company, he served as
President and Chief Executive Officer of Uniroyal Adhesives & Sealants Co., Inc.
from 1988 to May 1991.
PETER J. LETTENBERGER -- Mr. Lettenberger has served as a Director and
Secretary of the Company since January 1977. Mr. Lettenberger has been a member
of the Company's audit committee since October 1978. 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., Waukesha, Wisconsin.
III-1
<PAGE> 12
ROBERT C. BUCHANAN -- Mr. Buchanan has been a director of the Company since
November 1987 and a member of its audit committee since June 1988, chairing that
committee since June, 1990. Mr. Buchanan is President and Chairman of the Board
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, Milwaukee, and Firstar Corporation, Milwaukee,
respectively.
ROGER D. PEIRCE -- Mr. Peirce has served as a director and a member of the
compensation committee of the Company since September, 1988, and its chairman
since November 1996. Mr. Peirce is a private investor and consultant. He was
President and CEO of Valuation Research Corporation from April, 1995 to May,
1996. From September 1988 to December 1993, he was President of Super Steel
Products Corp. in Milwaukee, Wisconsin. Prior to that he was a managing partner
for Arthur Andersen & Co., independent certified public accountants.
RICHARD A. BEMIS -- Mr. Bemis has been a director of the Company since
January 1990 and a member of its compensation committee since March 1990. Mr.
Bemis is President and CEO of Bemis Manufacturing Company, a manufacturer of
molded plastic products in Sheboygan Falls, Wisconsin. He is also a director of
the Wisconsin Public Service Corporation, Green Bay, Wisconsin.
FRANK W. HARRIS -- Dr. Harris has been a Director of the Company since
November 1991. Dr. Harris is a Professor of Polymer Science and Biomedical
Engineering in the Institute of Polymer Science at the University of Akron, and
has been on its faculty since 1983.
GARY E. NEI -- Mr. Nei has been a Director of the Company since November
1992, and a member of its audit committee since November 1994. Mr. Nei is
Chairman of B&B Publishing, a publishing company in Walworth, Wisconsin. He is
also a director of Uroquest, Inc., Salt Lake City, Utah.
All directors serve until their respective successors are elected at the
next annual meeting of shareholders. Officers serve at the discretion of the
Board of Directors. None of the Company's directors or executive officers has
any family relationship with any other director or executive officer.
III-2
<PAGE> 13
ITEM 11 EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended July 31, 1997, to those persons who,
as of the end of fiscal 1997, were the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ----------------
OTHER ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS/SAR COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (# OF SHARES)(3) ($)(4)
--------------------------- ------ ------ ------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
K. M. Hudson................. 1997 390,149 305,447 4,648 230,000 40,744(5)
President & Chief 1996 342,500 174,505 5,381 36,000 41,412(5)
Executive Officer 1995 315,000 369,914 4,163 30,000 87,333(5)
R. L. Fisk................... 1997 228,750 134,333 3,904 110,000 14,199
Vice President, Direct 1996 197,631 51,575 3,835 27,000 13,743
Marketing Group 1995 189,954 156,861 3,425 9,000 13,691
D. W. Schroeder.............. 1997 226,385 132,944 5,431 110,000 12,728
Vice President, ISST Group 1996 190,558 75,804 4,214 12,000 12,632
1995 170,449 124,446 2,979 6,000 12,394
D.R. Hawke................... 1997 210,828 123,809 5,583 110,000 144,849(6)
Vice President, Graphics Group 1996 175,558 53,452 -- 12,000 26,076(6)
1995 160,939 112,497 -- 6,000 202,113(6)
M.T. Arnold.................. 1997 142,200 77,940 7,210 7,500 12,889
Vice President, Research & 1996 125,485 38,617 3,424 9,000 12,786
Development 1995 97,520 38,785 -- -- 10,027
</TABLE>
- -------------------------
(1) Reflects bonus earned during fiscal year 1997 which was paid during the next
fiscal year.
(2) The amounts shown represent costs to the Company for expenses associated
with the use of a company car.
(3) Options issued in fiscal 1996 and 1995 are adjusted for the 200% stock
dividend paid on December 15, 1995.
(4) All other compensation for fiscal 1997 for Mrs. Hudson, and Messrs. Fisk,
Schroeder and Hawke, and Dr. Arnold, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift (i.e.
"BradyGold") Plan for each named executive officer of $12,000 each and (ii)
the cost of group term life insurance for each named executive officer of
$2,674, $2,199, $728, $647 and $889, respectively.
All other compensation for fiscal 1996 for Mrs. Hudson, Messrs. Fisk,
Schroeder and Hawke, and Dr. Arnold, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift (i.e.
"BradyGold") Plan for each named executive officer of $12,000 each and (ii)
the cost of group term life insurance for each named executive officer of
$1,705, $1,743, $632, $570 and $786, respectively.
All other compensation for fiscal 1995 for Mrs. Hudson, and Messrs. Fisk,
Schroeder and Hawke, and Dr. Arnold, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift (i.e.
"BradyGold") Plan for each named executive officer of $12,000, $12,000,
$12,000, $12,000 and $9,526, respectively and (ii) the cost of group term
life insurance for each named executive officer of $1,544, $1,691, $394,
$480 and $501, respectively.
III-3
<PAGE> 14
(5) Fiscal 1997 includes $26,070 accrued, but not paid, for the current year's
portion of a Supplemental Executive Retirement Plan (SERP). Fiscal 1996
includes relocation expenses of $3,112 and $24,595 accrued, but not paid,
for that year's portion of the SERP. Fiscal 1995 includes relocation
expenses of $50,586 and $23,203 accrued, but not paid, for that year's
portion of the SERP.
(6) Fiscal 1997 includes $132,202 expatriation expenses related to Mr. Hawke's
Belgium assignment. Fiscal 1996 includes relocation expenses of $1,743 and
expatriation expenses of $11,764. Fiscal 1995 includes relocation expenses
of $25,282 and expatriation expenses of $164,351.
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal
1997 to or by the executive officers named in the Summary Compensation Table
above, and the value of unexercised options held by such persons at July 31,
1997. Stock Appreciation Rights are not available under any of the Company's
plans.
OPTION GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED (#) IN FISCAL PRICE ($/SHARE)
NAME (1) 1997 (2) EXPIRATION DATE
---- ----------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
K. M. Hudson....................... 30,000 4.0% 22.8125 November 13, 2006
200,000 26.4% 23.8750 May 13, 2007
R. L. Fisk......................... 10,000 1.3% 22.8125 November 13, 2006
100,000 13.2% 23.8750 May 13, 2007
D. W. Schroeder.................... 10,000 1.3% 22.8125 November 13, 2006
100,000 13.2% 23.8750 May 13, 2007
D. R. Hawke........................ 10,000 1.3% 22.8125 November 13, 2006
100,000 13.2% 23.8750 May 13, 2007
M. T. Arnold....................... 7,500 0.7% 22.8125 November 13, 2006
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED RATES
OF STOCK PRICE APPRECIATION(3)
-----------------------------------------------------
0% 5% 10%
NAME $23.8750($) $38.8750($)(6) $61.8750($)(6)
---- ----------- -------------- --------------
<S> <C> <C> <C>
K. M. Hudson...................................... 0 3,429,375 8,689,375
R. L. Fisk........................................ 0 1,643,125 4,163,125
D. W. Schroeder................................... 0 1,643,125 4,163,125
D. R. Hawke....................................... 0 1,643,125 4,163,125
M. T. Arnold...................................... 0 107,344 272,344
All Stockholders' Gains (increase in market value of
W. H. Brady Co. Common Stock at assumed rates
of stock price appreciation)(4)(6)............................ $302,259,795 $765,724,814
All Optionees' Gains (as a percent of all
shareholders' gains)(5)(6).................................... 3.70% 3.70%
</TABLE>
- -------------------------
(1) The options granted November 13, 1996, become exercisable as follows:
33 1/3% of the shares on November 13, 1997; 33 1/3% of the shares on
November 13, 1998; and 33 1/3% of the shares on November 13, 1999. These
options have a term of ten years.
The options granted to Mrs. Hudson and Messrs. Fisk, Schroeder and Hawke on
May 13, 1997, become exercisable May 13, 2002, and have a term of ten years.
III-4
<PAGE> 15
(2) The exercise price is the average of the highest and lowest sale prices of
the Company's Class A Common Stock as reported by NASDAQ on the date of the
grant.
(3) Represents total potential appreciation of approximately 0%, 63% and 159%
for assumed annual rates of appreciation of 0%, 5% and 10%, respectively,
compounded annually for the ten year option term.
(4) Calculated from the $23.8750 exercise price applicable to the options
granted on May 13, 1997 based on the 20,150,653 shares of Class A Common
Stock outstanding on May 13, 1997.
(5) Represents potential realizable value for all options granted in fiscal 1997
as compared to the increase in market value of W.H. Brady Co. Class A Common
Stock at assumed rates of stock price appreciation.
(6) The Company disavows the ability of any valuation model to predict or
estimate the Company's future stock price or to place a reasonably accurate
present value on these options because any model depends on assumptions
about the stock's future price movement that the Company is unable to
predict.
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND VALUE OF OPTIONS AT END OF FISCAL 1997
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SHARES OPTIONS AT
ACQUIRED JULY 31, 1997
ON VALUE ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#)
---- -------- -------- ----------- -------------
<S> <C> <C> <C> <C>
K.M. Hudson.......................................... 0 0 107,000 264,000
R.L. Fisk............................................ 0 0 40,500 131,000
D.W. Schroeder....................................... 0 0 24,500 120,000
D.R. Hawke........................................... 4,000 62,750 29,500 120,000
M.T. Arnold.......................................... 0 0 4,200 13,500
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT JULY 31, 1997(1)
---------------------------
EXERCISABLE UNEXERCISABLE
NAME ($) ($)
---- ----------- -------------
<S> <C> <C>
K.M. Hudson................................................. 1,479,543 1,600,957
R.L. Fisk................................................... 597,573 778,583
D.W. Schroeder.............................................. 374,010 706,708
D.R. Hawke.................................................. 493,260 706,708
M.T. Arnold................................................. 34,325 77,844
</TABLE>
- -------------------------
(1) Represents the closing price for the Company's Class A Common Stock on July
31, 1997 of $29.6250 less the exercise price for all outstanding exercisable
and unexercisable options for which the exercise price is less than such
closing price.
III-5
<PAGE> 16
COMMON STOCK PRICE PERFORMANCE GRAPH
The graph below shows a comparison of the cumulative return over the last
five fiscal years had $100 been invested at the close of business on July 31,
1992, in each of W.H. Brady Co. Class A Common Stock, the Standard & Poor's
(S&P) 500 Index and the National Association of Securities Dealers' Automated
Quotation System (NASDAQ) United States Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
W. H. BRADY CO. VERSUS PUBLISHED INDICES (S&P 500 AND NASDAQ-US)
FISCAL YEAR ENDING JULY 31,
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Brady $100 $103 $142 $214 $200 $274
S&P 500 $100 $109 $114 $144 $168 $256
NASDAQ-US $100 $122 $125 $176 $191 $282
</TABLE>
COMPENSATION OF DIRECTORS
Each director who is also an employee of the Company receives no additional
compensation for service on the Board or on any committee of the Board.
Directors who are not also employees of the Company receive an annual retainer
of $15,000 in addition to $1,250 plus expenses for each meeting of the Board or
any committee thereof which they attend.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
In May 1997, the Board approved Change in Control Agreements for certain of
its executive officers including Mrs. Hudson, Messrs. Fisk, Schroeder and Hawke
and Dr. Arnold. The agreements call for payment of an amount equal to two times
the annual salary for Mrs. Hudson and Messrs. Fisk, Schroeder and Hawke, and
payment of one time her annual salary for Dr. Arnold in the event of termination
or resignation upon a change of control. The agreements also call for
reimbursement of any excise taxes imposed and up to $25,000 of attorney fees to
enforce the executive's rights under the agreement. Payments under the
agreements will be spread over two years for Mrs. Hudson and Messrs. Fisk,
Schroeder and Hawke, and over one year for Dr. Arnold.
In May 1997, the Company created a Supplemental Executive Retirement Plan
(SERP) for Mr. Fisk. The Plan calls for the Company to credit a deferred
compensation account with $200,000 on August 1 of each
III-6
<PAGE> 17
year beginning August 1, 1997 to and including August 1, 2001, provided Mr. Fisk
is employed by the Company as of each of those dates. Interest accrues on the
balance in the account at the prime rate in effect on August 1 of each year, but
not less than 6% nor more than 10% per annum.
The Company is required to pay Mr. Fisk the balance in the account over a
ten year period beginning on August 1 of the year following his termination of
employment with the Company. The first payment, and the nine succeeding
payments, will equal one-tenth of the balance in the account. Succeeding
payments will include interest credited to the account in the interim. The
Company may make payments in some other manner provided the payments are neither
smaller nor extend beyond such ten year period.
In fiscal 1994 the Company created a Supplemental Executive Retirement Plan
(SERP) for Mrs. Hudson. The stated amount of the Plan until January 1, 1999 is
$500,000. The Company credited a deferred compensation account with the net
present value of the stated amount in January 1994. The account is credited
annually with the current year's increase in the net present value calculation.
No interest accrues on the balance in the account until January 1, 1999. After
that date, interest will accrue quarterly on the balance in the account at the
prime rate in effect at the end of each calendar quarter.
The Company is required to pay Mrs. Hudson the balance in the account over
a ten year period beginning January 2009. The first payment will be one-tenth of
the balance in the account; the second one-ninth; and so on.
In the event of a change in control of the Company, Mrs. Hudson's SERP may
accelerate and become payable in 30 days.
Restricted Stock
In August 1997, the Company granted restricted stock awards to certain key
executives. Mrs. Hudson was awarded 50,000 shares of authorized but unissued
Class A Common Stock and Messrs. Fisk, Schroeder and Hawke were awarded 25,000
shares each of authorized but unissued Class A Common Stock. The restricted
stock awards granted Mrs. Hudson and Mr. Fisk vest on August 1, 2002. The
restricted stock awards granted Mr. Schroeder and Mr. Hawke vest 75% on August
1, 2002, with the remaining 25% vesting on August 1, 2003. The executives have
the right to receive any cash dividends payable on these shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Board's Compensation Committee was composed of
Messrs. Bemis, Lettenberger (until November 1996) and Peirce. None of these
persons has at any time been an employee of the Company or any of its
subsidiaries, although Mr. Lettenberger has been and remains Secretary of the
Company. Mr. Lettenberger is a partner of Quarles & Brady, which is general
counsel to the Company. There are no other relationships among the Company's
executive officers, members of the Compensation Committee or entities whose
executives serve on the Board that require disclosure under applicable SEC
regulations.
PROFIT SHARING AND EMPLOYEE THRIFT PLAN
Substantially all Brady employees in the United States and certain
expatriate employees working for its international subsidiaries are eligible to
participate in the Company's Money Purchase and Employee Thrift Plan (the
"BradyGold Plan"). Under this plan the Company agrees to contribute certain
amounts to the BradyGold Plan to the extent of current earnings and profits, or,
under certain circumstances, accumulated earnings of the Company. Under the
BradyGold Plan, the Company first contributes 4% of the eligible earnings of
each person covered by the BradyGold Plan. In addition, participants may elect
to have their annual pay reduced by up to an additional 4% and to have the
amount of this reduction contributed to the BradyGold Plan by the Company and
matched by an additional, equal contribution by the Company. Participants may
also elect to have their annual pay reduced by up to an additional 4% and to
have the amount of this reduction contributed to the BradyGold Plan by the
Company (without an additional matching contribution by the Company). The assets
of the BradyGold Plan credited to each participant are invested by the BradyGold
Plan trustee as directed in several investment funds as permitted by the
BradyGold Plan. The
III-7
<PAGE> 18
annual contributions and forfeitures allocated to any participant under all
defined contribution plans may not exceed the lesser of $30,000 or 25% of the
participant's base compensation and bonuses. Benefits are generally payable upon
the death, disability, or retirement of the participant or upon termination of
employment before retirement, although benefits may also be withdrawn from the
BradyGold Plan and paid to the participant if required for certain emergencies.
Under certain specified circumstances, the BradyGold Plan allows loans to be
drawn on a participant's account. The participant is immediately fully vested
with respect to the contributions attributable to reductions in pay; all other
contributions become fully vested after five years of service.
DEFERRED COMPENSATION ARRANGEMENTS
Directors, executive officers, corporate staff officers and certain key
management employees of the Company are permitted to defer portions of their
fees, salary and bonus and to invest the deferred amounts in "phantom stock" of
the Company. "Phantom Stock" is not actual stock or rights to acquire stock in
the Company, but it gives participants the right to share in increases in book
value (as defined) of the common stock. At the end of each fiscal year, the
deferred compensation balance (with interest) is credited to the purchase of
phantom common stock at the then book value of the common stock of the Company,
and is thereafter adjusted to reflect stock dividends and other dividends or
distributions on the Company's Class A Common Stock.
Upon the retirement, disability, or death of participant, the Company is
required to pay, each year for a period of ten years, a portion of the book
value of the phantom stock determined by the book value of the corresponding
number of common shares as of the end of each fiscal year. The first payment
must be one-tenth of the book value; the second one-ninth; and so on, with the
number of phantom shares reduced by the equivalent in book value of each
payment.
If the participant's employment ends for reasons other than his retirement,
disability or death, the book value of his phantom stock will be determined as
of the end of the fiscal year following his termination of employment and he
will receive one-tenth of such amount each year for a period of ten years, plus
interest at a rate 2% less than the Company's short-term borrowing rate. At the
request of the participant, the Company may make payments in larger installments
or in a lump sum on a discounted or other basis.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed entirely
of outside directors and is responsible for considering and approving
compensation arrangements for senior management of the Company, including the
Company's executive officers and the chief executive officer. It is the
philosophy of the Committee to establish a total executive compensation program
which is competitive with a broad range of companies that it considers to be of
comparable size and complexity.
The primary components of the Company's executive compensation program are
(i) base salary, (ii) annual shareholder value enhancement plan cash bonuses and
(iii) long term incentive compensation in the form of stock options and/or
restricted stock. These are designed to align shareholder and management
interests, to balance the achievement of annual performance targets with actions
that focus on the long-term success of the Company, and to attract, motivate and
retain key executives who are important to the continued success of the Company.
Decisions made by the Committee relating to the base salary compensation and the
annual cash incentive compensation plan are reviewed and approved by the full
Board of Directors.
THE COMMITTEE BELIEVES THAT:
-- The Company's pay levels are appropriately targeted to attract and
retain key executives;
-- The Company's incentive plan provides strong incentives for management
to increase shareholder value; and
-- The Company's total executive compensation program is a cost-effective
strategy to increase shareholder value.
III-8
<PAGE> 19
Base Salary
Consistent with the Committee's philosophy, base salaries are generally
maintained at or modestly above competitive base salary levels. Competitive
salary level is defined as the average base salary for similar responsibilities
in a group of companies selected by the Committee that the Committee considers
to be of comparable size and complexity. In setting base salaries for fiscal
1997, the Committee reviewed compensation survey data and was satisfied that the
base salary levels set would achieve the Company's objectives. Specific
increases reflect the Committee's subjective evaluation of individual
performance.
Annual Shareholder Value Enhancement Plan
The shareholder value enhancement plan (the "Bonus Plan") provides for the
annual payment of cash bonuses. When viewed together with the Company's base
salary, the purpose of the Bonus Plan is to provide a balance between fixed
compensation and variable, results-oriented compensation. The Bonus Plan is 90%
objective. It stresses maximization of Company profitability and increasing
shareholder value.
Stock Options
In May 1997, the Board approved the W. H. Brady Co. 1997 Omnibus Incentive
Stock Plan and the W. H. Brady Co. 1997 Nonqualified Stock Option Plan for
Non-Employee Directors (the "Option Plans") under which 2,000,000 shares and
125,000 shares, respectively, of Class A non-Voting Common Stock are available
for grant. In 1989 the Board approved the W. H. Brady Co. 1989 Non-Qualified
Stock Option Plan (the "Option Plan") under which 1,500,000 shares of Class A
Non-Voting Common Stock were available for grant. The Option Plans assist
directors, executive officers, corporate staff officers and key management
employees in becoming shareholders with an important stake in the Company's
future, aligning their personal financial interest with that of all
shareholders. Stock options are typically granted annually and have a term of
ten years. Generally the options become one-third exercisable one year after the
date of the grant and one-third additional in each of the succeeding two years
so that at the end of three years after the date of the grant they are fully
exercisable. However, special retention options granted in May 1997 to Mrs.
Hudson and Messrs. Fisk, Schroeder and Hawke have a five year cliff vesting. All
grants under the Option Plans are at market price on the date of the grant and
have value only if the price of W. H. Brady Co. Class A Common Stock, after the
vesting requirement passes, has increased to a greater value than at the grant
date.
Compliance with Tax Regulations Regarding Executive Compensation
Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget
Reconciliation Act of 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and the other named executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The Company's executive compensation program, as
currently constructed, is not likely to generate non-deductible compensation in
excess of these limits. The Compensation Committee will continue to review these
evolving tax regulations as they apply to the Company's executive compensation
program. It is the Compensation Committee's intent to preserve the deductibility
of executive compensation to the extent reasonably practicable and to the extent
consistent with its other compensation objectives.
Compensation of the Chief Executive Officer
Mrs. Hudson received $390,149 in base salary in fiscal 1997, an increase of
14% over the prior year's base salary. She was paid a bonus attributable to
fiscal 1997 of $305,447, $130,942 more than the prior year's bonus. The bonus
was determined in accordance with the Company's objective Bonus Plan, discussed
above. Mrs. Hudson's compensation reflects:
(i) a sales increase of $66,539,000, or 19%, a $3,680,000, or 13%,
increase in profits over similar amounts from the prior year; and a
stock price increase of 36%, from $21.75 to $29.625
(ii) the successful acquisition of Signals S.A. and the integration of last
year's acquisitions
III-9
<PAGE> 20
(iii) continued focus on improved asset utilization (cash increased 33%;
inventory increased 10%, less than the increase in sales)
(iv) continued efforts to focus the Company's resources on sustainable
value-enhancing long-term growth
(v) continued improvement in intercompany teamwork.
During fiscal 1997, Mrs. Hudson was awarded options to purchase 230,000
shares of Class A Common Stock.
The Committee believes these awards are consistent with the objectives of
the various plans and with the overall compensation policy of the Board of
Directors.
The Compensation Committee believes the executive compensation programs and
practices described above are competitive. They are designed to provide
increased compensation with improved financial results and provide additional
opportunity for capital accumulation, but only if shareholder value is
increased.
Roger D. Peirce, Chairman
Richard A. Bemis
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The following table sets forth the current beneficial ownership of
shareholders who are known by the Company to own five percent (5%) of any class
of the Company's voting shares on September 30, 1997.
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OWNERSHIP
-------------- ------------------- ---------- ----------
<S> <C> <C> <C>
Class B Common Stock...................... William H. Brady, Jr.(1) 1,574,866 89%
Marital Trust
c/o Quarles & Brady
Attn: Peter J. Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
William H. Brady, Jr.(1)
194,448 11%
Non-QTIP Marital Trust
c/o Quarles & Brady
Attn: Peter J. Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
</TABLE>
- -------------------------
(1) The trustees of both trusts are Robert C. Buchanan, Irene B. Brady, Roger D.
Peirce, Peter J. Lettenberger, and Richard A. Bemis, each of whom shares
voting and dispositive power. The vested beneficiary is Irene B. Brady. The
contingent remainder beneficiaries are William H. Brady, III and Elizabeth
B. Lurie.
III-10
<PAGE> 21
(B) Security Ownership of Management
The following table sets forth the current beneficial ownership of each
class of equity securities of the Company by each Director or Nominee and by all
Directors and Officers of the Company as a group as of September 30, 1997.
Except as otherwise indicated, all shares are owned directly.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT OF
OWNER & NATURE OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNERSHIP OWNERSHIP OWNERSHIP
-------------- -------------------- ---------- ----------
<S> <C> <C> <C>
Class A Common Stock................. Peter J. Lettenberger(1)(2)(3) 3,357,958 16.6%
Richard A. Bemis(1)(4) 2,619,171 13.0%
Robert C. Buchanan(1)(5) 2,620,471 13.0%
Roger D. Peirce(1)(6) 2,618,171 13.0%
Katherine M. Hudson(7) 195,230 1.0%
Gary R. Nei 4,500 * %
Frank W. Harris 2,533 * %
All Officers and Directors as a Group 3,826,839 19.0%
(15 persons)(8)
Class B Common Stock................. Peter J. Lettenberger(1) 1,769,314 100 %
Robert C. Buchanan(1) 1,769,314 100 %
Roger D. Peirce(1) 1,769,314 100 %
Richard A. Bemis(1) 1,769,314 100 %
All Officers and Directors as a Group 1,769,314 100 %
6% Cumulative Preferred Stock........ Peter J. Lettenberger(1)(2) 2,751 69.1%
Robert C. Buchanan(1) 1,920 48.2%
Roger D. Peirce(1) 1,920 48.2%
Richard A. Bemis(1) 1,920 48.2%
All Officers and Directors as a Group 2,751 69.1%
10% Cumulative 1979 Series Preferred
Stock.............................. Peter J. Lettenberger(2) 5,529 25.2%
All Officers and Directors as a Group 5,529 25.2%
6% Cumulative 1972 Series Preferred
Stock.............................. Peter J. Lettenberger(2) 2,600 100 %
All Officers and Directors as a 2,600 100 %
Group(2)
</TABLE>
- -------------------------
* Indicates less than one-tenth of one percent
(1) The amount shown includes shares held directly by the William H. Brady, Jr.
Marital Trust (the "Marital Trust") and the William H. Brady, Jr. Non-QTIP
Marital Trust (the "Non-QTIP Trust") (collectively, the "Trusts"). The
Marital Trust owns 1,744,325 shares of Class A Common Stock, 1,574,866
shares of Class B Common Stock, and 1,709 shares of 6% Cumulative Preferred
Stock. The Non-QTIP Trust owns 870,846 shares of Class A Common Stock,
194,448 shares of Class B Common Stock, and 211 shares of 6% Cumulative
Preferred Stock. The Trustees of both Trusts are Irene B. Brady, Robert C.
Buchanan, Roger D. Peirce, Peter J. Lettenberger, and Richard A. Bemis, each
of whom shares voting and dispositive power. All of the Trustees except
Irene B. Brady disclaim beneficial ownership of these shares. Irene B. Brady
is the widow of William H. Brady, Jr. and the vested beneficiary of the
Marital Trust.
(2) Peter J. Lettenberger is a director of the W.H. Brady Foundation, Inc. (the
"Foundation") which owns 5,529 shares of the 1979 Series, Cumulative Stock,
763 shares of the 6% Cumulative Preferred Stock and 2,600 shares of the 6%
Cumulative Preferred Stock, 1972 Series. Mr. Lettenberger is also a trustee
of the Irene B. Brady Revocable Trust of 1986 (the "1986 Trust"), which owns
737,823 shares of Class A Common Stock and 68 shares of 6% Cumulative
Preferred Stock. He disclaims beneficial ownership of shares held by the
Foundation and the 1986 Trust.
III-11
<PAGE> 22
(3) In addition to shares beneficially owned as a trustee of the Trusts and the
1986 Trust and as a director of the Foundation, Mr. Lettenberger owns
directly 4,964 shares of Class A Common Stock.
(4) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Bemis owns 4,000 shares of Class A Common Stock directly.
(5) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Buchanan owns directly 1,800 shares of Class A Common Stock, 2,000
additional shares through his Keogh plan, and 1,500 additional shares as
trustee of a trust.
(6) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Peirce owns 1,500 shares of Class A Common Stock directly, and 1,500 shares
through his Keogh plan.
(7) Mrs. Hudson owns 56,230 shares of Class A Common Stock directly and holds
vested options to acquire an additional 139,000 shares of Class A Common
Stock.
(8) The amount shown for all officers and directors as a group (15 persons)
includes options to acquire a total of 314,783 shares of Class A Common
Stock which are currently exercisable or will be exercisable within 60 days
of September 30, 1997. It does not include other options for Class A Common
Stock which have been granted at later dates.
(C) Changes in Control
No arrangements are known to the Company which may, at a subsequent date,
result in a change in control of the Company.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III-12
<PAGE> 23
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1) The consolidated financial statements, together with the Independent
Auditors' Report thereon of Deloitte & Touche LLP, presented on Pages 19
through 30 of the Company's 1997 Annual Report is incorporated herein by
reference.
2) Consolidated Financial Statement Schedule --
Schedule II Valuation and Qualifying Accounts
Independent Auditors' Report on Financial Statement Schedule
All other schedules are omitted as they are not required, or the
required information is shown in the consolidated financial statements or notes
thereto.
3) Exhibits -- See Exhibit Index at page IV-2 of this Form 10-K.
(b) Reports on Form 8-K.
None
IV-1
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of W.H. Brady Co.(1)
3.2 By-laws of W.H. Brady Co., as amended.(2)
10.2 W.H. Brady Co. BradyGold Plan, as amended.(2)
10.3 Executive Additional Compensation Plan, as amended.(2)
10.4 Form of Executive's Deferred Compensation Agreement, as
amended.(2)
10.5 Forms of Director's Deferred Compensation Agreement, as
amended.(2)
10.6 W.H. Brady Co. 1989 Non-Qualified Stock Option Plan.(4)
10.7 Shareholder Value Enhancement (SVE) Plan.(6)
10.9 W.H. Brady Co. Automatic Dividend Reinvestment Plan.(4)
10.10 Supplemental Executive Retirement Plan between W. H. Brady
Co. and Katherine M. Hudson.(5)
10.12 W.H. Brady Co. 1997 Omnibus Incentive Stock Plan.(7)
10.13 W.H. Brady Co. 1997 Nonqualified Stock Option Plan for
Non-Employee Directors.(7)
10.14 Change of Control Agreement dated May 13, 1997 between W. H.
Brady Co. and Katherine M. Hudson.(7)
10.15 Change of Control Agreement dated May 13, 1997 between W. H.
Brady Co. and David W. Schroeder.(7)
10.16 Change of Control Agreement dated May 13, 1997 between W.H.
Brady Co. and Richard L. Fisk.(7)
10.17 Change of Control Agreement dated May 13, 1997 between W.H.
Brady Co. and David R. Hawke.(7)
10.18 Change of Control Agreement dated May 13, 1997 between W.H.
Brady Co. and Mary T. Arnold.(7)
10.19 Supplemental Executive Retirement Plan dated May 14, 1997
between W.H. Brady Co. and Richard L. Fisk.(7)
10.20 Restricted Stock Agreement dated August 1, 1997 between W.H.
Brady Co. and Katherine M. Hudson
10.21 Restricted Stock Agreement dated August 1, 1997 between W.H.
Brady Co. and Richard L. Fisk
10.22 Restricted Stock Agreement dated August 1, 1997 between W.H.
Brady Co. and David W. Schroeder
10.23 Restricted Stock Agreement dated August 1, 1997 between W.H.
Brady Co. and David R. Hawke
13.1 Annual Report to Shareholders for year ended July 31, 1997.
18.1 Letter regarding change in accounting method.(3)
21.1 Subsidiaries of W.H. Brady Co.
23.1 Consent of Deloitte & Touche LLP, Independent Auditor.
27.1 Financial Data Schedule
</TABLE>
- -------------------------
(1) Incorporated by reference to Registrant's Registration Statement No.
333-04155 on Form S-3.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1989.
(3) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 31, 1989.
(4) Incorporated by reference to Registrant's Annual Report on form 10-K for the
fiscal year ended July 31, 1992.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1994.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1995.
(7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 1997
IV-2
<PAGE> 25
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
DESCRIPTION
Valuation accounts deducted in balance sheet from assets to
which they apply --
Accounts receivable -- allowance for losses:
Balances at beginning of period............................. $1,992 $1,881 $1,565
Additions -- Charged to expense............................. 663 367 463
Due to acquired businesses................................ 87 130 --
Deductions -- Bad debts written off, net of recoveries...... (501) (386) (147)
------ ------ ------
Balances at end of period................................... $2,241 $1,992 $1,881
====== ====== ======
</TABLE>
IV-3
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
W.H. Brady Co.:
We have audited the consolidated financial statements of W.H. Brady Co. and
subsidiaries as of July 31, 1997 and 1996 and for each of the three years in the
period ended July 31, 1997, and have issued our report thereon dated September
8, 1997; such financial statements and report are included in your 1997 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedule of W.H. Brady Co. and
subsidiaries, listed in Item 14. The consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 8, 1997
IV-4
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this twenty-fourth day
of October, 1997.
W.H. BRADY CO.
By /s/ F. M. JAEHNERT
------------------------------------
F. M. Jaehnert
Vice President & Chief Financial
Officer
(Principal Accounting Officer)
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ K. M. HUDSON President and Director October 24, 1997
- ----------------------------------------------------- (Principal Executive Officer)
K. M. Hudson
/s/ P. J. LETTENBERGER Director October 24, 1997
- -----------------------------------------------------
P. J. Lettenberger
/s/ R. A. BEMIS Director October 24, 1997
- -----------------------------------------------------
R. A. Bemis
Director
- -----------------------------------------------------
F. W. Harris
Director
- -----------------------------------------------------
R. C. Buchanan
/s/ R. D. PEIRCE Director October 24, 1997
- -----------------------------------------------------
R. D. Peirce
Director
- -----------------------------------------------------
G. E. Nei
</TABLE>
IV-5
<PAGE> 1
W. H. BRADY CO.
RESTRICTED STOCK AGREEMENT
(AUGUST 1, 1997)
W. H. Brady Co. (the "Company"), a Wisconsin corporation, hereby grants
to Katherine M. Hudson (the "Employee") a Restricted Stock Award (the "Award")
with respect to 50,000 shares (the "Shares") of the authorized but unissued
Class A Common Stock, $.01 par value, of the Company (the "Common Stock"), all
in accordance with and subject to the following terms and conditions:
1. Restrictions. Subject to Section 2 below, the restrictions on the
Shares shall lapse, and the Shares shall vest, on August 1, 2002 (the "Vesting
Date"), provided that the Employee remains an employee of the Company (or a
subsidiary or affiliate) during the entire period (the "Restriction Period)
commencing on the Date of Award set forth above and ending on the Vesting Date.
2. Termination of Employment, Etc., During Restriction Period. A. In
the event of the termination of the Employee's employment with the Company (and
any subsidiary or affiliate) prior to the end of the Restriction Period due to
death or disability, the Shares shall become unrestricted and fully vested as
follows:
<TABLE>
<CAPTION>
If Death or
Disability August 1, 1998- August 1, 1999- August 1, 2000- August 1, 2001- August 1,
Occurs July 31, 1999 July 31, 2000 July 31, 2001 July 31, 2002 2002
--------------- --------------- --------------- --------------- -------
<S> <C> <C> <C> <C> <C>
Percentage of
Shares Vested 10% 25% 50% 75% 100%
</TABLE>
For purposes of this Agreement, "Disability" means that the Employee is
disabled as a result of sickness or injury, such that she is unable to
satisfactorily perform the material duties of her job, as determined by the
Board of Directors, on the basis of medical evidence satisfactory to it.
B. In the event of the termination of the Employee's employment with
the Company (and any subsidiary or affiliate) prior to the end of the
Restriction Period due to a change in control, the shares shall become
unrestricted and fully vested.
For purposes of this Agreement, a "Change of Control" shall occur if
any person or group of persons (as defined in Section 13(d)(3) of the Securities
and Exchange Act of 1934) other than the members of the family of William H.
Brady, Jr. and their descendants, or trusts for their benefit, and the W. H.
Brady Foundation, Inc., collectively, directly or indirectly controls in excess
of 50% of the voting common stock of the Company.
For purposes of this Agreement, a termination due to Change of Control
shall occur if within the 12 month period beginning with the date a Change of
Control occurs (i) the Employee's employment with the Company is involuntarily
terminated (other than by reason of death, disability or cause) or (ii) the
Employee's employment with the Company is voluntarily terminated by the Employee
subsequent to (A) a 10% or more diminution in the total of the
<PAGE> 2
Employee's annual base salary (exclusive of fringe benefits) and the Employee's
target bonus in comparison with the Employee's total of annual base salary and
target bonus immediately prior to the date the Change of Control occurs, (B) a
significant diminution in the responsibilities or authority of the Employee in
comparison with the Employee's responsibility and authority immediately prior to
the date the Change of Control occurs or (C) the imposition of a requirement by
the Company that the Employee relocate to a principal work location more than 50
miles from the Employee's principal work location immediately prior to the date
the Change of Control occurs.
For purposes of this Agreement, Cause means (i) the Employee's willful
and continued failure to substantially perform the Employee's duties with the
Company (other than any such failure resulting from physical or mental
incapacity) after written demand for performance is given to the Employee by the
Company which specifically identifies the manner in which the Company believes
the Employee has not substantially performed and a reasonable time to cure has
transpired, (ii) the Employee's conviction of (or plea of nolo contendere for
the commission of) a felony, or (iii) the Employee's commission of an act of
dishonesty or of any willful act of misconduct which results in or could
reasonably be expected to result in significant injury (monetarily or otherwise)
to the Company, as determined in good faith by the Board of Directors of the
Company.
C. In the event of (a) the merger or consolidation of the Company with
or into another corporation or corporations in which the Company is not the
surviving corporation, (b) the adoption of any plan for the dissolution of the
Company, or (c) the sale or exchange of all or substantially all the assets of
the Company for cash or for shares of stock or other securities of another
corporation, all restrictions imposed on any then-Restricted Stock shall
terminate (such that any Restricted Stock shall become fully transferable)
immediately prior to any such event in which the Company is not the surviving
corporation.
D. If the lapsing of the restrictions, other than under paragraph 2.C.,
would result in disallowance of any portion of the Company's deduction therefore
under Section 162(m) of the Internal Revenue Code, the restrictions shall lapse
only as to those shares for which the amount is deductible, with the balance to
lapse as soon as deductible by the Company. However, in such event, the Company
shall pay the Employee on a quarterly basis an amount of interest based on the
prime rate recomputed each quarter and the value as of each quarter of the
shares as to which such restriction has not lapsed.
E. If the lapsing of the restrictions would result in any excise tax to
the Employee as a result of Section 280(G) of the Code, the Company shall pay
the Employee an amount equal to such excise tax.
3. Dividend Rights. The Employee shall have the right to receive any cash
dividends otherwise payable with respect to the Shares, as paid, and the
Employee shall have all other rights as holder of such Shares, provided,
however, the Company shall retain custody of all stock certificates representing
shares as to which such restriction has not lapsed.
4. Transfer Restrictions. This Award and the Shares (until they become
unrestricted pursuant to the terms hereof) are non-transferable and may not be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt to effect any such disposition,
or upon the levy of any such process, the Award shall immediately become null
and void and the Shares shall be forfeited.
5. Withholding Taxes. The Company may require payment of or withhold any
tax which it believes is payable as a result of the Shares becoming unrestricted
and fully vested, and the Company may defer making delivery with respect to
Shares until arrangements satisfactory to the Company have been made with regard
to any such withholding obligations. In lieu of part or all of any such payment,
the Employee, in satisfaction of all withholding taxes (including, without
limitation, Federal income, FICA (Social Security and Medicare) and any state
and local income taxes) payable as a result of such vesting, may elect, subject
to such rules and regulations as the Company may adopt from time to time,
2
<PAGE> 3
to have the Company withhold that number of Shares (valued at Fair Market Value
on the date of vesting and rounded upward) required to settle such withholding
taxes.
6. Death of Employee. If any of the Shares shall vest upon the death of the
Employee, they shall be registered in the name of the estate of the Employee
unless the Company shall have theretofore received in writing a beneficiary
designation, in which event they shall be registered in the name of the
designated beneficiary.
7. Adjustment of Shares. The terms and provisions of this Award (including,
without limitation, the terms and provisions relating to the number and class of
shares subject to this Award) shall be subject to appropriate adjustment in the
event of any recapitalization, merger, consolidation, disposition of property or
stock, separation, reorganization, stock dividend, issuance of rights,
combination or split-up or exchange of shares, or the like.
IN WITNESS WHEREOF, this Restricted Stock Agreement has been duly executed
as of August 1, 1997.
W. H. BRADY CO.
By: Katherine M. Hudson
---------------------------------
Attest: Peter J. Lettenberger
-----------------------------
Secretary
3
<PAGE> 1
W. H. BRADY CO.
RESTRICTED STOCK AGREEMENT
(AUGUST 1, 1997)
W. H. Brady Co. (the "Company"), a Wisconsin corporation, hereby grants to
Richard L. Fisk (the "Employee") a Restricted Stock Award (the "Award") with
respect to 25,000 shares (the "Shares") of the authorized but unissued Class A
Common Stock, $.01 par value, of the Company (the "Common Stock"), all in
accordance with and subject to the following terms and conditions:
1. Restrictions. Subject to Section 2 below, the restrictions on the Shares
shall lapse, and the Shares shall vest, on August 1, 2002 (the "Vesting Date"),
provided that the Employee remains an employee of the Company (or a subsidiary
or affiliate) during the entire period (the "Restriction Period) commencing on
the Date of Award set forth above and ending on the Vesting Date.
2. Termination of Employment, Etc., During Restriction Period. A. In the
event of the termination of the Employee's employment with the Company (and any
subsidiary or affiliate) prior to the end of the Restriction Period due to death
or disability, the Shares shall become unrestricted and fully vested as follows:
<TABLE>
<CAPTION>
If Death or
Disability August 1, 1998- August 1, 1999- August 1, 2000- August 1, 2001- August 1,
Occurs July 31, 1999 July 31, 2000 July 31, 2001 July 31, 2002 2002
--------------- --------------- --------------- --------------- -------
<S> <C> <C> <C> <C> <C>
Percentage of
Shares Vested 10% 25% 50% 75% 100%
</TABLE>
For purposes of this Agreement, "Disability" means that the Employee is
disabled as a result of sickness or injury, such that he is unable to
satisfactorily perform the material duties of his job, as determined by the
Board of Directors, on the basis of medical evidence satisfactory to it.
B. In the event of the termination of the Employee's employment with
the Company (and any subsidiary or affiliate) prior to the end of the
Restriction Period due to a change in control, the shares shall become
unrestricted and fully vested.
For purposes of this Agreement, a "Change of Control" shall occur if
any person or group of persons (as defined in Section 13(d)(3) of the Securities
and Exchange Act of 1934) other than the members of the family of William H.
Brady, Jr. and their descendants, or trusts for their benefit, and the W. H.
Brady Foundation, Inc., collectively, directly or indirectly controls in excess
of 50% of the voting common stock of the Company.
For purposes of this Agreement, a termination due to Change of Control
shall occur if within the 12 month period beginning with the date a Change of
Control occurs (i) the Employee's employment with the Company is involuntarily
terminated (other than by reason of death, disability or cause) or (ii) the
Employee's employment with the Company is voluntarily terminated by the Employee
<PAGE> 2
subsequent to (A) a 10% or more diminution in the total of the Employee's annual
base salary (exclusive of fringe benefits) and the Employee's target bonus in
comparison with the Employee's total of annual base salary and target bonus
immediately prior to the date the Change of Control occurs, (B) a significant
diminution in the responsibilities or authority of the Employee in comparison
with the Employee's responsibility and authority immediately prior to the date
the Change of Control occurs or (C) the imposition of a requirement by the
Company that the Employee relocate to a principal work location more than 50
miles from the Employee's principal work location immediately prior to the date
the Change of Control occurs.
For purposes of this Agreement, Cause means (i) the Employee's willful
and continued failure to substantially perform the Employee's duties with the
Company (other than any such failure resulting from physical or mental
incapacity) after written demand for performance is given to the Employee by the
Company which specifically identifies the manner in which the Company believes
the Employee has not substantially performed and a reasonable time to cure has
transpired, (ii) the Employee's conviction of (or plea of nolo contendere for
the commission of) a felony, or (iii) the Employee's commission of an act of
dishonesty or of any willful act of misconduct which results in or could
reasonably be expected to result in significant injury (monetarily or otherwise)
to the Company, as determined in good faith by the Board of Directors of the
Company.
C. In the event of (a) the merger or consolidation of the Company with
or into another corporation or corporations in which the Company is not the
surviving corporation, (b) the adoption of any plan for the dissolution of the
Company, or (c) the sale or exchange of all or substantially all the assets of
the Company for cash or for shares of stock or other securities of another
corporation, all restrictions imposed on any then-Restricted Stock shall
terminate (such that any Restricted Stock shall become fully transferable)
immediately prior to any such event in which the Company is not the surviving
corporation.
D. If the lapsing of the restrictions, other than under paragraph 2.C.,
would result in disallowance of any portion of the Company's deduction therefore
under Section 162(m) of the Internal Revenue Code, the restrictions shall lapse
only as to those shares for which the amount is deductible, with the balance to
lapse as soon as deductible by the Company. However, in such event, the Company
shall pay the Employee on a quarterly basis an amount of interest based on the
prime rate recomputed each quarter and the value as of each quarter of the
shares as to which such restriction has not lapsed.
E. If the lapsing of the restrictions would result in any excise tax to
the Employee as a result of Section 280(G) of the Code, the Company shall pay
the Employee an amount equal to such excise tax.
3. Dividend Rights. The Employee shall have the right to receive any cash
dividends otherwise payable with respect to the Shares, as paid, and the
Employee shall have all other rights as holder of such Shares, provided,
however, the Company shall retain custody of all stock certificates representing
shares as to which such restriction has not lapsed.
4. Transfer Restrictions. This Award and the Shares (until they become
unrestricted pursuant to the terms hereof) are non-transferable and may not be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt to effect any such disposition,
or upon the levy of any such process, the Award shall immediately become null
and void and the Shares shall be forfeited.
2
<PAGE> 3
5. Withholding Taxes. The Company may require payment of or withhold any
tax which it believes is payable as a result of the Shares becoming unrestricted
and fully vested, and the Company may defer making delivery with respect to
Shares until arrangements satisfactory to the Company have been made with regard
to any such withholding obligations. In lieu of part or all of any such payment,
the Employee, in satisfaction of all withholding taxes (including, without
limitation, Federal income, FICA (Social Security and Medicare) and any state
and local income taxes) payable as a result of such vesting, may elect, subject
to such rules and regulations as the Company may adopt from time to time, to
have the Company withhold that number of Shares (valued at Fair Market Value on
the date of vesting and rounded upward) required to settle such withholding
taxes.
6. Death of Employee. If any of the Shares shall vest upon the death of the
Employee, they shall be registered in the name of the estate of the Employee
unless the Company shall have theretofore received in writing a beneficiary
designation, in which event they shall be registered in the name of the
designated beneficiary.
7. Adjustment of Shares. The terms and provisions of this Award (including,
without limitation, the terms and provisions relating to the number and class of
shares subject to this Award) shall be subject to appropriate adjustment in the
event of any recapitalization, merger, consolidation, disposition of property or
stock, separation, reorganization, stock dividend, issuance of rights,
combination or split-up or exchange of shares, or the like.
IN WITNESS WHEREOF, this Restricted Stock Agreement has been duly executed
as of August 1, 1997.
W. H. BRADY CO.
By: Katherine M. Hudson
---------------------------------
Attest: Peter J. Lettenberger
---------------------------------
Secretary
3
<PAGE> 1
W. H. BRADY CO.
RESTRICTED STOCK AGREEMENT
(AUGUST 1, 1997)
W. H. Brady Co. (the "Company"), a Wisconsin corporation, hereby grants to
David W. Schroeder (the "Employee") a Restricted Stock Award (the "Award") with
respect to 25,000 shares (the "Shares") of the authorized but unissued Class A
Common Stock, $.01 par value, of the Company (the "Common Stock"), all in
accordance with and subject to the following terms and conditions:
1. Restrictions. Subject to Section 2 below, the restrictions on the Shares
shall lapse, and the Shares shall vest to the extent of 75%, on August 1, 2002
and to the extent of the remaining 25% on August 1, 2003 (the "Vesting Dates"),
provided that the Employee remains an employee of the Company (or a subsidiary
or affiliate) during the entire period (the "Restriction Period) commencing on
the Date of Award set forth above and ending on the respective Vesting Dates.
2. Termination of Employment, Etc., During Restriction Period. A. In the
event of the termination of the Employee's employment with the Company (and any
subsidiary or affiliate) prior to the end of the Restriction Period due to death
or disability, the Shares shall become unrestricted and fully vested as follows:
<TABLE>
<CAPTION>
If Death or
Disability August 1, 1998- August 1, 1999- August 1, 2000- August 1, 2001- August 1,
Occurs July 31, 1999 July 31, 2000 July 31, 2001 July 31, 2002 2002
--------------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Percentage
of Shares Vested 10% 25% 50% 75% 100%
</TABLE>
For purposes of this Agreement, "Disability" means that the
Employee is disabled as a result of sickness or injury, such that he is unable
to satisfactorily perform the material duties of his job, as determined by the
Board of Directors, on the basis of medical evidence satisfactory to it.
B. In the event of the termination of the Employee's employment
with the Company (and any subsidiary or affiliate) prior to the end of the
Restriction Period due to a change in control, the shares shall become
unrestricted and fully vested.
For purposes of this Agreement, a "Change of Control" shall occur
if any person or group of persons (as defined in Section 13(d)(3) of the
Securities and Exchange Act of 1934) other than the members of the family of
William H. Brady, Jr. and their descendants, or trusts for their benefit, and
the W. H. Brady Foundation, Inc., collectively, directly or indirectly controls
in excess of 50% of the voting common stock of the Company.
For purposes of this Agreement, a termination due to Change of
Control shall occur if within the 12 month period beginning with the date a
Change of Control occurs (i) the Employee's employment with the Company is
involuntarily terminated (other than by reason of death, disability or cause) or
(ii) the Employee's employment with the Company is voluntarily terminated by the
Employee
<PAGE> 2
subsequent to (A) a 10% or more diminution in the total of the Employee's annual
base salary (exclusive of fringe benefits) and the Employee's target bonus in
comparison with the Employee's total of annual base salary and target bonus
immediately prior to the date the Change of Control occurs, (B) a significant
diminution in the responsibilities or authority of the Employee in comparison
with the Employee's responsibility and authority immediately prior to the date
the Change of Control occurs or (C) the imposition of a requirement by the
Company that the Employee relocate to a principal work location more than 50
miles from the Employee's principal work location immediately prior to the date
the Change of Control occurs.
For purposes of this Agreement, Cause means (i) the Employee's
willful and continued failure to substantially perform the Employee's duties
with the Company (other than any such failure resulting from physical or mental
incapacity) after written demand for performance is given to the Employee by the
Company which specifically identifies the manner in which the Company believes
the Employee has not substantially performed and a reasonable time to cure has
transpired, (ii) the Employee's conviction of (or plea of nolo contendere for
the commission of) a felony, or (iii) the Employee's commission of an act of
dishonesty or of any willful act of misconduct which results in or could
reasonably be expected to result in significant injury (monetarily or otherwise)
to the Company, as determined in good faith by the Board of Directors of the
Company.
C. In the event of (a) the merger or consolidation of the
Company with or into another corporation or corporations in which the Company is
not the surviving corporation, (b) the adoption of any plan for the dissolution
of the Company, or (c) the sale or exchange of all or substantially all the
assets of the Company for cash or for shares of stock or other securities of
another corporation, all restrictions imposed on any then-Restricted Stock shall
terminate (such that any Restricted Stock shall become fully transferable)
immediately prior to any such event in which the Company is not the surviving
corporation.
D. If the lapsing of the restrictions, other than under
paragraph 2.C., would result in disallowance of any portion of the Company's
deduction therefore under Section 162(m) of the Internal Revenue Code, the
restrictions shall lapse only as to those shares for which the amount is
deductible, with the balance to lapse as soon as deductible by the Company.
However, in such event, the Company shall pay the Employee on a quarterly basis
an amount of interest based on the prime rate recomputed each quarter and the
value as of each quarter of the shares as to which such restriction has not
lapsed.
E. If the lapsing of the restrictions would result in any
excise tax to the Employee as a result of Section 280(G) of the Code, the
Company shall pay the Employee an amount equal to such excise tax.
3. Dividend Rights. The Employee shall have the right to receive any
cash dividends otherwise payable with respect to the Shares, as paid, and the
Employee shall have all other rights as holder of such Shares, provided,
however, the Company shall retain custody of all stock certificates representing
shares as to which such restriction has not lapsed.
4. Transfer Restrictions. This Award and the Shares (until they become
unrestricted pursuant to the terms hereof) are non-transferable and may not be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt to effect any such disposition,
or upon the levy of any such process, the Award shall immediately become null
and void and the Shares shall be forfeited.
2
<PAGE> 3
5. Withholding Taxes. The Company may require payment of or withhold
any tax which it believes is payable as a result of the Shares becoming
unrestricted and fully vested, and the Company may defer making delivery with
respect to Shares until arrangements satisfactory to the Company have been made
with regard to any such withholding obligations. In lieu of part or all of any
such payment, the Employee, in satisfaction of all withholding taxes (including,
without limitation, Federal income, FICA (Social Security and Medicare) and any
state and local income taxes) payable as a result of such vesting, may elect,
subject to such rules and regulations as the Company may adopt from time to
time, to have the Company withhold that number of Shares (valued at Fair Market
Value on the date of vesting and rounded upward) required to settle such
withholding taxes.
6. Death of Employee. If any of the Shares shall vest upon the death of
the Employee, they shall be registered in the name of the estate of the Employee
unless the Company shall have theretofore received in writing a beneficiary
designation, in which event they shall be registered in the name of the
designated beneficiary.
7. Adjustment of Shares. The terms and provisions of this Award
(including, without limitation, the terms and provisions relating to the number
and class of shares subject to this Award) shall be subject to appropriate
adjustment in the event of any recapitalization, merger, consolidation,
disposition of property or stock, separation, reorganization, stock dividend,
issuance of rights, combination or split-up or exchange of shares, or the like.
IN WITNESS WHEREOF, this Restricted Stock Agreement has been duly
executed as of August 1, 1997.
W. H. BRADY CO.
By: Katherine M. Hudson
------------------------
Attest: Peter J. Lettenberger
-------------------
Secretary
3
<PAGE> 1
W. H. BRADY CO.
RESTRICTED STOCK AGREEMENT
(AUGUST 1, 1997)
W. H. Brady Co. (the "Company"), a Wisconsin corporation, hereby grants to
David R. Hawke (the "Employee") a Restricted Stock Award (the "Award") with
respect to 25,000 shares (the "Shares") of the authorized but unissued Class A
Common Stock, $.01 par value, of the Company (the "Common Stock"), all in
accordance with and subject to the following terms and conditions:
1. Restrictions. Subject to Section 2 below, the restrictions on the Shares
shall lapse, and the Shares shall vest to the extent of 75%, on August 1, 2002
and to the extent of the remaining 25% on August 1, 2003 (the "Vesting Dates"),
provided that the Employee remains an employee of the Company (or a subsidiary
or affiliate) during the entire period (the "Restriction Period) commencing on
the Date of Award set forth above and ending on the respective Vesting Dates.
2. Termination of Employment, Etc., During Restriction Period. A. In the
event of the termination of the Employee's employment with the Company (and any
subsidiary or affiliate) prior to the end of the Restriction Period due to death
or disability, the Shares shall become unrestricted and fully vested as follows:
<TABLE>
<CAPTION>
If Death or
Disability August 1, 1998- August 1, 1999- August 1, 2000- August 1, 2001- August 1, 2002- August 1,
Occurs July 31, 1999 July 31, 2000 July 31, 2001 July 31, 2002 July 31, 2003 2003
- ------ ------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Percentage
of Shares
Vested 10% 20% 30% 50% 75% 100%
</TABLE>
For purposes of this Agreement, "Disability" means that the Employee is
disabled as a result of sickness or injury, such that he is unable to
satisfactorily perform the material duties of his job, as determined by the
Board of Directors, on the basis of medical evidence satisfactory to it.
B. In the event of the termination of the Employee's employment with
the Company (and any subsidiary or affiliate) prior to the end of the
Restriction Period due to a change in control, the shares shall become
unrestricted and fully vested.
For purposes of this Agreement, a "Change of Control" shall occur if
any person or group of persons (as defined in Section 13(d)(3) of the Securities
and Exchange Act of 1934) other than the members of the family of William H.
Brady, Jr. and their descendants, or trusts for their benefit, and the W. H.
Brady Foundation, Inc., collectively, directly or indirectly controls in excess
of 50% of the voting common stock of the Company.
For purposes of this Agreement, a termination due to Change of Control
shall occur if within the 12 month period beginning with the date a Change of
Control occurs (i) the Employee's employment with the Company is involuntarily
terminated (other than by reason of death, disability or cause) or (ii) the
Employee's employment with the Company is voluntarily terminated by the Employee
subsequent to (A) a 10% or more diminution in the total of the
<PAGE> 2
Employee's annual base salary (exclusive of fringe benefits) and the Employee's
target bonus in comparison with the Employee's total of annual base salary and
target bonus immediately prior to the date the Change of Control occurs, (B) a
significant diminution in the responsibilities or authority of the Employee in
comparison with the Employee's responsibility and authority immediately prior to
the date the Change of Control occurs or (C) the imposition of a requirement by
the Company that the Employee relocate to a principal work location more than 50
miles from the Employee's principal work location immediately prior to the date
the Change of Control occurs.
For purposes of this Agreement, Cause means (i) the Employee's willful
and continued failure to substantially perform the Employee's duties with the
Company (other than any such failure resulting from physical or mental
incapacity) after written demand for performance is given to the Employee by the
Company which specifically identifies the manner in which the Company believes
the Employee has not substantially performed and a reasonable time to cure has
transpired, (ii) the Employee's conviction of (or plea of nolo contendere for
the commission of) a felony, or (iii) the Employee's commission of an act of
dishonesty or of any willful act of misconduct which results in or could
reasonably be expected to result in significant injury (monetarily or otherwise)
to the Company, as determined in good faith by the Board of Directors of the
Company.
C. In the event of (a) the merger or consolidation of the Company with
or into another corporation or corporations in which the Company is not the
surviving corporation, (b) the adoption of any plan for the dissolution of the
Company, or (c) the sale or exchange of all or substantially all the assets of
the Company for cash or for shares of stock or other securities of another
corporation, all restrictions imposed on any then-Restricted Stock shall
terminate (such that any Restricted Stock shall become fully transferable)
immediately prior to any such event in which the Company is not the surviving
corporation.
D. If the lapsing of the restrictions, other than under paragraph 2.C.,
would result in disallowance of any portion of the Company's deduction therefore
under Section 162(m) of the Internal Revenue Code, the restrictions shall lapse
only as to those shares for which the amount is deductible, with the balance to
lapse as soon as deductible by the Company. However, in such event, the Company
shall pay the Employee on a quarterly basis an amount of interest based on the
prime rate recomputed each quarter and the value as of each quarter of the
shares as to which such restriction has not lapsed.
E. If the lapsing of the restrictions would result in any excise tax to
the Employee as a result of Section 280(G) of the Code, the Company shall pay
the Employee an amount equal to such excise tax.
3. Dividend Rights. The Employee shall have the right to receive any cash
dividends otherwise payable with respect to the Shares, as paid, and the
Employee shall have all other rights as holder of such Shares, provided,
however, the Company shall retain custody of all stock certificates representing
shares as to which such restriction has not lapsed.
4. Transfer Restrictions. This Award and the Shares (until they become
unrestricted pursuant to the terms hereof) are non-transferable and may not be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt to effect any such disposition,
or upon the levy of any such process, the Award shall immediately become null
and void and the Shares shall be forfeited.
5. Withholding Taxes. The Company may require payment of or withhold any
tax which it believes is payable as a result of the Shares becoming unrestricted
and fully vested, and the Company may defer making delivery with respect to
Shares until arrangements satisfactory to the Company have been made with regard
to any such withholding obligations. In lieu of part or all of any such payment,
the Employee, in satisfaction of all withholding taxes (including, without
limitation, Federal income, FICA (Social Security and Medicare) and any state
and local income taxes) payable as a result of such vesting, may elect, subject
to such rules and regulations as the Company may adopt from time to time,
2
<PAGE> 3
to have the Company withhold that number of Shares (valued at Fair Market Value
on the date of vesting and rounded upward) required to settle such withholding
taxes.
6. Death of Employee. If any of the Shares shall vest upon the death of the
Employee, they shall be registered in the name of the estate of the Employee
unless the Company shall have theretofore received in writing a beneficiary
designation, in which event they shall be registered in the name of the
designated beneficiary.
7. Adjustment of Shares. The terms and provisions of this Award (including,
without limitation, the terms and provisions relating to the number and class of
shares subject to this Award) shall be subject to appropriate adjustment in the
event of any recapitalization, merger, consolidation, disposition of property or
stock, separation, reorganization, stock dividend, issuance of rights,
combination or split-up or exchange of shares, or the like.
IN WITNESS WHEREOF, this Restricted Stock Agreement has been duly executed
as of August 1, 1997.
W. H. BRADY CO.
By: Katherine M. Hudson
------------------------------------
Attest: Peter J. Lettenberger
------------------------------------
3
<PAGE> 1
W.H. Brady Co.
Annual Report 1997
Solutions
Brady's Global Groups
Identification Systems & Specialty Tapes Group
develops, manufactures and markets high-performance adhesive and topcoated
materials, industrial labels, software, printers, label applicators and
data-collection systems as well as a variety of precision die-cut and slit
materials which are used in everything from cellular phones to semiconductors.
Graphics Group
develops, manufactures and markets safety and facility identification products
such as signs, pipe markers, lockout/ tagout devices, portable printing systems
and tapes as well as various wide-format digital printing systems and materials
for everyday presentation and professional graphics markets.
Direct Marketing Group
markets more than 20,000
custom-manufactured and stock safety and facility identification products
through telemarketing, catalogs and the Internet. The group serves a variety of
customers internationally with its broad product line, rapid response and
regulatory expertise.
W.H. Brady Co. Locations
United States
W.H. Brady Co.
Brady Financial Co.
Brady International Co.
Brady Precision Tape Co.
Brady Service Co.
Brady USA, Inc.
6555 West Good Hope Road
Milwaukee, WI 53223
Brady Investment Co.
2756 N. Green Valley Parkway
Suite 313
Henderson, NV 89014
Seton
20 Thompson Road
Branford, CT 06405
Varitronic Systems, Inc.
6835 Winnetka Circle
Brooklyn Park, MN 55428
Australia
<PAGE> 2
W.H. Brady Pty. Ltd.
Seton Australia Pty. Ltd.
2 Pat Devlin Close
Chipping Norton
NSW 2170, Australia
Belgium
W.H. Brady N.V.
Industriepark
Lindestraat 20
B9240 Zele, Belgium
Brazil
W.H.B. do Brasil Ltda.
Centro Empresarial Alphaville
Av. Juru, 105- Modulo 4
06455-908-Barueri
Sao Paulo, Brazil
Canada
W.H.B. Identification Solutions, Inc.
56 Leek Crescent
Richmond Hill
Ontario L4B 1H1, Canada
England
Brady Graphic Solutions Limited
Summit House
Brooklands Close
Sunbury on Thames
Middlesex TW16 7EH, England
Seton Limited
Canada Close
Banbury, Oxon
OX16 7RT, England
W.H. Brady Co. Ltd.
Wildmere Industrial Estate
Banbury, Oxfordshire
OX16 7JU, England
France
Seton S.A.
214 Boulevard de Fourmies
59100 Roubaix, France
Signals S.A.
Rond Point de la Republique
<PAGE> 3
Z.I. de la Rochelle
17187 Perigny Cedex, France
W.H. Brady S.A.R.L.
2 Place Marcel Rebuffat
BP 362 Parc de Villejust
91959 Les Ulis Cedex, France
Germany
Seton GmbH
Otto-Hahn-Str. 5-7
63222 Langen, Germany
W.H. Brady GmbH
Lagerstrabe 13
D-64807 Dieburg, Germany
Hong Kong
W.H. Brady Asia-Pacific Pte. Ltd
Unit 1803-04, 18/F
CRE Centre
889 Cheung Sha Wan Road
Kowloon, Hong Kong
Italy
Brady Italia
Seton Italia, Srl
Via Luigi Lazzaroni 7
21047 Saronno VA, Italy
Japan
Nippon Brady K.K.
Sumitomo Fudosan Shin
Yokohama Bldg.
8F 2-5-5 Shin Yokohama
Kohoku-ku, Yokohama
Kanagawa 222, Japan
Malaysia
W.H. Brady Asia-Pacific Pte. Ltd.
15, 1st Floor, Lorong Mayang Pasir 5
Bayan Baru 11950
Penang, Malaysia
Republic of Korea
W.H. Brady Korea Co., Ltd.
130-8 Dongan-Ri
Okcheon-Eup
Okcheon-Gun, Chung Buk
<PAGE> 4
373-800, Korea
Singapore
W.H. Brady Asia-Pacific Pte. Ltd.
W.H. Brady Pte. Ltd.
55 Ayer Rajah
Crescent #03-25
Ayer Rajah Industrial Estate
Singapore
Sweden
Brady AB
Karins Vag 5
S-194 54 Upplands V#sby
Sweden
Taiwan
W.H. Brady Asia-Pacific Pte. Ltd.
4th Floor, No. 4, Alley 4
Lane 30, Hwan-Shan Road, SEC 3
Taipei, 114, Taiwan
1997 Sales by Region
[PIE CHART]
USA 57%
Europe 29%
Other 14%
W.H. Brady Co. is an international manufacturer of identification, safety,
materials and graphics products. Through its team of 2,500 employees, Brady
provides a variety of markets with products and services that represent the
high quality, innovation and performance that has come to be associated with
Brady since its founding in 1914. It is Brady's focus on providing customers
with full solutions that has made Brady a world leader in its markets and a
company that is always on the move.
Financial Highlights
<TABLE>
<CAPTION>
Percent
Increase
(Dollars in Thousands, Except Per Share Amounts) 1997 1996 (Decrease)
<S> <C> <C> <C>
Net sales $426,081 $359,542 18.5
Income before income taxes $51,271 $45,433 12.9
Pre-tax profit margin 12.0% 12.6%
Net income $31,707 $28,027 13.1
After-tax profit margin 7.4% 7.8%
Return on average stockholders' investment 16.0% 15.6%
Net income per Common Share
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Class A Nonvoting $1.44 $1.27
Class B Voting $1.41 $1.24
Working capital $130,724 $109,688 19.2
Stockholders' investment $206,547 $189,263 9.1
Research and development $16,300 $11,309 44.1
Capital expenditures $8,777 $10,470 (16.2)
Depreciation and amortization $14,151 $10,602 33.5
</TABLE>
Year Ending July 31
Net Sales
(in millions)
[CHART]
93 243
94 256
95 314
96 360
97 426
Net Income
(in millions)
[CHART]
93 17
94 19
95 28
96 28
97 32
Stockholders' investment
(in millions)
[CHART]
93 128
94 145
95 171
96 189
97 207
Contents
1 Financial Highlights
2 Letter to Shareholders
4 Marketing Review
13 Financial Review
<PAGE> 6
30 Shareholder Services
Inside back cover Corporate Data
Letter to Our Shareholders
W.H. Brady Co. had a record year in 1997, hitting new milestones in financial
performance and shareholder value enhancement. And we continued to innovate and
expand geographically, further strengthening our service to customers and
growing the business.
Katherine Hudson
President and Chief Executive Officer
[PHOTO]
A Record Year
W.H. Brady Co. had double-digit increases in both sales and net income in
fiscal 1997, which ended July 31, 1997.
Our sales were $426.1 million in 1997, up 18.5 percent from the prior year's
sales of $359.5 million. Each of our business groups posted double-digit growth
in the year, helped by strong sales of printing systems and related consumable
products, such as labels and printer ribbons. Although a strong U.S. dollar led
to translation losses of $4.4 million for the year, Brady's international sales
were up 15.5 percent. Now international sales make up about 45 percent of total
company sales, including exports.
Net income for fiscal 1997 was $31.7 million, or $1.44 per share, up 13.1
percent from $28 million, or $1.27 per share, in 1996. Excluding the after-tax
effects of an $895,000 restructuring charge in the fiscal 1997 second quarter
and a fiscal 1996 gain of $950,000 from the sale of a building, net income for
fiscal 1997 rose 20.4 percent.
Our efforts to enhance efficiency and reduce overhead proved effective, with
operating income for the year rising 22 percent to $50.4 million. In addition
to having a good year, we also achieved our goals for strong long-term growth
and shareholder value enhancement. Brady's compound annual growth rate since
1993 is 15 percent for sales and 17 percent for net income. And we achieved
strong shareholder value enhancement. Brady's stock appreciation since 1993
amounts to a compound annual growth rate of 26 percent. Looking back to 1984,
when Brady went public, our stock has had a compound annual growth rate of 18
percent. Return to shareholders is even higher (about 2 percent higher) when
taking into account our dividends, which have increased each year for the past
12 years.
We accomplished much in fiscal 1997, including launching new products, such as
BradyTRAXX(R) data-management software, the Bradyprinter(TM) THT Model 1024
thermal-transfer printer, VersaPrinter(TM) Label and Signmaker System,
IndustriNotes(TM), pneumatic lockout/tagout devices and the ProImage XL(TM)
Poster Printer. Our spending on research and development in the year increased
to 3.8 percent of sales. We strive to have about 25 percent of total sales
coming from new products, those introduced within the past three years.
<PAGE> 7
To extend our reach internationally, we established a sales and warehouse
operation in Brazil, a manufacturing joint venture in South Korea, and sales
offices in Malaysia and Taiwan.
We also acquired Signals S.A., France, a direct marketer of safety and facility
identification products, for about $10 million in cash in April 1997. As part
of the Direct Marketing Group, Signals is expanding our presence in France
while providing synergies with Seton, such as customer list utilization and
mailing coordination.
In fiscal 1998 we will continue our emphasis on revenue growth, cost control
and re-source utilization. New product development will be our No. 1 growth
strategy. We will also continue our geographic expansion by opening new sales
offices in countries such as the Philippines and Mexico, and we will be
continuing to add distributors in other countries.
We ended fiscal 1997 with $65 million in cash on our balance sheet. In 1998 we
plan to use a good portion of our cash for acquisitions, joint ventures and
other investments. For acquisitions, we are looking for companies that will
enhance shareholder value while providing Brady a new technology or capability,
access to a new market or expanded geographic presence.
Our final growth strategy is doing more where we are. There is still
significant opportunity for us in Europe, where we have had a foothold since
1962, as well as Asia/Pacific, North America and other regions. Through
activities including enhanced distributor relationships, marketing programs,
specialized catalogs and other initiatives, we will continue to spur growth
above industry averages.
Also, in 1998 we will expand production capacity through a new $10-million
state-of-the-art coater. The equipment will produce coated materials for
internal and external customers.
Our continuous improvement efforts worldwide will be aimed at providing
superior service to customers and reducing overhead and administrative costs.
We will be stepping up investments in our information technology infrastructure
to support these initiatives, to complete Year 2000 compliance, and to advance
our efforts in the area of electronic commerce.
The 2,500 members of the Brady team made 1997 a terrific year. That team will
continue on the track of revenue growth, cost control and resource utilization
to add value for both customers and shareholders in 1998 and beyond.
Thank you for your continued
support.
Sincerely,
Katherine M. Hudson
President and Chief Executive Officer
August 1996
Brady forms W.H. Brady Korea Co., Ltd. as a manufacturing joint venture in
Okcheon, Chung Buk, South Korea.
<PAGE> 8
October 1996
Seton-U.S. begins marketing into Mexico via a product flyer.
November 1996
A Brady sales office in Penang, Malaysia, is established as W.H. Brady
Asia-Pacific Pte. Ltd.
December 1996
Brady enters the professional graphics market by launching outdoor-durable
inkjet-printable vinyl material in association with Fujifilm wide-format color
inkjet printing systems.
December 1996
A Brady sales office in Taipei, Taiwan, is established as W.H. Brady
Asia-Pacific Pte. Ltd.
January 1997
Brady restructures its European operations and Hirol Division operations in the
United States to enhance efficiencies and improve service to customers.
March 1997
Seton-France begins marketing into Spain via a product flyer.
April 1997
Brady acquires Signals S.A., a direct marketer of safety and facility
identification products in France.
June 1997
Seton-Brazil mails its first catalog in Brazil, a 36-page catalog offering
safety signs, barricade tapes and more.
July 1997
Brady becomes a part of the S&P Small Cap 600 Index.
"We provide companies around the world with high-performance identification,
safety, graphics, industrial identification and materials solutions."
Research and development investments
(in millions)
[CHART]
<PAGE> 9
93 12
94 10
95 10
96 11
97 16
Record levels of R&D investments reflect the Company's commitment to being a
world leader in its markets by providing customers advanced solutions.
Sales from international operations
(in millions)
[CHART]
93 78
94 95
95 129
96 157
97 181
1997 sales from international operations accounted for 42% of sales. Including
export sales from the US, international sales in 1997 were 45% of total sales.
Safety and Facility ID
Worldwide, Brady provides full solutions to help companies create safer and
more productive work environments. It offers more than 20,000 safety and
facility identification products that warn, protect, inform and train
employees. These include health and safety signs, pipe markers, labels and
tags, lockout/ tagout products, numbers and letters, barricade tapes, safety
videos and manuals, software and labeling systems. The company tops off its
broad line of products with superior service, including regulatory advice and
same-day shipments of products. This customer focus has made Brady the world's
leading provider of safety and facility identification.
Locked Out
Brady's safety products are used in a wide variety of businesses and
applications, even in remote oil operations. When performing maintenance
functions on offshore oil rigs, engineers use Brady's lockout/tagout devices to
ensure that others don't turn on equipment while they are making repairs.
Signs, barricade tapes and chains, and various other products also help keep
people safe by informing them of potential hazards.
[PHOTO]
Powerful Solutions
<PAGE> 10
Houston Lighting & Power Company personnel create safety signs, valve tags,
pipe markers and other general safety identification items inside its power
plants with Brady's systems and materials. Warning labels with pictograms
indicating electricity printed on Brady's Labelizer(R) Plus Printing System
adhere to transformers through rain, snow, sun and other conditions.
[PHOTO]
Leading the Way
Mercedes-Benz U.S. International uses facility identification placarding
provided by Brady. The placards identify emergency evacuation routes within the
manufacturing facility in Tuscaloosa County, Alabama. Other companies use the
placards, which can be color-coded and are available in flexible
or rigid laminated material, for energy control and lockout, preventive
maintenance and as office directories. The computer-generated placards are
custom-made either from drawings sent to Brady or designs by a Brady engineer
who toured the customer's facility.
[PHOTO]
Pulp & Paper
Pulp and paper mills depend on the durability of Brady-engineered pipe markers.
Created on materials that withstand the exposure to heat and chemicals inside
and outside of these facilities, pipe markers and signs are a vital part of
assuring that important information is available to facility managers when they
need it.
[PHOTO]
A Helping Hand
All types of companies need to be in tune with safety and identification
regulations. The SmartTRACSM and Compliance Alliance Groups serve as valuable
resources. For example, regulatory information specialists, through
www.seton.com or 1-800-420-7572, respond to inquiries about safety compliance
laws and industry standards and supply companies with appropriate products to
use in their facilities to maintain safe and productive operations. Brady is a
one-stop shop for safety solutions.
[PHOTO]
In the Lab
In research and testing laboratories, Brady products from custom signs to
Right-to-Know preprinted and formatted labels provide important information
regarding experiments in progress and chemicals in use. This helps keep
employees safe while they innovate.
[PHOTO]
Behind the Scenes
Brady's safety products can be found in very popular places. In Orlando,
Florida, signs alert workers to potential hazards at amusement parks and space
centers to help ensure employee safety. Some Brady
<PAGE> 11
products show up on the silver screen as well, such as in the movies Jurassic
Park, Robo Cop and Long Kiss Goodnight. Though Jurassic Park is only fiction,
the fact that the "Danger 10,000 Volts" Brady sign can hold up in that harsh
environment is not!
[PHOTO]
Graphic Solutions
Brady offers a variety of wide- and narrow-format printing systems and
materials which provide turnkey solutions for a wide range of customer needs
from one-color labels and posters to spectacular full-color outdoor graphics.
The systems enable organizations to produce cost-effective yet vivid,
high-quality, custom communication pieces on site and on demand. In 1997,
Brady made further advancements in its materials offerings to provide
high-quality, outdoor-durable inkjet materials that last. Today, as more and
more organizations look for graphic solutions that make a difference, they look
to Brady.
Courtroom Graphics
In courtrooms, lawyers often use graphic displays to make their case. And
Brady's wide- format printing systems are becoming a tool of the trade. Brady's
line of one-color poster printers and laminating systems enable people to make
their own professional-looking 36-inch-wide posters quickly and
cost-effectively. Those desiring large, full-color displays, such as for
showing accident scenes, can turn to Brady's color inkjet printing systems.
[PHOTO]
Political Parties
The Brady PostaPix Thermal Poster-Printing System enabled political parties in
the 1997 United Kingdom general election to display fresh, high-impact visual
messages to their electorate with an urgency not believed possible a few years
ago. As candidates dashed from one public meeting to the next, they could
quickly print custom posters in their party colors in any quantity, showing
images or slogans to suit the speaker's theme or the party's "issues of the
day."
[PHOTO]
Trophies
Brady markets narrow-format printing systems into a variety of niche markets.
For example, trophy shops use Brady's QuikPlate(R) System as an inexpensive and
convenient alternative to traditional trophy-plate engraving. The system
allows trophy shops to produce a high volume of great-looking trophy plates
faster and at a lower cost than traditional engraving technology allows.
QuikPlate material is a durable, scratch-resistant metallic-appearing material
with adhesive on the back for easy placement on a trophy base.
[PHOTO]
Making the Grade
<PAGE> 12
Brady's ProImage(R) Poster Printers provide schools with a fast, convenient and
cost-effective way to create large, professional-looking charts, banners, signs
and posters. Users simply take an 8.5 x 11-inch printout, place it in the
ProImage system, press a button and let the system scan and print in seconds to
produce 17- to 36-inch-wide output. It prints banners up to 100 feet long and
can be connected directly to Mac and PC-compatible computers. For everything
from classroom lessons to recognition posters to sports banners, the system
rates an "A."
[PHOTO]
Events
At the 1997 National Association of Quick Printers trade show in Atlanta,
Georgia, NAQP used Brady's ColorPix Inkjet Printing System for trade show floor
and conference signage. The system allows users to cost-effectively print
vibrant, large, full-color custom images within minutes. In the past, signage
of this type was screen-printed -- a very costly alternative. Brady systems
provide flexibility as well as high- quality images.
[PHOTO]
Organizations
Indiana University uses a ColorPix Inkjet Printing System for a variety of
signage applications. The system's unique ability to easily change inks and
substrates without recalibration allows the university to quickly mark special
events like those at its art museum as well as produce backlit directional
signage. The system can print with both die-based and pigmented inks on a
variety of substrates ranging from ordinary paper to silk to outdoor-durable
vinyl.
[PHOTO]
Industrial Identification
Companies' identification needs are diverse, but they all have something in
common: they rely on critical information being in place when they need it! And
Brady delivers. Brady's high-performance labeling systems are used to identify
wires, cables, printed circuit boards, equipment, work-in-process and many
other items. Along with high-performance materials, Brady offers a complete
line of label-printing systems and software enabling customers to make labels
on demand. With strengths in chemistry, materials science, coating, converting,
system design and engineering, Brady meets customers' needs for identification
solutions that stand up to chemicals, abrasion, weathering, extreme
temperatures and other harsh conditions.
[PHOTO]
Flying High
Companies have relied on Brady's industrial identification solutions since the
1940s when Brady introduced labels to mark wires in military equipment. Today,
Brady labels and tapes mark wiring and fluid lines in airplanes produced by
companies such as The Boeing Company. Brady's wire markers
<PAGE> 13
withstand tremendous heat, crystallizing cold, and the deteriorating effects of
grease, hydraulic fluid and airplane fuel while maintaining legible
identification.
[PHOTO]
Gone Fishing
Each spool of Trilene fishing line and fly-fishing line (of Berkley Outdoor
Technology) comes with a 2.5-inch by 1.5-inch Brady label. Fishing
enthusiasts place the labels at the end of the spooled fishing line to prevent
the remaining line from unwinding or becoming tangled. The Brady label is
repositionable and leaves no residue, so it doesn't interfere with the catch of
the day.
[PHOTO]
Semiconductors
Texas Instruments, Inc. is the worldwide leader in digital signal processing
solutions and offers a unique breadth of digital and mixed-signal products and
technologies, hardware and software development tools, design information
services and global support. For parts tracking and shipping, TI is using two-
dimensional and linear barcodes produced through Brady printers, labels and
software. As the barcodes contain real-time information used for internal
quality control and material management, Texas Instruments counts on the
reliability of Brady's labeling systems.
[PHOTO]
Automotive
Each day millions of cars and trucks are on the move. Many of them have been
touched in some way by a Brady product. Brady products play a role in
work-in-process tracking, quality assurance, warranty management and other
functions in everything from airbag housings in vehicles to electrical wiring
in major manufacturers' stereo equipment. Each label solution is specialized to
serve a critical need and stands up as specified through grease, high
temperatures and harsh production processes.
[PHOTO]
Medical Applications
Brady products also play a role in the medical arena, such as when Beltone
Electronics Corporation, Chicago, Illinois, manufactures hearing aids. During
production, the outer shell of the hearing aids is buffed to create a shiny
appearance. Removable Brady labels keep debris away from hearing-aid circuitry
and the microphone inside by covering vents and other openings in the shell.
[PHOTO]
Pacesetter, Inc., a St. Jude Medical Company based in Sylmar, California, uses
custom polyester Brady labels and a clear overlaminate on its pacemaker leads,
allowing for easy traceability of each lead. Each of the labels contains a
serial number and color code.
[PHOTO]
<PAGE> 14
Motion Control, Inc., a division of Filluaer, Inc., is the manufacturer of the
Utah Artificial Arm(TM) which operates by using electric signals from remnant
muscles. A Brady label inside the arm allows the user to easily identify how to
make adjustments for fine-tuning the speed and force of arm movement.
[PHOTO]
Automatic ID and Data Collection
Brady's automatic identification and data-collection systems take industrial
identification one step further. They incorporate standard or custom-tailored
scanners, verifiers, tracking software and readers into customers# existing
infrastructures to increase efficiencies, productivity and quality. Brady
engineers work with customers to select the right equipment for their
individual applications and even custom design software for existing
infrastructures. This consultive approach, coupled with Brady's quality of
products, training and follow-up technical support, is what keeps customers
coming back to Brady. From today's methods to emerging standards like Data
Matrix(TM) symbology and radio-frequency identification, Brady has solutions,
and they are working on some of the toughest jobs around the world.
[PHOTO]
Telecommunications
Brady's automatic identification and data-collection systems serve a variety of
markets. In the production of cellular phones, for example, Ericsson, Sweden,
uses Brady-engineered thermal-transfer printing systems to track components for
quality assurance and product identification.
[PHOTO]
Printed Circuit Board Assembly
Unico Technology Berhad assembles printed circuit boards as a subcontractor for
many electronics manufacturers. Unico uses a Brady thermal-transfer printer,
barcode software and two types of Brady label materials to identify, track and
ensure the quality its customers expect.
[PHOTO]
Electronics
Brady scanning systems are integrated in Motorola production lines to read,
decode and transmit information from two-dimensional Data Matrix(TM) labels
applied to crystals, the frequency-determining element in electronic devices.
Motorola produces millions of electronic devices, including telephones, pagers
and hand-held radios, every year. Brady's scanners and data-collection devices
quickly provide the information needed from the data-matrix label for Motorola
to rapidly tune and produce these products.
[PHOTO]
Work-In-Process
<PAGE> 15
Lucent Technologies, a global systems and technology company connecting ideas,
commerce and people worldwide, has a work-in-process serialization system that
relies on the PAM 5000 Printer Applicator Machine for identification and
tracking needs. Brady's custom software feeds Lucent's serialized codes to the
PAM 5000 System. Each barcode label is printed and applied to Lucent
Technologies circuit boards with a robotic arm at a rate of 10 codes per minute
with precision. Once applied, the labels are integrated into process control
and work-in-process tracking within Lucent's Columbus Works Wireless product
realization facility. By using the PAM 5000 System, Lucent can track product
quality and productivity easily and effectively.
As Lucent Technologies grows globally, W.H. Brady Co. is right beside them.
Lucent Technologies Network Systems EMEA, headquartered in the Netherlands,
with locations in Germany, France, Spain, Poland, China, Russia and Saudi
Arabia, uses high-performance Brady labels, thermal-transfer printers and
software to identify circuit boards and faceplates of network hardware and
packing material.
[PHOTO]
Making Connections
AMP Japan, a subsidiary of AMP Incorporated based in Harrisburg, Pennsylvania,
a worldwide leader in electrical connectors and interconnection systems, uses
Brady labeling systems for its Client-Server System. These Brady products
enable AMP Japan to print 12-digit barcodes on product shipments. The barcodes
allow AMP to keep precise track of product and delivery information.
[PHOTO]
Animal Tracking
Y-Tex, an international supplier of animal tags for identifying livestock, uses
Brady's radio-frequency products to provide accurate and on-the-spot
information about livestock, such as swine and cattle, in a feed-lot
environment. Brady RF Tags can be read from a distance in milliseconds -- even
through a variety of nonmetallic materials. A quick scan of an ear tag allows
for easy monitoring and recording of an animal's information including weight,
lean content, growth and vaccinations from birth to processing.
[PHOTO]
Specialty Tapes & Die-Cut Materials
W.H. Brady Co. products and services deliver high quality and performance that
customers count on. With in-house research and development, coating and
converting operations, Brady assures everything from the chemistry to the
printing and shape of a product meets customers' unique needs. Brady chemists
and materials scientists develop the formulations of adhesives, inks, topcoats
and materials that take into consideration everything from adhesion properties
to reactions to various temperatures, moisture, chemicals, abrasion, static
electricity and other conditions. Brady has a wide offering of precision
die-cut products serving the telecommunications, medical and other markets.
From polycarbonate lenses for pager windows to metallic foils for
electromagnetic-interference and radio-frequency-interference shielding in
electronic devices, Brady applies its converting expertise and advanced
manufacturing processes to provide the highest quality of die-cut materials and
specialty tapes to customers.
<PAGE> 16
In The Lead
Brady is a global supplier of the high-performance tapes which stabilize and
reinforce leads of integrated circuit leadframes. Semiconductor manufacturers
find reliability in Brady leadframe tapes that exhibit strong adhesions and
consistent quality over a wide range of temperatures.
[PHOTO]
Audio/Video
Data-storage markets look to Brady for a variety of high-performance tapes that
become a part of audiocassettes, videocassettes and other items. Brady's
printed splicing tape, for example, shows up in millions of movie videos being
sold or rented. The tape serves a mechanical purpose in holding the magnetic
tape to the leader tape in audio- and videocassettes, but also the printed
information on the tape helps blank cassette manufacturers and duplicators
perform quality assurance on their processes and videocassettes.
[PHOTO]
Hard Disk Drives
There is an application or potential application of Brady's tape or die-cut
materials expertise in just about every industry. While a few years ago,
computer hard disk drives were held together by nuts and bolts, today Brady
tape seal is holding many of them together around the world. Brady produces
about 30 different parts of a hard disk drive -- from clock write seals which
cover openings in the drive casing to filter covers which prevent dust and
other contaminants from entering the hard disk drive.
Global Solutions
Around the world, Brady is providing solutions through its 30,000 stock and
numerous custom solutions of signs, tapes, labels, software, printing systems,
safety devices, specialty die-cut materials and other products. At the same
time, an international team of 2,500 employees is working to build on the
strong Brady foundation with continuous improvement and technological advances
to ensure that Brady will provide the highest levels of quality, innovation and
service in the future, too. They're working to make sure that when companies
think of marking, tracking, locking, protecting, fastening, reinforcing,
presenting and sticking to it, they think of Brady.
[PHOTO]
Financial Review
W.H. Brady Co. has demonstrated solid financial performance. Brady's compound
annual growth rates for fiscal 1993-1997 were 15 percent for sales and 17
percent for net income. - Brady also generated positive shareholder value,
providing a net operating profit after tax that exceeded the Company's cost of
capital. The benefit of Brady's internal Shareholder Value Enhancement measure
has been to strengthen its financial health and investment strategy and to
improve the total return to shareholders. Brady's compound annual return to
shareholders -- stock price plus dividends -- for 1993-1997 was 28 percent.
<PAGE> 17
- - With strong fundamentals and excellent growth potential, Brady will continue
to focus on long-term shareholder value enhancement through revenue growth +
cost control + resource utilization.
Years Ending July 31
Earnings per share
[CHART]
93 .77
94 .85
95 1.27
96 1.27
97 1.44
Earnings per share increased 13.4% in 1997. The Compound Annual Growth Rate of
EPS over the last five years was 16.9%.
Annual dividends per share
[CHART]
93 .20
94 .23
95 .27
96 .40
97 .52
In October 1997, dividends increased 15% to $0.60 per share, making fiscal 1998
the 12th consecutive year of annual dividend increases.
Brady common stock trading range
[CHART]
93 11.08-12.58
94 11.50-16.33
95 15.67-23.83
96 18.00-27.50
97 20.50-30.50
On July 31, 1997, Brady's Class A Common Stock closed at $29.63.
Five year cumulative total return
(in millions)
[CHART]
93 S&P 500 - 109 Nasdaq - 122 W.H Brady Co. - 103
<PAGE> 18
94 S&P 500 - 114 Nasdaq - 125 W.H Brady Co. - 142
95 S&P 500 - 144 Nasdaq - 176 W.H Brady Co. - 214
96 S&P 500 - 168 Nasdaq - 191 W.H Brady Co. - 200
97 S&P 500 - 256 Nasdaq - 282 W.H Brady Co. - 274
Brady#s return exceeded the S&P 500, with $100 invested in Brady stock in July
1992 growing to $274 by July 1997 through price appreciation plus dividends.
Operating income
(in millions)
[CHART]
93 25
94 30
95 41
96 41
97 50
Brady's cost control and asset utilization efforts helped fund growth
initiatives while improving the operating margin to 11.8% of sales.
Operating cash flow
(in millions)
[CHART]
93 22
94 33
95 22
96 35
97 40
Operating cash flow rose 15% to $40 million, representing record performance.
Selected Financial Information
(Dollars in Thousands, Except Per Share Amounts)
Years Ended July 31, 1988 through 1997
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Net sales $426,081 $359,542 $314,362 $255,841 $242,970 $235,965 $211,063 $191,161 $174,174 $153,016
Operating expenses:
Cost of products sold 194,096 166,426 143,634 118,116 114,301 110,130 96,797 84,952 75,620 67,302
Research and development 16,300 11,309 10,426 10,318 12,132 10,001 9,176 7,355 6,168 5,879
Selling, general and administrative 165,317 140,642 119,717 97,932 92,449 93,931 84,936 76,596 71,292 63,986
Nonrecurring charge (credit) - - - - (1,236) 6,562 - - 6,465 -
Total operating expenses 375,713 318,377 273,777 226,366 217,646 220,624 190,909 168,903 159,545 137,167
Operating income 50,368 41,165 40,585 29,475 25,324 15,341 20,154 22,258 14,629 15,849
Other income and (expense):
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment and other income - net 1,159 4,570 4,609 837 559 239 2,845 4,004 2,380 1,901
Interest expense (256) (302) (555) (410) (54) (219) (548) (646) (356) (477)
Net other income 903 4,268 4,054 427 505 20 2,297 3,358 2,024 1,424
Income before income taxes,
extraordinary item and
cumulative effect of changes
in accounting principles 51,271 45,433 44,639 29,902 25,829 15,361 22,451 25,616 16,653 17,273
Income taxes 19,564 17,406 16,728 11,362 8,973 6,972 7,054 10,606 6,778 6,968
Income before extraordinary item
and cumulative effect of changes
in accounting principles 31,707 28,027 27,911 18,540 16,856 8,389 15,397 15,010 9,875 10,305
Extraordinary item:
Gain on proceeds of officer's
life insurance policies, net - - - - - - - - 4,625 -
Income before cumulative effect
of changes in accounting principles 31,707 28,027 27,911 18,540 16,856 8,389 15,397 15,010 14,500 10,305
Cumulative effect of changes in
accounting principles for:
Postretirement benefits
(net of income taxes of $2,663) - - - - - (3,995) - - - -
Income taxes - - - - - 661 - - - -
Catalog costs - - - - - - - - 1,233 -
Net income $31,707 $28,027 $27,911 $18,540 $16,856 $5,055 $15,397 $15,010 $115,733 $110,305
Net income per Common Share:
Class A Nonvoting $1.44 $1.27 $1.27 $.85 $.77 $.23 $.71 $.70 $1111.70 $1111.45
Class B Voting $1.41 $1.24 $1.24 .81 $.74 $.19 $.67 $.66 $1111.67 $1111.42
Cash dividends on:
Class A Common Stock $.52 $.40 $.27 $.23 $.20 $.19 $.16 $.13 $1111.09 $1111.08
Class B Common Stock $.49 $.37 $.23 $.19 $.17 $.15 $.13 $.10 $1111.06 $1111.05
Balance Sheet (at period end)
Working capital $130,724 $109,688 $129,938 $100,023 $77,943 $66,093 $70,883 $67,797 $153,056 $142,492
Total assets 291,662 261,835 230,005 202,509 179,901 173,054 156,812 147,197 129,890 117,201
Long-term debt, less
current maturities 3,890 1,809 1,903 1,855 1,978 2,524 1,982 3,298 3,637 3,086
Stockholders' investment 206,547 189,263 170,823 145,129 128,068 119,771 115,260 103,784 89,443 84,987
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes appearing in this annual
report.
Overview
During fiscal 1994 and 1995, the Company experienced sales growth while
reducing cost of products sold and operating expenses as percentages of net
sales. It also made significant improvements in productivity and asset
utilization through the successful implementation of a team-oriented approach
to quality, growth and cost reduction. To further enhance teamwork, in February
1995, the Company's operations were realigned into three global groups, each
headed by a Group Vice President. The groups are (i) the Identification Systems
and Specialty Tapes Group ("ISST"), (ii) the Direct Marketing Group, formerly
the Seton Group, and (iii) the Graphics 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 immediately capitalize those expenditures, and, as a result, selling,
general and administrative expenses as a percentage of sales increased to 39.1%
for fiscal 1996, compared to 38.1% for fiscal 1995. Management believes these
investments will solidify the Company's competitive position and assist the
Company in building a base for sustainable long-term
<PAGE> 20
growth. Investments in these key areas continued in fiscal 1997, but selling,
general and administrative expenses decreased to 38.8% of sales as the Company
leveraged these investments over an increased sales base.
The Company's growth strategy is focused on four key elements: introducing new
products for new markets and applications; geographic expansion in selected
markets worldwide; strategic acquisitions and joint ventures; and increasing
product penetration in existing markets.
The Company introduced several new products in fiscal 1997, including
BradyTRAX(TM) data-management software, Bradyprinter(TM) THT Model 1024
thermal-transfer printer, VersaPrinter(TM) Label and Signmaker System, an
additional printer applicator system model, IndustriNotesTM, pneumatic
lockout/tagout devices and the ProImageXLTM poster printer.
During fiscal 1997 the Company established sales offices in Malaysia and
Taiwan. Catalog sales efforts continued in Brazil during fiscal 1997 and
initial mailings were distributed in Mexico.
The Company completed the acquisitions of TechPress II Limited in November
1995, The Hirol Company in January 1996, Varitronic Systems, Inc. in April 1996
and Signals S.A. in April 1997. The Company formed a manufacturing joint
venture in South Korea in August 1996.
To increase product penetration in fiscal 1997 the Company continued its
investment in sales, marketing and catalog efforts worldwide.
Year Ended July 31, 1997,
Compared to Year Ended July 31, 1996
Sales for fiscal 1997 increased by $66,539,000 or 18.5% over fiscal 1996. Sales
of the Company's international operations increased by 15.5%. Real growth
through continued market penetration in Europe and the Far East increased
international sales 12.7%. The acquisitions of TechPress II Limited and Signals
S.A. and the startup of the Company's Korean joint venture increased
international sales 5.7%. These increases were offset by the negative effect of
fluctuations in the exchange rates used to translate financial results into
U.S. currency which reduced international sales by 2.9%. Sales of the Company's
U.S. operations increased 20.8% for the year ended July 31, 1997. The
acquisitions of Varitronic Systems, Inc. and The Hirol Company contributed
11.8% of this increase, with growth in the sales of the Company's core products
making up the balance.
The cost of products sold as a percentage of sales decreased from 46.3% to
45.6% due to changes in product mix and manufacturing efficiencies from the
Company's continuous improvement efforts, offsetting increased depreciation
expenses from the acquisitions. Cost of products sold for fiscal 1997 included
a charge in the second quarter of $1,200,000 ($715,000 after tax) for
restructuring the Company's European operations and consolidating The Hirol
Company'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 decreased slightly from 39.1% to 38.8%, as
the Company's continuing cost control efforts more than offset the Company's
ongoing investment in building its global information technology
infrastructure. Selling, general and administrative expenses for fiscal 1997
included a charge of $300,000 ($180,000 after tax) for the restructuring
mentioned above. The acquisitions and the Company's commitment to process
improvements and new product development resulted in research and development
expenses increasing by 44.1% over fiscal 1996. As a percentage of sales,
research and development expenses increased from 3.2% to 3.8%.
<PAGE> 21
Operating income increased by $9,203,000 or 22.4% over fiscal 1996, as the
increase in research and development expenses was offset by improved gross
margins and the spreading of fixed costs over a larger sales base.
Investment and other income decreased $3,411,000 from the prior year as a
result of lower investment income because of lower cash balances as a result of
the acquisitions in the prior year and foreign exchange losses. In addition,
investment and other income for fiscal 1996 included $1,750,000 ($950,000 after
tax) from the gain on the sale of a building in Germany.
Income before income taxes increased to $51,271,000, an increase of 12.9%
compared to fiscal 1996's $45,433,000. Excluding the 1997 restructuring charges
and the 1996 gain on the sale of the German building, income before income
taxes increased 20.8% compared to the prior year.
The Company's effective tax rate decreased slightly from 38.3% for fiscal 1996
to 38.2% for fiscal 1997.
Net income was $31,707,000 for fiscal 1997, compared to $28,027,000 for fiscal
1996 because of the factors cited above. Excluding the $895,000 restructuring
charge in 1997 and the $950,000 gain on the sale of the building in Germany in
1996, fiscal 1997 net income increased 20.4% compared to the prior year.
Year Ended July 31, 1996,
Compared to Year Ended July 31, 1995
Sales for fiscal 1996 increased by $45,180,000 or 14.4% over fiscal 1995. Sales
of the Company's international operations increased 21.3% as a result of real
growth through continued market penetration in Europe and the Far East, the
acquisition of TechPress in November 1995 and fluctuations in the exchange
rates used to translate financial results into U.S. currency. Sales of the
Company's U.S. operations increased 9.5% due in part to the acquisitions of VSI
and Hirol in April 1996 and January 1996, respectively.
The cost of products sold as a percentage of sales increased from 45.7% to
46.3% due to changes in product mix and the acquisitions. Selling, general and
administrative expenses as a percentage of sales increased from 38.1% to 39.1%
of sales. This increase reflects the Company's ongoing investment in sales and
marketing activities and in building its global information technology
infrastructure. Research and development expenses increased 8.5% over fiscal
1995, but declined as a percentage of sales.
Operating income increased to $41,165,000 in fiscal 1996, an increase of 1.4%
compared to fiscal 1995's $40,585,000 as the increase in sales was largely
offset by the increased selling, general and administrative expenses and the
increased cost of products sold mentioned above.
Investment and other income for fiscal 1996 included $1,750,000, representing
the gain on the sale of a building in Germany. Investment and other income for
fiscal 1995 included $2,033,000, representing the gain on the divestiture of
two domestic manufacturing operations and the sale of certain real estate.
Income before income taxes increased to $45,433,000, an increase of 1.8%
compared to fiscal 1995's $44,639,000.
<PAGE> 22
The effective tax rate increased from 37.5% for fiscal 1995 to 38.3% for fiscal
1996 due to higher tax rates for the Company#s international operations and a
higher effective state tax rate.
Net income was $28,027,000 for fiscal 1996, compared to $27,911,000 for fiscal
1995, because of the factors cited above.
Year Ended July 31, 1995,
Compared to Year Ended July 31, 1994
Sales for fiscal 1995 increased by $58,521,000 or 22.9% over fiscal 1994. Sales
of the Company's international operations increased 36.3%, 24.3% as a result of
real growth through continued market penetration in Europe and the Far East and
new Seton subsidiaries in Australia and Italy. Translation into U.S. currency
resulted in an additional 12.0% increase in international sales due to
favorable exchange rates during the year. Sales of the Company's U.S.
operations increased 15.0%, primarily from new product introductions such as
the I.D. Pro(TM) Wire Marker Printer. This U.S. sales increase was achieved
despite the divestiture of two businesses during the year that had sales of
$7,943,000 in fiscal 1995 and $10,901,000 in fiscal 1994.
The cost of products sold decreased from 46.2% of sales to 45.7% of sales as a
result of changes in product mix and manufacturing efficiencies from the
Company's continuous-improvement efforts. Selling, general and administrative
expenses as a percentage of sales decreased slightly from 38.3% to 38.1% of
sales, as the Company's continuing cost-control efforts more than offset the
costs associated with new product introductions and the new Seton start-ups.
Research and development increased 1.1% over fiscal 1994, but declined as a
percentage of sales.
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.
Liquidity
The Company's liquidity remains strong. Cash and cash equivalents were
$65,329,000 at July 31, 1997, compared to $49,281,000 at July 31, 1996, and
$89,067,000 at July 31, 1995. The decrease in fiscal 1996 was primarily due to
the acquisitions of TechPress II Limited, The Hirol Company and Varitronic
Systems, Inc. Working capital increased $21,036,000 during fiscal 1997 and
equaled $130,724,000 at July 31, 1997.
<PAGE> 23
The Company has maintained significant cash balances due in large part to its
strong operating cash flow, which totaled $39,911,000 for fiscal 1997,
$34,612,000 for fiscal 1996, and $21,552,000 for fiscal 1995. Capital
expenditures were $8,777,000 in fiscal 1997, $10,470,000 in fiscal 1996, and
$8,114,000 in fiscal 1995. Financing activities, primarily the payment of
dividends to the Company's stockholders, consumed $9,166,000 of cash in the
fiscal 1997, $13,916,000 in fiscal 1996, and $4,659,000 in fiscal 1995.
Long-term debt as a percentage of long-term debt plus stockholders' investment
was 1.8% at July 31, 1997, compared to 0.9% at July 31, 1996, and 1.1% at July
31, 1995, as a result of borrowing by the Company#s new Korean joint venture.
The Company continues to seek opportunities to invest in new products and new
markets and in strategic acquisitions and joint ventures which fit its growth
strategy. Management believes the Company's cash and cash equivalents and the
cash flow it generates from operating activities are adequate to meet 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.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Dollars in Thousands) July 31, 1997 and 1996
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 1) $65,329 $49,281
Accounts receivable, less allowance for losses ($2,241
and $1,992, respectively) 65,450 53,679
Inventories (Note 1):
Finished products 27,179 24,463
Work-in-process 3,885 3,838
Raw materials and supplies 13,541 12,396
Total inventories 44,605 40,697
Prepaid expenses and other current assets (Notes 1, 3 and 4) 12,585 12,454
Total current assets 187,969 156,111
Other assets:
Intangibles -- net (Note 1) 36,015 34,212
Other (Note 4) 5,236 5,863
Property, plant and equipment (Notes 1 and 5):
Cost:
Land 5,162 4,735
Buildings and improvements 39,159 34,484
Machinery and equipment 79,497 78,680
Construction in progress 2,560 4,383
126,378 122,282
Less accumulated depreciation 63,936 56,633
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C>
Net property, plant and equipment 62,442 65,649
Total $291,662 $261,835
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $17,656 $ 13,922
Wages and amounts withheld from employees 16,925 14,144
Taxes, other than income taxes 1,960 1,790
Accrued income taxes 8,453 5,419
Other current liabilities (Note 3) 11,687 10,620
Current maturities on long-term debt (Note 5) 564 528
Total current liabilities 57,245 46,423
Long-term debt, less current maturities (Note 5) 3,890 1,809
Other liabilities (Note 3) 23,980 24,340
Total liabilities 85,115 72,572
Stockholders' investment (Notes 1 and 6):
Preferred Stock (aggregate liquidation preference
of $3,026 at July 31, 1997) 2,855 2,855
Common Stock:
Class A Nonvoting -- issued and outstanding 20,171,853 and
20,094,100 shares, respectively, aggregate liquidation
preference of $33,687 at July 31, 1997) 202 201
Class B Voting -- issued and outstanding 1,769,314 shares 18 18
Additional paid-in capital 9,573 8,415
Earnings retained in the business 193,602 173,491
Cumulative translation adjustments 297 4,283
Total stockholders' investment 206,547 189,263
Total $291,662 $261,835
</TABLE>
See Notes to Consolidated Financial Statements.
Consolidated Statements of Income
Years Ended July 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $426,081 $359,542 $314,362
Operating expenses:
Cost of products sold 194,096 166,426 143,634
Research and development 16,300 11,309 10,426
Selling, general and administrative 165,317 140,642 119,717
Total operating expenses 375,713 318,377 273,777
Operating income 50,368 41,165 40,585
Other income and (expense):
Investment and other income - net (Note 2) 1,159 4,570 4,609
Interest expense (256) (302) (555)
Net other income 903 4,268 4,054
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Income before income taxes 51,271 45,433 44,639
Income taxes (Notes 1 and 4) 19,564 17,406 16,728
Net income $31,707 $28,027 $27,911
Net income per Common Share (Notes 6 and 8):
Class A Nonvoting $1.44 $1.27 $1.27
Class B Voting $1.41 $1.24 $1.24
</TABLE>
See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders' Investment
Years Ended July 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Additional Earnings Cumulative
Preferred Common Paid-In Retained in Translation
Stock Stock Capital the Business Adjustments
<S> <C> <C> <C> <C> <C>
Balances at July 31, 1994 $2,855 $72 $6,768 $132,271 $3,163
Net income - - - 27,911
Net currency translation adjustment - - - - 2,372
Issuance of 30,529 shares of Class A Common
Stock under stock option plan - 1 999 - -
Tax benefit from exercise of stock options - - 307 - -
Cash dividends on Preferred Stock:
1979 series - $10 a share - - - (220) -
6% and 1972 series - $6 a share - - - (39) -
Cash dividends on Common Stock:
Class A - $.27 a share - - - (4,398) -
Class B - $.23 a share - - - (1,239) -
Balances at July 31, 1995 2,855 73 8,074 154,286 5,535
Net income - - - 28,027
Net currency translation adjustment - - - - (1,252)
Issuance of 25,049 shares of Class A Common
Stock under stock option plan - - 372 - -
Tax benefit from exercise of stock options - - 115 - -
Common Stock dividend - 146 (146) - -
Cash dividends on Preferred Stock:
1979 series - $10 a share - - - (220) -
6% and 1972 series - $6 a share - - - (39) -
Cash dividends on Common Stock:
Class A - $.40 a share - - - (7,678) -
Class B - $.37 a share - - - (885) -
Balances at July 31, 1996 2,855 219 8,415 173,491 4,283
Net income - - - 31,707
Net currency translation adjustment - - - - (3,986)
Issuance of 77,753 shares of Class A Common
Stock
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C>
under stock option plan - 1 835 - -
Tax benefit from exercise of stock options - - 323 - -
Cash dividends on Preferred Stock:
1979 series - $10 a share - - - (220) -
6% and 1972 series - $6 a share - - - (39) -
Cash dividends on Common Stock:
Class A - $.52 a share - - - (10,476) -
Class B - $.49 a share - - - (861) -
Balances at July 31, 1997 $2,855 $220 $9,573 $193,602 $297
</TABLE>
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
Years Ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $31,707 $28,027 $27,911
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 12,183 9,978 9,049
Amortization 1,968 624 110
Loss on sale of businesses
Loss/(Gain) on sale of property, plant and
equipment 139 (2,222) (2,209)
Provision for losses on accounts receivable 663 367 463
Writedown of long-term investment - 550 -
Changes in operating assets and liabilities
(net of effects of business acquisitions
and disposals):
Accounts receivable (12,796) (1,786) (12,554)
Inventory (4,818) (3,978) 473
Prepaid expenses and other assets 2,342 (972) (1,385)
Accounts payable and accrued liabilities 6,147 309 1,361
Income taxes 3,334 1,815 (1,605)
Deferred income taxes (1,118) (453) 212
Other liabilities 160 2,353 (687)
Net cash provided by operating activities 39,911 34,612 21,552
Investing activities:
Acquisitions of businesses, net of cash acquired (6,724) (53,167) -
Purchases of property, plant and equipment (8,777) (10,470) (8,114)
Proceeds from sale of property, plant and equipment 908 4,563 6,227
Proceeds from sale of businesses - - 6,315
Other 292 - (750)
Net cash (used in) provided by
investing activities (14,301) (59,074) 3,678
Financing activities:
Payment of dividends (11,596) (8,822) (5,896)
</TABLE>
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
Proceeds from issuance of Common Stock 835 372 1,306
Proceeds from long-term borrowings 2,236 - -
Principal payments on long-term debt (641) (5,466) (69)
Net cash used in financing activities (9,166) (13,916) (4,659)
Effect of exchange rate changes on cash (396) (1,408) 2,389
Net increase (decrease) in cash and cash equivalents 16,048 (39,786) 22,960
Cash and cash equivalents, beginning of year 49,281 89,067 66,107
Cash and cash equivalents, end of year $65,329 $49,281 $89,067
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $258 $245 $116
Income taxes, net of refunds 18,987 15,569 17,174
Acquisitions:
Fair value of assets acquired, net of cash $3,058 $36,587
Liabilities assumed (1,375) (15,966)
Goodwill 5,041 32,546
Net cash paid for acquisitions $6,724 $53,167
</TABLE>
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Years Ended July 31, 1997, 1996 and 1995
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.
Use of Estimates / The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments / The Company believes the carrying amount
of its financial instruments (cash and cash equivalents, accounts receivable
and accounts payable) is a reasonable estimate of the fair value of these
instruments.
Cash Equivalents / The Company considers all highly liquid investments with
maturities of three months or less when acquired to be cash equivalents.
Inventories / Inventories are stated at the lower of cost or market. Cost has
been determined using the last- in, first-out (LIFO) method for certain
domestic inventories (approximately 43% and 49% of total inventories at July
31, 1997 and 1996, 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
<PAGE> 28
such inventories stated at replacement cost was $5,389,000 at July 31, 1997, and
$5,508,000 at July 31, 1996.
Depreciation / The cost of buildings and improvements and machinery and
equipment is being depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes. Intangible Assets / The
excess of cost over fair value of the net assets of businesses acquired is
amortized using the straight-line method over various periods ranging from 20
to 40 years. The weighted average amortization period is 31 years.
Impairment of Long-Lived Assets / The Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of long-lived assets may warrant revision or that the remaining balance of an
asset may not be recoverable. The measurement of possible impairment is based
on the ability to recover the balance of assets from expected future operating
cash flows on an undiscounted basis. In the opinion of management, no such
impairment existed as of July 31, 1997, or July 31, 1996.
Catalog Costs / Catalog costs are initially capitalized and amortized over the
estimated useful lives of the publications (generally eight months). At July
31, 1997 and 1996, $3,800,000 and $4,619,000, 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 one year. At July 31, 1997, exchange contracts
aggregating approximately $8,953,000, were outstanding. Income Taxes / The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Accounting Standards To Be Adopted / In 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 128, "Earnings Per Share." This
statement will be adopted by the Company in the fiscal year beginning August 1,
1997. The Company is currently evaluating the impact of this statement on the
consolidated financial statements.
In 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." Both statements must be adopted by the Company beginning
August 1, 1998. However, early adoption is permitted. The Company is currently
evaluating the impact of these statements on the consolidated financial
statements.
2
<PAGE> 29
Acquisitions and Disposition of Businesses
During fiscal 1995, the Company sold two businesses and certain real estate
which resulted in a gain of $2,033,000 which is included in other income in the
accompanying financial statements.
Effective November 15, 1995, the Company acquired the common stock of TechPress
II Limited located in Middlesex, England, a marketer of printing and labeling
systems, for cash of $4,277,000 and a payable of $389,000.
Effective January 2, 1996, the Company acquired the common stock of The Hirol
Company located in Fort Lauderdale, Florida, a manufacturer of die-cut parts
for the electronic, telecommunications and medical testing markets, for cash of
$10,800,000.
On April 8, 1996, the Company completed its acquisition of Varitronic Systems,
Inc. located in Minneapolis, Minnesota, for cash of $40,620,000. Varitronic
Systems Inc. manufactures and markets supply-consuming lettering, labeling,
signage and presentation systems and supplies.
Effective August 29, 1996, the Company entered into a joint venture -- W.H.
Brady Korea Co. Ltd., in Okcheon, South Korea. The joint venture manufactures
and markets Brady identification and tape products and also sells Markem
printers and supplies.
Effective April 30, 1997, the Company acquired the common stock of Signals S.A.
located in LaRochelle, France, a marketer of safety and facility identification
products, for cash of approximately $9,600,000. The pro forma results of
operations are not significant to the 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 the
employee's age and service at retirement.
The Company accounts for postretirement benefits other than pensions in
accordance with SFAS No. 106, "Employers" Accounting for Postretirement
Benefits Other than Pensions." The Company funds benefit costs on a
pay-as-you-go basis. During the years ended July 31, 1997 and 1996, the Company
made benefit payments totalling $282,000 and $209,000, respectively.
The following table sets forth the plan's status reconciled with amounts
recognized in the accompanying consolidated balance sheets at July 31, 1997 and
1996:
<TABLE>
(Dollars in Thousands) 1997 1996
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $3,112 $3,251
</TABLE>
<PAGE> 30
<TABLE>
<S> <C> <C>
Fully eligible active plan participants 604 837
Other active plan participants 2,426 2,164
6,142 6,252
Unrecognized net gain 2,703 2,293
Accrued postretirement benefit cost $8,845 $8,545
</TABLE>
<TABLE>
<CAPTION>
Years Ended July 31,
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Net periodic postretirement benefit cost included the
following components:
Service cost - benefits attributed to service during the period $260 $246 $230
Interest cost on accumulated postretirement benefit obligation 447 478 469
Amortization of (gain) (187) (106) (103)
Periodic postretirement benefit cost prior to curtailment 520 618 596
Effective curtailment (gain) due primarily to disposition
of operations - - (93)
Net periodic postretirement benefit cost $520 $618 $503
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 7.5% in 1997 and gradually declining to
5.5% by the year 2000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 7.5% in 1997 and 8% in 1996.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of July 31, 1997, would be
increased by $31,000. The effect of this change on the sum of the service cost
and interest cost would not be material.
During 1995, the Company had a curtailment gain which represents the
accumulated postretirement benefit obligation of employees who were employed at
the disposed operations.
The Company has retirement and profit-sharing plans covering substantially all
full-time domestic employees and certain of its foreign subsidiaries.
Contributions to the plans are determined annually based on earnings of the
respective companies and employee contributions. At July 31, 1997 and 1996,
$4,290,000 and $3,939,000, 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, 1997 and
1996, $18,324,000 and $18,080,000, respectively, of deferred compensation was
included in current and other long-term liabilities.
The amounts charged to income for the plans described above were $7,092,000 in
1997, $6,545,000 in 1996 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, 1997
and 1996, $2,441,000 and $1,995,000, respectively, of payments to the trust to
fund such benefits were included in prepaid expenses and other current assets.
<PAGE> 31
4
Income Taxes
Income taxes consist of the following:
Years Ended July 31,
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Currently payable:
Federal $13,875 $10,573 $10,194
Foreign 3,812 5,376 4,518
State 2,995 1,910 1,804
20,682 17,859 16,516
Deferred (credit):
Federal (1,832) (807) (382)
Foreign 1,188 469 662
State (474) (115) (68)
(1,118) (453) 212
Total $19,564 $17,406 $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.
Pre-tax income consists of the following:
<TABLE>
<CAPTION>
Years Ended July 31,
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
United States $38,493 $31,481 $32,074
Foreign 12,778 13,952 12,565
Total $51,271 $45,433 $44,639
</TABLE>
The approximate tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
July 31, 1997
(Dollars in Thousands) Assets Liabilities Total
<S> <C> <C> <C>
Inventories $2,071 $- $2,071
Prepaid catalog costs - (399) (399)
Employee benefits - (678) (678)
Allowance for doubtful accounts 362 - 362
Other, net 2,753 (530) 2,223
Current 5,186 (1,607) 3,579
Excess of tax over book depreciation - (3,298) (3,298)
Deferred compensation 6,010 - 6,010
Postretirement benefits 3,577 - 3,577
Tax loss carryforwards 3,406 - 3,406
Less valuation allowance (3,406) - (3,406)
Other, net 701 (1,771) (1,070)
Noncurrent 10,288 (5,069) 5,219
Total $15,474 $(6,676) $8,798
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
July 31, 1996
(Dollars in Thousands) Assets Liabilities Total
<S> <C> <C> <C>
Inventories $1,563 $- $1,563
Prepaid catalog costs - (660) (660)
Employee benefits - (229) (229)
Allowance for doubtful accounts 387 - 387
Other, net 1,336 - 1,336
Current 3,286 (889) 2,397
Excess of tax over book depreciation - (4,467) (4,467)
Deferred compensation 5,633 - 5,633
Postretirement benefits 3,445 - 3,445
Tax loss carryforwards 3,920 - 3,920
Less valuation allowance (3,920) - (3,920)
Other, net 654 - 654
Noncurrent 9,732 (4,467) 5,265
Total $13,018 $(5,356) $7,662
</TABLE>
At July 31, 1997 and 1996, $3,579,000 and $2,397,000, respectively, of net
deferred tax assets were included in prepaid expenses and other current assets.
At July 31, 1997 and 1996, $5,219,000 and $5,265,000, 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:
Year Ended July 31,
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Tax at statutory rate $17,945 $15,902 $15,624
State income taxes, net of tax benefit 2,248 1,505 1,177
International losses with no related tax benefits 1,196 664 613
International rate differential (668) 138 169
Rate variances arising from foreign subsidiary distributions (155) (493) (558)
Other, net (1,002) (310) (297)
Total income tax provision $19,564 $17,406 $16,728
Effective tax rate 38.2% 38.3% 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, 1997
amounted to approximately $36,360,000. If all such undistributed earnings were
remitted, no additional provision for foreign income taxes would be required.
5
Long-term Debt
<PAGE> 33
<TABLE>
<CAPTION>
Long-term debt consists of the following:
July 31,
(Dollars in Thousands) 1997 1996
<S> <C> <C>
6.25% Industrial Development Revenue Bonds payable on December 1, 2001 $1,000 $1,000
6.75% Industrial Development Revenue Bonds paid in fiscal 1997 - 140
Other 3,454 1,197
4,454 2,337
Less current maturities 564 528
$3,890 $1,809
</TABLE>
The Industrial Development Revenue Bonds are collateralized by first mortgages
on certain property with a net carrying amount of approximately $4,605,000 at
July 31, 1997. The Company's long-term debt approximates fair value.
Maturities on long-term debt are as follows:
Year Ending July 31, (Dollars in Thousands)
1998 $564
1999 356
2000 2,062
2001 99
2002 1,100
Thereafter 273
6
Stockholders' Investment
On November 17, 1995, at a Special Meeting of Shareholders, the Company's
shareholders approved a proposal to amend the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Class A Common
Stock from 10,000,000 shares to 100,000,000 shares. Also on November 17, 1995,
the shareholders approved, and the Board of Directors declared, a common stock
dividend of two shares of Class A Common Stock on each outstanding share of
Class A Common Stock and Class B Common Stock. The common stock dividend was
paid on December 15, 1995, to shareholders of record at the close of business
on December 1, 1995. Accordingly, net income per share amounts, dividends per
share and weighted average shares included in the accompanying consolidated
financial statements have been adjusted to reflect the common stock dividend.
Information as to the Company's capital stock at July 31, 1997, is as follows:
Shares Shares
(Dollars in Thousands) Authorized Outstanding Amount
Preferred Stock, $.01 par value 5,000,000 0 $0
Cumulative Preferred Stock:
6% Cumulative 5,000 3,984 399
1972 Series 10,000 2,600 260
1979 Series 30,000 21,963 2,196
$2,855
Common Stock, $.01 par value:
<PAGE> 34
Class A Nonvoting 100,000,000 20,171,853 $202
Class B Voting 10,000,000 1,769,314 18
$220
Each share of $100 par value Cumulative Preferred Stock is entitled to receive
cumulative cash dividends and may be redeemed, under certain circumstances, by
the Company at par value plus accrued dividends plus a premium of 6% of the par
value. Such shares, which are held by the initial holder thereof, are subject
to redemption only if the holder consents thereto.
Before any dividend may be paid on the Class B Common Stock, holders of the
Class A Common Stock are entitled to receive an annual, noncumulative cash
dividend of $.0333 per share. Thereafter, any further dividend in that fiscal
year must be paid on each share of Class A Common Stock and Class B Common
Stock on an equal basis.
Holders of the Class A Common Stock are not entitled to any vote on corporate
matters, unless, in each of the three preceding fiscal years, the $.0333
preferential dividend described above has not been paid in full. Holders of
the Class A Common Stock are entitled to one vote per share for the entire
fiscal year immediately following the third consecutive fiscal year in which
the preferential dividend is not paid in full. Holders of Class B Common Stock
are entitled to one vote per share for the election of directors and for all
other purposes.
Upon liquidation, dissolution or winding up of the Company, and after
distribution of any amounts due to holders of Cumulative Preferred Stock,
holders of the Class A Common Stock are entitled to receive the sum of $1.67
per share before any payment or distribution to holders of the Class B Common
Stock. Thereafter, holders of the Class B Common Stock are entitled to receive
a payment or distribution of $1.67 per share. Thereafter, holders of the Class
A Common Stock and Class B Common Stock share equally in all payments or
distributions upon liquidation, dissolution or winding up of the Company. The
preferences in dividends and liquidation rights of the Class A Common Stock
over the Class B Common Stock will terminate at any time that the voting rights
of Class A Common Stock and Class B Common Stock become equal.
The Company's Nonqualified Stock Option Plans allow the granting of stock
options to various officers, directors and other employees of the Company at
prices equal to fair market value at the date of grant. The Company has
reserved 1,500,000 and 2,125,000 shares of Class A Nonvoting Common Stock for
issuance under the 1989 and 1997 Plans, respectively. 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.
Under the 1997 plan, 125,000 shares of Class A Nonvoting Common Stock have been
reserved for issuance on August 1, 1997, under restricted stock agreements with
certain officers. Changes in the Options are as follows:
Weighted
Average
Option Options Exercise
Price Outstanding Price
Balance, August 1, 1994 $6.83-$14.33 536,400 $11.33
Options granted $15.67 114,750 15.67
Options exercised $6.83-$12.38 (91,587) 10.91
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Options cancelled $9.94-$15.67 (41,406) 12.43
Balance, July 31, 1995 $6.83-$15.67 518,157 $8.62
Options granted $23.83-$25.17 330,000 25.05
Options exercised $6.83-$15.67 (33,449) 11.13
Options cancelled $12.17-$25.17 (6,600) 22.81
Balance, July 31, 1996 $6.83-$25.17 808,108 $17.46
Options granted $21.75-$23.88 777,700 23.51
Options exercised $6.83-$25.17 (77,753) 10.75
Options cancelled $6.83-$25.17 (46,302) 18.15
Balance, July 31, 1997 $6.83-$25.17 1,461,753 $21.01
(470,520 options exercisable)
Available for grant after July 31, 1997 1,675,908
</TABLE>
The following table summarizes information about stock options outstanding at
July 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Shares Average Weighted Shares Weighted
Outstanding Remaining Average Exercisable Average
Range of at July 31, Contractual Exercise at July 31, Exercise
Exercise Prices 1997 Life - Years Price 1997 Price
<S> <C> <C> <C> <C> <C>
$ 6.83-$12.00 78,650 3.2 $ 8.83 78,650 $ 8.83
$12.01-$18.00 306,002 6.4 13.86 272,002 13.63
$18.01-$25.17 1,077,101 9.1 23.94 119,868 24.79
$ 6.83-$25.17 1,461,753 8.2 $21.01 470,520 $15.67
</TABLE>
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
ssued. SFAS No. 123 established a fair value based method of accounting for
stock-based compensation; however, it allows entities to continue accounting
for employee stock-based compensation under the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees." SFAS No. 123 requires certain disclosures, including pro
forma net income and earnings per share as if the fair value based accounting
method had been used for employee stock-based compensation cost. The Company
has decided to adopt SFAS No. 123 through disclosure with respect to employee
stock-based compensation.
If the Company had elected to recognize compensation cost for the Stock Option
Plans based on the fair value at the grant dates for awards under those plans,
consistent with the method prescribed by SFAS No. 123, net income and net
income per common share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income:
As Reported $31,707 $28,027
Pro Forma 31,305 28,027
Net Income per Class A Common Share:
As Reported $1.44 $1.27
Pro Forma $1.42 $1.27
</TABLE>
<PAGE> 36
The fair value of stock options used to compute pro forma net income and net
income per common share disclosure is the estimated present value at grant date
using the Black-Scholes option-pricing model with weighted average assumptions
for fiscal years 1997 and 1996 as follows:
Risk-free interest rate 6.3%
Expected volatility 27.1%
Dividend yield 2.1%
Expected option life 4.1 years
7
Domestic and Foreign Operations
The Company operates predominantly in a single industry as a manufacturer and
distributor of identification products. Operations are conducted in the United
States and through subsidiaries located in Canada, Europe, Australia, Brazil,
Japan, Korea and Singapore. Transfers between geographic areas primarily
represent intercompany export sales of U.S.-produced goods and are based on
established sales prices between the related corporations. In computing
operating income for non-U.S. subsidiaries, no allocations of general corporate
expenses, interest or income taxes have been made.
Identifiable assets of subsidiaries are those assets related to the operations
of those subsidiaries. Corporate assets consist primarily of cash and cash
equivalents.
Information with respect to operations located outside the United States which
have been translated into U.S. dollars are as follows:
<TABLE>
<CAPTION>
Years Ended July 31,
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Current assets $74,279 $60,570 $48,812
Other assets 8,912 4,012 470
Property, plant and equipment 11,902 11,087 11,656
Total assets $95,093 $75,669 $60,938
Current liabilities $37,905 $29,158 $26,342
Other liabilities 29,584 18,367 15,510
Stockholders' investment 27,604 28,144 19,086
Total liabilities and
stockholders' investment $95,093 $75,669 $60,938
Net sales $181,357 $156,943 $129,267
W.H. Brady Co. equity in net income $7,776 $8,266 $7,385
</TABLE>
<TABLE>
<CAPTION>
Corporate Assets
(Dollars in Thousands) United States Europe Other and Eliminations Consolidated
Year ended July 31, 1997:
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $245,013 $123,284 $57,784 $- $426,081
Transfers between geographic areas 31,952 245 250 (32,447) -
Net sales $275,965 $123,529 $58,034 $(32,447) $426,081
Operating income (loss) $36,811 $13,963 $(100) $(306) $50,368
Identifiable assets $207,562 $52,243 $24,666 $7,191 $291,662
Year ended July 31, 1996:
Sales to unaffiliated customers $202,780 $110,312 $46,450 $- $359,542
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Transfers between geographic areas 24,104 204 96 (24,404) -
Net sales $226,884 $110,516 $46,546 $(24,404) $359,542
Operating income (loss) $28,313 $12,420 $(40) $472 $41,165
Identifiable assets $172,760 $43,450 $16,947 $28,678 $261,835
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 (loss) $27,693 $12,509 $545 $(162) $40,585
Identifiable assets $103,031 $34,112 $16,147 $76,715 $230,005
</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 21,908,318 for
1997; 21,847,180 for 1996; 21,799,929 for 1995. The preferential dividend on
the Class A Common Stock of $.0333 per share has been added to the net income
per Class A Common Share for all years presented.
9
Commitments
The Company has entered into various noncancellable operating lease agreements.
Rental expense charged to operations was $7,357,000 for 1997; $4,689,000 in
1996; and $3,057,000 in 1995. Future minimum lease payments required under such
leases in effect at July 31, 1997, are as follows (by fiscal year):
<TABLE>
<CAPTION>
Year Ending July 31, (Dollars)
<S> <C>
1998 $6,726,000
1999 4,428,000
2000 2,901,000
2001 1,541,000
2002 1,137,000
Thereafter 2,242,000
</TABLE>
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' investment and cash flows for each of the
three years in the period ended July 31, 1997. 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.
<PAGE> 38
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, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 8, 1997
Shareholder Services
Common Shares
W.H. Brady Co. Class A Nonvoting Common Stock trades on the NASDAQ National
Market under the symbol BRCOA. Trading information is carried by the National
Association of Securities Dealers. As of September 12, 1997, there were 469
Class A Nonvoting Common Stock shareholders of record and several thousand
beneficial shareholders. There are two Class B Voting Common Stock
shareholders.
Brady Information
Brady's site on the Internet, www.whbrady.com, contains the Company's 10K and
10Q filings, annual reports, quarterly reports, news releases, stock prices,
brochures, and a variety of other information about Brady and its products.
You can obtain faxed copies of recent Brady financial news releases by calling
Company News On Call at 1-800-758-5804 and entering code 952350. If you
would like the 1997 Annual Report on Form 10-K or other information mailed to
you, without charge, please contact: Investor Relations, W.H. Brady Co., P.O.
Box 571, Milwaukee, WI 53201-0571, 414-358-6600.
Investor and Media Inquiries
If you have any questions about W.H. Brady Co., please contact Laurie Bernardy,
vice president - corporate communications, at 414-358-6600.
Annual Meeting
The W.H. Brady Co. Annual Meeting will be at 9 a.m., Friday, November 21, 1997,
at the Wyndham Milwaukee Center, 139 E. Kilbourn Ave., Milwaukee, Wis.
Quarterly Stock Data
1997 1996 1995
<PAGE> 39
<TABLE>
<CAPTION>
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
4th Quarter $30.50 $22.00 $26.75 $20.00 $23.83 $17.58
3rd Quarter $27.75 $22.50 $25.50 $19.00 $17.67 $15.67
2nd Quarter $24.75 $20.50 $27.00 $21.00 $16.17 $15.67
1st Quarter $25.25 $21.50 $24.52 $23.67 $16.33 $15.67
</TABLE>
Stock Transfer Agent
Firstar Trust Company, 1555 North RiverCenter Drive, Suite 301, Milwaukee, WI
53212
Dividends
Dividends are normally paid on the last day of October, January, April and
July. The Board of Directors voted a quarterly dividend of 15 cents per share
of Class A Nonvoting Common Stock to shareholders of record on October 3, 1997.
Shareholders of record may have their dividends reinvested in Brady stock. For
more information, call the Investor Services Unit of Firstar Trust Company at
1-800-637-7549.
Corporate Data
Board of Directors
* Katherine M. Hudson, 50, joined W.H. Brady Co. in January 1994 as president,
chief executive officer and director. Before joining 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 Case Corporation and serves on the Alverno College Board of
Trustees, the Advisory Council for the Indiana University School of Business,
and the Medical College of Wisconsin Board.
* Peter J. Lettenberger, 60, has served as a director and secretary of Brady
since January 1977. He is a partner of Quarles & Brady, Milwaukee, Wisconsin,
and serves as general counsel to Brady. He joined Quarles & Brady in 1964.
Robert C. Buchanan, 57, has been a director of Brady since November 1987. He
has been president and CEO of the Fox Valley Corporation, Appleton, Wisconsin,
since November 1980.
Roger D. Peirce, 60, has served as a Brady director since September 1988. A
private investor and consultant, he was formerly president of Super Steel
Products Corp., Milwaukee, Wisconsin. Prior to that he was a managing partner
for Arthur Andersen & Co., independent certified public accountants.
Richard A. Bemis, 56, has been a director of Brady since January 1990. He is
president and CEO of Bemis Manufacturing Company, a manufacturer of molded
plastic products in Sheboygan Falls, Wisconsin.
<PAGE> 40
Dr. Frank W. Harris, 55, has been a director of Brady since November 1991. He
is a professor of polymer science and biomedical engineering at the Institute
of Polymer Science, University of Akron, where he has been on the faculty since
1983.
Gary E. Nei, 53, has been a director of Brady since November 1992. He is
chairman of B&B Publishing, a publishing company in Walworth, Wisconsin. He is
also a director of Uroquest, Inc. and Hawk Medical Supply, Chicago.
Corporatea Officers and Executives
*Mary T. Arnold
vice president - research and development
Laurie Bernardy
vice president - corporate communications
*Richard L. Fisk
vice president - Direct Marketing Group
*David R. Hawke
vice president - Graphics Group
*Katherine M. Hudson
president and chief executive officer
*Frank M. Jaehnert
vice president and chief financial officer
Gary L. Johnson
vice president - corporate development
*Peter J. Lettenberger
secretary (partner, Quarles & Brady)
*Michael O. Oliver
vice president - human resources
*Donald E. Rearic
treasurer and assistant secretary
*Thomas E. Scherer
vice president, controller and assistant secretary
*David W. Schroeder
vice president - Identification Systems and Specialty Tapes Group
David B. Winter
vice president and chief information officer
<PAGE> 41
*Officers for the purposes of Section 16 of the Securities Exchange Act of
1934.
Executive Team: From left standing: Laurie Bernardy, David Winter, Michael
Oliver, David Hawke, Mary Arnold and Richard Fisk. Seated: Frank Jaehnert,
Katherine Hudson and David Schroeder.
[PHOTO]
W.H. Brady Co.
P.O. Box 571, Milwaukee, WI 53201-0571
[414] 358-6600
www.whbrady.com
(C)1997 W.H. Brady Co. All Rights Reserved. | 10-FC-97-REM
Printed in U.S.A.
In keeping with W.H. Brady Co.'s policy of environmental stewardship, this
entire brochure is recyclable.
<PAGE> 1
EXHIBIT 21.1
Page 1 of 2
SCHEDULE OF SUBSIDIARIES OF W.H. BRADY CO.
Percentage
of Voting
State (Country) Securities
Name of Company of Incorporation Owned
- --------------- ---------------- -----
W. H. Brady Co. Wisconsin Parent
Brady Financial Co. Delaware 100%
Tricor Direct Inc.- Delaware 100%
Doing Business As:
Seton
Seton Name Plate Company
D&G Sign and Label Co.
Seton Identification Products
The Hirol Company
Worldmark of Wisconsin Inc. Delaware 100%
Varitronic Systems, Inc. Minnesota 100%
Brady Investment Co. Nevada 100%
Brady International Sales, Inc. U.S. Virgin Islands 100%
Brady International Co. Wisconsin 100%
Brady Precision Tape Co. Wisconsin 100%
Brady Service Co. Wisconsin 100%
Brady USA, Inc. Wisconsin 100%
Teklynx International Co. Wisconsin 100%
W.H. Brady Pty. Ltd. Australia 100%
Seton Australia Pty. Ltd. Australia 100%
W.H. Brady, N.V. Belgium 100%
W.H.B. do Brasil Ltda. Brazil 100%
W.H. Brady Identification Solutions,
Inc. Canada 100%
1167232 Ontario, Inc. Canada 100%
W.H. Brady Co. Ltd. England 100%
Seton Limited England 100%
Brady Graphic Solutions Limited England 100%
W.H. Brady S.A.R.L. France 100%
Tricor Group, S.A. -
Doing Business As:
Seton Division France 100%
Signals Division France 100%
W.H. Brady GmbH Germany 100%
Seton GmbH Germany 100%
Seton Italia, SRL Italy 100%
Nippon Brady K.K. Japan 100%
W. H. Brady Korea Co., Ltd. Korea 70%
<PAGE> 2
EXHIBIT 21.1
Page 2 of 2
Percentage
of Voting
State (Country) Securities
Name of Company of Incorporation Owned
- --------------- ---------------- -----
Hirol UK Ltd. Scotland 100%
W. H. Brady Asia-Pacific Pte. Ltd. Singapore 100%
W.H. Brady Pte. Ltd. Singapore 100%
Brady AB Sweden 100%
Seton Scandinavia AB Sweden 100%
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
W.H. Brady Co.:
We consent to the incorporation by reference in Registration Statement No.
33-30258 of W.H. Brady Co. on Form S-8 of our reports dated September 8, 1997,
appearing in and incorporated by reference in the Annual Report on Form 10-K of
W.H. Brady Co. for the year ended July 31, 1997.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 65,329
<SECURITIES> 0
<RECEIVABLES> 67,691
<ALLOWANCES> 2,241
<INVENTORY> 44,605
<CURRENT-ASSETS> 187,969
<PP&E> 126,378
<DEPRECIATION> 63,936
<TOTAL-ASSETS> 291,662
<CURRENT-LIABILITIES> 57,245
<BONDS> 3,890
2,855
0
<COMMON> 220
<OTHER-SE> 203,472
<TOTAL-LIABILITY-AND-EQUITY> 291,662
<SALES> 426,081
<TOTAL-REVENUES> 426,081
<CGS> 194,096
<TOTAL-COSTS> 194,096
<OTHER-EXPENSES> 181,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256
<INCOME-PRETAX> 51,271
<INCOME-TAX> 19,564
<INCOME-CONTINUING> 31,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,707
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
</TABLE>
