1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended July 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from __________ to __________
Commission File Number 0-12730
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W.H. BRADY CO
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(Exact name of registrant as specified in charter)
Wisconsin 39-0178960
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(State of Incorporation) (IRS Employer Identification No.)
6555 West Good Hope Road
Milwaukee, WI 53223
(Address of Principal Executive Offices and Zip Code)
(414) 358-6600
(Registrant's Telephone Number)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Nonvoting Common Stock, Par Value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes X No ___
As of September 30, 1995, there were outstanding 5,507,599 shares of Class A
Nonvoting Common Stock (the "Class A Common Stock"), and 1,769,314 shares of
Class B Common Stock. The Class B Common Stock, all of which is held by
affiliates of the Registrant, is the only voting stock.
DOCUMENTS INCORPORATED BY REFERENCE
W.H. Brady Co. 1995 Annual Report, Incorporated into Part II & IV
2
I N D E X
PART I PAGE
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 1
General Development of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 1
Financial Information About Industry Segments . . . . . . . . . . . . . . . . . . . . . . . . I - 1
Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 1
International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 7
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 8
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 8
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 8
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9
Financial Information About Foreign and
Domestic Operations and Export Sales . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I - 9
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - 1
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - 2
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . II - 2
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . II - 2
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . II - 2
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 1
3
I N D E X
PART III (Continued)
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 4
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 4
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 6
Common Stock Price Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III - 9
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -10
Termination of Employment Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -10
Compensation Committee Interlocks and
Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -11
Profit Sharing and Employee Thrift Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -11
Deferred Compensation Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -12
Compensation Committee Report on
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -12
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -15
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III -18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV - 1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV - 5
4
PART I
W.H. Brady Co. and Subsidiaries is hereinafter referred to as the Company or
Brady.
ITEM 1 BUSINESS
(a) General Development of Business
Brady is a Wisconsin corporation. It presently operates 12
manufacturing facilities in the United States and six foreign countries. The
Company operates through seven subsidiaries with operations in two states and
in Australia, Belgium, Canada, England, France, Germany, Hong Kong, Italy,
Japan, Korea, New Zealand, Singapore, Spain and Sweden. The Company's
principal office is located at 6555 West Good Hope Road, Milwaukee, Wisconsin
53223 and its telephone number is (414) 358-6600.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
General
The Company develops, manufactures and sells a broad range of stock and
customized products employing its knowledge of surface chemistry, principally
in adhesives, coatings and graphics technologies. Brady's products include
over 20,000 stock items and a wide variety of custom items, which are used
primarily to identify, inform or instruct, including pressure-sensitive
identification, labeling and marking systems for electrical wires and pipes;
self-bonding nameplates; safety and instructional signs and specialized tapes
used in audio, video and computer applications. The Company's products are
sold domestically and internationally through a network of distributors, a
direct sales force and mail order sales, and are used in a variety of
industrial, commercial, governmental, public utility, medical equipment,
computer and consumer product markets, including original equipment
manufacturers.
The Company operates 12 manufacturing facilities in the United States and
six foreign countries. Domestic and international operations are conducted
through its Identification Systems and Specialty Tapes Group, Signmark Group,
and Seton Group. Domestic operations are located in Connecticut and Wisconsin.
International operations are located in Australia, Belgium, Canada, England,
France, Germany, Hong Kong, Italy, Japan, Korea, New Zealand, Singapore, Spain
and Sweden.
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Technology and Product Development
The Company focuses its research and development efforts on
applications in the science of surface chemistry, i.e., coatings, adhesives and
physical bonding. This dedication to surface chemistry, in combination with a
manufacturing technology oriented to adhesives and graphics, has led to the
development of many proprietary release coatings, adhesives and products which
are adhesively fastened. Most of the Company's products are adhesively
fastened to customers' products, equipment or buildings, but a portion of the
products are mechanically fastened.
Adhesive based products are characterized by their ability to adhere
to another surface merely by application of pressure. The adhesive materials
generally consist of a face stock, which is coated with an adhesive, and a
removable protective backing coated with a release-coating. The stock may be
paper, metal or metal foil, plastic film or cloth. The release-coated
removable backing is laminated to the adhesive side of the face stock and
protects the pressure-sensitive adhesive from premature contact with other
surfaces, thus allowing the material to be printed and/or die-cut, as required.
The backing paper also serves as the carrier for supporting and dispensing the
products. When the products are to be used, the backing is removed to expose
the adhesive, and the product is pressed or rolled into place manually or
applied automatically.
New product and process development and product improvements are a
significant part of the Company's business plan. Although it is difficult to
accurately measure, the Company has a goal that a significant portion of its
sales be of products introduced within the past five years. These products
included bar code labels, computer printable wire marking sleeves and
application systems, Bradywriter, Bradylabel Software, Bradymarker & labels,
Lasertabs, Brady snap-on and mechanically applied pipemarkers, lockout
compliance products, parts for micro discs, surface mount carrier and cover
tape, outdoor weatherable graphic arts adhesive coated films, laser printable
nameplates, and abrasive and solvent resistant coatings for polyester and
polycarbonates.
The Company conducts most of its research and development activities
at its 30,000 sq. ft. Frederic S. Tobey Research and Innovation Center in
Milwaukee, Wisconsin and through a small research center in Belgium which
services its European subsidiaries. The Company spent approximately $10.4
million, $10.3 million, and $12.1 million in fiscal 1995, 1994 and 1993,
respectively, on its research and development activities, all of which were
Company sponsored. In fiscal 1995, approximately 100 employees were engaged in
research and development activities for the Company. Additional research
projects were conducted under contract with universities, other institutions
and consultants. The Company owns patents covering various aspects of adhesive
chemistry, electronic circuitry, computer generated wire markers, and systems
for aligning letters and patterns. While the
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Company believes that its patents are a significant factor in maintaining its
market position as to certain products, technology in the areas covered by many
of the patents is evolving rapidly and may limit the value of the Company's
patents. The Company's business is not dependent on any single patent or group
of patents.
Manufacturing Processes
The Company's manufacturing processes require application of coatings
and adhesives to a variety of materials, including paper, metal and metal foil,
plastic film and cloth, and the use of various graphic techniques to print or
mark the materials. Products manufactured by the Company generally require a
high degree of precision and the application of adhesives with chemical and
physical properties suited for specific usages.
The Coated Products Division of Brady USA, Inc. produces adhesive
coated materials and printable top coated materials mainly for use by other
divisions and subsidiaries. The Company's production of the majority of its
own adhesive stocks and top coated materials permits an integrated
manufacturing process which the Company believes, when combined with its
emphasis on quality control, provides the basis for high quality, uniform
products. The Company's integrated manufacturing processes also permit it to
achieve greater flexibility in product design and manufacture, and improve its
ability to provide specialized products designed to meet the needs of specific
applications.
Products
Brady's products are used in a wide variety of industrial
applications, including markers that identify electrical circuits and piping
systems; safety and accident prevention signs that warn of health and accident
hazards; nameplates that identify consumer, scientific, medical and electrical
products; specialized tapes for audio, video and computer applications;
products for the marking and identification of buildings, equipment, and
storage facilities; products for the aerial and ground location and
identification of utility lines; products for floor safety, aisle and barricade
marking. The Company's most significant products are described below.
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WIRE MARKERS
Since 1945, the Company has been the leading domestic producer of
labeling and identification products for electrical wires and wiring devices.
Virtually all industrial products, medical equipment, computers, large
buildings, transportation equipment and vehicles contain a complex network of
electrical wiring and circuits. The wires and wiring devices that comprise
these networks must be identified at the time of manufacture or installation.
Many of the Company's products have become standard in the industry, with
applications in both manufacturing and distribution.
The Company manufactures both self-adhesive and non-adhesive wire
marking products and labels in a wide variety of styles and materials. The
markers may be printed with a single number or letter, or with a multi-line
"address" that indicates the origination and termination of the wire, the
device or devices to which it transmits current, engineering drawings and part
numbers, or other information that facilitates the location of the source of
trouble and repair in case of malfunction of the system.
Brady wire markers and labels are designed for application by a
variety of means and for use in specialized environments, including temperature
ranges of -85F to more than 1,200F and chemical or other corrosive exposures
including radiation, moisture, ozone, acid, alkalis, oils, and solvents. These
products are constructed from various materials designed to meet engineers'
specifications, ranging from general purpose cloth to materials for more
specialized uses such as aluminum, vinyls, polyesters and polyvinylflourides.
Such markers and labels and their chemically appropriate adhesives provide
resistance to various environmental hazards such as heat, abrasion, solvents,
and chemical corrosion.
The Company's self-adhesive wire markers and labels are either
preprinted or blank. The blank wire markers and labels can be computer printed
by the customer using Brady developed software. Preprinted wire markers and
labels are mounted on relatively thick release-coated card stock from which
individual adhesive markers are removed manually or by machine and wrapped
around the wire to provide permanent identification. Computer printable wire
markers and labels are mounted on pin-fed rolls or backing sheets. An
important feature of the Brady computer printable products is the proprietary
ink-receptive, nonerasable, heat and solvent resistant coating on the surface
of the marker.
The Company's non-adhesive wire marking sleeves are being used
increasingly in industrial applications. These sleeve markers are produced in
a variety of forms, ranging from simple slip-on or clip-on preprinted molded
plastic pieces which are applied manually or through the use of a simple
tubular device, to highly automated application systems for computer printed
wire marking sleeves. These computer printed sleeves may be applied using
Brady developed equipment at rates
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up to 1,800 markers per hour. Wire marking sleeves may also be heat shrunk
onto the wire using equipment designed for that purpose.
This product line includes indelible ink ribbons and portable,
self-contained printing systems able to withstand the rigors of an industrial
environment.
SPECIALIZED TAPE PRODUCTS
The Company's specialized tapes and related products are used in a
variety of audio, video and computer applications, as well as surface mount
technology products. These specialized tape products are characterized by high
performance adhesives, most of which are formulated by the Company, to meet
high tolerance requirements of the industries in which they are used. The
Company's computer application products include reinforcing rings for floppy
discs and components of micro-discs. Its audio industry products include
cassette leader and splicing tapes and conductive splicing tapes. Video
products include splicing and leader tapes, conductive/reflective sensing
tapes, and other specialty components used in video cassettes. The Company's
surface mount carrier and cover tapes are compatible with the products of all
major surface-mounted-device electronic component manufacturers.
PIPE MARKERS
The Company manufactures both self-adhesive and non-adhesive
mechanically applied stock and custom designed pipe markers and plastic and
metal valve tags for the identification of piping systems in chemical plants,
refineries, pipelines, utilities, ships, hospitals, food processing plants,
institutions, and other buildings and facilities in a variety of temperature
and chemical environments. These products are designed to legibly identify and
provide information as to the contents, direction of flow and special hazardous
properties of materials contained in the piping systems. The Company's
products are designed to meet standards established by the American National
Standards Institute for the identification of piping systems. The Company
formulates its own adhesives for its pipe marking products to withstand
demanding climatic conditions encountered by facilities ranging from the Alaska
pipeline to Middle East refineries, as well as exposure to various chemical
environments. The products are also designed for application to a variety of
pipe surfaces and sizes.
SAFETY AND ACCIDENT PREVENTION SIGNS
The Company manufactures safety and accident prevention signs for use
in a broad range of industrial, commercial, governmental and institutional
applications. These signs are either self-adhesive or mechanically mounted,
are designed for both indoor and outdoor use, and are manufactured to meet
standards promulgated by the National Safety Council, the Occupational Safety
and Health Administration and a variety
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of industry associations. The Company manufactures products with both stock
and custom legends. Safety and accident prevention signs are constructed from
materials designed to meet specific industry and environmental requirements,
including self-adhesive vinyl coated cloth, subsurface printed polyester,
reflective sheeting and phosphorescent polyester, metal, and fiberglass
reinforced panels. The Company's sign products are categorized by type of
message to be conveyed, including admittance, directional and exit signs;
electrical hazard warnings and energy conservation messages; fire protection
and fire equipment signs; hazardous waste labels; hazardous and toxic material
warning signs; vehicle placards for the transportation industry; personal
hazard warnings; housekeeping and operational warnings; pictograms; radiation
and laser signs; safety practices signs; traffic signs; and regulatory
markings. This product line includes printing systems that enable customers to
print signs on-demand, on-site using Brady software and Brady materials. The
Company believes that no other supplier offers as broad a range of safety and
accident prevention sign products.
NUMBERS AND LETTERS
The Company produces self-adhesive numbers and letters used for the
systematic identification of bins and shelving in factories, warehouses,
stockrooms and other facilities where alphanumeric labeling is desired. It
produces card mounted numbers and letters in a variety of sizes and types of
adhesive-backed printed material. Numbering and lettering systems are
constructed of vinyl-coated cloth and indoor/outdoor vinyl. The Brady Bintab
(R) labeling system provides custom computer printed labels for specialized
storage identification needs. The Company also manufactures self-adhesive and
self-aligning die-cut numbers and letters and sign making kits.
OTHER PRODUCTS
The Company also sells a variety of other products, none of which
individually accounts for a material portion of its sales. These products
include non-skid safety tapes, warning posts and cones, die cut masks, adhesive
backed felt, lockout/tag-out devices, temperature indicating labels, and
hospital and clinical labels.
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Marketing and Sales
Brady markets its stock products primarily through a network of
domestic distributors, mail order sales, and foreign distributors. The
Company's custom designed products are marketed directly to end users,
primarily through domestic and foreign full-time sales representatives. As
part of its marketing program, the Company encourages distributors to maintain
adequate inventories of its stock products to permit prompt delivery, and
maintains such inventories itself.
Many of the Company's stock products were originally designed,
developed and manufactured as custom products for a specific purchaser.
However, such products have frequently developed wide industry acceptance and
become stock items offered by the Company through mail order and distributor
sales. The Company's products are designed to specifications established by
industrial, commercial and military customers for specific applications. The
Company seeks also to have its products specified by the engineering
departments of manufacturers, constructors and contractors to which it sells.
The Company's products are sold in a wide variety of industrial,
commercial, governmental, public utility, medical equipment, computer and
consumer product markets, including original equipment manufacturers. No
material part of the Company's business is dependent upon a single customer or
group of customers, and the loss of a particular customer would have no
material adverse effect upon the Company's business. In fiscal 1995, no single
customer accounted for more than 2.0% of Company sales. Although sales of
certain of the Company's products experience recurring seasonal variations,
management does not consider the Company's overall sales to be seasonal in
nature.
International Operations
The Company's international operations consist both of direct export sales
and operations conducted by its eighteen international locations (Australia,
Belgium, Canada (2), England (2), France (2), Germany (2), Hong Kong, Italy,
Japan, Korea, New Zealand, Singapore, Spain and Sweden). Six of these
international locations manufacture or have the capability to manufacture
certain of the Brady products they sell. In fiscal 1995, 1994, and 1993,
international sales accounted for 41.1%, 37.1%, and 32.0%, respectively, of
Brady's sales. Other than for the risks normally attending foreign operations,
such as currency fluctuations, exchange control regulations and the effect of
international relations or the domestic affairs of foreign countries on the
conduct of business, the nature of the Company's international operations and
the countries in which they are conducted do not present unusual business risks
over those encountered by the Company's domestic activities.
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Backlog
As of July 31, 1995, the amount of the Company's backlog orders
believed to be firm was $14.6 million. This compares with approximately $17.4
million and $15.2 million of backlog orders as of July 31, 1994 and 1993,
respectively. Average delivery time for the Company's orders varies from one
day to twelve weeks, depending on the type of product, and whether the product
is stock or custom designed and manufactured.
Raw Materials
Base materials used in the Company's products consist primarily of
paper, plastic sheets and films (primarily polyesters and polycarbonates),
metal and metal foil, cloth, fiberglass, inks, dyes, adhesives, pigments,
natural and synthetic rubber, organic chemicals, polymers and solvents. The
Company purchases its raw materials from many suppliers and is not dependent
upon any single supplier for any of its base supply materials.
Competition
The markets for most of the Company's products are highly competitive.
Although no industry statistics are available, the Company believes, on the
basis of its knowledge and experience in its various product markets, that it
is the leading domestic producer of self-adhesive wire markers, pipe markers,
audio and video leader and splicing tapes, reinforcing rings for floppy discs,
and adhesive numbers and letters, and believes that it is a leading domestic
producer of safety signs. The Company competes for business principally on the
basis of quality and performance, and to a lesser extent on price. Product
quality is determined by factors such as suitability of component materials for
various applications, adhesive properties, graphics quality, durability,
product consistency and workmanship. Competition in many of the Company's
product markets is highly fragmented, ranging from smaller companies offering
only one or a few types of products to some of the world's major adhesive and
electrical product companies offering a wide range of competing products. A
number of the Company's competitors are larger than the Company and have
substantially greater resources.
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Employees
As of July 31, 1995, Brady employed approximately 2,000 persons. The
Company has never experienced a work stoppage due to a labor dispute, is not a
party to any labor contracts, and considers its relations with employees to be
excellent. To meet present and future manpower requirements, the Company
maintains an active college recruiting program for sales, technical and
administrative personnel.
Environment
At present, the manufacturing processes for the Company's
adhesive-based products utilize certain evaporative organic solvents which,
unless controlled, would be vented into the atmosphere. Emissions of these
substances are regulated at the federal, state and local levels. During the
past several years, the Company has implemented a number of procedures to
reduce atmospheric emissions and/or to recover solvents. These efforts have
included the reformulation of certain adhesives to water-based emulsions,
rather than solvent-based products. During the past three years, Brady also
installed incineration equipment to control emissions of organic solvents at a
cost of approximately $393,000.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
See Note 7 to Notes to Consolidated Financial Statements
ITEM 2 PROPERTIES
The Company and its subsidiaries have 12 manufacturing facilities,
five of which are located in Wisconsin, and one each in Connecticut, Australia,
Belgium, Canada, England, Japan and Singapore. The Company's primary research
facility of approximately 30,000 square feet is located in Milwaukee,
Wisconsin. The Company's present operating facilities contain a total of
approximately 840,000 square feet of space. All of the Company's facilities
are owned by it, except for a total of approximately 180,000 square feet of
leased space. The Company believes that its equipment and facilities are
modern, well maintained, and adequate for its present needs.
ITEM 3 LEGAL PROCEEDINGS
The Company and its subsidiaries are not parties to any material
pending legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's Class A Common Stock is principally traded on the
Over-the-Counter market and is quoted on NASDAQ under the symbol
BRCOA. There is no established public trading market for the
Company's Class B Common Stock.
Stock price disclosure required by this item is incorporated by
reference to Page 36 of the W.H. Brady Co. 1995 Annual Report.
(b) Holders
The number of holders of record of the Company's Class A and Class B
Common Stock as of October 3, 1995, was 336 and 2, respectively.
(c) Dividends
The Company has followed a practice of paying quarterly dividends on
its outstanding common stock. Before any dividend may be paid on the
Class B Common Stock, holders of the Class A Common Stock are entitled
to receive an annual, non-cumulative cash dividend of $.10 per share
(subject to adjustment in the event of future stock splits, stock
dividends or similar event involving shares of Class A Common Stock).
Thereafter, any further dividend in that fiscal year must be paid on
all shares of Class A Common Stock and Class B Common Stock on an
equal basis.
During its two most recent fiscal years and for the first quarter of
the current year, the Company declared the following dividends per
share on its Class A and Class B Common Stock:
Year
Ending
Year Ended 7/31/94 Year Ended 7/31/95 7/31/96
------------------------------ --------------------------- -------
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
--- --- --- --- --- --- --- --- ---
Class A $.17 $.17 $.17 $.17 $.20 $.20 $.20 $.20 $.30
Class B .07 .17 .17 .17 .10 .20 .20 .20 .20
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ITEM 6 SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to Page 18
and 19 of the W.H. Brady Co. 1995 Annual Report.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to Pages 20
and 21 of the W.H. Brady Co. 1995 Annual Report.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to Pages 22
through 34 of the W.H. Brady Co. 1995 Annual Report.
ITEM 9 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title
- ---- --- -----
Katherine M. Hudson 48 President, CEO and Director
Donald P. DeLuca 55 Senior Vice President, Treasurer,
Assistant Secretary, and Director
Mary T. Arnold 52 Vice President, Research and Development
Richard L. Fisk 51 Vice President, Seton Group
David R. Hawke 41 Vice President, Signmark Group
Peter J. Lettenberger 58 Secretary and Director
David W. Schroeder 40 Vice President, ISST Group
James M. Sweet 42 Vice President, Human Resources
William H. Brady III 53 Director
Elizabeth B. Lurie 50 Director
Robert C. Buchanan 55 Director
Roger D. Peirce 58 Director
Richard A. Bemis 54 Director
Frank W. Harris 53 Director
Gary E. Nei 51 Director
KATHERINE M. HUDSON - Mrs. Hudson joined the Company in January 1994, as
President, Chief Executive Officer and Director. Prior thereto she was a Vice
President at Eastman Kodak Company and General Manager of its Professional,
Printing and Publishing Image Division. She is also a director of Apple
Computer.
DONALD P. DELUCA - Mr. DeLuca joined the Company as Vice President-Finance and
Chief Financial Officer in May 1990. He was promoted to Senior Vice President
in August 1994. Before joining Brady, he served as Executive Vice
President-Finance and Administration of CSC Industries, Inc. from 1987 to
April 1990. Prior to that he served as Vice President, Treasurer and Secretary
of Copperweld Corp. from 1974 to 1987. He is also a director of GAN North
American Insurance Company, GAN National Insurance Company and Fugitive
Emissions Control, Inc..
MARY T. ARNOLD - Dr. Arnold joined the Company in February 1993. In March
1995, she was appointed to her present position. Prior to joining Brady, Dr.
Arnold served in various capacities at G. E. Appliances.
RICHARD L. FISK - Mr. Fisk joined the Company in 1979 and was appointed to his
present position in August 1987. He previously served as General Manager of
Seton Name Plate Co., a wholly-owned subsidiary of the Company.
III - 1
16
DAVID W. HAWKE - Mr. Hawke joined the Company in 1979. He served as General
Manager of the Industrial Products Division from 1985 to 1991. From 1991 to
February 1995, he served as Managing Director - European Operations. In March
1995, he was appointed to his present position.
PETER J. LETTENBERGER - Mr. Lettenberger has served as a Director and Secretary
of the Company since January 1977. Mr. Lettenberger has been a member of the
Company's audit and compensation committees since April, 1977 and October 1978,
respectively, and has been chairman of the compensation committee since June
1985. He is a partner of Quarles & Brady, general counsel to Company, which
firm he joined in 1964. He is also a director of Electronic
Tele-Communications, Inc.
DAVID W. SCHROEDER - Mr. Schroeder joined the Company in June 1991 as General
Manager of the Industrial Products Division. He was appointed to his present
position in March 1995. Before joining the Company, he served as President and
Chief Executive Officer of Uniroyal Adhesives & Sealants Co., Inc. from 1988 to
May 1991.
JAMES M. SWEET - Mr. Sweet joined the Company in 1985. In November of 1987 he
was appointed Director, Personnel. In August of 1989 he was appointed Vice
President, Human Resources.
WILLIAM H. BRADY III - Mr. Brady has been a director of the Company since
January of 1979. Mr. Brady is a private investor.
ELIZABETH B. LURIE - Mrs. Lurie has been a director of the Company since
January of 1979. Mrs. Lurie is President and Administrator, W. H. Brady
Foundation. Until June 1, 1984, Mrs. Lurie was a Vice President of Chase
Federal Savings & Loan Association, Miami, Florida, and had been employed by
that firm since November 1973, except for the period from October 1979 to
November 1980, when she was Financial Manager for the University of Miami Law &
Economic Center. Prior to November 1994, she was the principal owner of an art
gallery in Maggie Valley, North Carolina.
ROBERT C. BUCHANAN - Mr. Buchanan has been a director of the Company since
November 1987 and a member of its audit committee since June 1988 (chairman
since June 1990). Mr. Buchanan is President and CEO of the Fox Valley
Corporation in Appleton, Wisconsin, having assumed that position November 1,
1980. He is also a director of The Northwestern Mutual Life Insurance Company
and Firstar Corporation.
ROGER D. PEIRCE - Mr. Peirce has served as a director and a member of the
compensation committee of the Company since September, 1988. Mr. Peirce is
President of Valuation Research Corporation, having assumed that position in
April 1995. From September 1986 to December 1993, he was President of Super
Steel Products Corp. in Milwaukee, Wisconsin. Prior to that he was a managing
partner for Arthur Andersen & Co., independent certified public accountants.
III - 2
17
RICHARD A. BEMIS - Mr. Bemis has been a director of the Company since January
1990 and a member of its compensation committee since March 1990. Mr. Bemis is
President and CEO of Bemis Manufacturing Company, a manufacturer of molded
plastic products in Sheboygan Falls, Wisconsin. He is also a director of
Wisconsin Public Service Corporation.
FRANK W. HARRIS - Dr. Harris has been a Director of the Company since November
1991. Dr. Harris is a Professor of Polymer Science and Biomedical Engineering
in the Institute of Polymer Science at the University of Akron, and has been on
its faculty since 1983.
GARY E. NEI - Mr. Nei has been a Director of the Company since November 1992,
and a member of its audit committee since November 1994. Mr. Nei is Chairman
of B&B Publishing, a publishing company in Walworth, Wisconsin. He is also a
director of DIFCO Inc. and Uroquest, Inc..
All directors serve until their respective successors are elected at
the next annual meeting of shareholders. Officers serve at the discretion of
the Board of Directors. None of the Company's directors or executive officers
has any family relationship with any other director or executive officer,
except that William H. Brady III is the brother of Elizabeth B. Lurie.
III - 3
18
ITEM 11 EXECUTIVE COMPENSATION
- ------------------------------
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended July 31, 1995 to those persons who,
as of the end of fiscal 1995, were the Named Executive Officers.
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term
Annual Compensation Compensation
--------------------------- ------------
Awards
Name and Other Annual --------- All Other
Principal Fiscal Salary Bonus Compensation Options/SAR Compensation
Position Year ($) ($) (1) ($) (2) (# of Shares) ($) (3)
- -------- ------ ------- ------- ------------ ------------- ------------
K.M. Hudson 1995 315,000 369,914 4,163 10,000 87,333(4)
President 1994 175,000 175,000 - 25,000 400,366(4)
& Chief 1993 - - - - -
Executive Officer
D.P. DeLuca 1995 217,875 175,273 4,480 4,000 64,349(5)
Senior Vice 1994 182,750 127,925 2,825 2,500 18,161(5)
President, 1993 174,000 69,426 2,340 2,500 32,151(5)
Treasurer &
Chief Financial
Officer
R.L. Fisk 1995 189,954 156,861 3,425 3,000 13,691
Vice President, 1994 182,577 127,804 3,097 2,500 15,462
Seton Group 1993 173,846 63,280 2,375 2,500 14,421
D.W. Schroeder 1995 170,449 124,446 2,979 2,000 12,394
Vice President, 1994 157,279 90,404 2,887 1,750 12,775
ISST Group 1993 149,780 60,212 2,893 1,750 14,172(6)
D.R. Hawke 1995 160,939 112,497 - 2,000 202,113(7)
Vice President, 1994 147,468 95,855 - 1,250 62,459(7)
Signmark Group 1993 141,341 39,871 - 1,250 39,802(7)
(1) Reflects bonus earned during the fiscal year which was paid during the
next fiscal year.
(2) The amounts shown represent costs to the Company for expenses
associated with the use of a company car.
(3) All other compensation for fiscal 1995 for Mrs. Hudson, and Messrs.
DeLuca, Fisk, Schroeder and Hawke, respectively, includes: (i)
matching contributions to the Company's Profit Sharing and Employee
Thrift (i.e. "BradyGold") Plan for each named executive officer of
$12,000, $12,000, $12,000, $12,000, and $12,000 and (ii) the cost of
group term life insurance for each named executive officer of $1,544,
$2,349, $1,691, $394 and $480.
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19
All other compensation for fiscal 1994 for Mrs. Hudson, and Messrs.
DeLuca, Fisk, Schroeder and Hawke, respectively, includes: (i)
matching contributions to the Company's Profit Sharing and Employee
Thrift (i.e. "BradyGold") Plan for each named executive officer of
$13,000, $14,620, $14,606, $12,582 and $11,798 and (ii) the cost of
group term life insurance for each named executive officer of $660,
$1,022, $856, $193 and $246.
All other compensation for fiscal 1993 for Messrs. DeLuca, Fisk,
Schroeder, and Hawke, respectively, includes: (i) matching
contributions to the Company's Profit Sharing and Employee Thrift
(i.e. "BradyGold") Plan for each named executive officer of $13,920,
$13,858, $11,982, $10,620 and (ii) the cost of group term life
insurance for each named executive officer of $931, $563, $184, and
$171.
(4) Fiscal 1995 includes relocation expenses of $50,586 and $23,203
accrued, but not paid, for the current year portion of a Supplemental
Executive Retirement Plan. Fiscal 1994 includes $386,706 accrued, but
not paid, for that year's portion of the same plan.
(5) Fiscal 1995 includes $50,000 accrued, but not paid, for the current
year portion of a Supplemental Executive Retirement Plan. Fiscal 1994
includes relocation expenses of $2,519. Fiscal 1993 includes
relocation expenses of $17,300.
(6) Includes relocation expenses of $2,006 in fiscal 1993.
(7) Fiscal 1995 includes relocation expenses of $25,282 and expatriation
expenses of $164,351 related to Mr. Hawke's Belgium assignment.
Fiscal 1994 includes relocation expenses of $1,104 and expatriation
expenses of $49,311. Fiscal 1993 includes relocation expenses of
$16,599 and expatriation expenses of $12,412.
III - 5
20
STOCK OPTIONS
The following tables summarize option grants and exercises during
fiscal 1995 to or by the executive officers named in the Summary Compensation
Table above, and the value of unexercised options held by such persons at July
31, 1995. Stock Appreciation Rights are not available under any of the
Company's plans.
OPTION GRANTS IN FISCAL 1995
Individual Grants
------------------------------------------------------
% of Total
Options
Granted to
Options Employees Exercise
Granted in Price (2) Expiration
Name (#) (1) Fiscal 1995 ($/Sh) Date
- ---- ------- ----------- ------ ----
K.M. Hudson 10,000 26.1% 47.000 10/21/2004
D.P. DeLuca 4,000 10.5% 47.000 10/21/2004
R.L. Fisk 3,000 7.8% 47.000 10/21/2004
D.W. Schroeder 2,000 5.2% 47.000 10/21/2004
D.R. Hawke 2,000 5.2% 47.000 10/21/2004
Potential Realizable Value
at Assumed Rates of
Stock Price Appreciation (3)
----------------------------------------------
0% 5% 10%
$47 $76-5/8 $121-5/8
Name ($) ($) (6) ($) (6)
- ---- --- ------- -------
K.M. Hudson 0 296,250 748,750
D.P. DeLuca 0 118,500 299,500
R.L. Fisk 0 88,875 224,625
D.W. Schroeder 0 59,250 149,750
D.R. Hawke 0 59,250 149,750
All Shareholders' Gains
(increase in market value of W.H. Brady Co.
Common Stock at assumed rates of stock price
appreciation) (4) (6)................................ $162,477,661 $410,650,290
All Optionees' Gains
(as a percent of all shareholders' gains) (5) (6)... 0.70% 0.70%
(1) The options granted were dated October 21, 1994 and become exercisable as
follows: 33 1/3% of the shares on October 21, 1995; 33 1/3% of the shares
in October 21, 1996; and 33 1/3% of the shares on October 21, 1997. All
these options have a term of ten years.
III - 6
21
(2) The exercise price is the average of the highest and lowest sale prices of
the Company's Class A Common Stock as reported by NASDAQ on the date of
the grant.
(3) Represents total potential appreciation of approximately 0%, 63% and 159%
for assumed annual rates of appreciation of 0%, 5% and 10%, respectively,
compounded annually for the ten year option term.
(4) Calculated from the $47.00 exercise price applicable to the options
granted in fiscal 1995 based on the 5,484,478 shares of Class A Common
Stock outstanding on October 21, 1994.
(5) Represents potential realizable value for all options granted in fiscal
1995 as compared to the increase in market value of W.H. Brady Co. Class
A Common Stock at assumed rates of stock price appreciation.
(6) The Company disavows the ability of any valuation model to predict or
estimate the Company's future stock price or to place a reasonably
accurate present value on these options because any model depends on
assumptions about the stock's future price movement that the Company is
unable to predict.
III - 7
22
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND VALUE OF OPTIONS AT END OF FISCAL 1995
Number of Unexercised
Options at
Shares July 31, 1995
Acquired -------------------------
on Value
Exercise Realized Exercisable Unexercisable
Name (#) ($) (#) (#)
- ---- -------- -------- ----------- -------------
K.M. Hudson 0 0 28,333 6,667
D.P. DeLuca 0 0 13,000 3,500
R.L. Fisk 0 0 8,667 2,833
D.W. Schroeder 0 0 5,584 1,916
D.R. Hawke 0 0 8,750 1,750
Value of Unexercised
In-the-Money Options
at July 31, 1995 (1)
------------------------------
Exercisable Unexercisable
Name ($) ($)
- ---- ----------- -------------
K.M. Hudson 790,617 162,508
D.P. DeLuca 525,223 94,059
R.L. Fisk 313,606 77,801
D.W. Schroeder 200,020 52,824
D.R. Hawke 352,560 47,035
(1) Represents the closing price for the Company's Class A Common Stock
on July 31, 1995 of $71-3/8 less the exercise price for all
outstanding exercisable and unexercisable options for which the
exercise price is less than such closing price.
III - 8
23
COMMON STOCK PRICE PERFORMANCE GRAPH
The graph below shows a comparison of the cumulative return over the
last five fiscal years had $100 been invested at the close of business on July
31, 1990 in each of W.H. Brady Co. Class A Common Stock, the Standard & Poor's
(S&P) 500 Index and the National Association of Securities Dealers' Automated
Quotation System (NASDAQ) United States Index.
[graph]
1990 1991 1992 1993 1994 1995
BRADY $100 $150 $133 $137 $188 $281
S&P 500 $100 $113 $127 $138 $145 $183
NASDAQ US $100 $118 $139 $169 $174 $243
* $100 invested on 31 July 1990 in stock or index
Includes reinvestment of dividends
Fiscal year ending 31 July
III - 9
24
COMPENSATION OF DIRECTORS
Each director who is also an employee of the Company receives no
additional compensation for service on the Board or on any committee of the
Board. Directors who are not also employees of the Company receive an annual
retainer of $15,000 in addition to $1,250 ($1,000 prior to December, 1994) plus
expenses for each meeting of the Board or any committee thereof which they
attend.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
In fiscal 1994 the Company created a Supplemental Executive Retirement
Plan (SERP) for Mrs. Hudson. The stated amount of the Plan until January 1,
1999 is $500,000. The Company credited a deferred compensation account with
the net present value of the stated amount in January 1994. The account will
be credited annually with the current year's increase in the net present value
calculation. No interest accrues on the balance in the account until January
1, 1999. After that date, interest will accrue quarterly on the balance in the
account at the prime rate in effect at the end of each calendar quarter.
The Company is required to pay Mrs. Hudson the balance in the account
over a ten year period beginning January 2009. The first payment will be
one-tenth of the balance in the account; the second one-ninth; and so on.
In the event of a change in control of the Company, Mrs. Hudson's SERP
may accelerate and become payable in thirty days.
In September 1994, the Company created a Supplemental Executive
Retirement Plan (SERP) for Mr. DeLuca. The Plan calls for the Company to
credit a deferred compensation account with $50,000 on July 31 of each year
beginning July 31, 1995 to and including July 31, 1999, provided Mr. DeLuca is
employed by the Company as of each of those dates. Interest accrues on the
balance in the account at the prime rate in effect on July 31 of each year, but
not less than 6% nor more than 10% per annum.
The Company is required to pay Mr. DeLuca the balance in the account
over a ten year period beginning on August 1 of the year following his
termination of employment with the Company. The first payment will be 1/10th
of the balance in the account; the second payment will be 1/9th; and so on.
The Company may make payments in some other manner provided the payments are
neither smaller nor extend beyond such ten year period.
In fiscal 1992 the Company created a Supplemental Executive Retirement
Plan (SERP) for Mr. Gengler, retired President, CEO and Director. The Plan
credits a deferred compensation account with $125,000 each year provided Mr.
Gengler is in the employment of the Company as of July 31, 1992, July 31, 1993
and July 31, 1994. If Mr. Gengler is in the employment of the Company as of
July 31, 1994 an additional $100,000 will be credited to this account on July
31, 1995, July 31, 1996 and July 31, 1997. Mr. Gengler met these requirements.
Interest accrues on the balance in the account at the rate of 8% per year.
III - 10
25
The Company is required to pay Mr. Gengler the balance in the account
over a ten year period beginning August 1, 1997. That payment, and the nine
succeeding payments, will equal one-tenth of the account balance at August 1,
1997. Additionally, the payments in succeeding years will include interest
credited to the account in the interim. The Company may make payments in some
other manner provided the payments are neither smaller nor extend beyond August
1, 2006.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the Board's Compensation Committee was composed of
Messrs. Bemis, Lettenberger and Peirce. None of these persons has at any time
been an employee of the Company or any of its subsidiaries, although Mr.
Lettenberger has been and remains Secretary of the Company. Mr. Lettenberger
is a partner of Quarles & Brady, which is general counsel to the Company.
There are no other relationships among the Company's executive officers,
members of the Compensation Committee or entities whose executives serve on the
Board that require disclosure under applicable SEC regulations.
PROFIT SHARING AND EMPLOYEE THRIFT PLAN
All Brady employees in the United States and certain expatriate
employees working for its international subsidiaries are eligible to
participate in the Company's Profit Sharing and Employee Thrift Plan (the
"BradyGold Plan"). Under this plan the Company agrees to contribute certain
amounts to the BradyGold Plan to the extent of current earnings and profits,
or, under certain circumstances, accumulated earnings of the Company. Under
the BradyGold Plan, the Company first contributes 4% of the eligible earnings
of each person covered by the BradyGold Plan. In addition, participants may
elect to have their annual pay reduced by up to an additional 4% and to have
the amount of this reduction contributed to the BradyGold Plan by the Company
and matched by an additional, equal contribution by the Company. Participants
may also elect to have their annual pay reduced by up to an additional 4% and
to have the amount of this reduction contributed to the BradyGold Plan by the
Company (without an additional matching contribution by the Company). The
assets of the BradyGold Plan credited to each participant are invested by the
BradyGold Plan trustee as directed in several investment funds as permitted by
the BradyGold Plan. The annual contributions and forfeitures allocated to any
participant under all defined contribution plans may not exceed the lesser of
$30,000 or 25% of the participant's base compensation and bonuses. Benefits
are generally payable upon the death, disability, or retirement of the
participant or upon termination of employment before retirement, although
benefits may also be withdrawn from the BradyGold Plan and paid to the
participant if required for certain emergencies. Under certain specified
circumstances, the BradyGold Plan allows loans to be drawn on a participant's
account. The participant is immediately fully vested with respect to the
contributions attributable to reductions in pay; all other contributions become
fully vested after five years of service.
III - 11
26
DEFERRED COMPENSATION ARRANGEMENTS
Directors, executive officers, corporate staff officers and certain
key management employees of the Company are permitted to defer portions of
their fees, salary and bonus and to invest the deferred amounts in "phantom
stock" of the Company. "Phantom Stock" is not actual stock or rights to
acquire stock in the Company, but it gives participants the right to share in
increases in book value (as defined) of the common stock. At the end of each
fiscal year, the deferred compensation balance (with interest) is credited to
the purchase of phantom common stock at the then book value of the common stock
of the Company, and is thereafter adjusted to reflect stock dividends and other
dividends or distributions on the Company's Class A Common Stock.
Upon the retirement, disability, or death of participant, the Company
is required to pay, each year for a period of ten years, a portion of the book
value of the phantom stock determined by the book value of the corresponding
number of common shares as of the end of each fiscal year. The first payment
must be one-tenth of the book value; the second one-ninth; and so on, with the
number of phantom shares reduced by the equivalent in book value of each
payment.
If the participant's employment ends for reasons other than his
retirement, disability or death, the book value of his phantom stock will be
determined as of the end of the fiscal year following his termination of
employment and he will receive one-tenth of such amount each year for a period
of ten years, plus interest at a rate 2% less than the Company's short-term
borrowing rate. At the request of the participant, the Company may make
payments in larger installments or in a lump sum on a discounted or other
basis.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed
entirely of outside directors and is responsible for considering and approving
compensation arrangements for senior management of the Company, including the
Company's executive officers and the chief executive officer. It is the
philosophy of the Committee to establish a total executive compensation program
which is competitive with a broad range of companies that it considers to be of
comparable size and complexity.
The primary components of the Company's executive compensation program
are (i) base salary, (ii) annual shareholder value enhancement plan cash
bonuses and (iii) long term incentive compensation in the form of stock
options. These are designed to align shareholder and management interests, to
balance the achievement of annual performance targets with actions that focus
on the long-term success of the Company, and to attract, motivate and retain
key executives who are important to the continued success of the Company.
Decisions made by the Committee relating to the base salary compensation and
the annual cash incentive compensation plan are reviewed and approved by the
full Board of Directors.
III - 12
27
The Committee believes that:
- The Company's pay levels are appropriately targeted to attract and retain
key executives;
- The Company's incentive plan provides strong incentives for management
to increase shareholder value; and
- The Company's total executive compensation program is a cost-effective
strategy to increase shareholder value.
BASE SALARY
Consistent with the Committee's philosophy, base salaries are
generally maintained at or modestly above competitive base salary levels.
Competitive salary level is defined as the average base salary for similar
responsibilities in a group of companies selected by the Committee that the
Committee considers to be of comparable size and complexity. In setting base
salaries for fiscal 1995, the Committee reviewed compensation survey data and
was satisfied that the base salary levels set would achieve the Company's
objectives. Specific increases reflect the Committee's subjective evaluation
of individual performance.
ANNUAL SHAREHOLDER VALUE ENHANCEMENT PLAN
The shareholder value enhancement plan (the "Bonus Plan") provides for
the annual payment of cash bonuses. When viewed together with the Company's
base salary, the purpose of the Bonus Plan is to provide a balance between
fixed compensation and variable, results-oriented compensation. The Bonus Plan
has both an objective (90%) and a subjective (10%) element. Components of the
objective element include maximizing the Company's profitability and
shareholder value. Components of the subjective element include the
achievement of certain agreed upon goals.
STOCK OPTIONS
In 1989 the Board approved the W.H. Brady Co. 1989 Non-Qualified Stock
Option Plan (the "Option Plan") under which 500,000 shares of Class A
Non-Voting Common Stock are available for grant. The Option Plan assists
executive officers, corporate staff officers and key management employees in
becoming shareholders with an important stake in the Company's future, aligning
their personal financial interest with that of all shareholders. Stock options
are typically granted annually and have a term of ten years. Generally the
options become one-third exercisable one year after the date of the grant and
one-third additional in each of the succeeding two years so that at the end of
three years after the date of the grant they are fully exercisable. All grants
under the Option Plan are at market price on the date of the grant and have
value only if the price of W.H. Brady Co. Class A Common Stock, after the
vesting requirement passes, has increased to a greater value than at the grant
date.
III - 13
28
COMPLIANCE WITH TAX REGULATIONS REGARDING EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, added by the Omnibus
Budget Reconciliation Act of 1993, generally disallows a tax deduction to
public companies for compensation over $1 million paid to the corporation's
chief executive officer and the other named executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The Company's executive compensation program, as
currently constructed, is not likely to generate non-deductible compensation in
excess of these limits. The Compensation Committee will continue to review
these evolving tax regulations as they apply to the Company's executive
compensation program. It is the Compensation Committee's intent to preserve
the deductibility of executive compensation to the extent reasonably
practicable and to the extent consistent with its other compensation
objectives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mrs. Hudson received $315,000 in base salary in fiscal 1995, an
increase of 6.7% over the prior year's annualized amount. She was paid a bonus
attributable to fiscal 1995 of $369,914. Mrs. Hudson's bonus reflects:
(i) sales increased $58,521,000, or 22.9%, and profits increased
$9,371,000, or 50.5%, over similar amounts from the prior year
(ii) stock price increased from $41.50 to $71.375, increasing
shareholder value by approximately $174,000,000
(iii) successful divestiture of the Nameplate Division of BUSA, Inc.,
Brady Medical Products Co., and certain real estate
(iv) facilitated continued improvement in intercompany teamwork
(v) focused the Company's resources on value-enhancing growth
During fiscal 1995, Mrs. Hudson was awarded options to purchase 10,000
shares of Class A Common Stock.
The Committee believes these awards are consistent with the objectives
of the various plans and with the overall compensation policy of the Board of
Directors.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
The Compensation Committee believes the executive compensation
programs and practices described above are competitive. They are designed to
provide increased compensation with improved financial results and provide
additional opportunity for capital accumulation, but only if shareholder value
is increased.
Peter J. Lettenberger, Chairman
Richard A. Bemis
Roger D. Peirce
III - 14
29
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth the current beneficial ownership of
shareholders who are known by the Company to own five percent (5%) of any class
of the Company's voting shares on September 30, 1995.
Amount of
Title of Name and Address of Beneficial Percent of
Class Beneficial Owner Ownership Ownership
- -------- ---------------- ---------- ----------
Class B William H. Brady, Jr.(1) 1,574,866 89%
Common Marital Trust
Stock c/o Quarles & Brady
Attn: Peter J. Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
William H. Brady, Jr.(1) 194,448 11%
Non-QTIP Marital Trust
c/o Quarles & Brady
Attn: Peter J. Lettenberger
411 East Wisconsin Avenue
Milwaukee, WI 53202
___________________________________________
The trustees of both trusts are Robert C. Buchanan, Irene B.
Brady, Roger D. Pierce, Peter J. Lettenberger, and Richard A. Bemis, each of
whom shares voting and dispositive power. The vested beneficiary is Irene B.
Brady; the contingent remainder beneficiaries are William H. Brady, III and
Elizabeth B. Lurie.
III - 15
30
(b) Security Ownership of Management
The following table sets forth the current beneficial ownership of
each class of equity securities of the Company by each Director or
Nominee and by all Directors and Officers of the Company as a group as
of September 30, 1995. Except as otherwise indicated, all shares are
owned directly.
Title Name of Beneficial Amount of Percent
of Owner & Nature of Beneficial of
Class Beneficial Ownership Ownership Ownership
- ----- -------------------- --------- ---------
Class A Peter J. Lettenberger (1)(2)(3) 1,109,963 20.2%
Common Richard A. Bemis (1)(4) 849,431 15.4%
Stock Robert C. Buchanan (1)(5) 849,231 15.4%
Roger D. Peirce (1)(6) 848,931 15.4%
Elizabeth B. Lurie (2)(7) 559,290 10.2%
William H. Brady III (8) 345,824 6.3%
Katherine M. Hudson (9) 30,370 0.6%
Donald P. DeLuca (10) 13,500 0.2%
Gary R. Nei 1,500 * %
Frank W. Harris 500 * %
All Officers and Directors
as a Group (17 persons)(11) 1,842,186 33.0%
Class B Peter J. Lettenberger (1) 1,769,314 100%
Common Robert C. Buchanan (1) 1,769,314 100%
Stock Roger D. Peirce (1) 1,769,314 100%
Richard A. Bemis (1) 1,769,314 100%
All Officers and Directors
as a Group 1,769,314 100%
6% Peter J. Lettenberger (1)(2) 2,751 69.1%
Cumulative Robert C. Buchanan (1) 1,920 48.2%
Preferred Roger D. Peirce (1) 1,920 48.2%
Richard A. Bemis (1) 1,920 48.2%
Stock Elizabeth B. Lurie (2)(7) 1,066 26.8%
William H. Brady III (8)(6) 235 5.9%
All Officers and Directors
as a Group 3,221 80.8%
1979 Series Elizabeth B. Lurie (2)(7) 8,071 36.7%
Cumulative Peter J. Lettenberger (2) 5,529 25.2%
Preferred William H. Brady III (8) 2,542 11.6%
Stock All Officers and Directors
as a Group 10,613 48.3%
6% Peter J. Lettenberger (2) 2,600 100%
Cumulative Elizabeth B. Lurie (2) 2,600 100%
Preferred All Officers and Directors
Stock, as a Group (2) 2,600 100%
1972 Series
* Indicates less than one-tenth of one percent
_______________________________________________________________________
III - 16
31
(1) The amount shown includes shares held directly by the William
H. Brady, Jr. Marital Trust (the "Marital Trust") and the
William H. Brady, Jr. Non-QTIP Marital Trust (the "Non-QTIP
Trust")(collectively, the "Trusts"). The Marital Trust owns
687,781 shares of Class A Common Stock, 1,574,866 shares of
Class B Common Stock, and 1,709 shares of 6% Cumulative
Preferred Stock. The Non-QTIP Trust owns 160,650 shares of
Class A Common Stock, 194,448 shares of Class B Common Stock,
and 211 shares of 6% Cumulative Preferred Stock. The Trustees
of both Trusts are Irene B. Brady, Robert C. Buchanan, Roger
D. Peirce, Peter J. Lettenberger, and Richard A. Bemis, each
of whom shares voting and dispositive power. All of the
Trustees except Mrs. Brady disclaim beneficial ownership of
these shares. Irene B. Brady is the widow of William H.
Brady, Jr. and the vested beneficiary of the Marital Trust;
she is the parent of William H. Brady, III and Elizabeth Brady
Lurie (who are contingent remainder beneficiaries of the
Trusts) and the grandparent of Elizabeth Irene Pungello. See
also note (7).
(2) Elizabeth B. Lurie and Peter J. Lettenberger are among the
directors of the W.H. Brady Foundation, Inc. (the
"Foundation") which owns 5,529 shares of the 1979 Series,
Cumulative Stock, 763 shares of the 6% Cumulative Preferred
Stock and 2,600 shares of the 6% Cumulative Preferred Stock,
1972 Series. Mr. Lettenberger and Mrs. Lurie are also
trustees of the Irene B. Brady Revocable Trust of 1986 (the
"1986 Trust"), which owns 259,941 shares of Class A Common
Stock and 68 shares of 6% Cumulative Preferred Stock. All
such persons disclaim beneficial ownership of shares held by
the Foundation and the 1986 Trust.
(3) In addition to shares beneficially owned as a trustee of the
Trusts and the 1986 Trust and as a director of the Foundation,
Mr. Lettenberger owns directly 1,590.93 shares of Class A
Common Stock.
(4) In addition to shares beneficially owned as a trustee of the
Trusts, Mr. Bemis owns 1,000 shares of Class A Common Stock
directly.
(5) In addition to shares beneficially owned as a trustee of the
Trusts, Mr. Buchanan owns directly 600 shares of Class A
Common Stock, and 200 shares through his Keogh plan.
(6) In addition to shares beneficially owned as a trustee of the
Trusts, Mr. Peirce owns 500 shares of Class A Common Stock
directly.
(7) In addition to the shares owned as a trustee of the 1986 Trust
and as a director of the Foundation, Mrs. Lurie owns directly
141,615 shares of Class A Common Stock, or 2.3% of the number
of such shares outstanding, 235 shares of 6% Cumulative
Preferred Stock and 2,542 shares of 1979 Series Preferred
Stock. She is the mother of Elizabeth Irene Pungello, who is
the beneficiary of the Elizabeth Irene Pungello Irrevocable
Trust (the trustees of which are Nicholas M. Daniels and Shy
Lurie, Mrs. Lurie's husband) which owns 157,734
III - 17
32
shares of the Class A Common Stock, or 2.9% of the number of
such shares outstanding. She disclaims ownership of these
shares.
(8) Mr. Brady owns 345,824 shares of Class A Common Stock, 235
shares of 6% Cumulative Preferred Stock, and 2,542 shares of
1979 Series Cumulative Stock.
(9) Mrs. Hudson owns 2,036.42 shares of Class A Common Stock
indirectly through an employee benefit plan and holds a vested
option to acquire an additional 28,333.3 shares of Class A
Common Stock.
(10) Mr. DeLuca owns 500 shares of Class A Common Stock direclty
and holds vested options to acquire an additional 13,000
shares of Class A Common Stock.
(11) The amount shown for all officers and directors as a group (17
persons) includes options to acquire a total of 79,268 shares
of Class A Common Stock which are currently exercisable or
will be exercisable within 60 days. It does not include other
options for Class A Common Stock which have been granted, but
vest over the next three years.
(c) Changes in Control
No arrangements are known to the Company which may, at a subsequent
date, result in a change in control of the Company.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
III - 18
33
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1) The consolidated financial statements, together with the
Independent Auditors' Report thereon of Deloitte & Touche LLP,
presented on Pages 22 through 34 of the Company's 1995 Annual
Report is incorporated herein by reference.
2) Consolidated Financial Statement Schedules--
Schedule VIII Valuation and Qualifying Accounts
Independent Auditors' Report on Financial Statement Schedules
All other schedules are omitted as they are not required, or
the required information is shown in the consolidated
financial statements or notes thereto.
3) Exhibits
3.1(1) Restated Articles of Incorporation of W.H. Brady Co.
3.2(2) By-laws of W.H. Brady Co., as amended.
10.2(2) W.H. Brady Co. Four Square Plan, as amended.
10.3(2) Executive Additional Compensation Plan, as amended.
10.4(2) Form of Executive's Deferred Compensation Agreement,
as amended.
10.5(2) Forms of Director's Deferred Compensation Agreement,
as amended.
10.6(4) W.H. Brady Co. 1989 Non-Qualified Stock Option Plan.
10.7 Shareholder Value Enhancement (SVE) Plan.
10.8(4) Supplemental Executive Retirement Plan dated March 27, 1992
between W.H. Brady Co. and Paul Gengler.
10.9(4) W.H. Brady Co. Automatic Dividend Reinvestment Plan.
10.10(5) Supplemental Executive Retirement Plan between W.H. Brady Co.
and Katherine M. Hudson
10.11(5) Supplemental Executive Retirement Plan dated September 23,
1994 between W.H. Brady Co. and Donald P. DeLuca.
IV - 1
34
13.1 Annual Report to Shareholders for year ended July 31, 1995.
18.1(3) Letter regarding change in accounting method.
21.1 Subsidiaries of W.H. Brady Co.
23.1 Consent of Deloitte & Touche LLP, Independent Auditor.
___________________
(1) Incorporated by reference to Registrant's Registration
Statement No. 2-91287 on Form S-1.
(2) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1989.
(3) Incorporated by reference to Exhibit 18 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
January 31, 1989.
(4) Incorporated by reference to Registrant's Annual Report on
form 10-K for the fiscal year ended July 31, 1992.
(5) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1994.
IV - 2
35
W.H. BRADY CO. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
_______________________________________________________________________________
Year ended July 31,
---------------------------------------
1995 1994 1993
---- ---- ----
Description (Dollars in Thousands)
Valuation accounts deducted in balance
sheet from assets to which they apply--
Accounts receivable--allowance for losses:
Balances at beginning of period $1565 $1247 $1320
Additions--Charged to expense 463 725 758
Deductions--Bad debts written off, net of
recoveries (147) (407) (831)
----- ----- -----
Balances at end of period $1881 $1565 $1247
===== ===== =====
IV - 3
36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
W.H. Brady Co.:
We have audited the consolidated financial statements of W.H. Brady Co. and
subsidiaries as of July 31, 1995 and 1994 and for each of the three years in
the period ended July 31, 1995, and have issued our report thereon dated
September 12, 1995; such consolidated financial statements and report are
included in your 1995 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of W.H. Brady Co. and subsidiaries, listed in Item 14. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 12, 1995
IV - 4
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized this thirteenth day
of October, 1995.
W.H. BRADY CO.
By /s/ D. P. DeLuca
---------------------------
D.P. DeLuca,
Senior Vice President,
Treasurer, and Assistant
Secretary
(Principal Accounting Officer)
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ K. M. Hudson President and Director 10/13/95
- ------------------------- (Principal Executive Officer) ----------
K.M. Hudson
/s/ P. J. Lettenberger Director 10/13/95
- ------------------------- ----------
P.J. Lettenberger
/s/ R. A. Bemis Director 10/13/95
- ------------------------- ----------
R.A. Bemis
Director
- ------------------------- ----------
W.H. Brady III
Director
- ------------------------- ----------
E.B. Lurie
Director
- ------------------------- ----------
F.W. Harris
IV - 5
38
/s/ R. C. Buchanan Director 10/13/95
- ------------------------- ----------
R.C. Buchanan
/s/ R.D. Peirce Director 10/13/95
- ------------------------- ----------
R.D. Peirce
/s/ D. P. DeLuca Director 10/13/95
- ------------------------- ----------
D.P. DeLuca
Director
- ------------------------- ----------
G.E. Nei
IV - 6