1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended January 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___ to ___ Commission File Number 0-12730 W. H. BRADY CO. (Exact name of registrant as specified in its charter) WISCONSIN 39-0178960 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6555 WEST GOOD HOPE ROAD, MILWAUKEE, WISCONSIN 53223 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (414) 358-6600 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of February 21, 1996, there were outstanding 20,078,050 (adjusted for the stock dividend discussed in Note B) shares of Class A Common Stock and 1,769,314 shares of Class B Common Stock. The Class B Common Stock, all of which is held by an affiliate of the Registrant, is the only voting stock.
2 FORM 10-Q W. H. BRADY CO. INDEX Page PART I. Financial Information Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets 3 Unaudited Condensed Consolidated Statements of Income and Earnings Retained in the Business 4 Unaudited Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. Other Information Item 1. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11
3 W. H. BRADY CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> ASSETS January 31, 1996 July 31, 1995 ---------------- ------------- (UNAUDITED) <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 72,890 $ 89,067 Accounts receivable, less allowance for losses ($1,936 and $1,881, respectively) 53,220 42,104 Inventories 27,976 23,099 Prepaid expenses and other current assets 10,935 10,202 ------- ------- TOTAL CURRENT ASSETS 165,021 164,472 OTHER ASSETS 18,555 6,960 PROPERTY, PLANT AND EQUIPMENT: Cost: Land 4,908 4,417 Buildings and improvements 33,376 34,284 Machinery and equipment 72,491 69,278 Construction in progress 2,483 815 ------- ------- 113,258 108,794 Less accumulated depreciation 54,702 50,221 ------- ------- NET PROPERTY, PLANT AND EQUIPMENT 58,556 58,573 ------- ------- TOTAL $ 242,132 $ 230,005 ======= ======= LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $ 12,985 $ 9,252 Wages and amounts withheld from employees 14,681 14,447 Accrued income taxes 2,492 2,150 Other current liabilities 8,070 8,273 Current maturities on long-term debt 239 412 ------- ------- TOTAL CURRENT LIABILITIES 38,467 34,534 LONG-TERM DEBT, LESS CURRENT MATURITIES 1,944 1,903 OTHER LIABILITIES 24,896 22,745 ------- ------- TOTAL LIABILITIES 65,307 59,182 STOCKHOLDERS' INVESTMENT: Preferred stock 2,855 2,855 Class A nonvoting common stock - Issued and outstanding 20,078,050 and 5,507,341 shares, respectively 201 55 Class B voting common stock - issued and outstanding 1,769,314 shares 18 18 Additional paid-in capital 8,139 8,074 Earnings retained in the business 162,176 154,286 Cumulative translation adjustments 3,436 5,535 ------- ------- TOTAL STOCKHOLDERS' INVESTMENT 176,825 170,823 ------- ------- TOTAL $ 242,132 $ 230,005 ======= ======= </TABLE> SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3
4 W. H. BRADY CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JANUARY 31 JANUARY 31 1996 1995 1996 1995 -------- --------- -------- --------- <S> <C> <C> <C> <C> NET SALES $ 87,820 $ 78,857 $ 167,043 $ 147,896 OPERATING EXPENSES COST OF PRODUCTS SOLD 41,204 36,917 77,292 69,059 RESEARCH AND DEVELOPMENT 2,832 2,711 5,505 5,247 SELLING, GENERAL AND ADMINISTRATIVE 35,322 29,515 67,942 56,067 -------- --------- -------- --------- TOTAL OPERATING EXPENSES 79,358 69,143 150,739 130,373 OPERATING INCOME 8,462 9,714 16,304 17,523 INVESTMENT AND OTHER INCOME-NET 1,104 609 3,672 1,128 INTEREST EXPENSE (66) (149) (117) (192) -------- --------- -------- --------- INCOME BEFORE INCOME TAXES 9,500 10,174 19,859 18,459 INCOME TAXES 3,625 4,075 7,649 7,426 -------- --------- -------- --------- NET INCOME $ 5,875 $ 6,099 $ 12,210 $ 11,033 EARNINGS RETAINED IN BUSINESS AT BEGINNING OF PERIOD 158,550 135,868 154,286 132,271 LESS DIVIDENDS: PREFERRED STOCK (65) (65) (130) (130) COMMON STOCK (2,185) (1,454) (4,191) (2,727) -------- --------- -------- --------- EARNINGS RETAINED IN BUSINESS AT END OF PERIOD $ 162,176 $ 140,448 $ 162,176 $ 140,448 ======== ========= ======== ========= NET INCOME PER COMMON SHARE NET INCOME - CLASS A NONVOTING $ 0.26 $ 0.27 $ 0.55 $ 0.50 ======== ========= ======== ========= NET INCOME - CLASS B VOTING $ 0.26 $ 0.27 $ 0.52 $ 0.47 ======== ========= ======== ========= </TABLE> SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
5 W. H. BRADY CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended January 31 --------------------------- 1996 1995 ------- ------- <S> <C> <C> Operating Activities: Net Income $ 12,210 $ 11,033 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation & Amortization 4,345 4,954 (Gain) on Sale of Equipment (1,853) (7) Provision for Losses on A/R 445 377 Changes in Operating Assets and Liabilities (Net of acquired businesses): (Incr) Decr in A/R (6,720) (4,527) (Incr) Decr in Inventory (3,536) (63) (Incr) Decr in Prepaid Expense (869) (3,410) Incr (Decr) in A/P & Other Liabilities 4,119 1,510 Incr (Decr) in Income Taxes 682 833 ----- ----- Net Cash Provided by (Used in) Operating Activities 8,823 10,700 Investing Activities: Purchases of Property, Plant and Equipment (5,315) (3,213) Proceeds from Sale of Property, Plant and Equipment 199 128 Purchases of Businesses (15,077) ------ ------ Net Cash Used in Investing Activities (20,193) (3,085) Financing Activities: Payments of Dividends (4,321) (2,856) Proceeds from Issuance of Common Stock 211 833 Principal Payments on Long Term Debt (74) (313) ------ ------ Net Cash Used in Financing Activities (4,184) (2,336) Effect of Exchange Rate Changes on Cash (623) 746 ------ ------ Net Incr (Decr) in Cash and Cash Equivalents (16,177) 6,025 Cash and Cash Equivalents at Beginning of Year 89,067 66,107 ------ ------ Cash and Cash Equivalents at End of Period $ 72,890 $ 72,132 ====== ====== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year For: Interest $ 377 $ 387 Income Taxes 6,359 7,223 Receivable Relating to Sale of German Building 3,152 </TABLE> See Notes to Condensed Consolidated Financial Statements. 5
6 W.H. BRADY CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Six Months Ended January 31, 1996 NOTE A - Basis of Presentation The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position of the Company as of January 3l, 1996 and July 3l, 1995, and its results of operations and its cash flows for the three months and six months ended January 31, 1996 and l995. The consolidated balance sheet at July 31, l995 has been taken from the audited financial statements of that date and condensed. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report. It is not practical to segregate the amounts of raw material, work in process or finished goods at the respective interim balance sheet dates. NOTE B - Capital Stock and Share Data On November 17, 1995, at a Special Meeting of Shareholders, the Company's shareholders approved a proposal to amend the Company's Restated Articles of Incorporation to increase the number of authorized shares of Class A Common Stock from 10,000,000 shares to 100,000,000 shares. Also on November 17, 1995, the shareholders approved, and the Board of Directors declared, a common stock dividend of two shares of Class A Common Stock on each outstanding share of Class A Common Stock and Class B Common Stock. The common stock dividend was paid on December 15, 1995, to shareholders of record at the close of business on December 1, 1995. Accordingly, amounts per share and number of shares included in the condensed consolidated financial statements have been adjusted to reflect the common stock dividend. In connection with the common stock dividend, $146,000 was transferred from additional paid in capital to Class A Nonvoting Common Stock, reflecting the par value of the new shares issued. NOTE C - Net Earnings Per Common Share Net earnings per common share were computed by dividing net earnings (after deducting the applicable preferred stock and preferential Class A common stock dividends) by the weighted average number of Class A and Class B common shares outstanding (adjusted for the stock dividend discussed in Note B) of 21,837,040 for the three months and six months ended January 31, 1996, and 21,778,550 for the same period in 1995. The preferential dividend on the Class A common stock of $0.0333 per share (adjusted for the stock dividend discussed in Note B) declared on September 19, 1995 has been added to the net earnings per Class A common share for the six months ended January 31, 1996. The net earnings per Class A common share for the six months ended January 31, 1995 includes $0.0333 per share (adjusted for the stock dividend discussed in Note B) relating to preferential dividends declared in that period. 6
7 W.H. BRADY CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Six Months Ended January 31, 1996 NOTE D - Acquisitions Effective November 15, 1995, the Company acquired the common stock of Techpress II Limited located in Middlesex, England, a marketer of printing and labeling systems, for cash of $4,277,000 and a payable of $389,000. Effective January 2, 1996, the Company acquired the common stock of The Hirol Company located in Fort Lauderdale, Florida, a manufacturer of die-cut parts for the electronic, telecommunications and medical testing markets, for cash of $10,800,000. The puchase prices of these acquisitions are subject to change based on the final determination of net worth of the respective companies. The above acquisitions have been accounted for using the purchase method of accounting and accordingly the results of operations have been included since the dates of acquisition in the accompanying financial statements. The pro-forma results assuming the acquisitions had been consumated as of the beginning of the periods presented are not significant. 7
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the three months ended January 31, 1996 revenues of $87,820,000 were 11.4% higher than the same quarter of the previous year. For the six months ended January 31, 1996 revenues of $167,043,000 were 13.0% higher than the same period last year. For both the three month and six month periods, the sales increases were the result of higher international sales. Sales of the Company's international operations increased 29.2% for the quarter and 30.5% for the six months as a result of real growth through continued market penetration in Europe and the Far East and the acquisition of Techpress II Limited. Changes in the exchange rates used to translate financial results into U.S. currency also contributed to this increase in international sales by 4.0% for the quarter and 4.4% for the six months ended January 31, 1996. The cost of products sold as a percentage of sales was 46.9% for the quarter and 46.3% for the six months ended January 31, 1996 compared to 46.8% and 46.7% for the same periods last year. The decrease in the six month period was principally a result of changes in product mix. Selling, general and administrative expenses as a percentage of sales were 40.2% for the quarter, compared to 37.4% for the same quarter of the previous year. For the six months ended January 31, 1996, this percentage was 40.7%, compared to 37.9% for the same period last year. Adding sales and marketing personnel, expanding catalog sales efforts and pursuing global information technology initiatives to improve customer service contributed to this increase. Research and development expenses increased 4.5% for the quarter and 4.9% for the six months ended January 31, 1996 over the same periods last year. Operating income was $8,462,000 for the quarter and $16,304,000 for the six months ended January 31, 1996, compared to $9,714,000 and $17,523,000 for the same periods last year principally due to the increased selling, general and administrative expenditures mentioned above. Investment and other income for the six months ended January 31, 1996 includes $1,750,000 ($950,000 after tax) representing the gain on the sale of a building in Germany during the first fiscal quarter. Income before income taxes decreased 6.6% for the quarter and increased 7.6% for the six months ended January 31, 1996. Net income decreased 3.7% to $5,875,000 compared to $6,099,000 for the same quarter of the previous year. For the six months ended January 31, 1996, net income increased 10.7% to $12,210,000 from $11,033,000 for the same period last year. Financial Condition The Company's liquidity remains strong. The current ratio as of January 31, 1996 was 4.3 to 1. Cash and cash equivalents decreased to $72,890,000 at January 31, 1996 from $89,067,000 at July 31, 1995, mainly due to the acquisition of Techpress II Limited and The Hirol Company. Working capital decreased $3,384,000 during the six months and equaled $126,554,000 as of January 31, 1996. The Company believes this amount is adequate to meet its current and anticipated operating needs. 8
9 PART II ITEM 1. Legal Proceedings Following commencement of an arbitration action for injunctive relief and monetary damages of $28 million and a separate action for interim injunctive relief by the Company against Varitronic Systems, Inc. ("Varitronic") in early January 1996, Varitronic filed a lawsuit against the Company on January 30, 1996, in federal district court in Minnesota. In its action, Varitronic accuses the Company of a variety of business torts and requests both injunctive relief and damages in excess of $50,000. The Company has filed an answer in this action denying liability. ITEM 4. Submission of Matters to a Vote of Security Holders. On November 17, 1995, the Company held a Special Meeting of Shareholders in order to consider and act upon the following matters: 1. A proposal to amend Article III of the Restated Articles of Incorporation of the Company to increase the number of shares which the Company has authority to issue from 25,045,000 to 115,045,000, consisting of an increase in the number of authorized shares of Class A Common Stock from 10,000,000 to 100,000,000. At the meeting, there were 4,178,311 shares of Class A Common Stock voted in favor of this proposal, 429,180 shares voted against, 800 shares abstained, and there were zero broker non-votes. All 1,769,314 shares of Class B Common Stock were voted in favor of this proposal. 2. A proposed dividend of two shares of Class A Common Stock on each outstanding share of Class A Common Stock and Class B Common Stock. 4,071,945 shares of the Class A Common Stock were voted in favor of this proposal, 59,108 shares were voted against, 403 shares abstained, and there were 476,835 broker non-votes. All 1,769,314 shares of Class B Common Stock were voted in favor of this proposal. Also at this meeting, all nominees for the Board of Directors, consisting of William H. Brady III, Richard A. Bemis, Robert C. Buchanan, Donald E. DeLuca, Frank W. Harris, Katherine M. Hudson, Peter J. Lettenberger, Elizabeth B. Lurie, Gary R. Nei, and Roger D. Peirce were re-elected. Only the holders of the Company's Class B Common Stock were eligible to vote in the election for Directors. All 1,769,314 shares of Class B Common Stock were voted in favor of election of each of the Director-nominees. 9
10 ITEM 5. Other Information On February 13, 1996, Varitronic's board of directors adopted a resolution endorsing Brady's offer of a $16 per share acquisition of Varitronic subject to such acquisition being in the form of a noncontingent cash tender offer for all of the shares of Varitronic on terms acceptable to Varitronic's board. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K. (1) A report on form 8-K dated January 5, 1996, was filed relating to the filing of an arbitration complaint and a request for injunctive action against Varitronic Systems, Inc., Minneapolis, MN. The purpose of these actions is to compel Varitronic to fulfill contractual agreements it has with Brady USA, Inc., concerning the supply of certain identification products, or alternatively, to pay damages. (2) A report on form 8-K dated January 29, 1996, was filed relating to a letter sent by the Company to the Board of Directors of Varitronic Systems, Inc. proposing a business combination acquisition of Varitronic by Brady at $14 per share in cash, stock or a combination. (3) A report on form 8-K dated February 9, 1996, was filed relating to a formal offer from Brady USA, Inc. to the Board of Directors of Varitronic Systems, Inc. to acquire Varitronic in a business combination at a price of $16 per share in cash. 10
11 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES W.H. BRADY CO. Date: Feburary 21, 1996 /s/ K. M. Hudson --------------------- --------------------- K. M. Hudson President Date: February 21, 1996 /s/ D. P. DeLuca --------------------- --------------------- D. P. DeLuca Senior Vice President and Assistant Secretary (Principal Accounting Officer) 11