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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, 1998
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 March 3, 1998, there were outstanding 20,715,066 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.
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FORM 10-Q
W. H. BRADY CO.
INDEX
Page
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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
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 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)
ASSETS January 31, 1998 July 31, 1997
------ ---------------- -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 66,384 $ 65,329
Accounts receivable, less allowance for losses ($2,124 and $2,241 respectively) 62,780 65,450
Inventories 46,602 44,605
Prepaid expenses and other current assets 12,597 12,585
--------------- -------------
Total current assets 188,363 187,969
Other assets:
Intangibles - net 36,236 36,015
Other 5,457 5,236
Property, plant and equipment:
Cost:
Land 4,924 5,162
Buildings and improvements 38,818 39,159
Machinery and equipment 79,958 79,497
Construction in progress 7,182 2,560
--------------- -------------
130,882 126,378
Less accumulated depreciation 68,334 63,936
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Net property, plant and equipment 62,548 62,442
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Total $ 292,604 $ 291,662
=============== =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
Current liabilities:
Accounts payable $ 15,924 $ 17,656
Wages and amounts withheld from employees 16,099 16,925
Taxes, other than income taxes 2,169 1,960
Accrued income taxes 5,818 8,453
Other current liabilities 6,902 11,687
Current maturities on long-term debt 247 564
--------------- -------------
Total current liabilities 47,159 57,245
Long-term debt, less current maturities 3,117 3,890
Other liabilities 26,908 23,980
--------------- -------------
Total liabilities 77,184 85,115
Stockholders' investment:
Preferred stock 2,855 2,855
Class A nonvoting common stock - Issued and outstanding 20,693,615 207 202
and 20,171,853 shares, respectively
Class B voting common stock - issued and outstanding 1,769,314 shares 18 18
Additional paid-in capital 25,211 9,573
Earnings retained in the business 202,267 193,602
Deferred compensation and unearned portion of restricted stock (14,930) 0
Cumulative translation adjustments (208) 297
--------------- -------------
Total stockholders' investment 215,420 206,547
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Total $ 292,604 $ 291,662
=============== =============
See Notes to Condensed Consolidated Financial Statements
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W. H. BRADY CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EARNINGS
RETAINED IN THE BUSINESS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
January 31 January 31
1998 1997 1998 1997
-------- ------- -------- --------
Net sales $ 107,150 $ 109,898 $ 222,452 $ 207,119
Operating expenses:
Cost of products sold 47,639 50,614 100,224 95,419
Research and development 4,967 4,013 9,773 7,550
Selling, general and administrative 43,343 44,072 88,121 82,356
----------- ----------- ----------- -----------
Total operating expenses 95,949 98,699 198,118 185,325
Operating income 11,201 11,199 24,334 21,794
Other income and (expense):
Investment and other income - net 710 174 1,225 445
Interest expense (60) (44) (139) (143)
----------- ----------- ----------- -----------
Income before income taxes 11,851 11,329 25,420 22,096
Income taxes 4,682 4,487 10,041 8,724
----------- ----------- ----------- -----------
Net income 7,169 6,842 15,379 13,372
Earnings retained in business at beginning of period 198,495 177,168 193,602 173,491
Less dividends:
Preferred stock (65) (65) (130) (130)
Common stock (3,332) (2,848) (6,584) (5,636)
----------- ----------- ----------- -----------
Earnings retained in business at end of period $ 202,267 181,097 $ 202,267 181,097
=========== =========== =========== ===========
Net Income - Class A Nonvoting Common Share:
Basic $ 0.32 $ 0.31 $ 0.69 $ 0.61
=========== =========== =========== ===========
Diluted $ 0.31 $ 0.31 $ 0.68 $ 0.60
=========== =========== =========== ===========
Net Income - Class B Voting Common Share:
Basic $ 0.32 $ 0.31 $ 0.66 $ 0.58
=========== =========== =========== ===========
Diluted $ 0.31 $ 0.31 $ 0.65 $ 0.57
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
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W. H. BRADY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
January 31
1998 1997
--------------- ---------------
Operating Activities:
Net Income $ 15,379 $ 13,372
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation & Amortization 6,552 7,185
Loss on Sale of Property, Plant & Equipment 127 29
Provision for Losses on Accounts Receivable 717 389
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Accounts Receivable 1,292 (5,798)
(Increase) Decrease in Inventory (2,555) (3,580)
(Increase) Decrease in Prepaid Expense (1,008) (90)
Increase (Decrease) in Accounts Payable and Other Liabilities (4,142) 3,129
Increase (Decrease) in Income Taxes (2,837) 621
------------ -------------
Net Cash Provided by Operating Activities 13,525 15,257
------------ -------------
Investing Activities:
Purchases of Property, Plant and Equipment (7,014) (4,669)
Proceeds from Sale of Property, Plant and Equipment - Net 161 575
Other Investments 0 280
------------ -------------
Net Cash (Used in) Investing Activities (6,853) (3,814)
------------ -------------
Financing Activities:
Payment of Dividends (6,714) (5,766)
Proceeds from Issuance of Common Stock 369 459
Stock Released from Restriction 306 0
Principal Payments on Long-Term Debt (264) (276)
Proceeds from Issuance of Long-Term Debt 470 991
------------ -------------
Net Cash (Used in) Financing Activities (5,833) (4,592)
------------ -------------
Effect of Exchange Rate Changes on Cash 216 220
------------ -------------
Net Increase in Cash and Cash Equivalents 1,055 7,071
Cash and Cash Equivalents at Beginning of Period 65,329 49,281
------------ -------------
Cash and Cash Equivalents at End of Period $ 66,384 $ 56,352
============ =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 211 $ 148
Income Taxes 14,306 8,503
See Notes to Condensed Consolidated Financial Statement
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W.H. BRADY CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended January 31, 1998
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 31, 1998, and July 3l, 1997, and its results of
operations and its cash flows for the three months and six months ended January
31, 1998, and l997. The consolidated balance sheet at July 31, l997, has been
taken from the audited consolidated 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 - Net Income Per Common Share
Effective this quarter, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which established new
standards for the calculation of net income per share effective for interim and
annual periods ending after December 15, 1997. Reconciliation's of the
numerator and denominator of the basic and diluted per share computations for
the Company's Class A and Class B common stock are summarized as follows:
Fiscal 1998 Fiscal 1997
-------------------------- ---------------------------
2nd Quarter 6-Month 2nd Quarter 6-Month
Numerator:
Net income $7,169,000 $15,379,000 $6,842,000 $13,372,000
Less: Preferred stock dividends (64,784) (129,567) (64,784) (129,567)
---------- ----------- ---------- -----------
Numerator for basic and diluted
Class A earnings per share $7,104,216 $15,249,433 $6,777,216 $13,242,433
Less: Preferential dividends -- (676,298) -- (670,454)
Preferential dividends on
dilutive stock options -- (9,132) -- (3,843)
---------- ----------- ---------- -----------
Numerator for basic and diluted
Class B earnings per share $7,104,216 $14,564,003 $6,777,216 $12,568,136
=========== =========== ========== ===========
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Fiscal 1998 Fiscal 1997
--------------------------------- -----------------------------------
2nd Quarter 6-Month 2nd Quarter 6-Month
Denominator:
Denominator for basic earnings
per share for both Class A and B 22,379,633 22,227,104 21,905,607 21,892,256
Plus: Effect of dilutive stock options 277,661 271,419 117,523 117,139
---------- ----------- ----------- -----------
Denominator for diluted earnings
per share for both Class A and B 22,657,294 22,498,523 22,023,130 22,009,395
========== =========== =========== ===========
Class A common stock earnings per share calculation:
Basic $0.32 $0.69 $0.31 $0.61
Diluted $0.31 $0.68 $0.31 $0.60
Class B common stock earnings per share calculation:
Basic $0.32 $0.66 $0.31 $0.58
Diluted $0.31 $0.65 $0.31 $0.57
Options to purchase 212,450 and 301,800 shares of Class A common stock
were not included in the computations of diluted earnings per share for the
quarters ending January 31, 1998, and 1997, respectively, because the option
exercise prices were greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
Options to purchase 218,450 and 301,800 shares of Class A common stock
were not included in the computations of diluted earnings per share for the six
months ending January 31, 1998, and 1997, respectively, because the option
exercise prices were greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the three months ended January 31, 1998, revenues of $107,150,000 were
2.5% lower than the same quarter of the previous year. For the six months
ended January 31, 1998, revenues of $222,452,000 were 7.4% higher than the
same period last year. With the Company's change to calendar month ends from
fiscal month ends this fiscal year, there were seven fewer shipping days this
quarter and four fewer shipping days in the six month period. Adjusting for
the difference in shipping days, revenues were 10.0% higher for the quarter
and 11.0% higher for the six months ended January 31, 1998, compared to prior
year results. Sales of the Company's international operations decreased 1.7%
for the quarter and increased 9.5% for the six months ended January 31, 1998.
Adjusting for the difference in shipping days, international sales increased
10.8% for the quarter and 13.1% for the six months ended January 31, 1998.
Adjusting for the difference in shipping days, real growth through continued
market penetration in Europe and the Far East increased international sales
17.5% for the quarter and 19.3% for the six months. The acquisition of
Signals S.A. increased international sales 4.4% for the quarter and 4.1% for
the six months. These increases were partially offset by the negative effect
of fluctuations in the exchange rates used to translate financial results into
U.S. currency, which reduced international sales growth by 11.1% for the
quarter and 10.3% for the six months. Sales of the Company's U.S. operations
decreased 3.1% for the quarter and increased 5.9% for the six months ended
January 31, 1998. Adjusting for the difference in shipping days, sales of the
Company's U.S. operations increased 9.2% for the quarter and 9.4% for the six
months ended January 31, 1998, due primarily to growth in the sales of the
Company's core products.
The cost of products sold as a percentage of sales was 44.5% for the
quarter and 45.1% for the six months ended January 31, 1998, compared to 46.1%
for both periods last year. Last year's quarter and six months included a
charge of $1,200,000 ($715,000 after tax) for restructuring the Company's
European operations and consolidating the Hirol Division's production
operations into the Company's existing operations in the United States and in
the United Kingdom. Excluding this charge, last year's cost of goods sold as
a percentage of sales was 45.0% for the quarter and 45.4% for the six months.
The slight decreases this year resulted from changes in the mix of products
sold. Selling, general and administrative expenses as a percentage of sales
were 40.5% for the quarter compared to 40.1% for the same quarter of the
previous year. For the six months ended January 31, 1998, this percentage
was 39.6% compared to 39.8% for the same period last year. Last year's
quarter and six months included a charge of $300,000 ($180,000 after tax) for
the restructuring mentioned above. Excluding this charge, last year's
selling, general and administrative expenses as a percentage of sales were
39.9% for the quarter and 39.6% for the six months. The quarterly increase
this year was the result of the Company's ongoing investment in building its
global information technology infrastructure. Research and development
expenses increased 23.8% for the quarter and 29.4% for the six months
ended January 31, 1998, over the same periods last year as a result of the
Company's commitment to new product development.
Operating income was $11,201,000 for the quarter and $24,334,000 for the
six months ended January 31, 1998, compared to $11,199,000 and $21,794,000 for
the same periods last year because of the factors cited above.
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Income before income taxes increased 4.6% for the quarter and 15.0% for
the six months ended January 31, 1998, compared to prior year results.
Excluding the restructuring charge, income before income taxes decreased
7.5% for the quarter and increased 7.8% for the six months ended January
31, 1998, compared to prior year results.
Net income for the three months ended January 31, 1998, increased 4.8% to
$7,169,000, compared to $6,842,000 for the same quarter of the previous year.
For the six months ended January 31, 1998, net income increased 15.0% to
$15,379,000 from $13,372,000 for the same period last year. Excluding the
$895,000 restructuring charge, net income decreased 7.3% for the quarter and
increased 7.8% for the six months ended January 31, 1998.
Financial Condition
The Company's liquidity remains strong. The current ratio as of January
31, 1998, was 4.0 to 1. Cash and cash equivalents were $66,384,000 at January
31, 1998, compared to $65,329,000 at July 31, 1997. Working capital increased
$10,480,000 during the six months and equaled $141,204,000 as of January 31,
1998.
The Company continues to maintain significant cash balances due in large
part to its strong operating cash flow, which totaled $13,525,000 for the six
months ended January 31, 1998, compared to $15,257,000 for the same period
last year. Capital expenditures were $7,014,000 in the six months ended
January 31, 1998, compared to $4,669,000 in the first six months last year.
The increase in capital expenditures resulted primarily from progress payments
made on the Company's new coating line. Financing activities, primarily the
payment of dividends to the Company's stockholders, consumed $5,833,000 of
cash in the first six months of fiscal 1998, compared to $4,592,000 for the
same period last year.
Long-term debt as a percentage of long-term debt plus stockholders'
investment was 1.4% at January 31, 1998, compared to 1.8% at July 31, 1997.
The Company believes that its cash and cash equivalents and the cash flow
it generates from operating activities are adequate to meet the Company's
current investing and financing needs.
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a of Vote of Security Holders
On November 21, 1997, at the Company's Annual Meeting, the Class B Common
Stock shareholders unanimously reelected the following Directors: Richard A.
Bemis, Robert C. Buchanan, Frank W. Harris, Katherine M. Hudson, Peter J.
Lettenberger, Gary R. Nei and Roger Peirce. Only the holders of the Company's
Class B Common Stock were eligible to vote in the election for Directors. This
report was also made in the Company's Form 10-Q filed December 5, 1997, but did
not include Mr. Peirce's reelection as a Director of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K.
The Company was not required to file and did not file a report
on form 8-K during the quarter ended January 31, 1998.
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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: March 13, 1998 /s/ K. M. Hudson
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K. M. Hudson
President
Date: March 13, 1998 /s/ F. Jaehnert
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F. M. Jaehnert
Vice President & Chief Financial Officer
(Principal Accounting Officer)
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