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BRADY CORPORATION 2000 ANNUAL REPORT
THERE'S MORE TO "E" THAN JUST E-COMMERCE
[BRADY LOGO]
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[PHOTO]
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In a world where companies constantly look to increase productivity and quality,
to be better and faster, Brady Corporation serves a critical need. Brady is a
global manufacturer and marketer of high-performance identification and material
solutions that help companies improve productivity, performance, safety and
security.
ONLINE: Throughout this annual report, you will see underlined text in
blue indicating that more information on the topic is available on the Internet
at www.bradycorp.com. The on-line annual report also includes an interactive
downloadable spreadsheet of the Company's financial history with ratios and
growth rates; the letter to shareholders in French, German, Spanish, Portuguese,
Dutch, Chinese, Korean and Japanese; and other features. We invite you to take a
look!
ON OUR COVER: Brady President and CEO Katherine Hudson (front row, second from
left) gave awards to many Brady employees for their efforts to create value for
shareholders, customers, employees and the community in 2000. Among the nearly
300 employees winning the President's Value Awards and Environmental Leadership
Awards were (front row left to right) Sandy Tomaz, Cathy Rottmann, Tim Roob;
(second row) Thong Phan, Debra Lemons, Gwen Johnson; (third row) Brittany
Lazarski, Kathy Schlipp, Gene Wright, Estifanos Seyoum; (fourth row) Tim
Anderson, Fred Joy, Carol Karsten, Carole Herbstreit-Kalinyen, Cindy Albrecht;
(fifth row) Adam Lindsay, Jim Blessing, Ollie Haris; (last row) Jeff Thompson,
Teresa Brice, Cathy Kison, Rick Kluth, Charlie Check.
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENT
(Dollars in Thousands, INCREASE
Except Per Share Amounts) JULY 31, 2000 JULY 31,1999 (DECREASE)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 541,077 $ 470,862 14.9
Income before income taxes $ 76,131 $ 64,782 17.5
Pre-tax profit margin 14.1% 13.8%
Net income $ 47,201 $ 39,584 19.2
After-tax profit margin 8.7% 8.4%
Return on average stockholders' investment 17.1% 16.0%
Net income per Common Share (diluted)
Class A Nonvoting $ 2.05 $ 1.73 18.5
Class B Voting $ 2.02 $ 1.70 18.8
Net income excluding nonrecurring items $ 45,704* $ 39,208** 16.6
Net income per Common Share excluding
nonrecurring items (diluted)
Class A Nonvoting $ 1.98 $ 1.72 15.1
Class B Voting $ 1.89 $ 1.69 11.8
Working capital $ 116,084 $ 129,884 (10.6)
Stockholders' investment $ 291,224 $ 260,564 11.8
Research and development $ 21,506 $ 17,724 21.3
Capital expenditures $ 22,624 $ 9,889 128.8
Depreciation and amortization $ 17,833 $ 15,149 17.7
KEY DATA
Dividend yield 2.2% 1.8%
Trailing P/E ratio 14.8 20.2
Current ratio 2.3 2.8
Book value/share $ 12.81 $ 11.52
Weighted average shares outstanding (diluted) 22,933,199 22,682,970
</TABLE>
* In fiscal 2000, Brady had a one-time $1.5 million after-tax gain from the
sale of certain securities.
** In fiscal 1999, Brady had a one-time $0.4 million after-tax credit.
CORPORATE HIGHLIGHTS
FISCAL YEAR ENDED JULY 31, 2000
- Net sales increased 15 percent over 1999 sales.
- Of Brady's sales, 45 percent are from international operations.
- Net income increased 19 percent over fiscal 1999 as reported. Excluding
nonrecurring items, net income increased 17 percent.
- Brady stock at year end was $30.44, representing a market capitalization of
about $700 million.
- With a year-end cash balance of $61 million and ample credit facilities, Brady
is well-positioned to pursue strategic acquisitions and other growth
initiatives.
NET SALES
[BAR GRAPH]
in millions
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
256 314 360 426 455 471 541
</TABLE>
Sales increased at a compound annual growth rate of more than 13 percent.
NET INCOME
[BAR GRAPH]
in millions
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
19 28 28 32 33* 39* 46*
</TABLE>
Net Income increased at a compound annual growth rate of 16 percent.
*excluding nonrecurring items
CUMULATIVE TOTAL RETURN
at July 31 with dividends reinvested
[LINE GRAPH]
Since going public in 1984, Brady has averaged more than 16-percent-per-year
growth in total return to shareholders, often outperforming market indices.
[LOGO]
BRCE
Listed
NYSE
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[PHOTO]
Katherine M. Hudson
President and Chief Executive Officer
DOUBLE-DIGIT GROWTH
IN FISCAL 2000, BRADY SALES INCREASED 15 PERCENT WHILE NET INCOME ROSE 19
PERCENT.
excellence energized e-business evolution everywhere
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DEAR FELLOW SHAREHOLDERS
FISCAL 2000 WAS AN EXCELLENT YEAR FOR BRADY CORPORATION.
It was a year in which we experienced record sales and earnings while investing
heavily in major initiatives to keep our competitive position strong for the
long term. And it was a year that brought us even more excitement and optimism
about our prospects for ongoing growth and increasing levels of profitability.
Sales for the fiscal year ended July 31, 2000, rose 14.9 percent to $541.1
million, compared to fiscal 1999 sales of $470.9 million. U.S. sales rose 15.3
percent, while international sales rose 14.4 percent. Sales by our Asia-Pacific
and Latin America operations were especially strong in the year, up 40 percent
and 37 percent respectively. This represents what we feel is just the beginning
for us in these regions. We look for continued strong growth there as we
penetrate our markets further.
In terms of product mix, we saw the strongest sales growth in the Identification
Solutions & Specialty Tapes Group, where we had brisk sales of die-cut
materials and automatic identification and data collection solutions including
bar-code labels and related software and printing systems.
WWW.BRADYCORP.COM
The negative effect of foreign-currency translation trimmed $12.5 million from
our sales, or 2.7 percentage points from our growth rate. Nonetheless, our
reported sales were very strong, with 9.6-percent growth in base-business
revenues and 8.0-percent growth due to acquisitions.
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Brady's net income in fiscal 2000 increased 19.2 percent to $47.2 million or
$2.05 per diluted Class A Common Share due to a combination of a strong product
mix, operational improvements and also a $1.5-million net after-tax gain from
our sale of Critchley Group plc stock to Tyco Electronics Limited.
EXCELLENCE
FINANCIAL PERFORMANCE
Excluding the one-time gain and last year's $0.4-million after-tax credit for
adjusting liabilities associated with a cost-control program, net income rose
16.6 percent to $47.5 million or $1.98 per share, from the $39.2 million or
$1.72 per share in fiscal 1999. This represents an expansion of our net margin,
as net income was 8.4 percent of sales.
Brady's profitability in the year was very strong, especially considering the
negative foreign-exchange effect and the fact that we invested an additional $7
million during the year in e-business and process-improvement initiatives.
We believe these initiatives will help us achieve even stronger performance in
the future.
OPERATING MARGIN
[BAR GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income, excluding
nonrecurring items, as % of
sales 11.5 12.9 11.4 12.2 11.7 13.4 13.6
</TABLE>
NET MARGIN
[BAR GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net income, excluding
nonrecurring items, as
% of sales 7.2 8.6 7.5 7.7 7.2 8.3 8.4
</TABLE>
SALES BY BUSINESS SEGMENT
[PIE CHART]
<TABLE>
<S> <C>
Identification Solutions & Specialty Tapes 46%
Direct Marketing 30%
Graphics 24%
</TABLE>
3
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5 key initiatives
1 process improvement
2 e-business
3 market-driven growth
4 acquisitions
5 proprietary products
excellence energized e-business evolution everywhere
enterprising empowerment
LETTER TO SHAREHOLDERS CONTINUED
We are energized by the opportunities for growth and further improving
profitability. This year we focused on five key initiatives to best position
Brady to continue to succeed in an increasingly global, fast-changing and
Internet-based world. Through process improvement, increased efforts in
e-business, a focus on market-driven growth, acquisitions and proprietary
products, Brady is taking the steps we believe will make the Company successful
both today and in the future.
Our process-improvement initiative, named "Eclipse" for "Earning Customer
Loyalty through Integrated Processes and Systems Everywhere" is defining the
future of Brady. We are dramatically changing the way we do business to improve
efficiency, speed, quality and value; reduce time, cost, defects and
bureaucracy; simplify and improve internal and external processes; and make the
ease of doing business with us another competitive advantage.
WWW.BRADYCORP.COM
We are investing about $30 million in Eclipse between 2000 and 2003. We look for
this investment to pay off by reducing Selling, General and Administrative
(SG&A) expenses as a percentage of sales, supporting sales growth with better
customer and market information, increasing inventory turns, and better managing
our supply chain.
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[ECLIPSE LOGO]
EARNING CUSTOMER LOYALTY THROUGH INTEGRATED PROCESSES AND SYSTEMS EVERYWHERE
ECLIPSE GOALS
- INCREASE NEW PRODUCT PIPELINE TO ACHIEVE 25% OF SALES FROM NEW
PRODUCTS
- TRIPLE INVENTORY TURNS BY FISCAL 2005
- REDUCE SG&A from about 41% of sales to 35% of sales by fiscal 2005
ENERGIZED
PROCESS IMPROVEMENT
[PHOTO]
WE HAVE A FULL-TIME TEAM OF MORE THAN 35 PEOPLE AT BRADY LEADING THE PROCESS-
IMPROVEMENT INITIATIVE, SUPPORTED BY IBM GLOBAL SERVICES, AND ALL 3,100 BRADY
EMPLOYEES WORLDWIDE.
THE PROCESSES WE ARE IMPROVING ARE
New Product Development
Improving the speed and market focus of idea generation and new product
development.
Customer Value Creation
Increasing the return on every dollar invested in attracting new customers by
better understanding their needs and improving the way we market and sell our
solutions.
Order-to-Cash
Streamlining and standardizing everything from quoting an order to manufacturing
products to collecting cash, in order to improve speed, quality and service.
Strategic Planning & Finance
Enhancing effectiveness and efficiency through new systems that put information
at our fingertips.
Change Management
Managing organizational change through expanded training and enhanced
communication to ensure continued flexibility, creativity and leadership in our
global workforce.
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[PHOTO]
www.tls2200.com
[PHOTO]
www.bradysignmark.com
[PHOTO]
www.seton.com
excellence energized e-business evolution everywhere
enterprising empowerment
LETTER TO SHAREHOLDERS CONTINUED
The Internet provides a terrific new avenue for growth as it makes Brady
solutions more easily accessible around the world.
We are working to make every Brady business an electronic or Internet-enabled
business, striving to do at least 50 percent of our business electronically
within the next three to five years. To help get us there, we increased our
e-commerce and information technology investment to about 5 percent of sales in
fiscal 2000.
E-business will help support growth and also will enable us to significantly
reduce transaction costs and better leverage sales and marketing investments
going forward.
Companies around the world have access to thousands of Brady products through
more than 30 Brady and Seton Web sites. Many sites offer on-line ordering and
payment by credit card. Customers can also tap into Brady expertise on the
Web, finding up-to-date information on safety standards and regulations. In some
Web sites, customers can even have a live chat with a customer service
representative.
WWW.BRADYCORP.COM
We are also using the Internet to deliver products by offering downloadable
software upgrades for some of Brady's most popular printers such as the
TLS2200(R) hand-held label printer, we are using the power of the Internet to
provide our customers with the latest in Brady technology with just a click of a
mouse.
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E-BUSINESS
ACCESSIBILITY
We are already seeing good progress in our e-business efforts, including
impressive growth in the use of our BradyServe(TM) online service. BradyServe
enables distributors to check the availability and pricing of stock products on
the Internet, to order products and check the status of open orders and
invoices. About 15 percent of U.S. distributor orders were done via the Internet
in the second half of fiscal 2000, and that's growing. About 8 percent of total
sales in fiscal 2000 were done electronically.
[PHOTO]
B R A D Y G O A L
50(%)
of business done
electronically within 5 years
www
BRADY WEB SITES
THROUGHOUT THE WORLD, BRADY PRODUCTS, SUPPORT, SERVICE AND EXPERTISE CAN BE
FOUND AT WEB SITES INCLUDING:
WWW.BCW.COM
WWW.BRADYAIDC.COM
WWW.BRADY.CO.JP
WWW.BRADY.CO.KR
WWW.BRADY.COM.BR
WWW.BRADYCORP.COM
WWW.BRADYDIECUT.COM
WWW.BRADYEUROPE.COM
WWW.BRADYID.COM
WWW.BRADYRFID.COM
WWW.BRADY.SE
WWW.BRADYSERVE.COM
WWW.BRADYSIGNMARK.COM
WWW.DATARECOGNITION.COM
WWW.IMTECINC.COM
WWW.SETON.AT
WWW.SETON-BE.COM
WWW.SETON.CA
WWW.SETON.CH
WWW.SETON.COM
WWW.SETON.COM.AU
WWW.SETON.CO.UK
WWW.SETON.DE
WWW.SETON-ES.COM
WWW.SETON.FR
WWW.SETON.IT
WWW.SETONJAPAN.COM
WWW.SETON-NL.COM
WWW.SIGNALS.FR
WWW.TEKLYNX.COM
WWW.TLS2200CANADA.COM
WWW.TLS2200.COM
WWW.VARITRONICSYSTEMS.COM
[BRADY CORPORATION LOGO]
bradyserve.com
DISTRIBUTORS CAN CHECK THE STATUS OF ORDERS AND INVOICES AND ORDER PRODUCTS
ON-LINE 24 HOURS A DAY, SEVEN DAYS A WEEK VIA BRADYSERVE ONLINE SERVICE.
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[PHOTO]
LENS ADHESIVES
[PHOTO]
SHOCK PADS
[PHOTO]
BAR-CODE LABELS
[PHOTO]
DIE-CUT LENSES
[PHOTO]
SPEAKER FELTS
[PHOTO]
SPEAKER MESHES
[PHOTO]
LENS MASKS
[PHOTO]
EMI/RFI SHIELDS
[PHOTO]
BRADY BENEATH
Brady provides more than a dozen different parts for cellular phones, from
die-cut lenses and speaker meshes to tamper-evident labels that clearly identify
genuine phones from counterfeits.
excellence energized e-business evolution everywhere
enterprising empowerment
LETTER TO SHAREHOLDERS CONTINUED
A market-driven company, Brady has evolved into a leading provider for high-tech
industries that drive the New Economy. We are targeting fast-growing markets
including telecommunications, electronics, automatic identification and data
collection (AIDC), and data storage.
For example, leading manufacturers of wireless communications equipment estimate
the telecommunications market to grow at greater than 30% a year for at least
the next five years, providing a tremendous amount of opportunity for companies,
including Brady, who supply manufacturers of cell phones and other
communications devices. Telecommunication manufacturers around the world,
including Ericsson, Motorola and Nokia, have come to rely on Brady for
consistent quality, innovation and service no matter where they are operating.
WWW.BRADYCORP.COM
The role of AIDC in supply-chain management is also growing at a significant
pace within high-tech and other industries. Companies worldwide are driving to
enhance speed, quality and customer satisfaction while improving business
results through increased productivity, better supplier management, increased
inventory turns and other efficiencies. Brady's labels, printers, software and
data-collection systems enable them to manage and integrate information
throughout their businesses by quickly and
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accurately identifying and tracking thousands of items in the manufacturing
process from materials coming into a company to the products going out, and
everything in between.
EVOLUTION
SUPPLYING THE NEW ECONOMY
To help us meet our goal of growing sales at a 15-percent or higher compound
average growth rate, we will continue to seek out fast-growing markets and
niches where Brady can add value to customers and shareholders through our
innovative identification and material solutions.
FAST-GROWING MARKETS
HELPED US ACHIEVE
15%
GROWTH IN SALES
IN FISCAL 2000.
[PHOTO]
AUTOMATIC IDENTIFICATION AND DATA COLLECTION
Quality data leads to quality decisions. Replacing manual data entry with
bar-code scanning increases accuracy and productivity, and decreases response
time. For example, major computer manufacturers and subcontractors use Brady
high-performance labels, software, printers and automatic label applicators to
print and apply bar-code labels to identify circuit boards, CD-ROM and
floppy-disk drives, and other components for computers. The information feeds a
database which checks the order and records and verifies the components being
installed. In a manufacturing environment where technicians strive to beat
hourly production goals, and the destination of every component must be recorded
accurately, AIDC is the way to get the job done.
BRADY MARKETS
1995
[PIE CHART]
OLD ECONOMY
- Electrical
- Construction
- Pulp & Paper
- Petrochemical
- Transportation
- Traditional Manufacturing
- Other
2000
[PIE CHART]
NEW ECONOMY
- Telecommunications
- Electronics
- Automatic ID & Data Collection
- Data Storage
- Healthcare
- Pharmaceutical
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[PHOTO]
BRADY-BRAZIL EXCEEDS EXPECTATIONS
BRADY BRAZIL SERVES MANY OF THE REGION'S TOP MANUFACTURERS, INCLUDING
MANUFACTURERS OF REFRIGERATION COMPRESSORS, LIGHTING PRODUCTS, TIRES, AND
MOTORCYCLES.
excellence energized e-business evolution everywhere
enterprising empowerment
LETTER TO SHAREHOLDERS CONTINUED
Our market-driven growth initiatives mean having a passionate focus on our
customers, leveraging key accounts globally and further expanding
internationally.
Globalization remains a prime opportunity for Brady. As more and more
multinational companies are positioning themselves to address the billions of
potential new customers around the globe, Brady is there to meet their needs for
superior identification and material solutions. Today, Brady serves customers in
more than 70 countries through local manufacturing, sales, service and
warehousing operations and thousands of distributors.
In May 2000, Brady opened a 20,000-square-foot manufacturing facility near
Shanghai, China, to provide high-performance labels and die-cut components to
both multinational and local industrial companies in electronic,
telecommunications and other markets. We also doubled our manufacturing facility
in Sao Paulo, Brazil, to allow us to better support the fast-growing
identification market in Brazil as well as to serve companies in other Latin
American countries such as Argentina and Chile.
In June, we began direct marketing safety products in Japan under our Seton name
brand via mailings and the Internet. Seton, now offering more than 50,000
products, has become a key resource of safety and facility identification
products and information for millions of customers in 15 countries.
WWW.BRADYCORP.COM
This year we acquired several companies bringing us increased market penetration
and additional capabilities to bolster our ability to add value to customers and
shareholders.
In March 2000, we acquired Data Recognition, Inc., headquartered in Austin,
Texas, and Imtec, Inc., Keene, New Hampshire.
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EVERYWHERE
GLOBAL EXPANSION & ACQUISITIONS
Data Recognition is a premier systems integrator providing automatic
identification and data collection (AIDC) solutions for supply-chain management.
Specializing in custom software development and consulting services for
enterprise resource planning (ERP) systems, Data Recognition brings a key
component to the total AIDC product and services package that Brady now offers
global customers.
Imtec designs, manufactures and markets high-performance bar-code labels and
labeling systems used in automatic-identification applications for electronics
and industrial markets. Its products include preprinted labels, printer
laminators, printer applicators and labeling supplies.
Looking to expand its market share in the United States, our Direct Marketing
Group acquired some of the assets and the brand name of Champion America,
Inc. This direct marketer sold safety and facility identification products
throughout the United States, with concentrations in California, Ohio, Texas,
Illinois and New York. Seton now operates Champion as a separate brand.
Also this year, we attempted to acquire Critchley Group plc, a U.K.-based
manufacturer of wire and cable identification products. But when Tyco
Electronics Limited came in with a competitive bid which topped our offer by
about 30 percent, we allowed our offer to lapse.
[PHOTO]
While we have significant resources for acquisitions, we are disciplined in our
acquisition approach, acquiring businesses at prices that we feel will deliver
value to shareholders. We had $61 million in cash reserves as of July 31, 2000,
ample credit facilities and strong free cash flow to support our acquisition
strategy. We continue to work on acquiring companies in our business segment
that will provide us additional geographic and market reach or add new
capabilities.
2000 SALES BY REGION
[PIE CHART]
<TABLE>
<S> <C>
Canada & Latin America 6%
United States 55%
Asia-Pacific 9%
Europe 30%
</TABLE>
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[PHOTOS]
excellence energized e-business evolution everywhere
enterprising empowerment
LETTER TO SHAREHOLDERS CONTINUED
A robust stream of innovative products and services is critical in helping
customers improve productivity, performance, safety and security in a
fast-changing world. That is why in fiscal 2000 we invested about 4 percent of
our sales, or $21.5 million, in research and development.
In addition to providing custom identification materials and software solutions,
we introduced a variety of new products in fiscal 2000. Software products
introduced this year include WedgeWare(TM)32 Pro software to help customers get
maximum value out of enterprise resource planning (ERP) systems, such as SAP or
Oracle. WedgeWare software simplifies the integration of bar-code label
information into the ERP system, eliminates the need for custom programming and
eases installation of data-collection solutions. Also designed for ERP
applications, Sentinel(TM) PrintAgent ERP/Host connectivity software allows
thermal and thermal-transfer bar-code printers to seamlessly communicate with
multi-platform ERP applications. We also launched GenScan(R) software for
automatic identification and data collection delivery, and an upgrade for the
TLS2200(R) printer that, among other things, increases internal memory and
font size options, and provides banner labeling up to four feet long.
WWW.BRADYCORP.COM
Other new products this year included radio-frequency "smart" labels; new label
materials for use on printed circuit boards and other electronic components; the
PowerMark(TM) Sign and Label Maker with the unique ability to produce
multiple-colored images without the need to change color cartridges; and two
Bradyprinter(TM) models giving customers full-featured, low-cost options for
desktop or industrial settings.
But the expansion of Brady's offerings this year was not limited to products
alone. Brady services also brought new programs to the market. Among them was
Signmark's VIPplus. Taking Visually Instructive Plant(TM) services to the next
level, this program goes beyond
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ENTERPRISING
NEW PRODUCTS
simple facility marking to provide companies with an overall improvement program
for their entire operation. VIPplus provides a two-day workshop that helps teach
companies how to create safer, more productive and profitable workplaces with
signs and labeling, kits that include tools to help create a Visually
Instructive Plant, and labeling and identification products that will help
customers sustain their initial efforts.
New products are a key strategy for grow that Brady. With our continued
investments in research and development combined with our efforts to accelerate
and strengthen the product-development process, we strive to have 25 percent of
our sales each year coming from new products.
RADIO-FREQUENCY IDENTIFICATION
According to a Venture Development Corporation study, the radio-frequency
identification (RFID) market is projected to be more than $1.5 billion globally
within the next two to three years. Brady is setting the standard for affordable
RFID "smart" labels which combine a bar-code label and radio-
frequency-identification tag all in one.
Brady Smart labels are made with antennae and computer chips supplied by Texas
Instruments and other companies, applied to a polyester film. Adhesive is
applied to the back of the film and one of several printable materials is
applied to the front. This superior construction with built-in chip protection
and a wide choice of Brady materials result in durable RFID labels of the
highest quality. Commercially available printers fitted with a Brady RFID
programming module simultaneously print readable information and encode the
integrated circuit of Brady Smart labels.
From faster fueling of fleet vehicles to more accurate tool identification,
Smart labels offer distinct advantages -- higher data capacity than with a
bar-code label alone, readability without direct line of sight, quicker updating
and changing of encoded information, increased speed, flexibility and enhanced
convenience. With Brady products including Brady's LabelView(TM) Software,
Brady's RFID programming module and the BradyPrinter(TM) thermal-transfer
printer, customers have a complete solution for work-in-process, inventory
management, asset tracking, supply-chain management and security applications.
[BRADY CORPORATION LOGO]
[PHOTO]
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[PHOTO]
ON-LINE TRAINING
VIRTUAL LEARNING MANAGER ROHAN DHARMASENA AND HUMAN RESOURCES INFORMATION
SYSTEMS MANAGER MELISSA ANDERSON REVIEW BRADY'S NEW INTERNET-BASED TRAINING
PROGRAM FOR EMPLOYEES.
excellence energized e-business evolution everywhere
enterprising empowerment
LETTER TO SHAREHOLDERS CONTINUED
In a global, competitive and dynamic marketplace, it is essential that a diverse
workforce be fully engaged and empowered to make things happen. That's what
we're doing at Brady. In a recent survey of employees globally, about 90 percent
of employees said that the decisions he or she makes impact the success of the
Company and that continuous improvement is his or her responsibility. The
teamwork and commitment to customer service, quality and cost control shown by
our 3,100 employees worked in support of growth and shareholder value
enhancement throughout the year.
At Brady's global die-cut products business, employees made improvements in
quality and efficiency, bringing the unit to a near Six Sigma level of quality
(no more than 3.4 defects per million opportunities).
For the sixth consecutive year, Brady Signmark(R) received the Customer Focus
on Quality (CFQ1) award from W.W. Grainger, one of our largest industrial
distributors. The award is the top award possible among Grainger's 1,200
suppliers and is given to only about 20 companies each year.
Other customers and suppliers also recognized the drive and dedication of
Brady's employees. Zebra Technology Corporation, for example, recognized Brady
as "Converter of the Year."
Brady was also honored this year to receive the Wisconsin Governor's Diamond
Award for our initiatives in "shattering the glass ceiling" for women and
minorities.
WWW.BRADYCORP.COM
Brady was also named to Business Ethics magazine's list of "The 100 Best
Corporate Citizens" for demonstrating social responsibility as well as
shareholder value enhancement. We were in good company there, with firms
including IBM, Hewlett-Packard, Walt Disney, Motorola, Wal-Mart, American
Express, AT&T, and Coca-Cola also named to the list.
Awards like these are a tribute to the many Brady employees who daily live the
company's guiding values of teamwork, customer focus, growth, value and honesty.
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[PHOTO]
BRADY WAS NAMED TO THE LIST OF "THE 100 BEST CORPORATE CITIZENS" IN THE
MARCH/APRIL 2000 ISSUE OF BUSINESS ETHICS MAGAZINE. BRADY'S ONGOING SUPPORT FOR
EDUCATION IN THE COMMUNITY, COMMITMENT TO DIVERSITY IN THE WORKPLACE, AND
FAMILY-FRIENDLY EMPLOYMENT POLICIES AND BENEFITS HAVE DEMONSTRATED YEAR AFTER
YEAR THAT COMPANIES CAN INDEED ENHANCE SHAREHOLDER VALUE WHEN THEY DO THE RIGHT
THING.
EMPOWERMENT
EMPLOYEES MAKE IT HAPPEN
employees
ARE BRADY'S MOST-VALUED ASSET
[PHOTO]
Find out more about the highlighted topics @ www.bradycorp.com
BRADY has the world's leading offering of complete identification solutions to
help companies improve productivity, performance, safety and security. And
Brady's global infrastructure uniquely positions us to meet the identification
needs of multinational companies and local businesses around the world.
Now we're building on that solid base with our initiatives in process
improvement, e-business, market-driven growth, acquisitions and proprietary
products to help Brady deliver even more value to shareholders, customers and
employees in the future.
Thanks for your continued support.
/S/ Katherine M. Hudson
Katherine M. Hudson
President and
Chief Executive Officer
15
<PAGE> 19
FINANCIAL REVIEW
Diluted Earnings Per Share and Dividends
in dollars
[BAR GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends $ .23 $ .27 $ .40 $ .52 $ .60 $ .64 $ .68
Diluted earnings per share $ .84 $1.26 $1.26 $1.43 $1.44 $1.72 $1.98
===== ===== ===== ===== ===== ===== =====
1.07 1.53 1.66 1.95 2.04* 2.36* 2.66*
</TABLE>
* Excluding nonrecurring items
In September 2000, Brady increased its dividend for the 15th consecutive year.
It is now $0.72 per share.
Earnings Before Interest, Taxes, Depreciation and Amortization
Excluding nonrecurring items, as % of sales
[BAR GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
15.0 16.1 14.4 15.3 14.3 16.4 16.6
</TABLE>
Earnings before interest, taxes, depreciation and amortization rose 16 percent
to $89.7 million in 2000.
Stockholders' Investment
in millions
[BAR GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
145 171 189 207 233 261 291
</TABLE>
Stockholders' investment continues to grow, reflecting Brady's increased
profits.
2000 Cash Generation and Deployment
[BAR GRAPH]
in $ millions
<TABLE>
<S> <C>
Operations 48
Net Proceeds from Borrowings 5
Net Proceeds from Sale of Securities 4
Proceeds from Issuance of Common Stock 3
Acquisitions 38
Capital Expenditures 23
Dividends 15
</TABLE>
With strong cash flow, Brady has the resources to accelerate growth.
CONTENTS
PAGE 17 Selected Financial Data
PAGE 18 Management's Discussion and Analysis of Results of Operations
and Financial Condition
PAGE 23 Consolidated Financial Statements & Notes
PAGE 39 Independent Auditors' Report
PAGE 39 Shareholder Services
PAGE 40 Locations
INSIDE BACK Directors, Corporate Officers & Executives
COVER
16
<PAGE> 20
SELECTED FINANCIAL INFORMATION [BRADY LOGO]
<TABLE>
<CAPTION>
(Dollars in Thousands,
Except Per Share Amounts)
Years Ended July 31, 1990 through 2000 2000 1999 1998 1997 1996 1995 1994
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
NET SALES . . . . . . . . . . . . . . . . . . . $541,077 $470,862 $455,150 $426,081 $359,542 $314,362 $255,841
Operating expenses:
Cost of products sold . . . . . . . . . . . . 229,607 202,203 204,895 194,096 166,426 143,634 118,116
Research and development . . . . . . . . . . 21,506 17,724 20,287 16,300 11,309 10,426 10,318
Selling, general and administrative . . . . . 220,673 187,774 178,648 165,317 140,642 119,717 97,932
Nonrecurring (credit) charge . . . . . . . . -- (611) 5,390 -- -- -- --
----------------------------------------------------------------------------
Total operating expenses . . . . . . . . . 471,786 407,090 409,220 375,713 318,377 273,777 226,366
----------------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . 69,291 63,772 45,930 50,368 41,165 40,585 29,475
OTHER INCOME AND (EXPENSE):
Investment and other income - net . . . . . . 7,418 1,455 638 1,159 4,570 4,609 837
Interest expense . . . . . . . . . . . . . . (578) (445) (403) (256) (302) (555) (410)
----------------------------------------------------------------------------
Net other income . . . . . . . . . . . . . 6,840 1,010 235 903 4,268 4,054 427
----------------------------------------------------------------------------
Income before income taxes and
cumulative effect of changes in
accounting principles . . . . . . . . . . . . 76,131 64,782 46,165 51,271 45,433 44,639 29,902
INCOME TAXES . . . . . . . . . . . . . . . . . 28,930 25,198 18,129 19,564 17,406 16,728 11,362
----------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles . . . . . . 47,201 39,584 28,036 31,707 28,027 27,911 18,540
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES FOR:
Postretirement benefits (net of
income taxes of $2,663) . . . . . . . . -- -- -- -- -- -- --
Income taxes . . . . . . . . . . . . . . . -- -- -- -- -- -- --
NET INCOME . . . . . . . . . . . . . . . . . . $ 47,201 $ 39,584 $ 28,036 $ 31,707 $ 28,027 $ 27,911 $ 18,540
============================================================================
NET INCOME PER COMMON SHARE (DILUTED):
Class A Nonvoting . . . . . . . . . . . . . . $ 2.05 $ 1.73 $ 1.23 $ 1.43 $ 1.26 $ 1.26 $ .84
Class B Voting . . . . . . . . . . . . . . . $ 2.02 $ 1.70 $ 1.20 $ 1.40 $ 1.23 $ 1.23 $ .81
CASH DIVIDENDS ON:
Class A Common Stock . . . . . . . . . . . . $ .68 $ .64 $ .60 $ .52 $ .40 $ .27 $ .23
Class B Common Stock . . . . . . . . . . . . $ .65 $ .61 $ .57 $ .49 $ .37 $ .23 $ .19
BALANCE SHEET (at year end)
Working capital . . . . . . . . . . . . . . . $116,084 $129,884 $125,386 $130,724 $109,688 $129,938 $100,023
Total assets . . . . . . . . . . . . . . . . 398,134 351,120 311,824 291,662 261,835 230,005 202,509
Long-term obligations, less
current maturities . . . . . . . . . . . . 4,157 1,402 3,716 3,890 1,809 1,903 1,855
Stockholders' investment . . . . . . . . . . 291,224 260,564 233,373 206,547 189,263 170,823 145,129
----------------------------------------------------------------------------
<CAPTION>
(Dollars in Thousands,
Except Per Share Amounts)
Years Ended July 31, 1990 through 2000 1993 1992 1991 1990
OPERATING DATA -------------------------------------------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . $242,970 $235,965 $211,063 $191,161
Operating expenses:
Cost of products sold . . . . . . . . . . . . 114,301 110,130 96,797 84,952
Research and development . . . . . . . . . . 12,132 10,001 9,176 7,355
Selling, general and administrative . . . . . 92,449 93,931 84,936 76,596
Nonrecurring (credit) charge . . . . . . . . (1,236) 6,562 -- --
-------------------------------------------
Total operating expenses . . . . . . . . . 217,646 220,624 190,909 168,903
-------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . 25,324 15,341 20,154 22,258
OTHER INCOME AND (EXPENSE):
Investment and other income - net . . . . . . 559 239 2,845 4,004
Interest expense . . . . . . . . . . . . . . (54) (219) (548) (646)
------------------------------------------
Net other income . . . . . . . . . . . . . 505 20 2,297 3,358
Income before income taxes and ------------------------------------------
cumulative effect of changes in
accounting principles . . . . . . . . . . . . 25,829 15,361 22,451 25,616
INCOME TAXES . . . . . . . . . . . . . . . . . 8,973 6,972 7,054 10,606
-------------------------------------------
Income before cumulative effect of
changes in accounting principles . . . . . . 16,856 8,389 15,397 15,010
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES FOR:
Postretirement benefits (net of
income taxes of $2,663) . . . . . . . . -- (3,995) -- --
Income taxes . . . . . . . . . . . . . . . -- 661 -- --
NET INCOME . . . . . . . . . . . . . . . . . . $ 16,856 $ 5,055 $ 15,397 $ 15,010
===========================================
NET INCOME PER COMMON SHARE (DILUTED):
Class A Nonvoting . . . . . . . . . . . . . . $ .77 $ .22 $ .70 $ .69
Class B Voting . . . . . . . . . . . . . . . $ .74 $ .19 $ .67 $ .66
CASH DIVIDENDS ON:
Class A Common Stock . . . . . . . . . . . . $ .20 $ .19 $ .16 $ .13
Class B Common Stock . . . . . . . . . . . . . $ .17 $ .15 $ .13 $ .10
BALANCE SHEET (at year end)
Working capital . . . . . . . . . . . . . . . $ 77,943 $ 66,093 $ 70,883 $ 67,797
Total assets . . . . . . . . . . . . . . . . 179,901 173,054 156,812 147,197
Long-term obligations, less
current maturities . . . . . . . . . . . . 1,978 2,524 1,982 3,298
Stockholders' investment . . . . . . . . . . 128,068 119,771 115,260 103,784
-------- -------- -------- --------
</TABLE>
ANNUAL REPORT 2000
17
<PAGE> 21
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 1997 and 2000, 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 implement its growth strategy discussed below, the Company has made
significant expenditures related to new products, geographic expansion,
acquisitions, process improvements (Eclipse) and e-business. Due primarily to
investments in these key areas, selling, general and administrative expenses
as a percentage of sales were 38.8% for fiscal 1997, 39.3% for fiscal 1998,
39.9% for fiscal 1999, and 40.8% for fiscal 2000. Management believes these
investments will solidify the Company's competitive position and assist the
Company in building a base for sustainable long-term growth.
The Company's growth strategy is focused on four key elements: 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 many new products in fiscal 2000, including the
PowerMark(TM) Sign and Label Maker, the ProImage(R) XL PosterPrinter(TM) system,
new Bradyprinter(TM) models, radio-frequency "smart" labels, labels for use on
electronic components and in high-temperature wire-marking applications,
WedgeWare(TM) 32 Pro software, Sentinel(TM) PrintAgent ERP/Host connectivity
software, and GenScan(R) software. The Company also launched new service
programs such as VIPplus, a two-day workshop that helps teach companies how to
create safer, more productive and profitable workplaces with signs and labeling.
During fiscal 2000, the Company opened a manufacturing facility in Wuxi, China,
and doubled the size of its manufacturing facility in Sao Paulo, Brazil.
The Company completed the acquisitions of Data Recognition, Inc. (United States)
and Imtec, Inc. (United States) in March 2000, Champion America, Inc. (United
States) in September 1999, SOFT S.A. (France) and the Holman Group S.A. (France)
in July 1999, Visi Sign Pty. Ltd. (Australia) in May 1999, Barcodes West Inc.
(United States) in March 1999, VEB Sistemas de Etiquetas Ltda. (Brazil) in
August 1998, GrafTek Inc. (Canada) in April 1998, Techniques Avancees (France)
in March 1998, and Signals (France) in April 1997.
To increase market penetration in fiscal 2000, the Company continued its
investment in sales and marketing efforts worldwide. Access to information about
Brady products was made easier through improvement and expansion of the
Company's Web sites. The trading market and profile of Brady stock was also
improved when the Company listed on the New York Stock Exchange in May 1999.
YEAR ENDED JULY 31, 2000,
COMPARED TO YEAR ENDED JULY 31, 1999
Sales for fiscal 2000 increased by $70,215,000 or 14.9% over fiscal 1999. Sales
of the Company's international operations increased 14.4% in U.S. dollars. The
acquisitions of SOFT S.A. and the Holman Groupe S.A. in July 1999 and Visi Sign
Pty. Ltd. in May 1999 increased international sales by 6.6%. 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 by 5.9%. Sales of the Company's U.S. operations increased
15.3%, with 6.2 percentage points due to core growth and 9.1 percentage points
from the acquisitions of Barcodes West Inc. in March 1999, the brand name
Champion America, Inc. in September 1999, and Data Recognition, Inc. and Imtec,
Inc. in March 2000.
The cost of products sold as a percentage of sales decreased from 42.9% to
42.4%. This improvement was due to changes in product mix, engineered product
cost reductions and manufacturing efficiencies from the Company's continuous
improvement efforts.
During fiscal 2000 Brady attempted to acquire Critchley Group plc in the United
Kingdom, but was outbid by Tyco Electronics Limited. While Brady did not acquire
the company, it made a net after-tax profit of $1,497,000 on an investment in
Critchley shares after $4,352,000 of expense and $917,000 of tax.
Selling, general and administrative expenses as a percentage of sales increased
from 39.8% to 40.8% in fiscal 2000. This year's expenses included $4,352,000 of
expenses associated
18
<PAGE> 22
[BRADY LOGO]
with the attempt to acquire Critchley Group, and 1999 included a credit for
adjusting the severance liability associated with the 1998 workforce reduction.
Excluding these nonrecurring items in both years, selling, general and
administrative expenses as a percentage of sales increased from 39.9% to 40.0%.
Selling, general and administrative expenses as a percentage of sales associated
with Brady's base business dropped by 1.2 percentage points. This improvement
was offset by incremental non-capitalizable expenses of approximately $7,000,000
associated with process improvements and e-business initiatives.
Research and development investment as a percentage of sales increased from 3.8%
to 4.0%, while base-business investment in research and development increased
14.6%.
Operating income increased $5,519,000 to $69,291,000 in fiscal 2000. Excluding
the nonrecurring items in both years (a charge in 2000 for expenses associated
with the Critchley bid and a credit in 1999 for adjusting the severance costs
associated with the workforce reduction of 1998), operating income increased
$10,482,000 or 16.6% from $63,161,000 to $73,643,000, with the improvement
primarily from increased sales.
Investment and other income increased $5,963,000 from the prior year. Fiscal
2000 results included a $6,766,000 before-expenses gain from the Critchley
transaction. Excluding this one-time gain, investment and other income decreased
$803,000 as Brady experienced increased exchange losses, primarily from the weak
Euro.
Income before income taxes was $76,131,000, an increase of 17.5% compared to
fiscal 1999's $64,782,000. Excluding the nonrecurring items in both years,
income before income taxes in 2000 increased 14.9%.
The Company's effective tax rate decreased from 38.9% for fiscal 1999 to 38.0%
for fiscal 2000.
Net income was $47,201,000 for fiscal 2000, compared to $39,584,000 for fiscal
1999 due to the factors discussed above. Excluding the nonrecurring items, (a
$1,497,000 net gain on the Critchley bid in fiscal 2000 and a $376,000
nonrecurring credit in fiscal 1999), net income increased 16.6% over the prior
year.
BUSINESS SEGMENT OPERATING RESULTS
Identification Solutions & Specialty Tapes (ISST) Group
ISST sales increased 30.6% in fiscal 2000 (up about 33% in local currencies)
from fiscal 1999, following an increase of 5.6% in fiscal 1999 versus 1998.
Base-business sales in fiscal 2000 were up 18%. The Asian economy rebound,
strong growth in telecommunication, data storage and electronics markets, and
moderate growth with domestic distribution contributed to the strong growth in
base business. Acquisitions added 12.7% to the group's growth rate. Acquisitions
included Barcodes West Inc. and Holman Groupe S.A. in 1999, and Imtec, Inc. and
Data Recognition, Inc. in 2000.
Segment profit as a percentage of sales increased from 15.2% in 1999 to 18.4% in
2000 as a result of improved operating leverage on the existing assets, strong
growth in base business, increased segment profits from prior-year acquisitions
and a continued focus on aggressive cost-savings initiatives. Comparing fiscal
1999 to 1998, segment profit as a percentage of sales (excluding the effect of
one-time items) increased slightly from 14.9% to 15.1% as cost-savings from the
workforce reduction early in the fiscal year offset increased expenses from a
new coating line and acquisitions.
GRAPHICS GROUP
Graphics sales increased 3.8% in fiscal 2000 (5.3% growth in local currencies)
from fiscal 1999. Sales had decreased in fiscal 1999 by 1.9% compared to fiscal
1998. In fiscal 2000, the acquisition of SOFT S.A. in France and Visi Sign Pty.
Ltd. in Australia accounted for a 6.4% increase in group sales while the base
business in Graphics declined by 2.6%. The decline was influenced by a negative
foreign-currency translation impact of 1.4%, primarily in reporting European
results, and also the discontinuation of certain non-strategic product lines.
The sales decline in 1999 was due to exiting the Colorpix product line in the
face of industry stagnation and thinning margins.
Segment profit as a percentage of sales in the Graphics Group improved to 15.3%
in 2000 from the prior year's 14.8%. While additional volume improved total
gross margins, this improvement was partially offset by costs of integrating
SOFT S.A. into the European operations and increased new product development.
Segment profit as a percentage of sales (excluding the effect of one-time items)
in fiscal 1998 was 8.9% due primarily to technical and developmental expenses
associated with the Colorpix product line.
DIRECT MARKETING GROUP
Direct Marketing Group sales increased 4.6% in fiscal 2000 (up 8.7% in local
currencies) from fiscal 1999 and 5.4% in fiscal 1999 compared to fiscal 1998.
North American sales increased 11.6%, with Seton-U.S. growth driven by the
acquisition of
ANNUAL REPORT 2000
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION continued
Champion America, and Seton Canada realizing strong organic growth in Canada.
European sales declined 2.4%. After adjusting for the negative foreign exchange
impact, sales in local currency increased 4.6%. Seton units in Australia and
Brazil both generated double-digit growth for the fiscal 2000 period.
Segment profit as a percent of sales was 16.7% in fiscal 2000 versus 18.0% in
1999 and 14.9% in fiscal 1998 (excluding the effect of one-time items).
Performance in 2000 was negatively impacted by foreign currency translation.
Additionally, the group's profits were reduced by expenditures to improve the
information technology infrastructure in Europe, startup costs for Seton Japan
and higher marketing expenses in the United States.
YEAR ENDED JULY 31, 1999,
COMPARED TO YEAR ENDED JULY 31, 1998
Sales for fiscal 1999 increased by $15,712,000 or 3.5% over fiscal 1998. Sales
of the Company's international operations increased 5.9%. In local currencies,
continued market penetration in Brady's operations outside the United States
increased international sales by 3.4%. The acquisitions of Techniques Avancees,
GrafTek Inc., VEB Sistemas de Etiquetas Ltda. and Visi Sign Pty. Ltd increased
international sales in local currencies by another 3.4%. 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 0.9%. Sales of the Company's U.S. operations
increased 1.6%, due primarily to the acquisition of Barcodes West Inc.
The cost of products sold as a percentage of sales decreased from 45.0% to
42.9%. Fiscal 1998's cost of products sold included a charge of $1,515,000
($920,000 after tax) for the write-down of certain inventories. Excluding this
charge, cost of products sold as a percentage of sales decreased from 44.7% to
42.9%. This improvement was primarily caused by changes in product mix towards
products with higher margins, reduced expenses as a result of the workforce
reduction in August 1998 and manufacturing efficiencies from the Company's
continuous improvement efforts.
Selling, general and administrative expenses as a percentage of sales increased
from 39.3% to 39.9%. Fiscal 1998's expenses included a charge of $540,000
($328,000 after tax) for the write-down of certain assets. Excluding this
charge, selling, general and administrative expenses as a percentage of sales
increased from 39.1% to 39.9%. The increase was primarily caused by a higher
bonus accrual as a result of the Company's significant improvement in
profitability and higher amortization expense from the goodwill generated by the
Company's acquisitions. The completion of certain product development projects
as well as restructuring of the research and development effort to increase
teamwork and focus on key product segments caused research and development
expenses to decrease 12.6% from 1998. As a percentage of sales, research and
development expenses decreased from 4.5% to 3.8%.
The Company recorded a $611,000 ($376,000 after tax) nonrecurring credit in
fiscal 1999 from adjusting the severance costs associated with the workforce
reduction. In 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.
Operating income increased $17,842,000 to $63,772,000 in fiscal 1999 as the
improved gross margin more than offset the higher selling, general and
administrative expenses. Excluding the nonrecurring items in both years (a
charge in 1998 and a credit in 1999), operating income increased 18.3%, from
$53,375,000 to $63,161,000.
Investment and other income increased $817,000 from fiscal 1998, which included
losses of $406,000 ($246,000 after tax) on the disposal of certain assets.
Income before income taxes was $64,782,000 in fiscal 1999, an increase of 40.3%
compared to fiscal 1998's $46,165,000. Excluding the nonrecurring items in both
years, income before income taxes increased 18.8% compared to the prior year.
The Company's effective tax rate decreased slightly from 39.3% for fiscal 1998
to 38.9% for fiscal 1999.
Net income was $39,584,000 for fiscal 1999, compared to $28,036,000 for fiscal
1998 because of the factors cited above. Excluding the $376,000 nonrecurring
credit in fiscal 1999 and the $4,766,000 one-time charges in fiscal 1998, net
income increased 19.5% over the prior year.
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
20
<PAGE> 24
[BRADY LOGO]
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%. Sales of the Company's U.S. operations
increased 4.9%, due primarily to increases in the sales of the Company's core
products.
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. The 1998 expenses included a charge of
$540,000 ($328,000 after tax) for the write-down of certain assets. The 1997
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 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 1997. The 1998 results
include $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.
LIQUIDITY
The Company's liquidity remains strong. Cash and cash equivalents were
$60,784,000 at July 31, 2000, compared to $75,466,000 at July 31, 1999, and
$65,609,000 at July 31, 1998. The decrease in 2000 was primarily due to the
Company's acquisition of Data Recognition, Inc., Imtec, Inc. and Champion
America, Inc. Working capital decreased $13,800,000 during fiscal 2000 and
equaled $116,084,000 at July 31, 2000.
The Company has maintained significant cash balances due in large part to its
strong operating cash flow, which totaled $48,408,000 for fiscal 2000,
$61,357,000 for fiscal 1999, and $47,207,000 for fiscal 1998.
Capital expenditures were $22,624,000 in fiscal 2000, $9,889,000in fiscal 1999,
and $17,189,000 in fiscal 1998. The increase in fiscal 2000 was primarily from
capital investments related to new software, a new facility in the United
States, a startup in China and a new global telecommunications system.
In fiscal 2000, the Company made an unsuccessful bid for the purchase of
Critchley Group plc in the United Kingdom. Associated transactions included the
purchase of Critchley shares at a total cost of $22,931,000 in the third quarter
and the subsequent sale of the shares in the fourth quarter for $27,345,000,
before expenses.
Financing activities required $6,605,000 in fiscal 2000, $12,533,000 in fiscal
1999, and $12,147,000 in fiscal 1998. Cash used for dividends to shareholders
was $15,260,000 in fiscal 2000, $14,317,000 in fiscal 1999, and $13,384,000 in
fiscal 1998. In fiscal 2000, net cash borrowed was $24,947,000, primarily used
to purchase the Critchley securities, of which $19,496,000 was subsequently
repaid in fiscal 2000.
ANNUAL REPORT 2000
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION continued
In fiscal 1999, the Company entered into a $150,000,000 revolving loan agreement
with six banks. In January 2000, the agreement was amended to increase the
available amount to $200,000,000, of which $192,000,000 was available at July
31, 2000.
Long-term obligations as a percentage of long-term obligations plus
stockholders' investment was 1.4% at July 31, 2000, compared to 0.5% at July 31,
1999, and 1.6% at July 31, 1998.
The Company continues to seek opportunities to invest in new products, new
markets and in strategic acquisitions and joint ventures which fit its growth
strategy. Management believes the Company's cash and cash equivalents, available
line of credit, 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 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.
MARKET RISK
The Company's business operations give rise to market risk exposure due to
changes in foreign exchange rates. To manage that risk effectively, the Company
enters into hedging transactions, according to established guidelines and
policies, that enable it to mitigate the adverse effects of this financial
market risk.
The global nature of the Company's business requires active participation in the
foreign exchange markets. As a result of investments, production facilities and
other operations on a global scale, the Company has assets, liabilities and cash
flows in currencies other than the U.S. Dollar. The primary objective of the
Company's foreign-exchange risk management is to minimize the impact of currency
movements on intercompany transactions and foreign raw-material imports. To
achieve this objective, the Company hedges known exposures using forward
contracts. Main exposures are related to transactions denominated in the British
Pound, the Euro (primarily the Belgian Franc, Deutsche Mark and French Franc),
Canadian Dollar, Japanese Yen and Australian Dollar. The risk of these hedging
instruments is not material.
EURO CONVERSION
On January 1, 1999, the Euro was adopted as the national currency of 11 European
Union member nations. During a three-year transition period, the Euro will be
used as a non-cash transactional currency. The Company began conducting
business in Euros in January 1999, and will change its functional currencies
during the three-year transition period. The conversion to the Euro is not
expected to have a significant operational impact or a material impact on the
results of operations, cash flows or financial condition of the Company.
FORWARD-LOOKING STATEMENTS
Matters in this Annual Report 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 uncertainties
including, but not limited to, domestic and international economic conditions
and growth rates; fluctuations in currency exchange rates for international
currencies versus the U.S. dollar; the successful implementation of a new
enterprise-resource-planning system; the ability of the Company to acquire,
integrate and achieve anticipated synergies from new businesses; the ability of
the Company to adjust its cost structure to changes in levels of sales and
product mix in a timely manner; variations in the economic or political
conditions in the countries in which the Company does business; technology
changes; the continued availability of sources of supply; 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.
22
<PAGE> 26
CONSOLIDATED BALANCE SHEETS [BRADY LOGO]
<TABLE>
<CAPTION>
(Dollars in Thousands) July 31, 2000 and 1999 2000 1999
---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,784 $ 75,466
Accounts receivable, less allowance for losses ($2,919 and $2,339, respectively) . . . . . . . . . . . . . 82,656 73,290
Inventories (Note 1):
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,094 23,368
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,842 2,878
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,284 11,281
---------------------
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,220 37,527
---------------------
Prepaid expenses and other current assets (Notes 1, 3 and 4) . . . . . . . . . . . . . . . . . . . . . . . 18,523 16,886
---------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 203,183 203,169
OTHER ASSETS:
Intangibles - net (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,835 72,941
Other (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,456 8,026
PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 5):
Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,723 5,008
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,006 41,417
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,319 101,324
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,955 2,229
---------------------
177,003 149,978
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,343 82,994
---------------------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,660 66,984
---------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $398,134 $351,120
=====================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,070 $ 19,378
Wages and amounts withheld from employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,857 23,186
Taxes, other than income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,585 2,290
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,245 12,516
Other current liabilities (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,212 13,289
Short-term borrowings and current maturities on long-term obligations (Note 5) . . . . . . . . . . . . . 8,130 2,626
---------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,099 73,285
LONG-TERM OBLIGATIONS, less current maturities (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 4,157 1,402
OTHER LIABILITIES (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,654 15,869
---------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,910 90,556
---------------------
STOCKHOLDERS' INVESTMENT (Notes 1 and 6):
Preferred Stock (aggregate liquidation preference of $3,026 at July 31, 2000) . . . . . . . . . . . . . . 2,855 2,855
Common Stock:
Class A Nonvoting - issued and outstanding 20,966,315 and 20,839,841 shares, respectively
(aggregate liquidation preference of $35,014 at July 31, 2000) . . . . . . . . . . . . . . . . . . 209 208
Class B Voting - issued and outstanding 1,769,314 shares . . . . . . . . . . . . . . . . . . . . . . . 18 18
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,586 28,383
Earnings retained in the business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,462 233,521
Treasury stock - 4,548 shares of Class A Nonvoting Common Stock, at cost . . . . . . . . . . . . . . . . (132) (132)
Cumulative other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,137) (1,958)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,637) (2,331)
---------------------
Total stockholders' investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291,224 260,564
---------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $398,134 $351,120
=====================
</TABLE>
See Notes to Consolidated Financial Statements.
ANNUAL REPORT 2000
23
<PAGE> 27
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended July 31, 2000, 1999 and 1998
(Dollars in Thousands, Except Per Share Amounts) 2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $541,077 $470,862 $455,150
OPERATING EXPENSES:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,607 202,203 204,895
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,506 17,724 20,287
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . 220,673 187,774 178,648
Nonrecurring (credit) charge (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . -- (611) 5,390
--------------------------------------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471,786 407,090 409,220
--------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,291 63,772 45,930
OTHER INCOME AND (EXPENSE):
Investment and other income - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,418 1,455 638
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (578) (445) (403)
--------------------------------------
Net other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,840 1,010 235
--------------------------------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,131 64,782 46,165
INCOME TAXES (Notes 1 and 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,930 25,198 18,129
--------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,201 $ 39,584 $ 28,036
======================================
NET INCOME PER COMMON SHARE (Notes 6 and 8):
Class A Nonvoting:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.07 $ 1.74 $ 1.24
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.05 $ 1.73 $ 1.23
Class B Voting:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.04 $ 1.71 $ 1.21
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.02 $ 1.70 $ 1.20
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 28
[BRADY LOGO]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Additional Earnings
Years Ended July 31, 2000, 1999 and 1998 Preferred Common Paid-in Retained in
(Dollars in Thousands, Except Per Share Amounts) Stock Stock Capital the Business
---------------------------------------------------
<S> <C> <C> <C> <C>
Balances at July 31, 1997 ................................ $ 2,855 $ 220 $ 9,573 $ 193,602
Net income.............................................. -- -- -- 28,036
Net currency translation adjustment .................... -- -- -- --
Total comprehensive income ........................ -- -- -- --
Issuance of 57,282 shares of Class A Common Stock
under stock option plan ............................. -- -- 941 --
Other .................................................. -- 5 15,268 --
Tax benefit from exercise of stock options ............. -- -- 349 --
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 - $.60 a share .............................. -- -- -- (12,122)
Class B - $.57 a share .............................. -- -- -- (1,003)
---------------------------------------------------
Balances at July 31, 1998 ................................ 2,855 225 26,131 208,254
Net income.............................................. -- -- -- 39,584
Net currency translation adjustment .................... -- -- -- --
Total comprehensive income ........................ -- -- -- --
Issuance of 112,978 shares of Class A Common Stock
under stock option plan ............................. -- 1 1,880 --
Other................................................... -- -- -- --
Tax benefit from exercise of stock options ............. -- -- 372 --
Cash dividends on Preferred Stock:
1979 series - $10 a share ........................... -- -- -- (220)
6% and 1972 series - $6 a share ..................... -- -- -- (39)
Acquisition of treasury stock, 4,548 shares, at cost -- -- -- --
Cash dividends on Common Stock:
Class A - $.64 a share .............................. -- -- -- (12,985)
Class B - $.61 a share .............................. -- -- -- (1,073)
--------------------------------------------------
Balances at July 31, 1999 ................................ 2,855 226 28,383 233,521
Net income ............................................. -- -- -- 47,201
Net currency translation adjustment .................... -- -- -- --
Total comprehensive income ........................ -- -- -- --
Issuance of 126,474 shares of Class A Common Stock
under stock option plan ............................. -- 1 2,423 --
Other................................................... -- -- -- --
Tax benefit from exercise of stock options ............. -- -- 780 --
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 - $.68 a share .............................. -- -- -- (13,857)
Class B - $.65 a share .............................. -- -- -- (1,144)
--------------------------------------------------
BALANCES AT JULY 31, 2000 ................................ $ 2,855 $ 227 $ 31,586 $ 265,462
==================================================
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Other Total
Treasury Comprehensive Comprehensive
Stock Income Other Income
-------------------------------- -------------
<S> <C> <C> <C> <C>
Balances at July 31, 1997 ............................ $-- $ 297 $--
Net income ......................................... -- -- -- $ 28,036
Net currency translation adjustment ................ -- (1,365) -- (1,365)
--------
Total comprehensive income .................... -- -- -- 26,671
========
Issuance of 57,282 shares of Class A Common Stock
under stock option plan ......................... -- -- --
Other............................................... -- -- (3,024)
Tax benefit from exercise of stock options ......... -- -- --
Cash dividends on Preferred Stock:
1979 series - $10 a share ....................... -- -- --
6% and 1972 series - $6 a share ................. -- -- --
Cash dividends on Common Stock:
Class A - $.60 a share .......................... -- -- --
Class B - $.57 a share .......................... -- -- --
--------------------------------
Balances at July 31, 1998 ............................ -- (1,068) (3,024)
Net income ......................................... -- -- -- 39,584
Net currency translation adjustment ................ -- (890) -- (890)
-------
Total comprehensive income .................... -- -- -- 38,694
========
Issuance of 112,978 shares of Class A Common Stock
under stock option plan ......................... -- -- --
Other .............................................. -- -- 693
Tax benefit from exercise of stock options ......... -- -- --
Cash dividends on Preferred Stock:
1979 series - $10 a share ....................... -- -- --
6% and 1972 series - $6 a share ................. -- -- --
Acquisition of treasury stock, 4,548 shares, at cost (132) -- --
Cash dividends on Common Stock:
Class A - $.64 a share .......................... -- -- --
Class B - $.61 a share .......................... -- -- --
-------------------------------
Balances at July 31, 1999 ............................ (132) (1,958) (2,331)
Net income ......................................... -- -- -- 47,201
Net currency translation adjustment ................ -- (5,179) -- (5,179)
--------
Total comprehensive income .................... -- -- -- $ 42,022
========
Issuance of 126,474 shares of Class A Common Stock
under stock option plan ......................... -- -- --
Other .............................................. -- -- 694
Tax benefit from exercise of stock options ......... -- -- --
Cash dividends on Preferred Stock:
1979 series - $10 a share ....................... -- -- --
6% and 1972 series - $6 a share ................. -- -- --
Cash dividends on Common Stock:
Class A - $.68 a share .......................... -- -- --
Class B - $.65 a share .......................... -- -- --
------------------------------
BALANCES AT JULY 31, 2000 ............................ $ (132) $(7,137) $(1,637)
See Notes to Consolidated Financial Statements ==============================
</TABLE>
ANNUAL REPORT 2000
25
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands) Years Ended July 31, 2000, 1999 and 1998 2000 1999 1998
OPERATING ACTIVITIES: ----------------------------------
<S> <C> <C> <C>
Net income ............................................................................... $ 47,201 $ 39,584 $ 28,036
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ........................................................................... 12,157 11,263 11,047
Amortization ........................................................................... 5,676 3,886 2,241
(Gain) loss on sale of property, plant and equipment ................................... (54) 181 349
(Gain) on sale of securities ........................................................... (4,414) -- --
Provision for losses on accounts receivable ............................................ 1,830 966 970
Other .................................................................................. 694 693 212
Nonrecurring (credit) charge ........................................................... -- (611) 5,390
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable ................................................................. (9,343) (4,899) 1,066
Inventory ........................................................................... (1,362) 5,547 5,705
Prepaid expenses and other assets ................................................... (6,590) (1,643) (3,159)
Accounts payable and accrued liabilities ............................................ 4,608 4,330 (4,285)
Income taxes ........................................................................ (1,115) 3,313 (36)
Deferred income taxes ............................................................... (763) (1,069) (4,508)
Other liabilities ................................................................... (117) (184) 4,179
-------------------------------
Net cash provided by operating activities ......................................... 48,408 61,357 47,207
INVESTING ACTIVITIES: -------------------------------
Acquisitions of businesses, net of cash acquired ......................................... (37,906) (31,107) (19,306)
Purchases of securities .................................................................. (22,931) -- --
Purchases of property, plant and equipment ............................................... (22,624) (9,889) (17,189)
Proceeds from sale of property, plant and equipment ...................................... 1,053 232 500
Proceeds from sale of securities ......................................................... 27,345 -- --
Other .................................................................................... 16 (176) 169
-------------------------------
Net cash (used in) investing activities ........................................... (55,047) (40,940) (35,826)
FINANCING ACTIVITIES: -------------------------------
Payment of dividends ..................................................................... (15,260) (14,317) (13,384)
Proceeds from issuance of Common Stock ................................................... 3,204 2,252 941
Proceeds from borrowings ................................................................. 24,947 310 829
Principal payments on short-term borrowings and long-term obligations .................... (19,496) (778) (533)
-------------------------------
Net cash (used in) financing activities ........................................... (6,605) (12,533) (12,147)
-------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .................................................... (1,438) 1,973 1,046
-------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ....................................... (14,682) 9,857 280
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................................... 75,466 65,609 65,329
-------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR ..................................................... $ 60,784 $ 75,466 $ 65,609
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ===============================
Cash paid during the year for:
Interest ............................................................................... $ 555 $ 409 $ 277
Income taxes, net of refunds ........................................................... 29,370 22,107 22,580
Acquisitions:
Fair value of assets acquired, net of cash ............................................. 15,751 15,017 2,619
Liabilities assumed .................................................................... (10,783) (6,291) (1,471)
Goodwill ............................................................................... 32,938 22,381 18,158
-------------------------------
Net cash paid for acquisitions .................................................... $ 37,906 $ 31,107 $ 19,306
===============================
Class A Common Stock issued to fund deferred compensation plan ............................. -- -- $ 11,555
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 30
[BRADY LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2000, 1999 and 1998
Note 1
-----------------------------------------
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of Brady Corporation and its subsidiaries (the "Company"),
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
accounting principles generally accepted in the United States of America
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,
accounts payable and long-term obligations) 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 61% and 39% of total inventories at July 31, 2000 and
1999, 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 $5,595,000
at July 31, 2000, and $4,988,000 at July 31, 1999.
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. The estimated useful lives range from 3
to 33 years.
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
was 22 years at July 31, 2000.
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 impair-
ment existed as of July 31, 2000.
CATALOG COSTS Catalog costs are initially capitalized and amortized over the
estimated useful lives of the publications (generally eight months). At July 31,
2000 and 1999, $4,728,000 and $4,600,000, 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 in other
comprehensive income.
HEDGING The Company enters into forward foreign exchange contracts to hedge
committed intercompany foreign currency transactions. Realized gains and losses
on forward foreign currency contracts, that are effective as hedges of net cash
flows in foreign operations, are recognized in income as the contracts mature.
Such exchange contracts generally have maturities of one year. At July 31,
2000 and 1999, exchange contracts aggregating approximately $13,500,000 and
$19,830,000, 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.
ANNUAL REPORT 2000
27
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Years Ended July 31, 2000, 1999 and 1998
ACCOUNTING STANDARDS ADOPTED Effective August 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (Statement 131). Statement 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See footnote 7.
ACCOUNTING STANDARDS TO BE ADOPTED In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In June 2000,
the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to
clarify four areas causing difficulties in implementation. The amendment
included expanding the normal purchase and sale exemption for supply
contracts, permitting the offsetting of certain intercompany foreign currency
derivatives and thus reducing the number of third-party derivatives, permitting
hedge accounting for foreign-currency denominated assets and liabilities, and
redefining interest-rate risk to reduce sources of ineffectiveness. Brady
appointed a team to implement SFAS 133 on a global basis. This team implemented
a SFAS 133-compliant risk-management-information system, globally educating
both financial and non-financial personnel, inventorying embedded derivatives
and addressing various other SFAS 133-related issues. Brady adopted SFAS 133 and
the corresponding amendments under SFAS 138 on August 1, 2000. SFAS 133, as
amended by SFAS 138, is not expected to have a material impact on the Company's
consolidated results of operations, financial position or cash flows.
Note 2
---------------------------------------
Acquisitions of Businesses
Effective March 9, 1998, the Company acquired the common stock of Techniques
Avancees located in Auch, France, a bar-code 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 bar-code labeling software developer, for
cash of $8,528,000 and a payable of $933,000.
Effective August 11, 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 $4,400,000.
Effective March 25, 1999, the Company acquired the assets of Barcodes West
located in Seattle, Washington, a label manufacturer and software and service
provider, for cash of approximately $5,757,000.
Effective May 7, 1999, the Company acquired the common stock of Visi Sign Pty.
Ltd. located in Victoria, Australia, a manufacturer of identification products,
for cash of approximately $1,396,000.
Effective July 7, 1999, the Company acquired the common stock of Holman Groupe
S.A. located in Rungis, France, an automatic identification and application
specialist, for cash of approximately $5,343,000 and a payable of approximately
$554,000.
Effective July 30, 1999, the Company acquired the common stock of the graphics
division of Soft S.A., located in Lyon, France, a developer and distributor of
printing systems, for cash of approximately $14,044,000.
Effective September 3, 1999, the Company acquired the brand name, customer list
and catalog artwork of Champion America, Inc., located in Chagrin Falls, Ohio, a
direct marketer of signs, labels and identification products, for cash of
approximately $4,949,000 and a payable of approximately $561,000.
28
<PAGE> 32
[BRADY LOGO]
Effective March 3, 2000, the Company acquired Data Recognition, Inc., located in
Austin, Texas, a systems integrator providing automatic identification and data
collection ("AIDC") solutions.
Effective March 22, 2000, the Company acquired Imtec, Inc., located in Keene,
New Hampshire, a manufacturer of high-performance bar-code labels and labeling
systems used in automatic identification applications.
The combined price for Data Recognition, Inc. and Imtec, Inc. was cash of
approximately $33,422,000 and a payable of approximately $1,490,000. The
purchase price is subject to change based on post-closing adjustments.
These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations have been included since
the dates of acquisition in the accompanying financial statements. The pro forma
results 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, are covered by an
unfunded, contributory postretirement healthcare plan where employer
contributions will not exceed a Defined Dollar Benefit amount, regardless of the
cost of the program. Employer contributions to the plan are based on the
employee's age and service at retirement.
The Company accounts for postretirement benefits other than pensions in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." The Company funds benefit costs on a pay-as-you-go basis.
The following table provides a reconciliation of the changes in the Plan's
benefit obligations at July 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligation at beginning of fiscal year ........................... $ 8,104 $ 6,802 $ 6,142
Service cost ..................................................... 444 472 328
Interest cost .................................................... 665 602 473
Plan amendments .................................................. -- 307 --
Actuarial loss ................................................... -- 242 158
Benefit payments ................................................. (356) (321) (299)
---------------------------------------------------
Obligation at end of fiscal year ................................. $ 8,857 $ 8,104 $ 6,802
===================================================
</TABLE>
There are no plan assets due to the nature of the Plan. During fiscal 1999,
$307,000 of expense was recognized due to the addition of employees from prior
acquisitions.
The following table shows the unfunded status of the Plan as of July 31, 2000
and 1999:
<TABLE>
<CAPTION>
(Dollars in Thousands) 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unfunded status at July 31 ................................................... $ 8,857 $8,104
Unrecognized net actuarial gain .............................................. 2,014 2,107
Unrecognized prior service cost .............................................. (263) (285)
--------------------
Accumulated postretirement benefit obligation liability ...................... $10,608 $9,926
====================
</TABLE>
The following table provides the components of net periodic benefit cost for the
Plan for fiscal years 2000, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended July 31, 2000 1999 1998
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic postretirement benefit cost included the
following components:
Service cost-benefits attributed to service during
the period ............................................... $ 444 $ 472 $328
Prior service cost .......................................... 22 22 --
Interest cost on accumulated postretirement
benefit obligation ....................................... 665 602 473
Amortization of (gain) ...................................... (93) (46) (150)
--------------------------------
Periodic postretirement benefit cost ............................ $1,038 $1,050 $651
================================
</TABLE>
ANNUAL REPORT 2000
29
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Years Ended July 31, 1999, 1998 and 1997
The assumed healthcare cost trend rates used in measuring the accumulated
postretirement benefit obligation were 6.0% in 2000, declining to 5.5% by the
year 2001.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 8.0% in both 2000 and 1999.
If the healthcare cost trend rate assumptions were increased by 1.0% or
decreased by 1.0%, the accumulated postretirement benefit obligation as of
July 31, 2000, would be increased by $56,000 and decreased by $119,000,
respectively. 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 or quarterly, according to
the plan, based on earnings of the respective companies and employee
contributions. At July 31, 2000 and 1999, $2,196,000 and $4,761,000,
respectively, of accrued profit-sharing contributions were included in other
current liabilities.
The Company also has deferred compensation plans for directors, officers and key
executives utilizing the phantom stock plan concept. At July 31, 2000 and 1999,
$5,569,000 and $5,838,000,respectively, of deferred compensation was included in
current and other long-term liabilities.
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 $7,736,000 in
2000, $7,589,000 in 1999 and $8,038,000 in 1998.
The Company has a voluntary employee benefit trust for the purpose of funding
employee medical benefits and certain other employee benefits. At July 31, 2000
and 1999, $2,793,000 and $2,204,000, 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>
(Dollars in Thousands) Year Ended July 31, 2000 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,354 $17,668 $14,570
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,030 6,747 5,883
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,309 1,852 1,803
---------------------------------
29,693 26,267 22,256
---------------------------------
Deferred (credit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . (210) (1,186) (3,373)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . (486) 73 (181)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67) 44 (573)
---------------------------------
(763) (1,069) (4,127)
---------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . $28,930 $25,198 $18,129
=================================
</TABLE>
30
<PAGE> 34
[BRADY LOGO]
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 certain expenses not deductible for tax
reporting until paid.
Pre-tax income consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended July 31, 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,085 $42,180 $32,743
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,046 22,602 13,422
---------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,131 $64,782 $46,165
=================================
</TABLE>
The approximate tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) July 31, 2000 Assets Liabilities Total
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,473 $ -- $ 2,473
Prepaid catalog costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,018) (1,018)
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 (219) (162)
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 498 -- 498
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,573 95 4,668
------------------------------------------
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,601 (1,142) 6,459
------------------------------------------
Excess of tax over book depreciation . . . . . . . . . . . . . . . . . . . . . -- (2,217) (2,217)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,421 -- 6,421
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,137 -- 4,137
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . 4,374 -- 4,374
Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,049 -- 3,049
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,049) -- (3,049)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,458 (2,837) (379)
------------------------------------------
Noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,390 (5,054) 12,336
------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,991 $(6,196) $18,795
==========================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) July 31, 1999 Assets Liabilities Total
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,788 $ -- $ 2,788
Prepaid catalog costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,048) (1,048)
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (304) (304)
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 419 -- 419
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,614 (29) 4,585
-------------------------------------------
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,821 (1,381) 6,440
-------------------------------------------
Excess of tax over book depreciation . . . . . . . . . . . . . . . . . . . . . -- (1,611) (1,611)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,420 -- 6,420
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,871 -- 3,871
Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,059 -- 4,059
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,278) -- (3,278)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 (2,654) (2,334)
-------------------------------------------
Noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,392 (4,265) 7,127
-------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,213 $(5,646) $13,567
===========================================
</TABLE>
At July 31, 2000 and 1999, $6,249,000 and $6,440,000, respectively, of net
deferred tax assets were included in prepaid expenses and other current assets.
At July 31, 2000 and 1999, $8,398,000 and $7,127,000, 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>
(Dollars in Thousands) Year Ended July 31, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,645 $22,674 $16,157
State income taxes, net of Federal tax benefits . . . . . . . . . . . . . . . . . . . 1,566 1,204 1,517
International losses with no related tax benefits . . . . . . . . . . . . . . . . . . 1,408 1,296 1,350
International rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 986 (345)
Rate variances arising from foreign subsidiary
distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,525) (1,481) (391)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565 516 (159)
---------------------------------
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,930 $25,195 $18,129
=================================
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.0% 38.9% 39.3%
=================================
</TABLE>
ANNUAL REPORT 2000
31
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Years Ended July 31, 2000, 1999 and 1998
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, 2000,
amounted to approximately $52,788,000. If all such undistributed earnings were
remitted, no additional provision for foreign income taxes would be required.
NOTE 5
Long-Term Obligations
On September 23, 1999, the Company entered into a $150,000,000 multicurrency
revolving loan agreement with a group of six banks, which expires on September
23, 2004. On January 31, 2000, the multicurrency revolving loan was amended,
increasing the amount available to $200,000,000. Under the agreement, the
Company has the option to elect to have interest rates determined based upon the
prime rate at PNC Bank N.A. plus margin or a LIBOR rate plus margin. A
commitment fee is payable on the unused amount of credit.
Long-term obligations consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) July 31, 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving loan agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $ --
Capital lease on building, term 7/1/00 - 6/30/10 . . . . . . . . . . . . . . . . 3,276 --
6.25% Industrial Development Revenue Bonds payable on
December 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Korean bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,497
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 531
--------------------
12,287 4,028
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,130 2,626
--------------------
$ 4,157 $1,402
====================
</TABLE>
The Industrial Development Revenue Bonds are collateralized by first mortgages
on certain property with a net carrying amount of approximately $4,115,000 at
July 31, 2000. The Company's long-term obligations approximates fair value.
Maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ending July 31,
------------------------------------------------------------------------------------------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,130
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,147
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,534
</TABLE>
NOTE 6
Stockholders' Investment
Information as to the Company's capital stock at July 31, 2000, is as follows:
<TABLE>
<CAPTION>
Shares Shares
(Dollars in Thousands) Authorized Issued Amount
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock, $.01 par value . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 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 20,966,315 $ 209
Class B Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 1,769,314 18
------
$ 227
======
</TABLE>
32
<PAGE> 36
[BRADY LOGO]
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
years ended July 31, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
Shares Held
Unearned Deferred in Rabbi
Restricted Comp- Trust,
(Dollars in Thousands) 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 11,900 shares of Class A Common
Stock 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)
==================================================
Sale of 59,953 shares of Class A Common
Stock purchased by the Rabbi Trust
related to deferred compensation plan . . . . . . . . . . -- (1,814) 1,814 --
Purchase of 44,865 shares of Class A Common
Stock purchased by the Rabbi Trust related
to deferred compensation plan . . . . . . . . . . . . . . -- 1,008 (1,008) --
Amortization of restricted stock . . . . . . . . . . . . . . 693 -- -- 693
--------------------------------------------------
Balances July 31, 1999 . . . . . . . . . . . . . . . . . . . $(2,331) $11,231 $(11,231) $(2,331)
==================================================
Sale of 10,682 shares of Class A Common
Stock purchased by the Rabbi Trust
related to deferred compensation plan . . . . . . . . . . -- (296) 296 --
Purchase of 59,278 shares of Class A Common
Stock purchased by the Rabbi Trust related
to deferred compensation plan . . . . . . . . . . . . . . -- 1,837 (1,837) --
Amortization of restricted stock . . . . . . . . . . . . . . 694 -- -- 694
--------------------------------------------------
Balances July 31, 2000 . . . . . . . . . . . . . . . . . . . $(1,637) $12,772 $(12,772) $(1,637)
==================================================
</TABLE>
ANNUAL REPORT 2000
33
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Years Ended July 31, 2000, 1999 and 1998
The Company's Nonqualified Stock Option Plans allow the granting of stock
options to various officers, directors and other employees of the Company at
prices equal to fair market value at the date of grant. The Company has reserved
1,500,000 and 2,125,000 shares of Class A Nonvoting Common Stock for issuance
under the 1989 and 1997 Plans, respectively. Options granted prior to 1992
become exercisable once the employees have been continuously employed for six
months after the grant date. Generally, options granted in 1992 and thereafter
will not be exercisable until one year after the date of grant, to the extent of
one-third per year.
Changes in the Options are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Option Options Exercise
Price Outstanding Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.19-24.25 351,400 19.56
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.83-31.38 (117,526) 16.00
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.17-34.00 (73,461) 26.63
----------------------------------------
Balance, July 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . $6.83-$34.00 1,800,434 $22.45
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.56-33.75 318,733 31.19
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.83-31.38 (126,474) 19.17
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.19-34.00 (43,902) 26.17
----------------------------------------
Balance, July 31, 2000
(809,575 options exercisable) . . . . . . . . . . . . . . . . . . . . . . $6.83-$34.00 1,948,791 $24.01
========================================
Available for grant after July 31, 2000 . . . . . . . . . . . . . . . 887,588
=========
</TABLE>
The following table summarizes information about stock options outstanding at
July 31, 2000:
<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 2000 Life-Years Price 2000 Price
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.83-$15.00 . . . . . . . . . . . . 162,801 2.9 years $12.91 162,801 $12.91
$15.01-$25.00 . . . . . . . . . . . . 1,083,090 7.0 years 21.91 330,642 20.68
$25.01-$34.00 . . . . . . . . . . . . 702,900 7.7 years 29.80 316,132 28.02
--------------------------------------------------------------
$ 6.83-$34.00 . . . . . . . . . . . . 1,948,791 6.9 years $24.01 809,575 $21.98
==============================================================
</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 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>
(Dollars in Thousands, Except Per Share Amounts) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47,201 $39,584 $28,036
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,289 37,972 26,816
Net income per Class A Common Share - Diluted:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.05 $ 1.73 $ 1.23
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.96 1.66 1.17
</TABLE>
34
<PAGE> 38
[BRADY LOGO]
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 2000, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9% 6.2% 5.7%
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.6% 37.8% 30.5%
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3% 2.4% 2.2%
Expected option life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 YEARS 4.1 years 4.4 years
</TABLE>
NOTE 7
Segment Information
Brady Corporation's reportable segments are business units that are each managed
separately because they manufacture and/or distribute distinct products using
different processes or channels to market.
Brady Corporation has three reportable segments: the Identification Solutions &
Specialty Tapes Group, the Graphics Group and the Direct Marketing Group.
The Identification Solutions & Specialty Tape Group consists of Identification
Solutions, Brady Software and Solutions, and Specialty Tapes and Custom Coated
Products. Identification Solutions develops, manufactures and sells wire and
cable markings, high-performance labels, printing systems, and packaged software
mainly to the electrical, electronic, telecommunications, automotive and general
industrial markets. Brady Software and Solutions is focused on the Automatic
Identification and Data Collection market and its solutions consist of
high-performance labels and labeling systems tied together with bar-code design
and print software, data collection equipment, inventory services, application
engineering and integration services. Specialty Tapes manufactures custom
die-cut parts and specialty tapes. Die-cut materials are engineered to provide
improved functionality and easier assembly of electronic products such as
phones, pagers and hard disk drives. Specialty tapes are used by audio and
video tape duplicators. Custom Coated Products develops and coats specialty
materials using a wide variety of substrates such as polyester, polyimide,
cloth, metal and paper. Coatings include custom adhesive systems as well as
high-performance topcoatings. These materials are sold in bulk form or as
converted products through other Brady units.
The Graphics Group consists primarily of Signmark(R) and Varitronics. Signmark
manufactures and sells 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. Varitronics produces
and markets printing systems including lettering and labeling systems, poster
printers, and supplies and laminating equipment. Pulp and paper, chemical,
electrical, transportation and other manufacturing markets as well as
government, education and construction markets are some of those served by this
group.
The Direct Marketing Group engages in direct selling to end users via
direct-mail catalogs, telemarketing and the Internet. Its products include more
than 50,000 products including a variety of signs, property-identification tags,
hazardous materials and regulatory training programs and products, and office
accessories. The Direct Marketing Group serves manufacturing markets as well as
construction, wholesale trade, finance, insurance, government, education and
healthcare.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, not including interest, goodwill and
exchange gain or loss. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at cost plus a standard percentage
markup. Intercompany profit is eliminated in consolidation.
ANNUAL REPORT 2000
35
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Years Ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Identification
Solutions & Direct Corporate and
(Dollars in Thousands) Specialty Tapes Graphics Marketing Eliminations Totals
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 2000:
Revenues from external customers ............. $ 248,459 $ 127,571 $ 165,047 $ -- $ 541,077
Intersegment revenues ........................ 3,204 4,269 997 (8,470) --
Depreciation and amortization expense ........ 10,509 3,725 2,138 1,461 17,833
Profit (loss) ................................ 45,763 19,510 27,583 (10,799) 82,057
Assets ....................................... 165,127 73,271 52,155 107,581 398,134
Expenditures for property, plant and equipment 6,845 1,325 3,292 11,162 22,624
---------------------------------------------------------------
Year ended July 31, 1999:
Revenues from external customers ............. $ 190,189 $ 122,856 $ 157,817 $ -- $ 470,862
Intersegment revenues ........................ 3,042 1,982 865 (5,889) --
Nonrecurring (credit) charge ................. (104) 21 (25) (503) (611)
Depreciation and amortization expense ........ 8,942 3,019 1,896 1,292 15,149
Profit (loss) ................................ 28,908 18,207 28,371 (7,456) 68,030
Assets ....................................... 121,487 78,459 48,463 102,711 351,120
Expenditures for property, plant and equipment 5,575 2,017 1,462 835 9,889
---------------------------------------------------------------
Year ended July 31, 1998:
Revenues from external customers ............. $ 180,159 $ 125,283 $ 149,708 $ -- $ 455,150
Intersegment revenues ........................ 2,970 1,512 790 (5,272) --
Nonrecurring charge .......................... 1,098 1,640 779 1,873 5,390
Depreciation and amortization expense ........ 5,928 4,156 1,893 1,311 13,288
Profit (loss) ................................ 25,715 9,493 21,565 (8,375) 48,398
Assets ....................................... 106,012 66,257 47,626 91,929 311,824
Expenditures for property, plant and equipment 4,683 10,374 1,410 722 17,189
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended July 31, 2000 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Profit reconciliation:
Total profit or loss for reportable segments.. $ 92,856 $ 75,486 $ 56,773
Corporate and eliminations ................... (10,799) (7,456) (8,375)
Unallocated amounts:
Goodwill ................................... (5,156) (3,416) (1,793)
Interest-net ............................... 1,857 1,975 2,259
Foreign exchange ........................... (1,779) (975) (1,863)
Other ...................................... (848) (832) (836)
----------------------------------
Income before income taxes ................... $ 76,131 $ 64,782 $ 46,165
==================================
</TABLE>
36
<PAGE> 40
[BRADY LOGO]
<TABLE>
<CAPTION>
Revenues(*) Long-Lived Assets(**)
Year Ended July 31, Year Ended July 31,
(Dollars in Thousands) 2000 1999 1998 2000 1999 1998
----------------------- ------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Geographic information:
United States ........... $ 337,634 $ 292,341 $ 286,813 $ 129,080 $ 85,650 $ 82,722
Europe .................. 160,412 149,522 139,061 37,232 39,332 25,885
Other foreign countries.. 79,923 60,597 59,948 14,626 14,535 11,818
Eliminations ............ (36,892) (31,598) (30,672) -- -- --
------------------------------------- ---------------------------------
Consolidated total .... $ 541,077 $ 470,862 $ 455,150 $ 180,938 $ 139,517 $ 120,425
===================================== =================================
</TABLE>
* Revenues are attributed based on country of origin.
** Long-lived assets consist primarily of property, plant and equipment and
goodwill.
[SALES FROM INTERNATIONAL OPERATIONS BAR GRAPH]
<TABLE>
<CAPTION>
94 95 96 97 98 99 00
<S> <C> <C> <C> <C> <C> <C>
95 129 157 181 198 210 240
</TABLE>
With operations in 20 countries and counting, Brady has significant
opportunities for continued growth internationally.
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 22,669,854 for
2000, 22,537,393 for 1999 and 22,357,686 for 1998. 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.
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 2000 Fiscal 1999 Fiscal 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income.................................................... $47,201,000 $39,584,000 $28,036,000
Less: Preferred stock dividends............................... (259,134) (259,134) (259,134)
---------------------------------------------------
Numerator for basic and diluted Class A
earnings per share....................................... 46,941,866 39,324,866 27,776,866
Less:
Preferential dividends...................................... (694,492) (690,541) (676,298)
Preferential dividends on dilutive stock options............ (10,410) (2,739) (9,140)
---------------------------------------------------
Numerator for basic and diluted Class B
earnings per share.......................................... $46,236,964 $38,631,586 $27,091,428
===================================================
Denominator:
Denominator for basic earnings per share for
both Class A and B.......................................... 22,669,854 22,537,393 22,357,686
Plus: Effects of dilutive stock options....................... 263,345 145,577 244,239
---------------------------------------------------
Denominator for diluted earnings per share for
both Class A and B.......................................... 22,933,199 22,682,970 22,601,925
===================================================
</TABLE>
ANNUAL REPORT 2000
37
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Years Ended July 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
FISCAL 2000 Fiscal 1999 Fiscal 1998
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Common Stock earnings per share calculation:
Basic................................................................ $2.07 $1.74 $1.24
Diluted.............................................................. 2.05 1.73 1.23
Class B Common Stock earnings per share calculation:
Basic................................................................ $2.04 $1.71 $1.21
Diluted.............................................................. 2.02 1.70 1.20
</TABLE>
Options to purchase 264,167, 446,168 and 258,850 shares of Class A Common Stock
were not included in the computations of diluted earnings per share for the
fiscal years 2000, 1999 and 1998, 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 $9,293,000 for 2000; $8,884,000 for
1999 and $9,015,000 for 1998. Future minimum lease payments required under such
leases in effect at July 31, 2000, are as follows (by fiscal year):
<TABLE>
<S> <C>
2001................................. $ 6,869,000
2002................................. 4,337,000
2003................................. 2,279,000
2004................................. 1,710,000
2005................................. 1,081,000
Thereafter........................... 5,505,000
-----------
$21,781,000
===========
</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 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. The remainder
of the nonrecurring charge represents a write-off of assets associated with
exiting two small product lines. The Company 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 were noncash charges.
A reconciliation of activity with respect to the Company's restructuring is as
follows:
<TABLE>
<S> <C>
Provision, July 31, 1998 ...................... $ 5,390,000
Noncash asset write-offs ...................... (366,000)
Cash payments associated with severance........ (4,150,000)
Amounts taken to income ....................... (611,000)
------------
Ending balance, July 31, 1999 ................. 263,000
Cash payments associated with severance........ (263,000)
------------
Ending balance, July 31, 2000 ................. $ 0
============
</TABLE>
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
and was charged to cost of sales.
These nonrecurring and one-time charges total $7,851,000 ($4,766,000 after tax)
or approximately $0.21 per diluted share, in 1998.
38
<PAGE> 42
[BRC LISTED NYSE LOGO]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BRADY CORPORATION
We have audited the accompanying consolidated balance sheets of Brady
Corporation and subsidiaries as of July 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' investment and cash flows for
each of the three years in the period ended July 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 8, 2000
SHAREHOLDER SERVICES
COMMON SHARES
Brady Corporation Class A Common Stock trades on the New York Stock Exchange
under the symbol BRC. As of September 19, 2000, there were 391 Class A Common
Stock shareholders of record and about 4,000 beneficial shareholders. There
are two Class B Common Stock shareholders.
QUARTERLY STOCK DATA
<TABLE>
<CAPTION>
2000 1999 1998
High Low High Low High Low
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter $34.13 $27.00 $35.00 $24.13 $32.75 $19.63
3rd Quarter $32.38 $24.50 $27.50 $19.50 $35.75 $29.31
2nd Quarter $34.56 $26.25 $29.38 $22.50 $33.00 $29.00
1st Quarter $36.31 $25.63 $23.13 $16.25 $35.00 $27.38
--------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS
Brady has paid dividends on its Common Stock every quarter since going public in
June 1984, and the Company has increased the dividend every year for each of the
past 15 years. At its September 2000 meeting, the Board of Directors increased
the quarterly dividend on Class A Common Stock to 18 cents per share per
quarter, or $0.72 per year. Dividends are normally paid on the last day of
October, January, April and July.
DIVIDEND REINVESTMENT
Shareholders of record may have their dividends automatically reinvested in
Brady stock through a Dividend Reinvestment Program. For more information on
this program, see the description on the Internet at www.investor.bradycorp.com
or call Brady's investor line at 414-438-6918.
STOCK TRANSFER AGENT
Firstar Bank N.A., 1555 North RiverCenter Drive,
Suite 301, Milwaukee, WI 53212; phone: 1-800-637-7549.
www.firstarinvestorservice.com
BRADY INFORMATION
Brady's Internet site at WWW.INVESTOR.BRADYCORP.COM contains investor
presentations, 10-K and 10-Q filings, annual reports, news releases, frequently
asked investor questions, stock prices, a Brady investment calculator, product
information and a variety of other information about Brady.
INFORMATION REQUESTS AND INVESTOR NEWS LINE
A phone system at 414-438-6918 enables you to listen to financial news
highlights, request printed 10-K and other financial information, request
dividend reinvestment information, or be transferred to an investor relations
representative. Or you may send your information requests to INVESTOR RELATIONS,
BRADY CORPORATION, P.O. BOX 571, MILWAUKEE, WI 53201-0571, or e-mail
[email protected].
ANALYST, INVESTOR AND MEDIA CONTACT
Laurie Spiegelberg, vice-president of corporate communications,
414-438-6880.
ANNUAL MEETING
The Brady Corporation Annual Meeting will be at 9 a.m., Wednesday, November 15,
2000, at the Milwaukee Athletic Club, 758 N. Broadway, Milwaukee, Wisconsin.
Highlights will be posted on the Internet at www.investor.bradycorp.com.
ANNUAL REPORT 2000
39
<PAGE> 43
BRADY LOCATIONS
UNITED STATES
Brady Corporation
P.O. Box 571
Milwaukee, WI 53201
Brady Worldwide, Inc.
Identification Solutions &
Specialty Tapes
6555 W. Good Hope Rd.
Milwaukee, WI 53223
Brady Worldwide, Inc.
Global Die Cut Products
N144 W5690 Pioneer Road
Cedarburg, WI 53012
Brady Worldwide, Inc.
Coated Products
2230 W. Florist Ave.
Milwaukee, WI 53209
Brady Worldwide, Inc.
Signmark(R)
2221 W. Camden Rd.
Milwaukee, WI 53209
Brady AIDC &
Software Solutions
727 W. Glendale Ave.
Glendale, WI 53209
Brady Business Process
Innovation Center
5300 N. 118th Court
Building F
Milwaukee, WI 53225
Brady Worldwide, Inc.
Varitronics
6835 Winnetka Circle
Brooklyn Park, MN 55428
Seton Identification Products
20 Thompson Rd.
Branford, CT 06405
Seton Identification Products
4451 Eucalyptus Ave.
Suite 330
Chino, CA 91710
Barcodes West
1560 First Avenue South
Seattle, WA 98134
BCW Inventory Services
1766 S. Naperville Rd.
Wheaton, IL 60187
Data Recognition, Inc.
2929 Longhorn Blvd.
Suite 103
Austin, TX 78758
Imtec, Inc.
7 Corporate Dr.
Keene, NH 03431
AUSTRALIA
Brady Australia Pty. Ltd.
Seton Australia Pty. Ltd.
112 Christina Road
Villawood NSW 2163
Australia
Visi Sign
10 Reid Street
Bayswater, Victoria 3153
Australia
BELGIUM
W.H. Brady, n.v.
Industrie Park C/3
Lindestraat 20
B-9240 Zele, Belgium
BRAZIL
W.H.B. do Brasil Ltda.
Rua Rosangela Donata
De Oliveira, 30
06236-110-Osasco, Sao Paulo
Brazil
Seton Brasil
Centro Empresarial Alphaville
Av. Jurua, 105-Modulo 4
06455-908-Barueri, Sao Paulo
Brazil
CANADA
W.H.B. Identification Solutions, Inc.
56 Leek Crescent
Richmond Hill
Ontario, Canada
Brady Software Group Canada
7035 Fir Tree Drive, Suite 9
Mississauga, Ontario
Canada, L5S 1V6
CHINA
Brady Corporation S.E.A. Pte. Ltd.
Room 806,
Bright China Chang An Building
7 Jian Guo Men Nei Da Jie
Dong Cheng District
Beijing, PRC
Brady Corporation S.E.A. Pte. Ltd.
Unit F, 23/F,
Zhao Feng World Trade Building
369 Jiangsu Rd.
Shanghai 200050, PRC
Brady (Wuxi) Co. Ltd.
No. 229
Xingchuang Ba Lu
Wuxi-Singapore Industrial Park
Wuxi, Jinagsu, PRC 214028
FRANCE
Brady France
1 Rue de Terre Nueve - bat. E
BP 362 - ZAC Lesulis
91959 Courtaboeuf Cedex, France
Seton S.A.
45 Avenue de L'Europe
BP 132
59436 Roncq Cedex, France
Signals
Rond Point de la Republique
Z.I. de la Rochelle
17187 Perigny Cedex, France
Brady Software Group Europe
2 rue Vincent Van Gogh
Z.I. Est
32020 Auch Cedex 9, France
Brady LettraSoft S.A.
13 rue des Emeraudes
F-69006 Lyon, France
GERMANY
W.H. Brady GmbH
Lagerstrasse 13
64807 Dieburg, Germany
Seton GmbH
Otto-Hahn-Str. 5-7
63222 Langen, Germany
Brady LettraSoft GmbH
Felix Klein Strasse 2
40474 Duesseldorf, Germany
HONG KONG
Brady Corporation S.E.A. Pte. Ltd.
Unit 03/04, 18th Floor
CRE Centre
889 Cheung Sha Wan Road
Kowloon, Hong Kong
ITALY
Seton Italia, Srl
Via Luigi Lazzaroni 7
21047 Saronno (VA), Italy
JAPAN
Nippon Brady K.K.
Seton Japan
TVP Building 3F
3-9-13 Moriya-cho, Kanagawa-Ku
Yokohoma, Kanagawa 221-0022
Japan
KOREA
Brady Korea Ltd.
5F Hyo-Won Bld.
99-5 GaRak-Dong, SongPa0Ku
Seoul, 138-720
Republic of Korea
Brady Korea Ltd.
130-8 Dong An-Ri, Okcheon-EUP
Okcheon-Gun, Chung Buk
373-800
Republic of Korea
MALAYSIA
Brady Corporation S.E.A. Pte. Ltd.
54-G-2, Wisma Sri Mata
Jalan Van Praagh
11600 Penang, Malaysia
MEXICO
W.H. Brady S. de R.L. de C.V.
Lago Iseo No. 91
Col. Anahuac
11320 Mexico D.F., Mexico
PHILIPPINES
Brady Corporation S.E.A. Pte. Ltd.
9 Narra Drive, Palmeral Heights III
Valley Golf, Cainta Rizal
Philippines 1900
SINGAPORE
Brady Corporation S.E.A. Pte. Ltd.
Brady Corporation Asia Pte. Ltd.
55 Ayer Rajah Crescent #03-25
Ayer Rajah Industrial Estate
Singapore 139949
SPAIN
Brady LettraSoft
Avda. Madrid 9
Escalera B, Entresuelo 2
08028 Barcelona, Spain
SWEDEN
Brady AB
Karins Vag 5
194 54 Upplands Vasby
Sweden
TAIWAN
Brady Corporation S.E.A. Pte. Ltd.
6F-2, 412, Chung Hsiao E. Rd.
SEC 5
Taipei 110, Taiwan
UNITED KINGDOM
W.H. Brady Co. Ltd.
Wildmere Industrial Estate
Banbury, Oxfordshire
OX16 3JU,
United Kingdom
Seton Limited
Canada Close
Banbury, Oxon 0X16 7RT
United Kingdom
40
<PAGE> 44
DIRECTORS
[PHOTO]
Richard A. Bemis, 59, 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. He serves on the Technology
Committee and the Compensation Committee.
[PHOTO]
Dr. Frank W. Harris, 58, has been a director of Brady since November 1991. He is
a distinguished professor of polymer science and biomedical engineering at the
Institute of Polymer Science, university of Akron, Akron, Ohio. He chairs the
Technology Committee and serves on the Audit Committee.
[PHOTO]
Peter J. Lettenberger, 63, has served as a director of Brady since January 1977.
He is a partner in the law firm of Quarles & Brady, Milwaukee, Wisconsin. He
serves on the Finance Committee and the Corporate Governance Committee.
[PHOTO]
Robert C. Buchanan, 60, has been a director of Brady since November 1987. He is
president of the Fox Valley Corporation, a specialty paper manufacturer in
Appleton, Wisconsin. He chairs the Corporate Governance Committee and serves
on the Finance Committee.
[PHOTO]
* Katherine M. Hudson, 53, 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 a director of CNH Global N.V. and
Charming Shoppes, Inc.
[PHOTO]
Gary E. Nei, 56, has been a director of Brady since November 1992. He is
chairman of B&B Publishing, Walworth, Wisconsin. He chairs the Finance Committee
and serves on the Technology Committee.
[PHOTO]
Mary K. Bush, 52, was elected to the Board of Directors on May 15, 2000. She is
president of Bush & Company, Washington, D.C., an international financial
advisory firm. She serves on the Audit and Finance Committees.
[PHOTO]
Frank R. Jarc, 58, was elected to the Board of Directors on May 15, 2000. He is
a consultant specializing in corporate development and international
acquisitions, and the former senior vice president of corporate development at
Office Depot. He chairs the Audit Committee and serves on the Compensation
Committee.
[PHOTO]
Roger D. Peirce, 63, 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. He chairs the Compensation Committee and serves
on the Corporate Governance Committee and the Finance Committee.
CORPORATE OFFICERS AND EXECUTIVES
* Richard L. Fisk
vice president - Direct Marketing Group
* Conrad F. Goodkind
secretary
* David R. Hawke
Vice president - Graphics Group
* Katherine M. Hudson
president and chief executive officer
* Frank M. Jaehnert
vice president and chief financial officer
Gary L. Johnson
vice president - corporate development
* Michael L. Oliver
vice president - human resources
* Donald E. Rearic
vice president, treasurer and assistant secretary
* David W. Schroeder
vice president - Identification Solutions & Specialty Tapes Group
Laurie A. Spiegelberg
vice president - corporate communications
David B. Winter
vice president and chief information officer
* Officers for the purposes of Section 16 of the Securities Exchange Act of
1934.
<PAGE> 45
[BRADY LOGO]
www.bradycorp.com Go!
Brady Corporation World Headquarters, P.O. Box 571, Milwaukee, WI 53201-0571
10-FC-00-40 (C)2000 Brady Corporation. All Rights Reserved.
[RECYCLE LOGO] In keeping with Brady Corporation's policy of environmental
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