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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1998
Commission File Number 0-12730
BRADY CORPORATION
(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, 1998, there were outstanding 20,731,363 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
Brady Corporation 1998 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-8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... I-8
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-11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... III-13
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
Brady Corporation 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 18 manufacturing
facilities worldwide. Nine are located in the United States, two each in Canada
and France and one each in Australia, Belgium, England, Korea and Singapore. The
Company also sells through subsidiaries or sales offices in Brazil, China,
England, France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, the
Philippines, 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 http://www.bradycorp.com.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
OVERVIEW
Brady Corporation 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
identification and data collection products; safety and facility identification
products; and OEM components.
The Company's products are sold into the industrial, electrical,
electronic, telecommunication, governmental, public utility, computer and
education 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, train and protect people. 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 1998 consisted of more than 100,000 customers, with the
largest customer representing less than 5% of net sales. Sales from
international operations represented 43.5%, 42.5% and 43.6% of net sales in
fiscal 1998, 1997 and 1996, respectively.
BUSINESS STRATEGY
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. Brady's commitment to product innovation is
reflected in research and development efforts that include two facilities and
approximately 170 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 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:
New products and new markets. The Company seeks to leverage its strong
product innovation and development activities by introducing new products and by
exploring new applications for its products in existing and new markets.
Increased market penetration. The Company seeks to increase market
penetration in existing domestic and international markets by leveraging
existing distribution channels and strong 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 Brady's international operations have
increased from $50,707,000 or 26.5% of net sales in fiscal 1990 to $198,209,000,
or 43.5%, of net sales in fiscal 1998. 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, Asia/Pacific and Canada and to enter new emerging markets elsewhere
in the Pacific Rim and in Latin America.
Strategic acquisitions and joint ventures. 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
identification and data-collection products including wire and cable markers,
high-performance labels, stand-alone printing systems, barcode and other
software, radio frequency identification tags and readers and other automatic
identification and data collection systems; safety and facility identification
products including signs, pipe and valve markers, storage markers, asset
identification markers, lockout/tagout products, traffic control products,
printing systems and software; and OEM components including specialty tapes and
die-cut materials.
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 IDENTIFICATION AND DATA-COLLECTION PRODUCTS
Wire and Cable Markers
Brady offers a broad range of wire- and cable-marking products. These
products help mark and identify wires, cables and other potential hazards. Such
products may be utilized in virtually every industrial, electrical and
telecommunications market to specify the origination or destination of wiring
and to facilitate repair or maintenance of wiring systems.
High Performance Labels
Brady offers a complete line of label materials for use in thermal
transfer, laser, dot matrix and inkjet printers. The products are used primarily
by industrial customers to print stock and custom labels for a wide variety of
applications on-site on demand. In addition, Brady labels range from
static-dissipative labels for use on electronic components to labels that
withstand high temperatures, harsh chemicals, etc.
Stand-Alone Printing Systems
The Company designs and produces various computer software, industrial
thermal-transfer and dot matrix printers 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
Brady's automatic identification and data collection solutions -- including
barcode and radio frequency scanners, tags and labels -- 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.
SAFETY AND FACILITY IDENTIFICATION PRODUCTS
Signs
The Company manufactures safety and informational 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.
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.
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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
Brady offers a wide range of asset identification products. 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.
Lockout/Tagout Products
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 sign-making kits, stenciling materials, barricading
products, visual warning systems, floor marking products, 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. 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.
Die-Cut Materials
The Company's precision die-cut materials are used to seal, insulate,
protect, shield or provide other mechanical performance properties in the
assembly of electronic, telecommunications and other equipment.
Graphics Products
Brady serves the identification and information needs of various
non-industrial markets with a variety of easy-to-use printing systems and
consumable supplies. It provides lettering and labeling systems, poster
printers, laminators and supplies to education, government, training and legal
markets. And it serves the print-for-pay market with wide-format color inkjet
and thermal-transfer printing systems and materials for producing indoor and
outdoor-durable banners and signs.
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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: 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,
electrical, electronic, telecommunications, governmental, public utility,
computer and education markets. Brady has a diverse customer base that consisted
of over 100,000 customers in fiscal 1998. 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 have a material adverse effect upon the
Company's business. In fiscal 1998, no single customer accounted for more than
5% of the Company's net sales.
The Company seeks to offer the right product with rapid response times and
superior service so that it can provide solutions to the customer that are
better, faster and more economical than those available from competitors or on a
do-it-yourself basis. The Company markets and sells its products domestically
and internationally through multiple channels including direct sales,
distributor sales, mail-order catalog marketing and electronic access through
the Internet. The Company currently has over 2,500 established relationships
with a broad range of electrical, safety, industrial and other domestic and
international distributors. To support its distributor network, the Company
employs a 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. Catalog
operations are conducted through offices in the U.S., Australia, Brazil, Canada,
England, France, Germany, Italy and Mexico and include foreign language
catalogs.
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. 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
turnaround and delivery. Most of the Company's manufacturing facilities have
received ISO 9001 or 9002 certification.
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 $20,300,000, $16,300,000,
and $11,300,000 in fiscal 1998, 1997, and 1996, respectively, on its research
and development activities, all of which were Company sponsored. In fiscal 1998,
approximately 170 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 1998, 1997, and 1996, sales from international operations
accounted for 43.5%, 42.5%, and 43.6%, 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, Mexico, Singapore and Sweden and sales offices in China,
Hong Kong, Malaysia, the Philippines 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 Brazil, Canada, China,
England, France, Korea, Malaysia, Mexico, the Philippines 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, 1998, the amount of the Company's backlog orders believed to
be firm was $20.4 million. This compares with approximately $19.9 million and
$15.2 million of backlog orders as of July 31, 1997 and 1996, respectively.
Average delivery time for the Company's orders varies from one day to 12 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. Management believes the Company is substantially in compliance
with all environmental regulations.
EMPLOYEES
As of July 31, 1998, the Company employed approximately 2,700 individuals.
This number has subsequently been reduced to approximately 2,500 individuals
through a previously announced reduction in force. The Company has never
experienced a material work stoppage due to a labor dispute, is not a party to
any labor contract 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 $40,620,000.
VSI manufactures and markets supply-consuming lettering, labeling, signage and
presentation systems and supplies.
Effective April 30, 1997, the Company acquired the common stock of Signals
S.A. located in La Rochelle, France, a marketer of safety and facility
identification products, for cash of approximately $9,600,000.
Effective March 9, 1998, the Company acquired the common stock of
Techniques Avancees located in Auch, France, a barcode labeling software
developer, for cash of $10,735,000 and a payable of $1,030,000.
Effective April 30, 1998, the Company acquired the common stock of GrafTek
Inc. located in Toronto, Ontario, Canada, a barcode labeling software developer,
for cash of $8,528,000 and a payable of $933,000.
On August 16, 1998, the Company acquired the common stock of VEB Sistemas
de Etiquetas Ltda. located in Sao Paulo, Brazil, an industrial label
manufacturer, for cash of approximately $4,400,000.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
See Note 7 to Notes to Consolidated Financial Statements on Page 29 of the
Brady Corporation 1998 Annual Report.
ITEM 2 PROPERTIES
The Company currently operates 18 manufacturing facilities. Nine are
located in the United States, two each in Canada and France and one each in
Australia, Belgium, England, 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
1,180,000 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.
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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
Brady Corporation 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 32 of the Brady Corporation 1998 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, 1998, was 836 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,
noncumulative 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:
<TABLE>
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YEAR
ENDING
YEAR ENDED 7/31/97 YEAR ENDED 7/31/98 7/31/99
------------------------------------- ------------------------------------- -------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
------- ------- ------- ------- ------- ------- ------- ------- -------
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Class A................. $.13 $.13 $.13 $.13 $.15 $.15 $.15 $.15 $.16
Class B................. .10 .13 .13 .13 .12 .15 .15 .15 .13
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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 Brady Corporation 1998 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 19 of the Brady Corporation 1998 Annual Report.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to Pages
20 through 31 of the Brady Corporation 1998 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............... 51 President, CEO and Director
Richard L. Fisk................... 54 Vice President, Direct Marketing Group
David R. Hawke.................... 44 Vice President, Graphics Group
Frank M. Jaehnert................. 41 Vice President & Chief Financial Officer
Michael O. Oliver................. 45 Vice President, Human Resources
David W. Schroeder................ 43 Vice President, Identification Solutions & Specialty Tapes Group
Peter J. Lettenberger............. 61 Secretary and Director
Robert C. Buchanan................ 58 Director
Roger D. Peirce................... 61 Director
Richard A. Bemis.................. 57 Director
Frank W. Harris................... 56 Director
Gary E. Nei....................... 54 Director
</TABLE>
KATHERINE M. HUDSON -- Mrs. Hudson joined the Company in January 1994, as
President, Chief Executive Officer and Director. Before joining Brady
Corporation, 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 a director of Case Corporation and Honeywell, Inc. and
serves on the Alverno College Board of Trustees, the Advisory Board of the
University of Wisconsin School of Business, the Advisory Council for the Indiana
University School of Business, and the Medical College of Wisconsin Board of
Trustees.
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 Solutions & Specialty Tapes Group. He was
appointed to his present position in November 1996. Before joining the Company,
he held various financial and management 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 the Company, which firm he joined in 1964. He is
also a director of Electronic Tele-Communications, Inc., Waukesha, Wisconsin.
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
III-1
<PAGE> 13
that position November 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 is a
director and secretary/treasurer of The Jor-Mac Company, Inc. in Grafton,
Wisconsin. 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 LLP, 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 Distinguished 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> 14
ITEM 11 EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended July 31, 1998, to those persons who,
as of the end of fiscal 1998, 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................. 1998 449,516 190,145 4,829 24,000 107,066(5)
President & Chief 1997 390,149 305,447 4,648 230,000 40,744(5)
Executive Officer 1996 342,500 174,505 5,381 36,000 41,412(5)
R. L. Fisk................... 1998 259,615 82,363 3,560 8,000 215,180(6)
Vice President, 1997 228,750 134,333 3,904 110,000 14,199
Direct Marketing Group 1996 197,631 51,575 3,835 27,000 13,743
D. W. Schroeder.............. 1998 247,889 78,643 4,271 8,000 13,612
Vice President, 1997 226,385 132,944 5,431 110,000 12,728
ISST Group 1996 190,558 75,804 4,214 12,000 12,632
D.R. Hawke................... 1998 238,836 75,774 2,813 8,000 13,527
Vice President, 1997 210,828 123,809 5,583 110,000 144,849(7)
Graphics Group 1996 175,558 53,452 -- 12,000 26,076(7)
F.M. Jaehnert................ 1998 185,309 54,870 5,685 6,000 13,225
Vice President & 1997 135,659 70,495 -- 7,500 17,938(8)
Chief Financial Officer 1996 74,308 18,472 -- 3,000 69,305(8)
</TABLE>
- -------------------------
(1) Reflects bonus earned during fiscal year 1998 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 are adjusted for the 200% stock dividend paid
on December 15, 1995.
(4) All other compensation for fiscal 1998 for Mrs. Hudson, and Messrs. Fisk,
Schroeder, Hawke and Jaehnert, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift Plan for
each named executive officer of $12,800 each and (ii) the cost of group term
life insurance for each named executive officer of $4,669, $2,380, $812,
$727 and $425, respectively.
All other compensation for fiscal 1997 for Mrs. Hudson, and Messrs. Fisk,
Schroeder, Hawke and Jaehnert, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift Plan for
each named executive officer of $12,000, $12,000, $12,000, $12,000 and
$11,946, respectively and (ii) the cost of group term life insurance for
each named executive officer of $2,674, $2,199, $728, $647 and $324,
respectively.
All other compensation for fiscal 1996 for Mrs. Hudson, Messrs. Fisk,
Schroeder, Hawke and Jaehnert, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift Plan for
each named executive officer of $12,000, $12,000, $12,000, $12,000 and
$7,145 respectively and (ii) the cost of group term life insurance for each
named executive officer of $1,705, $1,743, $632, $570 and $81, respectively.
(5) Fiscal 1998 includes club dues and estate planning fees of $61,963 and
$27,634 accrued, but not paid, for the current year's portion of a
Supplemental Executive Retirement Plan (SERP). Fiscal 1997 includes $26,070
accrued, but not paid, for that year's portion of the SERP. Fiscal 1996
includes relocation expenses of $3,112 and $24,595 accrued, but not paid,
for that year's portion of the SERP.
III-3
<PAGE> 15
(6) Fiscal 1998 includes $200,000 accrued, but not paid, for the current year's
portion of a Supplemental Executive Retirement Plan (SERP).
(7) 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.
(8) Fiscal 1997 includes relocation expenses of $5,669. Fiscal 1996 includes
relocation expenses of $62,079.
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal
1998 to or by the executive officers named in the Summary Compensation Table
above, and the value of unexercised options held by such persons at July 31,
1998. Stock Appreciation Rights are not available under any of the Company's
plans.
OPTION GRANTS IN FISCAL 1998
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED (#) IN FISCAL PRICE ($/SHARE)
NAME (1) 1998 (2) EXPIRATION DATE
---- ----------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
K.M. Hudson.............................. 24,000 9.4% 31.3750 October 3, 2007
R.L. Fisk................................ 8,000 3.1% 31.3750 October 3, 2007
D.W. Schroeder........................... 8,000 3.1% 31.3750 October 3, 2007
D.R. Hawke............................... 8,000 3.1% 31.3750 October 3, 2007
F.M. Jaehnert............................ 6,000 2.4% 31.3750 October 3, 2007
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED RATES
OF STOCK PRICE APPRECIATION (3)
-------------------------------------------------------
0% 5% 10%
NAME $31.3750($) $51.1250($)(6) $81.3750($)(6)
---- ----------- -------------- --------------
<S> <C> <C> <C>
K.M. Hudson..................................... 0 474,000 1,200,000
R.L. Fisk....................................... 0 158,000 400,000
D.W. Schroeder.................................. 0 158,000 400,000
D.R. Hawke...................................... 0 158,000 400,000
F.M. Jaehnert................................... 0 118,500 300,000
All Stockholders' Gains (increase in market value of
Brady corporation Common Stock at assumed rates of
stock price appreciation)(4)(6)............................. $401,058,372 $1,015,337,650
All Optionees' Gains (as a percent of all
shareholders' gains)(5)(6).................................. 1.25% 1.25%
</TABLE>
- -------------------------
(1) The options granted October 3, 1997, become exercisable as follows: 33 1/3%
of the shares on October 3, 1998; 33 1/3% of the shares on October 3, 1999;
and 33 1/3% of the shares on October 3, 2000. These options have a term of
ten years.
(2) The exercise price is the average of the highest and lowest sale prices of
the Company's Class A Common Stock as reported by NASDAQ on the date of the
grant.
(3) Represents total potential appreciation of approximately 0%, 63% and 159%
for assumed annual rates of appreciation of 0%, 5% and 10%, respectively,
compounded annually for the ten year option term.
(4) Calculated from the $31.3750 exercise price applicable to the options
granted on October 3, 1997 based on the 20,306,753 shares of Class A Common
Stock outstanding on October 3, 1997.
III-4
<PAGE> 16
(5) Represents potential realizable value for all options granted in fiscal 1998
compared to the increase in market value of Brady Corporation Class A Common
Stock at assumed rates of stock price appreciation.
(6) The Company disavows the ability of any valuation model to predict or
estimate the Company's future stock price or to place a reasonably accurate
present value on these options because any model depends on assumptions
about the stock's future price movement that the Company is unable to
predict.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND VALUE OF OPTIONS AT END OF FISCAL 1998
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT
SHARES JULY 31, 1998
ACQUIRED ON VALUE ----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#)
---- ----------- -------- ----------- -------------
<S> <C> <C> <C> <C>
K.M. Hudson........................................ 0 0 139,000 256,000
R.L. Fisk.......................................... 0 0 55,833 123,667
D.W. Schroeder..................................... 0 0 33,833 118,667
D.R. Hawke......................................... 0 0 38,833 118,667
F.M. Jaehnert...................................... 0 0 4,500 12,000
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT JULY 31, 1998 (1)
----------------------------
EXERCISABLE UNEXERCISABLE
NAME ($) ($)
---- ----------- -------------
<S> <C> <C>
K.M. Hudson................................................. 607,502 --
R.L. Fisk................................................... 277,843 --
D.W. Schroeder.............................................. 178,781 --
D.R. Hawke.................................................. 252,406 --
F.M. Jaehnert............................................... -- --
</TABLE>
- -------------------------
(1) Represents the closing price for the Company's Class A Common Stock on July
31, 1998, of $20.5000 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> 17
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,
1993, in each of Brady Corporation 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
BRADY CORPORATION VERSUS PUBLISHED INDICES (S&P 500 AND NASDAQ-US)
FISCAL YEAR ENDING JULY 31,
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) BRADY S&P 500 NASDAQ-US
<S> <C> <C> <C>
F93 $ 100 $ 100 $ 100
F94 $ 139 $ 105 $ 103
F95 $ 210 $ 133 $ 145
F96 $ 195 $ 155 $ 157
F97 $ 268 $ 235 $ 232
F98 $ 194 $ 281 $ 274
</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, Hawke and
Jaehnert. 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 his annual salary for Mr. Jaehnert 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 Mr. Jaehnert. In August 1998, the Board amended the Change in
Control Agreement for Mr. Jaehnert to call for payment of an amount equal to two
times his annual salary in the event of termination or resignation upon a change
in control with payments spread over two years.
III-6
<PAGE> 18
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 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 1998, the Board's Compensation Committee was composed of
Messrs. Bemis and Peirce. Mr. Lettenberger serves as a nonvoting advisor to the
Committee. 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
III-7
<PAGE> 19
of this reduction contributed to the BradyGold Plan by the Company (without an
additional matching contribution by the Company). The assets of the BradyGold
Plan credited to each participant are invested by the BradyGold Plan trustee as
directed in several investment funds as permitted by the BradyGold Plan. The
annual contributions and forfeitures allocated to any participant under all
defined contribution plans may not exceed the lesser of $30,000 or 25% of the
participant's base compensation and bonuses. Benefits are generally payable upon
the death, disability, or retirement of the participant or upon termination of
employment before retirement, although benefits may also be withdrawn from the
BradyGold Plan and paid to the participant if required for certain emergencies.
Under certain specified circumstances, the BradyGold Plan allows loans to be
drawn on a participant's account. The participant is immediately fully vested
with respect to the contributions attributable to reductions in pay; all other
contributions become fully vested after five years of service.
DEFERRED COMPENSATION ARRANGEMENTS
During fiscal 1998, the Company adopted a new deferred compensation plan
whereby 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 shares of the
Company's Class A Common Stock. Participants in the old deferred compensation
plan were allowed to convert their balances in the old plan to this new plan.
The conversion to the new plan was funded by the issuance of 372,728 shares of
Class A Common Stock to a Rabbi Trust (the "Trust") in November 1997. All
deferrals into the new plan result in purchases of existing Class A Common Stock
by the Trust. No deferrals are allowed into the old plan.
Upon the retirement, disability, or death of participant, the Company is
required under the new plan to pay, each year for a period of ten years, a
portion of the shares held in the participant's name by the Trust. The first
payment must be one-tenth of the number of shares held; the second one-ninth;
and so on, with the number of shares held in the Trust reduced by each payment.
If the participant's employment ends for reasons other than retirement,
disability or death, the shares held by the Trust in the participant's name will
be distributed over a period of ten years. At the request of the participant,
the Company may make distributions in larger installments or in a lump sum or
other basis.
In the old deferred compensation plan, directors, executive officers,
corporate staff officers and certain key management employees of the Company
were 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. No new deferrals are allowed into this old deferred
compensation plan. 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. 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.
All current directors and executives converted their balances to the new
deferred compensation plan. Certain retired participants elected not to transfer
their balances into the new plan. They were allowed to remain in the old
deferred compensation plan until the end of fiscal 2002. At that point the old
plan will terminate and participant's balances will earn simple interest at a
rate equal to the yield on a 30-year U.S. Treasury Bond.
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
III-8
<PAGE> 20
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.
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
1998, 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 Company approved the Brady Corporation 1997 Omnibus
Incentive Stock Plan and the Brady Corporation 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 Common Stock are available
for grant. In 1989 the Board approved the Brady Corporation 1989 Non-Qualified
Stock Option Plan (the "Option Plan") under which 1,500,000 shares of Class A
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. All grants
under the Option Plans are at market price on the date of the grant.
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
III-9
<PAGE> 21
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 nondeductible compensation in excess of these limits.
The Compensation Committee will continue to review these 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 $449,516 in base salary in fiscal 1998, an increase of
15% over the prior year's base salary. She was paid a bonus attributable to
fiscal 1998 of $190,145, a decrease of 38%, or $115,302, from 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 $29,069,000, or 7%, and a $3,671,000, or 12%,
decrease in profits over similar amounts from the prior year; a stock
price decrease of 31%, from $29.625 to $20.50
(ii) the successful acquisitions of Techniques Avancees and GrafTek and
the integration of last year's acquisition of Signals S.A.
(iii) improved asset utilization (a 14% reduction in inventory and a 3%
reduction in receivables despite the 7% 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 1998, Mrs. Hudson was granted a restricted stock award of
50,000 shares of Class A Common Stock and she was awarded options to purchase
24,000 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
III-10
<PAGE> 22
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, 1998.
<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 Richard A. Bemis, Robert C. Buchanan, Peter
J. Lettenberger, Roger D. Peirce and Gary E. Nei, each of whom shares voting
and dispositive power. The vested beneficiary was Irene B. Brady, who died
March 26, 1998. The contingent remainder beneficiaries are William H. Brady,
III and Elizabeth B. Lurie.
III-11
<PAGE> 23
(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, 1998.
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) 3,359,230 16.2%
Gary E. Nei(1)(8) 2,620,837 12.6%
Robert C. Buchanan(1)(5) 2,620,437 12.6%
Richard A. Bemis(1)(4) 2,620,337 12.6%
Roger D. Peirce(1)(6) 2,619,337 12.6%
Katherine M. Hudson(7) 226,251 1.1%
Frank W. Harris 3,699 * %
All Officers and Directors as a Group 3,916,648 18.9%
(14 persons)(9)
Class B Common Stock................. Peter J. Lettenberger(1) 1,769,314 100 %
Richard A. Bemis(1) 1,769,314 100 %
Robert C. Buchanan(1) 1,769,314 100 %
Gary E. Nei(1) 1,769,314 100 %
Roger D. Peirce(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%
Richard A. Bemis(1) 1,920 48.2%
Robert C. Buchanan(1) 1,920 48.2%
Gary E. Nei(1) 1,920 48.2%
Roger D. Peirce(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 Richard A. Bemis, Robert C.
Buchanan, Peter J. Lettenberger, Gary E. Nei and Roger D. Peirce, each of
whom shares voting and dispositive power.
(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
III-12
<PAGE> 24
Common Stock and 68 shares of 6% Cumulative Preferred Stock. He disclaims
beneficial ownership of shares held by the Foundation and the 1986 Trust.
(3) In addition to shares beneficially owned as a trustee of the Trusts and the
1986 Trust and as a director of the Foundation, Mr. Lettenberger owns
directly 5,070 shares of Class A Common Stock and holds vested options to
acquire an additional 1,166 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 and holds vested
options to acquire an additional 1,166 shares of Class A Common Stock.
(5) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Buchanan owns 600 shares of Class A Common Stock directly, 2,000 additional
shares through his Keogh plan, 1,500 additional shares as trustee of a trust
and holds vested options to acquire an additional 1,166 shares of Class A
Common Stock.
(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, 1,500 shares
through his Keogh plan and holds vested options to acquire an additional
1,166 shares of Class A Common Stock.
(7) Mrs. Hudson owns 57,251 shares of Class A Common Stock directly and holds
vested options to acquire an additional 169,000 shares of Class A Common
Stock.
(8) In addition to shares beneficially owned as a trustee of the Trusts, Mr. Nei
owns 4,500 shares of Class A Common Stock directly and holds vested options
to acquire an additional 1,166 shares of Class A Common Stock.
(9) The amount shown for all officers and directors as a group (14 persons)
includes options to acquire a total of 396,416 shares of Class A Common
Stock which are currently exercisable or will be exercisable within 60 days
of September 30, 1998. 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-13
<PAGE> 25
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 31 of the Company's 1998 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> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of Brady Corporation(1)
3.2 By-laws of Brady Corporation, as amended(2)
10.2 Brady Corporation 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 Brady Corporation 1989 Non-Qualified Stock Option Plan(4)
10.7 Shareholder Value Enhancement (SVE) Plan(6)
10.9 Brady Corporation Automatic Dividend Reinvestment Plan(4)
10.10 Supplemental Executive Retirement Plan between Brady
Corporation and Katherine M. Hudson(5)
10.12 Brady Corporation 1997 Omnibus Incentive Stock Plan(7)
10.13 Brady Corporation 1997 Nonqualified Stock Option Plan for
Non-Employee Directors(7)
10.14 Change of Control Agreement dated May 13, 1997 between Brady
Corporation and Katherine M. Hudson(7)
10.15 Change of Control Agreement dated May 13, 1997 between Brady
Corporation and David W. Schroeder(7)
10.16 Change of Control Agreement dated May 13, 1997 between Brady
Corporation and Richard L. Fisk(7)
10.17 Change of Control Agreement dated May 13, 1997 between Brady
Corporation and David R. Hawke(7)
10.19 Supplemental Executive Retirement Plan dated May 14, 1997
between Brady Corporation and Richard L. Fisk(7)
10.20 Restricted Stock Agreement dated August 1, 1997 between
Brady Corporation and Katherine M. Hudson(8)
10.21 Restricted Stock Agreement dated August 1, 1997 between
Brady Corporation and Richard L. Fisk(8)
10.22 Restricted Stock Agreement dated August 1, 1997 between
Brady Corporation and David W. Schroeder(8)
10.23 Restricted Stock Agreement dated August 1, 1997 between
Brady Corporation and David R. Hawke(8)
10.24 Amendment to Change of Control Agreement dated August 1,
1998 between Brady Corporation and Frank M. Jaehnert
13.1 Annual Report to Shareholders for year ended July 31, 1998
18.1 Letter regarding change in accounting method(3)
21.1 Subsidiaries of Brady Corporation
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
(8) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1997
IV-2
<PAGE> 27
BRADY CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1998 1997 1996
---- ---- ----
(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............................. $ 2,241 $1,992 $1,881
Additions -- Charged to expense............................. 970 663 367
Due to acquired businesses................................ 64 87 130
Deductions -- Bad debts written off, net of recoveries...... (1,264) (501) (386)
------- ------ ------
Balances at end of period................................... $ 2,011 $2,241 $1,992
======= ====== ======
</TABLE>
IV-3
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Brady Corporation:
We have audited the consolidated financial statements of Brady Corporation
and subsidiaries as of July 31, 1998 and 1997 and for each of the three years in
the period ended July 31, 1998, and have issued our report thereon dated
September 8, 1998; such financial statements and report are included in your
1998 Annual Report to Stockholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement schedule of Brady
Corporation 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, 1998
IV-4
<PAGE> 29
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-sixth day
of October, 1998.
BRADY CORPORATION
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
- ----------------------------------------------------- (Principal Executive
K. M. Hudson Officer) October 26, 1998
/s/ P. J. LETTENBERGER
- -----------------------------------------------------
P. J. Lettenberger Director October 26, 1998
/s/ R. A. BEMIS
- -----------------------------------------------------
R. A. Bemis Director October 26, 1998
/s/ F. W. HARRIS
- -----------------------------------------------------
F. W. Harris Director October 26, 1998
/s/ R. C. BUCHANAN
- -----------------------------------------------------
R. C. Buchanan Director October 26, 1998
- -----------------------------------------------------
R. D. Peirce Director
- -----------------------------------------------------
G. E. Nei Director
</TABLE>
IV-5
<PAGE> 1
BRADY CORPORATION
AMENDMENT TO CHANGE OF CONTROL AGREEMENT
AMENDMENT, made as of the 3rd day of August, 1998, between Brady
Corporation, a Wisconsin corporation ("Company") and Frank M. Jaehnert
("Executive").
WHEREAS, the Executive and the Company entered into a Change of Control
Agreement dated May 13, 1997, (the "Agreement"); and
WHEREAS, the Company and Executive wish to amend the Agreement to
increase the payment due upon termination from one times annual base salary to
two times annual base salary;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Executive and Company agree to amend Section 2(a) of the
Agreement so that as amended it shall read in its entirety as follows:
"Section 2. Payments Upon Termination Due to Change of Control.
(a) Following Termination Due to Change of Control, the Executive shall
be paid an amount equal to two times his annual base salary (exclusive of
incentive compensation and fringe benefits) paid the Executive by the Company in
effect immediately prior to the date the Change of Control occurs. Such amount
shall be paid in 24 monthly installments beginning on the 15th day of the month
following the month in which the Executive's employment with the Company
terminates."
IN WITNESS WHEREOF, the Executive has signed this Amendment to the
Agreement and, pursuant to the authorization of the Board, the Company has
caused this Agreement to be signed, all as of the date first set forth above.
_____________________________________
Executive - Frank M. Jaehnert
BRADY CORPORATION
By: _______________________________
Attest: ____________________________
<PAGE> 1
Brady Corporation
1998 annual report
Brady Corporation is an international manufacturer and marketer of
identification, safety, materials, and graphics solutions, with products ranging
from high-performance labels, signs and tapes to software, printers and
data-collection systems.
Founded in 1914, the Company employs more than 2,500 people worldwide and serves
well over 100,000 companies in markets including manufacturing, electrical,
electronics, telecommunication, transportation, education, government and
commercial graphics.
Through the superior quality, innovation, breadth of products and service it
provides, Brady is a world leader in its market niches.
Brady's Mission is to be the global leader in complete identification solutions
and to be a major player in high-value market niches that leverage Brady's
capabilities in specialty materials, die-cut products, software and printing
systems.
Contents
1 Financial Highlights
2 Letter to Shareholders
5 Business Profiles
6 Operations Review
13 Financial Review
32 Shareholder Services
Stockholders' Investment
in millions
94 145
95 171
96 189
97 207
98 233
Net Sales
in millions
94 256
95 314
96 360
97 426
98 455
Net Income
in millions
94 19
95 28
96 28
97 32
98 28
One-time charges of $4.8 million after tax affected 1998 results. The charges
relate to a cost-reduction program for long-term shareholder value enhancement.
<PAGE> 2
98 Financial Highlights
<TABLE>
<CAPTION>
Percent
July 31, July 31, Increase
1998 1997 (Decrease)
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Net sales $ 455,150 $ 426,081 6.8
Income before income taxes $ 46,165 $ 51,271 (10.0)
Pre-tax profit margin 10.1% 12.0%
Net income $ 28,036 $ 31,707 (11.6)
After-tax profit margin 6.2% 7.4%
Return on average stockholders' investment 12.7% 16.0%
Net income per Common Share (diluted)
Class A Nonvoting $ 1.23 $ 1.43
Class B Voting $ 1.20 $ 1.40
Working capital $ 125,386 $ 130,724 (4.1)
Stockholders' investment $ 233,373 $ 206,547 13.0
Research and development $ 20,287 $ 16,300 24.5
Capital expenditures $ 17,189 $ 8,777 95.8
Depreciation and amortization $ 13,288 $ 14,151 (6.1)
Key Data
Dividend yield 2.9% 1.8%
P/E ratio 16.7 20.7
P/E ratio excluding one-time charges 14.2 20.2
Current ratio 3.1 3.3
Book value/share $ 10.37 $ 9.41
Weighted average shares outstanding (diluted) 22,601,925 22,052,418
</TABLE>
Sales by Region
Other 5%
Asia/Pacific 8%
Europe 30%
U.S. 57%
Brady Corporate Facts
Brady went public in 1984, with its Class A Common Stock trading on the Nasdaq
Stock Market under the symbol BRCOA. Since going public, Brady's stock price has
compounded at 13.65% annually.
To better reflect its growth from a private, small company to a publicly traded,
international business, W.H. Brady Co. changed its name to Brady Corporation on
August 1, 1998.
Brady Corporation, headquartered in Milwaukee, Wisconsin, has operations in 19
countries. Through distributors and other sales channels, its global reach
extends to more than 65 countries.
The Brady team throughout North America, Europe, Asia/ Pacific and Latin America
is working on revenue growth, cost control and resource utilization to help
Brady achieve long-term shareholder value enhancement.
<PAGE> 3
To Our Shareholders
Photo caption:
Katherine M. Hudson
President and Chief Executive Officer
we continue to go for revenue growth, cost control and resource utilization
Fiscal 1998 was a disappointing year for Brady Corporation. While we made
advances in many areas, we fell short of our financial goals for the year.
We posted solid sales and net income growth for the first part of the year and
made good progress in new product development, geographic expansion, and
acquisitions. However, in our fourth quarter we faced weaker business conditions
due to economic turmoil in Asia/Pacific and a slowdown in our U.S. business.
Along with a negative foreign-exchange effect and delays in certain new product
launches, we missed our sales and profit growth targets for our year ending July
31, 1998.
Our Financial Performance.
Brady sales for the year were $455.2 million, up 6.8 percent from fiscal 1997's
sales of $426.1 million. Foreign-currency translations trimmed $14.7 million
from 1998 sales; without this effect our sales growth would have been 10.2
percent.
Our European sales were strong, posting nearly 13 percent growth over the prior
year. Our sales to the Asia/Pacific region, however, were down from the prior
year due to the economic difficulties in the region that had a significant
impact upon the last four months of our fiscal year. Our sales in the U.S.
increased only 5 percent from 1997 due to a general slowdown in U.S. electrical
and electronics markets and the ripple effect of the Asian crisis on various
customers and markets in the U.S.
The slowing in our sales growth rates in late fiscal 1998 came on suddenly. And
while we took steps to reduce spending in the fourth quarter, it was not enough
to make up for the sales shortfall. Excluding one-time charges, net income for
fiscal 1998 rose slightly over the prior year to $32.8 million, or $1.44 per
diluted Class A Common Share. To better position the Company for improved
profitability in the face of slower sales growth, we initiated a major
cost-control program in August which included a 7.5-percent reduction in
workforce. One-time charges totaling $4.8 million after tax for the program were
recorded in the fourth quarter. With those charges, our reported net income for
fiscal 1998 was $28.0 million, or $1.23 per diluted share, down 11.6 percent
from $31.7 million or $1.43 per diluted share in 1997.
The cost-control program will result in pre-tax savings of about $12 million in
fiscal 1999, which will bring our cost structure in line with a 4 to 5 percent
rate of sales growth. We believe our actions will better position the Company
for stronger profitability in the face of weaker business conditions in the year
ahead, and also strengthen Brady's long-term health and competitiveness through
improved productivity and a sharper focus on value creation.
Our Strategic Advancements.
We accomplished a great deal in fiscal 1998 in the area of new product
development, geographic expansion, strategic acquisitions, manufacturing
enhancements and information technology.
Throughout the year, Brady launched many new products, including
static-dissipative labels for labeling electronic components; LabelMark(TM)/WIN
software for identification applications in the telecommunications and
electrical markets; patch panel labels in four- and six-port configurations for
the telecommunication industry; new outdoor-durable vinyl materials for color
posters and banners; new polyester materials for back-lit signs; the Brady Pro
36 Large-
<PAGE> 4
Format Printing System which combines a variety of materials with
fluorescent and metallic-colored ribbons for dramatic do-it-yourself posters;
the ProPartner(R) Plus Labeling and Presentation System; a new computer
interface for use with the GraphicsPro(TM) system that enables users to add
graphics and other enhancements from their personal computers; and PRO-cedure
Writer software developed to help end users write Occupational Safety and Health
Administration (OSHA) required procedures.
Our new product development efforts expanded globally this year with the
establishment of an Asia/Pacific research and development operation in
Singapore. This effort supplements Brady's research and development centers in
the U.S. and Belgium; the operation will focus on developing materials for the
electronic packaging and assembly industry. For the year, total Brady research
and development spending came to 4.5 percent of sales.
Geographic expansion in 1998 included the opening of sales offices in Mexico and
the Philippines and the opening of a representative office in Beijing, China.
This year, we also expanded our market presence through new distributor
relationships in the Middle East, eastern Europe, and parts of South America.
Brady is on the move
In March and April 1998, we acquired two barcode software companies to
strengthen Brady's position in the fast-growing automatic identification and
data-collection market. Along with the acquisition of Techniques Avancees, Auch,
France, and GrafTek Inc., Toronto, Ontario, Canada, we established Brady
Software Products as a new global team dedicated to providing customers with
advanced identification solutions.
In doing more where we are, we installed a new, state-of-the art coating system,
which represents a capital investment of more than $10 million. The equipment
will apply adhesives and topcoats to a wide range of materials used in Brady
products for the electronics, electrical, telecommunications, automotive,
graphics and medical industries. It will also enhance our coating capabilities
and capacity to meet the external demand for high-quality coated materials.
We also made advances in doing business electronically via the Internet. Through
BradyServe(TM) Online Service, distributors can quickly check the status of open
orders and invoices, and availability and pricing of stock products, 24 hours
per day, 365 days a year. The interactive service also allows distributors to
link to shipping company Internet sites for tracking delivery of their products.
Moving On.
In fiscal 1999, we will continue to go for revenue growth, cost control and
resource utilization to accomplish long-term shareholder value enhancement. With
the economic challenges we're facing, we will increase our emphasis on
controlling costs, improving efficiencies and eliminating non-value-adding
activities throughout Brady.
We will strive to use our cash for strategic acquisitions that will increase our
market penetration, expand our technological capabilities and/or give us
additional geographic coverage.
As a result of our research and development investments in 1998, we expect to be
introducing new printing systems, data-collection devices, software, and various
high-performance labels and materials in the year ahead. We will continue to
make significant investments in research and development while also working to
improve processes and standardize various product platforms across divisions.
Geographic expansion continues to be a part of our strategic vision for growth,
with an emphasis on Asia, Europe and Latin America. We established operations in
seven countries (China, Philippines, Mexico, Malaysia, Taiwan, Brazil and South
Korea) within the last two years. In 1999, we will concentrate on leveraging
these new Brady locations.
<PAGE> 5
We will also continue to invest in information technology and advance our sales
and marketing activities via the Internet, while working closely with our
distributors and other partners around the world to extend our reach in current
and new markets.
We continue to be positive about the prospects for Brady Corporation. We are the
leader in many of the markets that we serve, but there are still significant
opportunities for Brady to grow in the U.S. and abroad.
Despite a less-than-satisfying year, Brady is on the move for bigger, better and
stronger results in the years ahead.
Sincerely,
Katherine M. Hudson
President and Chief Executive Officer
1998 Highlights
Brady established an Asia/Pacific research and development operation in
Singapore.
Coated Products Division completed installation of a new state-of-the art
coater.
Brady received registration to operate in Mexico under the name W.H. Brady S. de
R.L. de C.V. in December 1997.
In March 1998, Brady acquired barcode software publisher Techniques Avanceees,
France.
Brady's subsidiary Varitronic Systems, Inc. received certification to ISO 9001.
Brady acquired its second software development company, GrafTek Inc. of Toronto,
Ontario, Canada in April 1998.
Brady received legal registration for a representative office in Beijing, China
in May 1998.
Brady introduced BradyServe(TM) Online Service, enabling distrib-utors to check
the status of open orders and invoices and the availability and pricing of stock
products on the Internet.
In May 1998, Brady opened a sales office in the Philippines.
Brady implemented a major cost-control program to save about $12 million pretax
in fiscal 1999.
Sales from International Operations
in millions
94 95
95 129
96 157
97 181
98 198
Research & Development Investments
in millions
94 10
<PAGE> 6
95 10
96 11
97 16
98 20
In 1998, Brady invested 4.5% of sales in research and development.
Photo caption: circuit board labeling
"We are the leader in many of the markets we serve, but there are
still significant opportunities for us to grow."
98 Business Profiles
Identification Solutions & Specialty Tapes Group
Identification Solutions: labels for wire and cable marking; portable printing
systems, software, and accessories for do-it-yourself identification; label
application and data-collection systems; radio-frequency identification; and
custom-designed data-collection software.
Specialty Tape Products: die-cut or slit tapes, lenses, and shielding for use in
disk drives, pagers, cellular phones, medical equipment and audio/video
cassettes.
Coated Products: high-performance materials using vinyl, polyester, aluminum,
copper, tissue and cloth substrates coated with acrylic, latex, printable
topcoats, polyurethane and rubber-based adhesives.
Key Markets
electrical
electronic
automatic identification
manufacturing
telecommunications
computer/semiconductor
Graphics Group
Signmark(R): signs, labels and devices to meet government safety requirements;
printers and accessories for do-it-yourself industrial signage and labels;
regulatory training programs and products; and barricade tape,
accident-prevention tags and other visual warning systems.
Varitronic Systems: presentation systems including poster printers and supplies,
laminating equipment, and lettering and labeling systems.
Graphics Solutions: wide-format, color, graphics systems including color inkjet
and thermal-transfer printers, specialty inks and high-performance materials to
make indoor or outdoor-durable banners and signs.
Key Markets
manufacturing
petrochemical
pulp and paper
warehousing
<PAGE> 7
non-residential construction
training
government
education
legal
commercial graphics
Direct Marketing Group
Direct selling to end users as Seton and Signals via direct-mail catalogs,
telemarketing and the Internet. More than 20,000 products including signs,
property identification tags; hazardous materials and regulatory training
programs and products; customized nameplates; and office accessories.
Key Markets
manufacturing
wholesale trade
finance
insurance
real estate
construction
government
education
healthcare
Identification Solutions & Specialty Tapes Group
A conversation with David Schroeder,
Vice President - Identification Solutions and Specialty Tapes Group
Photo caption: The world's finest manufacturers use Brady industrial solutions
to increase efficiency, productivity and quality.
increasing efficiency, productivity and quality
Full Solutions.
As companies strive to enhance their efficiency and quality through
identification and tracking, they typically want someone to provide the full
solution. They don't want to spend time making selections concerning who
provides the labels, who provides the printer, the software and data-collection
devices...and then trying to get the pieces to work together. They want a total
solution they can count on. That's where Brady comes in. We provide customers
the total package - labels, ribbons, printers, software and even data-collection
devices.
This year we expanded our software-development activities, by acquiring the two
leading barcode-label-design software companies. Techniques Avancees in France,
GrafTek Inc. in Canada, and other parts of the Brady Software Products team are
giving customers the technology needed to effectively use identification and
work-in-process data.
Clean Materials.
The demand for ultra-clean materials is growing dramatically, especially in the
electronics market. For example, inside computer hard disk drives, the reading
head is spinning so close to the disk media that it's like flying a 747 jet five
feet off the ground; any contamination within the drive could cause problems. We
are addressing the needs of the electronics and other markets with an expanded
line of ultra-clean materials and static-dissipative materials. We're able to do
this through our in-house materials science, chemistry, and coating
<PAGE> 8
operations. In fact, our $10-million investment in a new coating line in 1998
gives us state-of-the-art capability to produce high-performance materials. This
enables us to meet growing demand for Brady products as well as accommodate more
external custom coating business.
Global Infrastructure.
As well as providing high-quality innovative solutions to our markets, we also
provide superior global service and support. We have manufacturing operations in
North America, South America, Europe and Asia/Pacific along with an extensive
sales and support network throughout the world. This network of Brady sales and
service representatives as well as over 1,500 distributors helps us both
understand and meet the identification and material needs of our global
customers.
Asia/Pacific.
Asia represents an area with significant long-term growth potential for the
Company, especially with the high level of activity in Asia in the
telecommunications, computer/ semiconductor, and electronics markets. While the
current financial crisis in Asia is dampening our sales, it is providing new
investment opportunities. We are slowly expanding our manufacturing presence in
Asia/Pacific to provide better service to our customers, help limit our exposure
to currency fluctuations and take advantage of local suppliers. We also are
pursuing value-adding acquisitions and joint ventures in the region.
Our Competitive Advantage.
There are a number of factors that set Brady apart. Our vertical integration
including research and development, coating and converting gives us an ability
to come up with differentiated products that meet the customer's exact needs and
specifications. Our understanding of the end-use marketplace, including our
customers' manufacturing environments, allows us to focus on providing complete
solutions. In addition, our core competencies of chemistry, material science,
coating technology and precision die-cutting and slitting, together with our
dedication to quality and innovation enable us to develop products which lead
the industry.
Opportunities.
In 1998, we continued to provide new identification solutions to our customers,
including a wide variety of high-performance materials and labeling software
packages. Our goal is to have more than 25 percent of sales from products
introduced within the past three years. This fall, we're introducing our
hand-held TLS 2200(TM) Thermal-Transfer Printer which will provide even greater
flexibility, portability and convenience to our customers and also expand our
market reach. Other new products will include new low-cost Radio Frequency
Identification (RFID) tags and a portable hand-held reader, and the PAM 6000
printer applicator machine with two print heads and 400 DPI capabilities.
There are millions of printed circuit boards in the world, and every day more of
them are being marked with barcode labels to efficiently track the manufacturing
process and control inventories. In the United States alone, there are millions
of miles of wires and cables. Increasingly, a clearly labeled electrical or
telecommunications installation is being viewed as a sign of professionalism and
quality. With more and more manufacturing engineers, electricians and installers
looking for solutions to their identification problems, we feel that Brady is
uniquely positioned for superior growth for a long time to come.
"We provide customers the total package-labels, printers, software and even
data-collection devices."
Photo captions:
programming coating equipment
wire markers
Brady-Singapore this year expanded manufacturing with the installation of
die-cutting and slitting equipment to reduce lead times on die-cut and
precision-slit products.
<PAGE> 9
The I.D. Pro(TM)Plus Wire Marker Printer was named 1997 Product of the Year by
Teleconnect Magazine.
Brady-Sweden finalized an agreement making Brady the primary supplier for
Ericsson Radio's identification products.
Brady radio frequency identification solves the problem of tracking thousands of
uniforms and costumes for large hotels and resorts in Las Vegas.
Graphics Group
A conversation with David Hawke,
Vice President - Graphics Group
Photo caption:
Brady products provide visual solutions to make the workplace safer and easier
to understand.
providing tools for communications, safety and performance
Safety Regulations.
Safety on the job is an important issue for people and organizations around the
globe. At a minimum, workplace injuries cause disruption to a business. In the
more serious cases, severe injury could mean the loss of important skills
developed over years of service. And worst of all, the result could be a loss of
life. While regulation of facility identification and safety is fairly developed
and enforced in the United States, it's less uniformly enforced in Europe, and
is yet to be legislated in many developing countries. This means an expanding
global market for our Signmark(R) business. As more and more businesses around
the globe are required to meet local government regulations, we'll be there,
providing our customers with regulatory expertise and products and services that
warn, protect, inform and train their employees.
Productivity Tools.
There is a strong drive for increased productivity in the business world. If a
facility is well-documented and organized, it's going to be more efficient.
Signmark products, such as signs, labels and tags, are used for organizing a
facility to ensure safety and give directions that save time and minimize
errors.
Every day in meeting rooms, classrooms and training rooms around the world,
people are using more visual communication tools. Presentation products from our
Varitronics unit help business, government and education to improve their
training, productivity and general communication. In the past 10 years we've
seen communication tools evolve from paper handouts to computer-based
presentations. Our products supplement and enhance the current trends in visual
communication. For example, with a poster printer, you can take an agenda,
mission, drawing or other graphic and quickly turn it into a poster. With the
poster on the wall, you have continual reference and reinforcement to aid in
communication and training. Our presentation systems allow businesses, schools
and organizations to have cost-effective yet high-quality, custom communications
in a matter of minutes.
Printing Systems - The Ultimate in Fast Service.
We live in an increasingly fast-paced world. Customers and distributors need
suppliers that can meet their needs while keeping their inventory investment
low. Our Signmark unit offers 24-hour delivery on 20,000 stock products and an
almost infinite variety of custom options. Often even this exceptional level of
service isn't fast enough for our customers. They need to produce custom signs,
pipemarkers and tags in real time. We provide not only signs, labels and tags,
but also complete systems, such as the Brady Labelizer(R) Plus Industrial
Labeling
<PAGE> 10
System and the VersaPrinter(TM) Label and Sign Maker System. These are
portable, industrial, thermal-transfer printers which print labels up to 4
inches wide.
Brady's printing systems combine multiple functions to simplify the job at hand.
We eliminate the need to find a separate graphics software to generate a sign or
pipemarker. We make it easy with all the functionality built in. And we provide
compatible materials in different color combinations for all the labels needed
around the factory. With a Brady system, the materials match, the software is in
the unit, and you don't need anything else. It's the ultimate definition of a
stand-alone system. And if you want to do more complex graphics, you can connect
the system to a computer, use our VersaLabel(TM) Label and Sign Software and
have even more sophisticated capabilities.
Growth Through Solutions.
This solutions approach also holds true for us in the fast-growing commercial
graphics market. An increasing portion of this market is focused on outdoor
applications where sunlight and weather conditions create a challenging
environment for color graphics. We provide a full outdoor-durable graphic
solution which includes our high-performance coated materials, together with
wide-format color inkjet printing systems and pigmented inks. This enables
graphics professionals to create colorful banners, posters and signs that
withstand ultraviolet light and weathering.
By focusing on our customers and capitalizing on our core competencies, we're
able to participate in exciting growth opportunities. As we continue to develop
innovative and complete graphic solutions, our customers can look forward to
even more Brady products and services that will add value to their businesses.
"By capitalizing on our core competencies, we can participate in exciting growth
opportunities."
Photo caption: lockout tagout
Signmark(R) Division's VersaPrinter(TM) Industrial Labeling System was named
1997 Product of the Year by Plant Engineering Magazine.
Among its many new products for 1998 was Signmark(R) Division's BLS 850 Desktop
Laminator, which works without electricity, heat or messy chemicals.
Graphic Solutions introduced the ColorPix Pro54 Large Format Color Production
System for indoor or outdoor applications at the CeBit industrial trade show in
Hanover, Germany.
Signmark(R) Division received the Customer-Focused Quality 1 award for
excellence in quality and service from Grainger for the fourth straight year.
Direct Marketing Group
A conversation with Dick Fisk,
Vice President - Direct Marketing Group
Photo caption: Brady's Direct Marketing Group provides a one-stop shopping
option for customers - offering hard-to-find items and large or small quantity
customized products.
offering a broad product line, rapid response and regulatory expertise
Since acquiring Seton Company in 1981, Brady has operated separate
direct-marketing companies, which with a wide product range, strong regulatory
expertise, fast delivery and
<PAGE> 11
ease of interaction, reach out to broader markets for safety and facility
identification. They particularly meet the needs of businesses who might
otherwise have difficulty in finding the products and information they need to
comply with governmental regulations.
Our goal in the Direct Marketing Group is to be the one-stop shop for safety and
facility identification products, with more than 20,000 products along with
regulatory expertise readily accessible via catalogs, telephone and the Internet
under Seton, Signals and other name brands. Manufacturing managers, safety
directors, engineers, human resource professionals and others around the world
turn to us for everyday products and hard-to-find items ranging from a
customized warning sign to a telephone jack label. With operations in Europe,
Canada, Australia, and South America as well as the United States, the group has
the local regulatory expertise and products that provide companies what they
need to comply with local government regulations.
New Products.
We mail more than 25 million Seton catalogs, brochures and flyers each year,
featuring as many as 900 new products in each catalog. Our new products include
Y2K compliance labels to identify the status of computers and equipment in the
year 2000 compliance process; Industri(TM) Notes, writable and repositionable
vinyl notes designed to stick to non-paper surfaces; humorous signs with
messages for a lighter side of the workplace; custom construction site banners
for general contractors; and a line of banners with safety slogans suggested by
our own employees.
Getting Close to the Customer.
Focusing on our customers and growing our international scope, we've adopted a
decentralized structure so that decisions can be made as close to the customer
as possible. This means that marketing, sales, and fulfillment are located in
each country where economically feasible. Vertical integration is a priority
initiative so that manufacturing of products will also be done in proximity to
the customer to provide faster delivery, almost always within 24 hours, at lower
costs and the highest levels of service.
Calculating the Results.
Seton's direct-marketing activities follow a scientific approach to market
penetration, customer response and retention rates. Each Seton company conducts
a series of sophisticated analyses to determine the right mix of products that
will provide the best solutions for our customers' needs. A broad range of
quantitative and qualitative tools are used to continually measure the
profitability of products offered in our catalogs. Based on this ongoing
evaluation, poor-performing products are either culled out or their presentation
is altered to improve the results. In addition, new technology enables us to
further refine our ability to predict purchasing patterns of customers and
prospects, helping to improve our product offerings and catalog results.
A World of Possibilities.
Geographic expansion has been a key initiative for the Direct Marketing Group.
Twelve years ago, all Seton sales came from the U.S.; today, almost two-thirds
of our sales come from outside the U.S. We look to further expand our
international presence by applying our proven business model in other countries.
This year we mailed our first full-line catalog to Mexico. In the future, we
plan to reach out to other Spanish-speaking countries in Central America and
South America. Also, as the economic situation in Asia/Pacific improves, we'll
be looking for strategic opportunities to bring Seton products to Asian markets
as well.
The Electronic Commerce Wave.
Electronic commerce is a high priority for direct marketing. Our web site at
www.seton.com in the U.S. and various international sites is a great partner
with our catalog. Customers can find up-to-date regulatory information and
detailed product descriptions, and place orders at any time of the day or night
via our Internet sites. Going forward, we look to develop ways to interface with
our databases to allow us to instantaneously communicate customized offers with
very targeted messages to multiple segments of our customer base. We will also
be
<PAGE> 12
working to give customers the ability to track the status of their orders, as
well as to design their own customized products and place orders for them
directly to us via the Internet. It's an exciting opportunity for us.
"We mail more than 25 million Seton catalogs and promotional pieces each year,
featuring thousands of new products."
Seton-Italy implemented light production for signs and labels, while
Seton-France conducted its first mailing into Spain.
In 1998, Seton-U.S. launched a new Internet site with features including credit
card purchase capabilities.
Seton-Brazil added sign-making equipment in-house, to reduce costs and improve
delivery times, and included more than 2,000 new products in its 1998 catalog.
Seton-U.S. mailed its first Spanish-language catalog in Mexico.
our guiding principles - our culture
Our actions throughout Brady drive for revenue growth, cost control and resource
utilization in order to enhance shareholder value. In accomplishing our goals,
we are committed to operating according to these guiding principles:
teamwork
We work together to achieve our vision, pooling our talents, respecting diverse
ideas and skills, recognizing commitment and contribution, and supporting each
other when things are going well and not so well.
customer focus
We put our customers at the center of everything we do, providing winning
solutions, understanding the customer's point of view, and delivering quality
products and services efficiently, consistently, pleasantly and professionally.
growth
We strive to grow our business and our capabilities
as a company and as individuals, investing in a global infrastructure,
emphasizing innovation, providing training and development to realize each
individual's potential, and encouraging everyone's involvement in our
enterprise.
value
By creating value for our customers, we create sustainable, long-term value for
our shareholders. We exceed our customers' expectations with robust new
products, friendly global service, flexible complete solutions and timely
response. We set high standards for our products and ourselves and we
continuously seek to improve.
honesty
Integrity is never compromised. We are honest in our dealings with our
customers, our communities and ourselves, realizing that we are the stewards of
our business and the environment in which we operate.
Photo caption: Brady focuses its charitable contributions and community outreach
activities on education. Activities range from Brady employees tutoring students
in Milwaukee, to Seton providing materials for a school safety program in
Australia. Through efforts like these, the Company is making a positive impact
on tomorrow's workforce.
<PAGE> 13
financial review
- - Brady Corporation's compound annual growth rates for fiscal 1993-1998 were
13 percent for sales and 11 percent for net income. Excluding nonrecurring
items, net income compounded annually at 16 percent during the period.
- - Brady also generated positive shareholder value each year, with a net
operating profit after tax exceeding the Company's cost of capital.
- - Brady's compound annual return to shareholders - stock price plus dividends
- - for 1993-1998 was 12.4 percent.
- - With strong cash generation, Brady ended the year with $65.6 million in cash
after acquisitions and other investments. Brady will continue to focus on
long-term shareholder value enhancement through revenue growth + cost control +
resource utilization.
Earnings Per Share
(Diluted)
94 .84
95 1.26
96 1.26
97 1.43
98 1.23
Excluding one-time charges, fiscal 1998 EPS would be $1.44.
Annual Dividends Per Share
94 .23
95 .27
96 .40
97 .52
98 .60
In October 1998 dividends increased 7% to $0.64 per share, making fiscal 1999
the 13th consecutive year of annual dividend increases.
Brady Common Stock Trading
16.33 23.83 27.50 30.50 35.00
15.83 23.79 21.75 29.63 20.50
11.50 15.67 18.00 20.50 19.63
94 95 96 97 98
Stock price at July 31
On July 31, 1998, Brady's Class A Common Stock closed at $20.50. 1993-1998 stock
price CAGR is 12%.
Five Year Cumulative Total Return
139 210 195 268 194 BRADY
105 133 155 235 281 S&P 500
103 145 157 232 274 NASDAQ
94 95 96 97 98
$100 invested in Brady stock in July 1993 grew to $194 by July 1998 through
price appreciation plus dividends.
Operating Income
in millions
94 30
95 41
<PAGE> 14
96 41
97 50
98 46
Excluding nonrecurring charges, operating income in 1998 was $53 million.
Operating Cash Flow
in millions
94 33
95 22
96 35
97 40
98 47
Operating cash flow rose 18% to $47 million.
Selected Financial Information
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) Years Ended July 31, 1988 through 1998
1998 1997 1996
<S> <C> <C> <C>
Operating Data
Net sales $ 455,150 $ 426,081 $ 359,542
Operating expenses:
Cost of products sold 204,895 194,096 166,426
Research and development 20,287 16,300 11,309
Selling, general and administrative 178,648 165,317 140,642
Nonrecurring charge (credit) 5,390 -- --
Total operating expenses 409,220 375,713 318,377
Operating income 45,930 50,368 41,165
Other income and (expense):
Investment and other income - net 638 1,159 4,570
Interest expense (403) (256) (302)
Net other income 235 903 4,268
Income before income taxes,
extraordinary item and cumulative
effect of changes in accounting
principles 46,165 51,271 45,433
Income taxes 18,129 19,564 17,406
Income before extraordinary item
and cumulative effect of changes
in accounting principles 28,036 31,707 28,027
Extraordinary item:
Gain on proceeds of officer's
life insurance policies, net -- -- --
Income before cumulative effect of
changes in accounting principles 28,036 31,707 28,027
Cumulative effect of changes in
accounting principles for:
Postretirement benefits (net of
income taxes of $2,663) -- -- --
Income taxes -- -- --
Catalog costs -- -- --
Net income $ 28,036 $ 31,707 $ 28,027
Net income per Common Share (Diluted):
Class A Nonvoting $ 1.23 $ 1.43 $ 1.26
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Class B Voting $ 1.20 $ 1.40 $ 1.23
Cash dividends on:
Class A Common Stock $ .60 $ .52 $ .40
Class B Common Stock $ .57 $ .49 $ .37
Balance Sheet (at period end)
Working capital $ 125,386 $ 130,724 $ 109,688
Total assets 311,824 291,66 261,835
Long-term debt, less
current maturities 3,716 3,890 1,809
Stockholders' investment 233,373 206,547 189,263
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
$ 314,362 $ 255,841 $ 242,970 $ 235,965 $ 211,063 $ 191,161
143,634 118,116 114,301 110,130 96,797 84,952
10,426 10,318 12,132 10,001 9,176 7,355
119,717 97,932 92,449 93,931 84,936 76,596
-- -- (1,236) 6,562 -- --
273,777 226,366 217,646 220,624 190,909 168,903
40,585 29,475 25,324 15,341 20,154 22,258
4,609 837 559 239 2,845 4,004
(555) (410) (54) (219) (548) (646)
4,054 427 505 20 2,297 3,358
44,639 29,902 25,829 15,361 22,451 25,616
16,728 11,362 8,973 6,972 7,054 10,606
27,911 18,540 16,856 8,389 15,397 15,010
-- -- -- -- -- --
27,911 18,540 16,856 8,389 15,397 15,010
-- -- -- (3,995) -- --
-- -- -- 661 -- --
-- -- -- -- -- --
$ 27,911 $ 18,540 $ 16,856 $ 5,055 $ 15,397 $ 15,010
$ 1.26 $ .84 $ .77 $ .22 $ .70 $ .69
$ 1.23 $ .81 $ .74 $ .19 $ .67 $ .66
$ .27 $ .23 $ .20 $ .19 $ .16 $ .13
$ .23 $ .19 $ .17 $ 15 $ .13 $ .10
$ 129,938 $ 100,023 $ 77,943 $ 66,093 $ 70,883 $ 67,797
230,005 202,509 179,901 173,054 156,812 147,197
1,903 1,855 1,978 2,524 1,982 3,298
170,823 145,129 128,068 119,771 115,260 103,784
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
1989 1988
<S> <C>
$ 174,174 $ 153,016
75,620 67,302
6,168 5,879
71,292 63,986
6,465 --
159,545 137,167
14,629 15,849
2,380 1,901
(356) (477)
2,024 1,424
16,653 17,273
6,778 6,968
9,875 10,305
4,625 --
14,500 10,305
-- --
-- --
1,233 --
$ 15,733 $ 10,305
$ .70 $ .45
$ .67 $ .42
$ .09 $ .08
$ .06 $ .05
$ 53,056 $ 42,492
129,890 117,201
3,637 3,086
89,443 84,987
</TABLE>
<PAGE> 17
Management's Discussion and Analysis of Results of Operations and Financial
Condition
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes appearing in this annual
report.
Overview
Between fiscal 1995 and 1998, the Company experienced sales growth while
reducing cost of products sold as a percentage of net sales. It 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 Solutions and Specialty Tapes
Group, (ii) the Direct Marketing Group, and (iii) the Graphics Group.
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 growth. Investments in
these key areas continued in fiscal 1997 and 1998 resulting in selling, general
and administrative expenses as a percentage of sales of 38.8% and 39.3%,
respectively.
The Company's growth strategy is focused on four key elements: introducing new
products for current and new markets and applications; geographic expansion in
selected markets worldwide; strategic acquisitions and joint ventures; and
increasing market penetration in existing markets.
The Company introduced several new products in fiscal 1998, including
static-dissipative labels, LabelMark(TM)/WIN software for the telecommunications
and electrical markets, outdoor-durable vinyl materials for color posters and
banners, and the ProPartner Plus labeling and presentation system.
During fiscal 1998, the Company established sales offices in Mexico and the
Philippines and a representative office in China. Catalog sales efforts expanded
into Mexico and Spain.
The Company completed the acquisitions of GrafTek Inc. in April 1998, Techniques
Avancees in March 1998, Signals S.A. in April 1997, Varitronic Systems, Inc. in
April 1996, The Hirol Company in January 1996 and TechPress II Limited in
November 1995.
To increase product penetration in fiscal 1998, the Company continued its
investment in sales, marketing and catalog efforts worldwide.
Year Ended July 31, 1998,
Compared to Year Ended July 31, 1997
Sales for fiscal 1998 increased by $29,069,000 or 6.8% over fiscal 1997. Sales
of the Company's international operations increased 9.5%. In local currencies,
continued market penetration in Brady's operations outside the United States
increased international sales by 13.2%. The acquisitions of Signals S.A.,
Techniques Avancees and GrafTek Inc. increased international sales in local
currencies by 4.4%. These increases were somewhat offset by the negative effect
of fluctuations in the exchange rates used to translate financial results into
U.S. currency, which reduced international sales growth by 8.1 percentage
points. Sales of the Company's U.S. operations increased 4.9%, due primarily to
increases in the sales of the Company's core products.
<PAGE> 18
The cost of products sold as a percentage of sales decreased from 45.6% to
45.0%. Reduced costs due to changes in product mix and manufacturing
efficiencies from the Company's continuous improvement efforts were partially
offset by increased depreciation and amortization expenses from the
acquisitions. Cost of products sold for fiscal 1998 included a charge of
$1,515,000 ($920,000 after tax) for the write-down of certain inventories. Cost
of products sold for fiscal 1997 included a charge of $1,200,000 ($715,000 after
tax) for restructuring the Company's European operations and consolidating the
Hirol Division's production operations into the Company's existing operations in
the United States and in the United Kingdom. Excluding these charges, the cost
of products sold as a percentage of sales decreased from 45.3% to 44.7%.
Selling, general and administrative expenses as a percentage of sales increased
from 38.8% to 39.3%. The increase reflects the expenses related to the Company's
ongoing investment in sales and marketing activities and building its global
information technology infrastructure. This year's expenses included a charge of
$540,000 ($328,000 after tax) for the write-down of certain assets. Last year's
expenses included a charge of $300,000 ($180,000 after tax) for the
restructuring mentioned above. Excluding these charges, selling, general and
administrative expenses as a percentage of sales increased from 38.7% to 39.1%.
Research and development expenses increased 24.5% over the prior year,
reflecting the Company's continued commitment to process improvement and new
product development. As a percentage of sales, research and development expenses
increased from 3.8% to 4.5%.
During fiscal 1998, the Company recorded a nonrecurring charge of $5,390,000
($3,272,000 after tax) related primarily to a provision for severance costs
associated with a 7.5% reduction in its workforce at its operations around the
world. Severance payments for approximately 200 people totaled $5,024,000. The
remainder of the charge related to the write-off of assets associated with
discontinuing the Company's contract taping service and cover tape product line.
Operating income decreased $4,438,000 to $45,930,000 in fiscal 1998 as the
one-time charges and the increase in research and development expenses more than
offset the improvement in gross margin. Excluding the one-time charges in both
years, operating income increased 2.9% from $51,868,000 to $53,375,000.
Investment and other income decreased $521,000 from the prior year. This year
includes $406,000 ($246,000 after tax) of losses on the disposal of certain
assets.
Income before income taxes was $46,165,000, a decrease of 10.0% compared to
fiscal 1997's $51,271,000. Excluding the one-time charges in both years, income
before income taxes increased 2.4% compared to the prior year.
The Company's effective tax rate increased from 38.2% for fiscal 1997 to 39.3%
for fiscal 1998 due to higher tax rates for the Company's international
operations.
Net income was $28,036,000 for fiscal 1998, compared to $31,707,000 for fiscal
1997 because of the factors cited above. Excluding the $4,766,000 one-time
charges in fiscal 1998 and the $895,000 restructuring charge in fiscal 1997, net
income increased 0.6% over the prior year.
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
<PAGE> 19
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%.
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
<PAGE> 20
Company's ongoing investment in sales and marketing activities and in building
its global information technology infrastructure. Research and development
expenses increased 8.5% over fiscal 1995, but declined as a percentage of sales.
Operating income increased to $41,165,000 in fiscal 1996, an increase of 1.4%
compared to fiscal 1995's $40,585,000 as the increase in sales was largely
offset by the increased selling, general and administrative expenses and the
increased cost of products sold mentioned above.
Investment and other income for fiscal 1996 included $1,750,000, representing
the gain on the sale of a building in Germany. Investment and other income for
fiscal 1995 included $2,033,000, representing the gain on the divestiture of two
domestic manufacturing operations and the sale of certain real estate.
Income before income taxes increased to $45,433,000, an increase of 1.8%
compared to fiscal 1995's $44,639,000.
The effective tax rate increased from 37.5% for fiscal 1995 to 38.3% for fiscal
1996 due to higher tax rates for the Company's international operations and a
higher effective state tax rate.
Net income was $28,027,000 for fiscal 1996, compared to $27,911,000 for fiscal
1995, because of the factors cited above.
Liquidity
The Company's liquidity remains strong. Cash and cash equivalents were
$65,609,000 at July 31, 1998, compared to $65,329,000 at July 31, 1997, and
49,281,000 at July 31, 1996. Working capital decreased $5,338,000 during fiscal
1998 and equaled $125,386,000 at July 31, 1998, primarily because of the use of
cash and cash equivalents to fund the acquisitions of Techniques Avancees and
GrafTek Inc.
The Company has maintained significant cash balances due in large part to its
strong operating cash flow, which totaled $47,207,000 for fiscal 1998,
$39,911,000 for fiscal 1997, and $34,612,000 for fiscal 1996. Capital
expenditures were $17,189,000 in fiscal 1998, $8,777,000 in fiscal 1997, and
$10,470,000 in fiscal 1996. The increase in fiscal 1998 was primarily from
progress payments made on the Company's new coating line. Financing activities,
primarily the payment of dividends to the Company's stockholders, consumed
$12,147,000 of cash in fiscal 1998, $9,166,000 in fiscal 1997, and $13,916,000
in fiscal 1996.
Long-term debt as a percentage of long-term debt plus stockholders' investment
was 1.6% at July 31, 1998, compared to 1.8% at July 31, 1997, and 0.9% at July
31, 1996.
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.
Year 2000 Compliance
<PAGE> 21
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue (the
"Issue"). As the year 2000 approaches, such systems may be unable to process
certain date-based information. This could result in a system failure or
miscalculations causing disruptions of operations and the inability to engage in
normal business activities. Many of the Company's systems, including information
and computer systems and automated equipment, will be affected by the Issue.
The Company has a comprehensive plan to address the Issue. The plan includes (i)
the complete inventory of all in-house computers, software and other equipment
utilizing microprocessors and identification of all hardware and software
affected by the Issue; (ii) modification of the affected systems; and (iii)
testing the modified system, installing the changes and auditing the installed
system for final compliance. The Company is using both internal and external
resources to implement its plan. The Company has generally completed the
inventory phase and is at various stages of modification and testing of these
systems. The Company expects to complete the majority of its efforts in this
area by early calendar 1999, leaving adequate time to assess and correct any
significant issues that materialize. The Company currently estimates that the
total cost of its Year 2000 project will be approximately $2,000,000. Costs
associated with this issue have been and will continue to be expensed as
incurred and are not expected to have a material effect on the results of
operations, cash flows or financial condition of the Company.
As a third-party supplier of software and printing systems to other companies,
the Company has posted its own product compliance status on its Internet site
(www.bradycorp.com).
The Company is in the process of formally communicating with all of its
significant suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 Compliance
issues. The Company cannot guarantee that the systems of other companies on
which the Company's systems rely will be converted on time, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems would not have a material adverse effect on the Company.
The costs of the project and the timetable in which the Company plans to
complete the Year 2000 requirements are based upon management's best estimates,
which are derived utilizing assumptions of future events including the continued
availability of personnel trained in this area, the ability to locate and
correct all relevant computer codes, and similar uncertainties. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ significantly from these plans. If the Company's plan to address
the Issue is not successfully or timely implemented, the Company may need to
devote more resources to the process and additional costs may be incurred, which
could have a material adverse effect on the Company's financial condition and
results of operations.
Company management believes it has an effective program in place to resolve the
Issue in a timely manner. Nevertheless, since it is not possible to anticipate
all possible future outcomes, especially when third parties are involved, there
could be circumstances in which the Company would be unable to take customer
orders, manufacture and ship products, invoice customers and collect payments,
or the Company could be subject to litigation for product failure. The amount of
potential liability and lost revenue has not been estimated.
Contingency plans will be developed in the second quarter of calendar 1999, and
most of calendar 1999 has been reserved for final verification of all Year 2000
Compliance processes and rehearsal of contingency plans.
Forward-Looking Statements
Matters in this Annual Report (particularly in this section and in the Letter to
Shareholders) may contain forward-looking information, as defined in the Private
Securities Litigation Reform Act of 1995. All such forward-looking information
in this report involves risks and
<PAGE> 22
uncertainties, including, but not limited to, variations in the economic or
political conditions in the countries with which the Company does business;
fluctuations in currency exchange rates for international currencies versus the
U.S. dollar; technology changes; the continued availability of sources of
supply; domestic and international economic conditions and growth rates; the
ability of the Company to timely adjust its cost structure to changes in levels
of sales, product mix and low levels of order backlog; the ability of the
Company to acquire new businesses; and other risks indicated in filings by the
Company with the Securities and Exchange Commission. The Company cautions that
forward-looking statements are not guarantees, since there are inherent
difficulties in predicting future results, and that actual results could differ
materially from those expressed or implied in forward-looking statements.
<PAGE> 23
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, 1998 and 1997
(Dollars in Thousands)
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 1) $ 65,609 $ 65,329
Accounts receivable, less allowance for losses
($2,011 and $2,241, respectively) 63,365 65,450
Inventories (Note 1):
Finished products 22,836 27,179
Work-in-process 3,967 3,885
Raw materials and supplies 11,641 13,541
Total inventories 38,444 44,605
Prepaid expenses and other current assets
(Notes 1, 3 and 4) 16,635 12,585
Total current assets 184,053 187,969
Other assets:
Intangibles - net (Note 1) 53,528 36,015
Other (Note 4) 7,078 5,236
Property, plant and equipment (Notes 1 and 5):
Cost:
Land 4,988 5,162
Buildings and improvements 39,595 39,159
Machinery and equipment 83,146 79,497
Construction in progress 11,705 2,560
139,434 126,378
Less accumulated depreciation 72,269 63,936
Net property, plant and equipment 67,165 62,442
Total $ 311,824 $ 291,662
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $ 15,761 $ 17,656
Wages and amounts withheld from employees 19,542 16,925
Taxes, other than income taxes 2,033 1,960
Accrued income taxes 9,276 8,453
Other current liabilities (Note 3) 11,647 11,687
Current maturities on long-term debt (Note 5) 408 564
Total current liabilities 58,667 57,245
Long-term debt, less current maturities (Note 5) 3,716 3,890
Other liabilities (Note 3) 16,068 23,980
Total liabilities 78,451 85,115
Stockholders' investment (Notes 1 and 6)
Preferred Stock (aggregate liquidation preference of
$3,026 at July 31, 1998) 2,855 2,855
Common Stock:
Class A Nonvoting - issued and outstanding
20,726,863 and 20,171,853 shares, respectively,
(aggregate liquidation preference of $34,614
at July 31, 1998) 207 202
Class B Voting - issued and outstanding
1,769,314 shares 18 18
Additional paid-in capital 26,131 9,573
Earnings retained in the business 208,254 193,602
Cumulative translation adjustments (1,068) 297
Other (3,024) --
Total stockholders' investment 233,373 206,547
Total $ 311,824 $ 291,662
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 24
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended July 31, 1998, 1997 and 1996
(Dollars in Thousands, Except Per Share Amounts)
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 455,150 $ 426,081 $ 359,542
Operating expenses:
Cost of products sold 204,895 194,096 166,426
Research and development 20,287 16,300 11,309
Selling, general and administrative 178,648 165,317 140,642
Nonrecurring charge 5,390 -- --
Total operating expenses 409,220 375,713 318,377
Operating income 45,930 50,368 41,165
Other income and (expense):
Investment and other income - net (Note 2) 638 1,159 4,570
Interest expense (403) (256) (302)
Net other income 235 903 4,268
Income before income taxes 46,165 51,271 45,433
Income taxes (Notes 1 and 4) 18,129 19,564 17,406
Net income $ 28,036 $ 31,707 $ 28,027
Net income per Common Share (Notes 6 and 8):
Class A Nonvoting:
Basic $ 1.24 $ 1.44 $ 1.27
Diluted $ 1.23 $ 1.43 $ 1.26
Class B Voting:
Basic $ 1.21 $ 1.41 $ 1.24
Diluted $ 1.20 $ 1.40 $ 1.23
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 25
Consolidated Statements of Stockholders' Investment
<TABLE>
<CAPTION>
Years Ended July 31, 1998, 1997 and 1996
(Dollars in Thousands, Except Per Share Amounts)
Additional Earnings Cumulative
Preferred Common Paid-in Retained in Translation
Stock Stock Capital the Business Adjustments Other
<S> <C> <C> <C> <C> <C> <C>
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
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 --
Net income -- -- -- 28,036 -- --
Net currency translation
adjustment -- -- -- -- (1,365) --
Issuance of 57,282 shares of
Class A Common Stock
under stock option plan -- -- 941 -- -- --
Other -- 5 15,268 -- -- (3,024)
Tax benefit from exercise
of stock options -- -- 349 -- -- --
Cash dividends on Preferred Stock:
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1979 series - $10 a share -- -- -- (220) -- --
6% and 1972 series --
$6 a share -- -- -- (39) -- --
Cash dividends on
Common Stock:
Class A - $.60 a share -- -- -- (12,122) -- --
Class B - $.57 a share -- -- -- (1,003) -- --
Balances at July 31, 1998 $ 2,855 $ 225 $ 26,131 $ 208,254 $ (1,068) $ (3,024)
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 27
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended July 31, 1998, 1997 and 1996
(Dollars in Thousands)
1998 1997 1996
Operating activities:
<S> <C> <C> <C>
Net income $ 28,036 $ 31,707 $ 28,027
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 11,047 12,183 9,978
Amortization 2,241 1,968 624
Loss/(Gain) on sale of property,
plant and equipment 349 139 (2,222)
Provision for losses on accounts
receivable 970 663 367
Other 212 -- 550
Nonrecurring charge 5,390 -- --
Changes in operating assets and liabilities
(net of effects of business
acquisitions and disposals):
Accounts receivable 1,066 (12,796) (1,786)
Inventory 5,705 (4,818) (3,978)
Prepaid expenses and
other assets (3,159) 2,342 (972)
Accounts payable and
accrued liabilities (4,285) 6,147 309
Income taxes (36) 3,334 1,815
Deferred income taxes (4,508) (1,118) (453)
Other liabilities 4,179 160 2,353
Net cash provided
by operating activities 47,207 39,911 34,612
Investing activities:
Acquisitions of businesses, net of
cash acquired (19,306) (6,724) (53,167)
Purchases of property, plant and equipment (17,189) (8,777) (10,470)
Proceeds from sale of property, plant
and equipment 500 908 4,563
Other 169 292 --
Net cash (used in)
investing activities (35,826) (14,301) (59,074)
Financing activities:
Payment of dividends (13,384) (11,596) (8,822)
Proceeds from issuance of Common Stock 941 835 372
Proceeds from long-term borrowings 829 2,236 --
Principal payments on long-term debt (533) (641) (5,466)
Net cash used in
financing activities (12,147) (9,166) (13,916)
Effect of exchange rate changes on cash 1,046 (396) (1,408)
Net increase (decrease) in cash and
cash equivalents 280 16,048 (39,786)
Cash and cash equivalents, beginning of year 65,329 49,281 89,067
Cash and cash equivalents, end of year $ 65,609 $ 65,329 $ 49,281
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 277 $ 258 $ 245
Income taxes, net of refunds 22,580 18,987 15,569
Acquisitions:
Fair value of assets acquired, net of cash 2,619 3,058 36,587
Liabilities assumed (1,471) (1,375) (15,966)
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
Goodwill 18,158 5,041 32,546
Net cash paid for acquisitions $ 19,306 $ 6,724 $ 53,167
Class A Common Stock issued to fund
deferred compensation plan $ 11,555 -- --
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 29
Notes to Consolidated Financial Statements
Years Ended July 31, 1998, 1997 and 1996
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation / The accompanying consolidated financial statements
include the accounts of Brady Corporation (formerly known as "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 48% and 43% of total inventories at July 31, 1998 and
1997, respectively) and the first-in, first-out method for other inventories.
The difference between the carrying value of domestic inventories stated at LIFO
cost and the value of such inventories stated at replacement cost was $5,319,000
at July 31, 1998 and $5,389,000 at July 31, 1997.
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 10 to 40 years. The weighted average amortization period is
24 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, 1998, or July 31, 1997.
Catalog Costs / Catalog costs are initially capitalized and amortized over the
estimated useful lives of the publications (generally eight months). At July 31,
1998 and 1997, $5,220,000 and $3,800,000, 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
<PAGE> 30
maturities of one year. At July 31, 1998 and 1997, exchange
contracts aggregating approximately $21,425,000 and $8,953,000, respectively,
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 FASB 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 for the fiscal year beginning August 1, 1998. The Company is
currently evaluating the impact of these statements on the consolidated
financial statements.
In addition, in February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
must be adopted by the Company beginning August 1, 1999. However, early
application is encouraged. This statement revises disclosures about pension and
other postretirement benefit plans. In 1998, the FASB also issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is required to be adopted in fiscal 2000.
Note 2 Acquisitions and Disposition of Businesses
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, 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 direct marketer of safety and facility
identification products, for cash of approximately $9,600,000.
Effective March 9, 1998, the Company acquired the common stock of Techniques
Avancees located in Auch, France, a barcode labeling software developer, for
cash of $10,735,000 and a payable of $1,030,000.
Effective April 30, 1998, the Company acquired the common stock of GrafTek Inc.
located in Toronto, Ontario, Canada, a barcode labeling software developer, for
cash of $8,528,000 and a payable of $933,000.
<PAGE> 31
Effective August 16, 1998, the Company acquired the common stock of VEB Sistemas
de Etiquetas Ltda, in Sao Paulo, Brazil, an industrial label manufacturer, for
cash of approximately $4,445,000.
The pro forma results of operations of the above acquisitions are not
significant to the financial statements.
Note 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 will be 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, 1998, 1997 and 1996, the Company made benefit
payments totalling $299,400, $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, 1998 and
1997:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1998 1997
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $3,084 $3,112
Fully eligible active plan participants 661 604
Other active plan participants 3,057 2,426
6,802 6,142
Unrecognized net gain 2,333 2,703
Accrued postretirement benefit cost $9,135 $8,845
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
1998 1997 1996
<S> <C> <C> <C>
Net periodic postretirement benefit cost
included the following components:
Service cost - benefits attributed to
service during the period $328 $260 $246
Interest cost on accumulated
postretirement benefit obligation 473 447 478
Amortization of (gain) (150) (187) (106)
Periodic postretirement benefit cost 651 520 618
Net periodic postretirement benefit cost $651 $520 $618
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 7.3% in 1998 and gradually declining to
5.5% by the year 2000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 7.3% in 1998 and 7.5% in 1997.
<PAGE> 32
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of July 31, 1998, would be
increased by $13,000. The effect of this change on the sum of the service cost
and interest cost would not be material.
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, 1998 and 1997,
$4,898,000 and $4,290,000, respectively, of accrued profit-sharing contributions
were included in other current liabilities.
The Company also has had deferred compensation plans for directors, officers and
key executives utilizing the phantom stock plan concept. At July 31, 1998 and
1997, $6,349,000 and $18,324,000, respectively, of deferred compensation was
included in current and other long-term liabilities. The reduction of this
deferred compensation liability relates to the new deferred compensation plan
discussed below.
During fiscal 1998, the Company adopted a new deferred compensation plan that
invests solely in shares of the Company's Class A Nonvoting Common Stock.
Participants in the old phantom stock plan were allowed to convert their
balances in the old plan to this new plan. The new plan was funded initially by
the issuance of 372,728 shares of Class A Nonvoting Common Stock to a Rabbi
Trust. All deferrals into the new plan result in purchases of Class A Nonvoting
Common Stock by the Rabbi Trust. No deferrals are allowed into the old plan.
Shares held by the Rabbi Trust are distributed to participants upon separation
from the Company as defined in the plan agreement.
The amounts charged to income for the plans described above were $8,038,000 in
1998, $7,092,000 in 1997 and $6,545,000 in 1996.
The Company has a voluntary employee benefit trust for the purpose of funding
employee medical benefits and certain other employee benefits. At July 31, 1998
and 1997, $2,344,000 and $2,441,000, respectively, of payments to the trust to
fund such benefits were included in prepaid expenses and other current assets.
Note 4 Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
1998 1997 1996
<S> <C> <C> <C>
Currently payable:
Federal $14,570 $13,875 $10,573
Foreign 5,883 3,812 5,376
State 1,803 2,995 1,910
22,256 20,682 17,859
Deferred (credit):
Federal (3,373) (1,832) (807)
Foreign (181) 1,188 469
State (573) (474) (115)
(4,127) (1,118) (453)
Total $18,129 $19,564 $17,406
</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:
<PAGE> 33
<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
1998 1997 1996
<S> <C> <C> <C>
United States $ 32,743 $ 38,493 $ 31,481
Foreign 13,422 12,778 13,952
Total $ 46,165 $ 51,271 $ 45,433
</TABLE>
The approximate tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
July 31, 1998
(Dollars in Thousands)
Assets Liabilities Total
<S> <C> <C> <C>
Inventories $ 2,236 $ -- $ 2,236
Prepaid catalog costs -- (968) (968)
Employee benefits 480 -- 480
Allowance for doubtful accounts 354 -- 354
Other, net 4,518 (270) 4,248
Current 7,588 (1,238) 6,350
Excess of tax over book depreciation -- (2,034) (2,034)
Deferred compensation 6,572 -- 6,572
Postretirement benefits 3,634 -- 3,634
Tax loss carryforwards 4,649 -- 4,649
Less valuation allowance (4,649) -- (4,649)
Other, net 992 (2,720) (1,728)
Noncurrent 11,198 (4,754) 6,444
Total $ 18,786 $ (5,992) $ 12,794
<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>
At July 31, 1998 and 1997, $6,350,000 and $3,579,000, respectively, of net
deferred tax assets were included in prepaid expenses and other current assets.
At July 31, 1998 and 1997, $6,444,000 and $5,219,000, respectively, of net
deferred tax assets were included in other assets.
A reconciliation of the tax computed by applying the statutory U.S. Federal
income tax rate to income before income taxes to the total income tax provision
is as follows:
<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
1998 1997 1996
<S> <C> <C> <C>
Tax at statutory rate $16,157 $17,945 $15,902
State income taxes, net of Federal tax benefit 1,517 2,248 1,505
International losses with no related tax benefits 1,350 1,196 664
International rate differential (345) (668) 138
Rate variances arising from
foreign subsidiary distributions (391) (155) (493)
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C> <C>
Other, net (159) (1,002) (310)
Total income tax provision $18,129 $19,564 $17,406
Effective tax rate 39.3% 38.2% 38.3%
</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, 1998,
amounted to approximately $38,957,000. If all such undistributed earnings were
remitted, no additional provision for foreign income taxes would be required.
Note 5 Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31,
(Dollars in Thousands)
1998 1997
<S> <C> <C>
6.25% Industrial Development Revenue
Bonds payable on December 1, 2001 $1,000 $1,000
Korean bank debt 2,485 2,475
Other 639 979
4,124 4,454
Less current maturities 408 564
$3,716 $3,890
</TABLE>
The Industrial Development Revenue Bonds are collateralized by first mortgages
on certain property with a net carrying amount of approximately $4,440,000 at
July 31, 1998. The Company's long-term debt approximates fair value.
Maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending July 31,
(Dollars in Thousands)
<S> <C>
1999 $ 408
2000 2,377
2001 96
2002 1,082
2003 73
Thereafter 88
</TABLE>
Note 6 Stockholders' Investment
On November 17, 1995, at a Special Meeting of Shareholders, the Company's
shareholders approved a proposal to amend the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Class A Common
Stock from 10,000,000 shares to 100,000,000 shares. Also on November 17, 1995,
the shareholders approved, and the Board of Directors declared, a common stock
dividend of two shares of Class A Common Stock on each outstanding share of
Class A Common Stock and Class B Common Stock. The common stock dividend was
paid on December 15, 1995, to shareholders of record at the close of business on
December 1, 1995. Accordingly, net income per share amounts, dividends per share
and weighted average shares included in the accompanying consolidated financial
statements have been adjusted to reflect the common stock dividend.
Information as to the Company's capital stock at July 31, 1998, is as follows:
<PAGE> 35
<TABLE>
<CAPTION>
(Dollars in Thousands)
Shares Shares
Authorized Outstanding Amount
<S> <C> <C> <C>
Preferred Stock, $.01 par value 5,000,000 0 $ 0
Cumulative Preferred Stock:
6% Cumulative 5,000 3,984 399
1972 Series 10,000 2,600 260
1979 Series 30,000 21,963 2,196
$ 2,855
Common Stock, $.01 par value:
Class A Nonvoting 100,000,000 20,726,863 $ 207
Class B Voting 10,000,000 1,769,314 18
$ 225
</TABLE>
Each share of $100 par value Cumulative Preferred Stock is entitled to receive
cumulative cash dividends and may be redeemed, under certain circumstances, by
the Company at par value plus accrued dividends plus a premium of 6% of the par
value. Such shares, which are held by the initial holder thereof, are subject to
redemption only if the holder consents thereto.
Before any dividend may be paid on the Class B Common Stock, holders of the
Class A Common Stock are entitled to receive an annual, noncumulative cash
dividend of $.0333 per share. Thereafter, any further dividend in that fiscal
year must be paid on each share of Class A Common Stock and Class B Common Stock
on an equal basis.
Holders of the Class A Common Stock are not entitled to any vote on corporate
matters, unless, in each of the three preceding fiscal years, the $.0333
preferential dividend described above has not been paid in full. Holders of the
Class A Common Stock are entitled to one vote per share for the entire fiscal
year immediately following the third consecutive fiscal year in which the
preferential dividend is not paid in full. Holders of Class B Common Stock are
entitled to one vote per share for the election of directors and for all other
purposes.
Upon liquidation, dissolution or winding up of the Company, and after
distribution of any amounts due to holders of Cumulative Preferred Stock,
holders of the Class A Common Stock are entitled to receive the sum of $1.67 per
share before any payment or distribution to holders of the Class B Common Stock.
Thereafter, holders of the Class B Common Stock are entitled to receive a
payment or distribution of $1.67 per share. Thereafter, holders of the Class A
Common Stock and Class B Common Stock share equally in all payments or
distributions upon liquidation, dissolution or winding up of the Company.
The preferences in dividends and liquidation rights of the Class A Common Stock
over the Class B Common Stock will terminate at any time that the voting rights
of Class A Common Stock and Class B Common Stock become equal.
The following is a summary of other activity in stockholders' investment for the
year ended July 31, 1998:
<TABLE>
<CAPTION>
Shares Held
Unearned Deferred in Rabbi
Restricted Comp- Trust,
Stock ensation at cost Total
<S> <C> <C> <C> <C>
Issuance of 125,000 shares of
Class A Common Stock $ (3,718) $ -- $ -- $ (3,718)
Issuance of 372,728 shares of
Class A Common Stock to
Rabbi Trust to fund deferred
compensation plan -- 11,555 (11,555) --
Purchase of 17,221 shares of
Class A Common Stock
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
purchased by the Rabbi
Trust related to deferred
compensation plan -- 482 (482) --
Amortization of restricted
stock 694 -- -- 694
Balances July 31, 1998 $ (3,024) $ 12,037 $(12,037) $ (3,024)
</TABLE>
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 starting one year after the date of grant, to the
extent of one-third per year.
Changes in the Options are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Option Options Exercise
Price Outstanding Price
<S> <C> <C> <C>
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
Options granted $30.66-$34.00 260,150 31.49
Options exercised $6.83-$25.17 (57,282) 16.44
Options cancelled $21.75-$31.38 (24,600) 23.74
Balance, July 31, 1998 $6.83-$34.00 1,640,021 $22.79
(635,490 options exercisable)
Available for grant after July 31, 1998 1,440,358
</TABLE>
The following table summarizes information about stock options outstanding at
July 31, 1998:
<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 1998 Life - Years Price 1998 Price
<S> <C> <C> <C> <C> <C>
$ 6.83-$16.00 347,637 4.8 Years $12.90 347,637 $12.90
$16.01-$25.00 780,033 8.6 Years 23.54 120,252 23.06
$25.01-$34.00 512,351 8.3 Years 28.36 167,601 25.17
$ 6.83-$34.00 1,640,021 7.7 Years $22.79 635,490 $18.06
</TABLE>
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 establishes 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-
<PAGE> 37
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>
1998 1997
<S> <C> <C>
Net income:
As Reported $28,036 $31,707
Pro Forma 26,816 30,939
Net Income per Class A Common Share - Diluted:
As Reported $ 1.23 $ 1.44
Pro Forma 1.17 1.39
</TABLE>
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 1998 and 1997 as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Risk-free interest rate 5.7% 6.3%
Expected volatility 30.5% 27.1%
Dividend yield 2.2% 2.1%
Expected option life 4.4 years 4.1 years
</TABLE>
Note 7 Domestic and Foreign Operations
The Company operates predominantly in a single industry as a manufacturer and
distributor of identification products. Operations are conducted in the United
States and through subsidiaries located in Canada, Mexico, United Kingdom,
Germany, France, Belgium, Italy, Sweden, 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. Eliminations consist of intercompany receivables between regions.
Information with respect to operations located outside the United States which
have been translated into U.S. dollars are as follows:
<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
1998 1997 1996
<S> <C> <C> <C>
Current assets $ 76,837 $ 74,279 $ 60,570
Other assets 27,815 8,912 4,012
Property, plant and equipment 11,085 11,902 11,087
Total assets $115,737 $ 95,093 $ 75,669
Current liabilities $ 31,948 $ 37,905 $ 29,158
Other liabilities 32,265 29,584 18,367
Stockholders' investment 51,524 27,604 28,144
Total liabilities and stockholders' investment $115,737 $ 95,093 $ 75,669
Net sales $198,680 $181,357 $156,943
Brady Corporation equity in net income $ 7,267 $ 7,776 $ 8,266
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
(Dollars in Thousands)
Corporate Assets
United States Europe Other and Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1998:
Sales to unaffiliated
customers $ 256,941 $ 138,602 $ 59,607 $ -- $ 455,150
Transfers between
geographic areas 29,872 459 341 (30,672) --
Net sales $ 286,813 $ 139,061 $ 59,948 $ (30,672) $ 455,150
Operating income
(loss) $ 31,022 $ 16,499 $ (2,091) $ 500 $ 45,930
Identifiable
assets $ 160,408 $ 66,885 $ 26,910 $ 57,621 $ 311,824
Year ended July 31, 1997:
Sales to unaffiliated
customers $ 245,013 $ 123,284 $ 57,784 $ -- $ 426,081
Transfers between geographic
areas 31,952 245 250 (32,447) --
Net sales $ 276,965 $ 123,529 $ 58,034 $ (32,447) $ 426,081
Operating income
(loss) $ 36,811 $ 13,963 $ (100) $ (306) $ 50,368
Identifiable
assets $ 168,600 $ 52,242 $ 24,667 $ 46,153 $ 291,662
Year ended July 31, 1996:
Sales to unaffiliated
customers $ 202,780 $ 110,312 $ 46,450 $ -- $ 359,542
Transfers between geographic
areas 24,104 204 96 (24,404) --
Net sales $ 226,884 $ 110,516 $ 46,546 $ (24,404) $ 359,542
Operating income
(loss) $ 28,313 $ 12,420 $ (40) $ 472 $ 41,165
Identifiable
assets $ 164,761 $ 42,865 $ 16,689 $ 37,520 $ 261,835
</TABLE>
Note 8 Net Income per Common Share
Net income per Common Share is computed by dividing net income (after deducting
the applicable Preferred Stock dividends and preferential Class A Common Stock
dividends) by the weighted average Common Shares outstanding of 22,357,686 for
1998, 21,908,318 for 1997 and 21,847,180 for 1996. 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.
For the year ended July 31, 1998, the Company adopted SFAS No. 128, "Earnings
per Share," which established new standards for the calculation of net income
per share effective for interim and annual periods ending after December 15,
1997. Reconciliations of the numerator and denominator of the basic and diluted
per share computations for the Company's Class A and Class B common stock are
summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Numerator:
Net income $ 28,036,000 $ 31,707,000 $ 28,027,000
Less: Preferred stock dividends (259,134) (259,134) (259,134)
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Numerator for basic and
diluted Class A earnings
per share 27,776,866 31,447,866 27,767,866
Less:
Preferential dividends (676,298) (670,454) (668,045)
Preferential dividends
on dilutive stock
options (9,140) (3,843) (4,602)
Numerator for basic and
diluted Class B earnings
per share $ 27,091,428 $ 30,773,569 $ 27,095,219
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
<S> <C> <C> <C>
Denominator:
Denominator for basic
earnings per share for
both Class A and B 22,357,686 21,908,318 21,847,180
Plus: Effect of dilutive
stock options 244,239 144,100 138,194
Denominator for diluted
earnings per share for
both Class A and B 22,601,925 22,052,418 21,985,374
</TABLE>
<TABLE>
<S> <C> <C> <C>
Class A Common Stock earnings per share calculation:
Basic $ 1.24 $ 1.44 $ 1.27
Diluted 1.23 1.43 1.26
Class B Common Stock earnings per share calculation:
Basic $ 1.21 $ 1.41 $ 1.24
Diluted 1.20 1.40 1.23
</TABLE>
Options to purchase 258,850; 269,401; and 324,600 shares of Class A Common Stock
were not included in the computations of diluted earnings per share for the
fiscal years 1998, 1997 and 1996, respectively, because the option exercise
prices were greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
Note 9 Commitments
The Company has entered into various noncancellable operating lease agreements.
Rental expense charged to operations was $9,015,000 for 1998; $7,357,000 for
1997; and $4,689,000 in 1996. Future minimum lease payments required under such
leases in effect at July 31, 1998, are as follows (by fiscal year):
<TABLE>
<CAPTION>
Year Ending July 31, (Dollars)
<S> <C>
1999 $ 8,048,000
2000 5,641,000
2001 2,500,000
2002 1,209,000
2003 1,001,000
Thereafter 2,352,000
$20,751,000
</TABLE>
Note 10 Nonrecurring and One-time Charges
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring
charge of $5,390,000 related primarily to a provision for severance costs
associated with a reduction in workforce at its operations around the world. In
response to a softening of sales that began in
<PAGE> 40
April 1998, the Company announced in July 1998 that it would be reducing its
workforce. A workforce reduction of 7.5%, approximately 200 people, was
essentially completed in August 1998. Severance costs associated with this
reduction totaled $5,024,000. These severance payments will require future cash
outlays, principally over fiscal 1999. The remainder of the nonrecurring charge
represents a write-off of assets associated with exiting two small product
lines. The Company has decided to discontinue its contract taping service and
cover tape product line resulting in asset write-offs of $188,000 and $178,000,
respectively. These are noncash charges.
In addition to the nonrecurring charge above, the Company recorded $2,461,000 in
one-time charges in the fourth quarter of fiscal 1998 for the write-down of
certain inventories and other assets. Substantially all this amount is noncash.
These nonrecurring and one-time charges total $7,851,000 ($4,766,000 after tax)
or approximately $0.21 per diluted share.
<PAGE> 41
Independent Auditors' Report
To the Board of Directors and Stockholders
of Brady Corporation:
We have audited the accompanying consolidated balance sheets of Brady
Corporation (formerly known as W.H. Brady Co.) and subsidiaries as of July 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended July
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies at July 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 1998 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 8, 1998
<PAGE> 42
Corporate Data
Directors
* Katherine M. Hudson, 51, joined Brady 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 Kodak's Professional, Printing
and Publishing Imaging Division. She is also a director of Case Corporation and
Honeywell, Inc.
* Peter J. Lettenberger, 61, has served as a director and secretary of Brady
since January 1977. He is a partner in the law firm of Quarles & Brady,
Milwaukee, Wisconsin, and serves as general counsel to Brady.
Robert C. Buchanan, 58, has been a director of Brady since November 1987. He is
president and CEO of the Fox Valley Corporation, a specialty paper manufacturer
in Appleton, Wisconsin.
Roger D. Peirce, 61, has served as a Brady director since September 1988. He is
secretary and treasurer of Jor-Mac Company, Inc, a manufacturer of metal
products in Grafton, Wisconsin.
Richard A. Bemis, 57, 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.
Dr. Frank W. Harris, 56, has been a director of Brady since November 1991. He is
a distinguished professor of polymer science and bio-medical engineering at the
Institute of Polymer Science, University of Akron, in Akron, Ohio.
Gary E. Nei, 54, has been a director of Brady since November 1992. He is
chairman of B&B Publishing, a publishing company in Walworth, Wisconsin.
Corporate Officers and Executives
* Katherine M. Hudson
president and chief executive officer
* Frank M. Jaehnert
vice president and chief financial officer
* Richard L. Fisk
vice president - Direct Marketing Group
* David R. Hawke
vice president - Graphics Group
* David W. Schroeder
vice president - Identification Solutions and Specialty Tapes Group
Laurie Bernardy
vice president - corporate communications
Gary L. Johnson
vice president - corporate development
* Michael O. Oliver
vice president - human resources
<PAGE> 43
* Donald E. Rearic
treasurer and assistant secretary
* Thomas E. Scherer
vice president, controller and assistant secretary
David B. Winter
vice president and chief information officer
* Officers for the purposes of Section 16 of the Securities Exchange Act of
1934.
<PAGE> 44
Shareholder Services
Common Shares
Brady Corporation Class A Nonvoting Common Stock trades on the Nasdaq Stock
Market under the symbol BRCOA. Trading information is carried by the National
Association of Securities Dealers. As of September 18, 1998, there were 453
Class A Nonvoting Common Stock shareholders of record and more than 5,000
beneficial shareholders. There are two Class B Voting Common Stock shareholders.
Dividends
Dividends are normally paid on the last day of October, January, April and July.
The Board of Directors voted a quarterly dividend of 16 cents per share on Class
A Nonvoting Common Stock to shareholders of record on October 9, 1998.
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.
Quarterly Stock Data
<TABLE>
<CAPTION>
1998 1997 1996
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
4th Quarter $32.75 $19.63 $30.50 $22.00 $26.75 $20.00
3rd Quarter $35.75 $29.31 $27.75 $22.50 $25.50 $19.00
2nd Quarter $33.00 $29.00 $24.75 $20.50 $27.00 $21.00
1st Quarter $35.00 $27.38 $25.25 $21.50 $24.52 $23.67
</TABLE>
Stock Transfer Agent
Firstar Trust Company, 1555 North River Center Drive, Suite 301, Milwaukee, WI,
53212; phone: 1-800-637-7549
Brady Information
Brady's site on the Internet, www.bradycorp.com, contains the Company's 10-K and
10-Q 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 1998 Annual Report, Form 10-K or other information mailed to you,
please contact: Investor Relations, Brady Corporation, P.O. Box 571, Milwaukee,
WI 53201-0571, 414-358-6600.
Investor and Media Inquiries
If you have questions about Brady Corporation, please contact Laurie Bernardy,
vice-president of corporate communications, at 414-438-6880 or e-mail
[email protected].
Annual Meeting
The Brady Corporation Annual Meeting will be at 9 a.m., Friday, November 20,
1998, at the Milwaukee Athletic Club, 758 N. Broadway, Milwaukee, Wisconsin.
<PAGE> 45
Brady Locations
United States
Brady Corporation
P.O. Box 571
Milwaukee, WI 53201
Brady Worldwide, Inc. - Identification Solutions
6555 W. Good Hope Rd.
Milwaukee, WI 53223
Brady Worldwide, Inc. - Specialty Tapes
N144 W5690 Pioneer Road
Cedarburg, WI 53012
Brady Worldwide, Inc. - Coated Products
2230 W. Florist Ave.
Milwaukee, WI 53209
Brady Worldwide, Inc. - Signmark
2221 W. Camden Rd.
Milwaukee, WI 53209
Seton
20 Thompson Rd.
Branford, CT 06405
Varitronic Systems, Inc.
6835 Winnetka Circle
Brooklyn Park, MN 55428
Australia
W.H. Brady Pty. Ltd.
Seton Australia Pty. Ltd.
2 Pat Devlin Close
Chipping Norton NSW 2170
Australia
Belgium
W.H. Brady, N.V.
Industrie Park C/3
Lindestraat 20
B-9240 Zele, Belgium
Brazil
W.H.B. do Brasil Ltda.
Centro Empresarial Alphaville
Av. Jurua, 105 - Modulo 4
06455-908 Barueri
Sao Paulo, Brazil
<PAGE> 46
Canada
W.H.B. Identification Solutions, Inc.
Seton-Canada
56 Leek Crescent
Richmond Hill
Ontario, Canada
China
W.H. Brady Asia-Pacific Pte. Ltd.
Room 806, Bright China
Chang An Building
7 Jian Guo Men Nei Da Jie
Dong Cheng District
Beijing, PRC
England
Brady Graphic Solutions Limited
Summit House, Brooklands Close
Sunbury on Thames
Middlesex TW16 7EH, England
W.H. Brady Co. Ltd.
Wildmere Industrial Estate
Banbury, Oxfordshire
OX167JU, England
Seton Limited
Canada Close
Banbury, Oxon 0X16 7RT
England
France
W.H. Brady S.A.R.L.
2 Place Marcel Rebuffat
BP 362 - Parc de Villejust
91959 Les Ulis Cedex, France
Seton S.A.
113 Rue Horace Vernet - BP 181
59054 Roubaix Cedex 1, France
Signals S.A.
Rond Point de la Republique
Z.I. de la Rochelle
17187 Perigny Cedex, France
Germany
<PAGE> 47
W.H. Brady GmbH
Lagerstrasse 13
64807 Dieburg
Germany
Seton GmbH
Otto-Hahn-Str. 5-7
63222 Langen, Germany
Hong Kong
W.H. Brady Asia-Pacific Pte. Ltd.
Unit 03/04, 18th Floor CRE Centre
889 Cheung Sha Wan
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 222-0033, Japan
Korea
W.H. Brady Co., Ltd.
130-8 Dong An-Ri,
Okcheon-EUP
Okcheon-Gun, Chung Buk,
373-800
Republic of Korea
Malaysia
W.H. Brady Asia-Pacific Pte. Ltd.
15, 1st Floor
Lorong Mayang Pasir 5
Bayan Baru, 11950
Penang, Malaysia
Mexico
W.H. Brady S. de R.L. de C.V.
<PAGE> 48
1st Floor, Building 718
Ejercito Nacional
Colonia Chapultepec Morales
Mexico City, Mexico
Philippines
W.H. Brady Asia-Pacific Pte. Ltd.
9 Narra Drive
Palmera Heights III
Valley Golf, Cainta Rizal
Philippines 1900
Singapore
W.H. Brady Asia-Pacific Pte. Ltd.
W.H. Brady Pte. Ltd.
55 Ayer Rajah Crescent #03-25
Ayer Rajah Industrial Estate
Singapore 139949
Sweden
Brady AB
Karins Vag 7
S-194 54 Upplands Vasby
Sweden
Taiwan
W.H. Brady Asia-Pacific Pte. Ltd.
4th Floor, No. 4, Alley 4
Lane 30, Hwan-Shan Rd., SEC 3
Taipei 114, Taiwan
<PAGE> 49
Brady Corporation
P.O. Box 571, Milwaukee, WI 53202-0571
414-358-6600
www.bradycorp.com
(C)1998 Brady Corporation. All Rights Reserved.
10-FC-98-BEM
In keeping with Brady Corporation's policy of environmental stewardship, this
entire brochure is recyclable.
<PAGE> 1
EXHIBIT 21.1
Page 1 of 2
SCHEDULE OF SUBSIDIARIES OF BRADY CORPORATION
<TABLE>
<CAPTION>
Percentage
of Voting
State (Country) Securities
Name of Company of Incorporation Owned
- --------------- ---------------- ----------
<S> <C> <C>
Brady Corporation 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 Service Co. Wisconsin 100%
Brady Worldwide, 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%
B.I. Canada Incorporated Canada 100%
W.H.B. Identification Solutions, Inc.- Canada 100%
Doing Business As:
Brady
GrafTek
Revere-Seton
Seton
1167232 Ontario, Inc. Canada 100%
B.I. Financial Limited England 100%
B.I. U.K. Limited England 100%
W.H. Brady Co. Ltd. England 100%
Seton Limited England 100%
Brady Graphic Solutions Limited England 100%
</TABLE>
<PAGE> 2
EXHIBIT 21.1
Page 2 of 2
SCHEDULE OF SUBSIDIARIES OF BRADY CORPORATION (Continued)
<TABLE>
<CAPTION>
Percentage
of Voting
State (Country) Securities
Name of Company of Incorporation Owned
- --------------- ---------------- ----------
<S> <C> <C>
W.H. Brady S.A.R.L. - France 100%
Doing Business As:
Brady
Techniques Avancees
Tricor Group, S.A. - France 100%
Doing Business As:
Seton
Signals
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%
W. H. Brady S. de R.L. de C.V. Mexico 100%
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%
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of Brady Corporation:
We consent to the incorporation by reference in Registration Statements No.
333-38857, 333-38859 and 333-44505 of Brady Corporation (formerly W.H. Brady
Co.) on Forms S-8 of our reports dated September 8, 1998, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Brady
Corporation for the year ended July 31, 1998.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
October 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 65,609
<SECURITIES> 0
<RECEIVABLES> 65,376
<ALLOWANCES> 2,011
<INVENTORY> 38,444
<CURRENT-ASSETS> 184,053
<PP&E> 139,434
<DEPRECIATION> 72,269
<TOTAL-ASSETS> 311,824
<CURRENT-LIABILITIES> 58,667
<BONDS> 3,716
2,855
0
<COMMON> 225
<OTHER-SE> 230,293
<TOTAL-LIABILITY-AND-EQUITY> 311,824
<SALES> 455,150
<TOTAL-REVENUES> 455,150
<CGS> 204,895
<TOTAL-COSTS> 204,895
<OTHER-EXPENSES> 204,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> 46,165
<INCOME-TAX> 18,129
<INCOME-CONTINUING> 28,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,036
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.23
</TABLE>
