1
Brady Corporation 1999 Annual Report
[2 BAR CHARTS]
Net Sales
In millions
94 256
95 314
96 360
97 426
98 455
99 471
Sales increased at a compound annual growth rate of 13 percent.
Net Income
In millions
94 19
95 28
96 28
97 32
98 33*
99 39*
Net income increased at a compound annual growth rate of 16 percent *excluding
nonrecurring items
15-Year Cumulative Return
at July 31 with dividends reinvested
in dollars
[LINE GRAPH]
Since going public in 1984, Brady has averaged 18-percent per year growth in
total return to shareholders, often outperforming market indices including the
S&P 500.
1999 Highlights
Fiscal year ended July 31, 1999
Net income increased 41 percent over reported 1998 net income and 20 percent
over 1998 net income, excluding nonrecurring items.
Net sales increased 4 percent over 1998 sales and showed improved momentum in
the fourth quarter.
Brady stock ended the year at $35, representing a market capitalization of $791
million.
Total shareholder return over the last five years increased at a compound annual
growth rate of 19 percent.
Brady ended the year with cash reserves of nearly $76 million and virtually no
debt, even after making several acquisitions.
2
Financial Highlights
Percent
July 31, July 31, Increase
(Dollars in Thousands, Except Per Share Amounts) 1999 1998 (Decrease)
Net sales $470,862 $455,150 3.5
Income before income taxes $64,782 $46,165 40.3
Pre-tax profit margin 13.8% 10.1%
Net income $39,584 $28,036 41.2
After-tax profit margin 8.4% 6.2%
Return on average stockholders' investment 16.0% 12.7%
Net income per Common Share (diluted)
Class A Nonvoting $1.73 $1.23
Class B Voting $1.70 $1.20
Working capital $129,884 $125,386 3.6
Stockholders' investment $260,564 $233,373 11.7
Research and development $17,724 $20,287 (12.6)
Capital expenditures $9,889 $17,189 (42.5)
Depreciation and amortization $15,149 $13,288 14.0
Key Data
Dividend yield 1.8% 2.9%
Trailing P/E ratio 20.2 16.7
Current ratio 2.8 3.1
Book value/share $11.52 $10.37
Weighted average shares outstanding (diluted) 22,682,970 22,601,925
President's Letter to Shareholders
[PHOTO]
Katherine M. Hudson
President and
Chief Executive Officer
Dear Fellow Shareholder:
"Brady achieved record sales and earnings in fiscal 1999. Net income grew at a
strong double-digit rate to $39.6 million or $1.73 per share."
Fiscal 1999 was a challenging but good year for our Company. Despite facing
economic weakness in Asia and industrial markets in the United States, and our
discontinuance of some product lines, Brady Corporation achieved record sales
and earnings in our fiscal year ended July 31, 1999.
Sales for fiscal 1999 were $470.9 million, up 3.5 percent from fiscal 1998 sales
of $455.2 million. Sales from U.S. operations rose 1.6 percent in the year,
while sales from international operations increased 5.9 percent.
3
We were pleased to see improved growth momentum in the fourth quarter, with
sales up 5.6 percent over sales in the fourth quarter of 1998. Electronics as
well as telecommunications markets were stronger in the quarter, while
industrial market segments continued to be sluggish. We also benefited from
acquisitions we made in the year as well as double-digit sales growth in the
Asia-Pacific region.
We are especially pleased with the strong profitability we achieved in fiscal
1999. The cost controls we initiated early in the year, which included the
elimination of 200 positions at Brady, realigned our cost structure and
refocused us on the most value-adding activities. Brady people around the world
work to control costs and improve efficiency while providing the highest quality
and service to our customers. As a result, our operating margin exceeded 13
percent and we achieved net income of more than 8 percent of sales in 1999, up
solidly from traditional Brady margins.
Net income in fiscal 1999 was $39.6 million or $1.73 per diluted Class A Common
Share, an increase of 41.2 percent from the $28.0 million or $1.23 per share we
reported in fiscal 1998. Excluding the $4.8 million in one-time charges we took
in fiscal 1998 for our cost-control program, and a one-time credit of $0.6
million in fiscal 1999, net income rose 19.6 percent in fiscal 1999 over the
$32.8 million of fiscal 1998. A favorable product mix in 1999 included strong
sales of proprietary Brady printing systems, software and high-performance
materials.
Our 1999 financial results translate into double-digit compound annual growth
rates for sales and net income. For the 1994 to 1999 period, Brady sales have
compounded at 13.0 percent a year and net income compounded at 16.4 percent a
year.
[2 BAR CHARTS]
Operating Margin
Operating income, excluding nonrecurring items, as % of sales
94 11.5
95 12.9
96 11.4
97 12.2
98 11.7
99 13.4
Net Margin
Net income, excluding nonrecurring items, as % of sales
94 7.2
95 8.6
96 7.5
97 7.7
98 7.2
99 8.3
Fiscal 1999 marked another consecutive year of positive shareholder value
enhancement (SVE) or economic value added, where we have achieved a return
higher than our cost of capital of 12.5 percent. And, based on Brady's stock
price at year end (July 31, 1999), the cumulative total return to shareholders
4
compounded at 19 percent a year for the 1994 to 1999 period, with dividends
reinvested.
With the high quality of Brady's earnings and strong cash flow, we have the
financial strength to continue to invest in areas driving long-term growth and
shareholder value enhancement. As of July 31, Brady had $75.5 million in cash on
the balance sheet and long-term debt of $1.4 million.
In addition to the strong financial performance this year, we made solid
progress in our growth strategies of new products, acquisitions, geographic
expansion, and increased market penetration.
New Products.
We continued to emphasize new products, investing $17.7 million or 3.8 percent
of sales in research and development. Brady engineers, chemists and material
scientists worked to develop new printing and data-collection systems, software,
and high-performance materials to meet the evolving needs of customers around
the world.
During the year we launched some exciting new products, including three
hand-held printers. The Identification Solutions & Specialty Tapes Group
introduced the TLS2200(tm) Thermal Labeling System, a hand-held,
thermal-transfer printer for making bar-code and human-readable labels for
telecommunications, electrical and electronics markets. The Graphics Group
introduced the HandiMark(tm) Portable Label Maker for do-it-yourself warning
labels, pipe markers and other facility-identification uses and the Merlin(r)II
Portable Labeling System for architectural, engineering and office use. Designed
for different applications, the three printers have a common platform designed
by shared research and development resources, saving the Company more than $2
million in development costs. In addition to having preprogrammed symbols, a
wide choice of language options, and the versatility to use a broad variety of
proprietary Brady materials, the systems incorporate Brady's "smart cell"
technology. Located on the inside core of Brady consumables for these printers,
a smart-cell computer chip tells the printer everything it needs to know about
the label material, and it automatically sets all printer parameters including
text size, margins and burn temperature for the highest quality in printing.
We expanded our printer portfolio with the Bradyprinter(tm) Model 600 X-Plus
Labeling System, a thermal-transfer printer offering the highest print
resolution available in the industry for increased legibility of even the
smallest type sizes. The system helps companies place more data onto smaller
surface areas in their labeling.
We also launched the PAM 6000, the newest addition to our series of printer
applicator machines for the electronics manufacturing industry. The system
provides companies increased speed and flexibility as it prints, applies and
scans two labels of different sizes and materials simultaneously. Brady's PAM
systems are used in applications such as printed circuit board manufacturing
lines.
Software development remains an area of growth for Brady. This year we
introduced new software packages including MarkWare(tm) Facility Identification
Software, a comprehensive package with ready-to-go label, sign and tag templates
that allow for fast customization of visual warning and identification signage.
MarkWare(tm) software is compatible with Brady thermal-transfer printers, as
well as ink-jet and laser-jet printers connected to a personal computer.
5
We also launched several new Brady materials including Brady Clean ID(tm) Labels
manufactured in a Class-100 clean environment from a unique Brady material
providing low residue and particulate-free labels for the computer disk drive,
semiconductor and medical industries; heavy-duty tire identification labels
which retain bar-code readability even after exposure to the extreme heat and
vulcanization process used in tire manufacturing; Mondo Bondo(tm) high-adhesion
labels designed to adhere to a wide range of industrial surfaces from textured
metal to ultra-smooth plastics; a new line of solder-resistant labels for the
printed circuit board industry; new Duraguard(r) property identification labels
including bar codes, and/or sequential or non-sequential numbering; special
die-cut adhesive materials for new super-capacity computer disks used for
storing data and images from digital cameras and other devices; and new safety
labels and signs to comply with the American National Standards Institute (ANSI)
recommended standards.
Other new identification solutions introduced in 1999 included WavePoint(tm)
Read/Write Radio Frequency Identification tags and readers designed to meet a
variety of industrial applications in harsh and volatile environments.
Acquisitions.
We acquired several companies during the year, with annual revenues ranging from
$1.5 million to $10 million. We acquired Brazil's leading manufacturer of
industrial labels and supplier of identification systems, VEB Sistemas de
Etiquetas Ltda. in Sao Paulo, Brazil. We acquired label manufacturer and
software and service provider Barcodes West Inc. of Seattle, Washington, to
strengthen our position as a leading provider of identification solutions in the
automatic identification and data collection (AIDC) market. We acquired Visi
Sign Pty. Ltd. of Victoria, Australia, a maker of signs and other identification
products; Holman Groupe S.A., of Rungis, France, a leading European provider of
AIDC products and services; and the graphics division of SOFT S.A. in Lyon,
France, which develops and distributes printing systems throughout Europe.
Geographic expansion.
We opened an operation in Mexico City, Mexico, as well as a Seton-U.S.
California distribution center to improve service to the western United States.
With our acquisition of VEB in August 1998, we added a manufacturing base in
Latin America - one that we are now in the process of expanding.
Doing more where we are.
Brady teams around the world worked hard in 1999 to improve operational
capabilities in support of long-term growth and shareholder-value-enhancement
objectives. We expanded our international manufacturing capabilities with the
installation of new equipment in Belgium and other countries for increased
capacity and shorter lead times.
Around the world, we also continue to do more via the Internet. A new corporate
Web site at www.bradycorp.com was launched using categorically arranged links to
provide easy access to information about Brady's products, people, news and
investor information. Seton-U.K. and Seton-U.S. unveiled dynamic new Web sites
that offers customers full on-line ordering of health, safety and facility
identification products.
Another highlight of 1999 was the listing of Brady stock on the New York Stock
Exchange on May 18, 1999. Brady stock had been trading on the Nasdaq Stock
Market since our initial public offering in 1984. We moved to the NYSE to
6
increase liquidity and reduce trading volatility of Brady stock, and to help
ensure that investors buying or selling Brady stock receive the best price and
execution possible. Being listed on the world's premier exchange also improves
Brady's visibility both on Wall Street and in international markets. We're
pleased to report that we've seen benefits on all these fronts.
Going forward.
Our major initiatives as we look to a new century are productivity, growth and
innovation.
In the area of productivity, we are working on major process improvements to
enhance our customer service and our competitive position. These projects will
reduce cycle time, lower inventory and enhance our ability to provide friendly
and flawless service to customers around the world. Some of the tools we will be
implementing include Six Sigma process-improvement programs and the Visually
Instructive Plant(tm) (VIP). VIP is also a service that Brady's Signmark(r)
Division is offering our customers. VIP helps organize a facility for improved
performance with the extensive use of signs and labeling. With VIP, employees
can see at a glance where things are, how machines should be operated and when
hazardous conditions may be present.
We are continuing our strategies for growth with increased emphasis on being
market driven. Our focus will be to increase our own business by improving the
value that we add to our customers' businesses. That means complete solutions,
customized for customers' unique requirements and delivered rapidly anywhere in
the world.
Our quest for appropriate, value-adding acquisitions will continue, as will our
geographic expansion in areas including Asia and Latin America. In fact, we are
adding a manufacturing operation in Wuxi, China, in 2000 to grow the business
and better serve customers in the region.
We'll continue to invest approximately 4 percent of revenues in research and
development. In addition to proprietary new materials, we expect to add to our
family of printing systems and to develop exciting new software and services
that will keep Brady as the partner of choice for our customers for increasing
safety, security, productivity and performance.
Fiscal 1999 was a very challenging year. We began the year in the throes of the
Asian economic crisis and the slowdown of industrial sectors. However, we ended
the year with increasing momentum in sales growth and strong performance in
profitability. These results are a tribute to Brady people around the world who
pulled together to continue improving service and quality while controlling
costs with a high degree of discipline and energy. It was a year of hard work in
challenging times by a very dedicated Brady team.
The same team will be diligent in fiscal 2000 and beyond in working for revenue
growth, cost control and resource utilization to deliver value to customers and
to you our shareholder.
Thank you for your support.
Katherine M. Hudson
President & Chief Executive Officer
7
1999 Highlights
August 1998
Brady acquires industrial label manufacturer and supplier of identification
systems VEB Sistemas de Etiquetas Ltda., Sao Paulo, Brazil.
September 1998
Brady introduces the "next generation" in thermal-transfer printers - the
TLS2200(tm)and the HandiMark(tm) printing systems.
September 1998
Brady establishes operations in Mexico City, Mexico.
December 1998
Brady sells its nameplate manufacturing operation in Canada.
January 1999
Seton opens a distribution center in California to provide rapid service to
companies in the western United States.
January 1999
Brady's business in Canada joins other Brady operations in being certified to
the ISO 9000 series.
March 1999
Brady acquires label manufacturer and software and service provider Barcodes
West Inc., Seattle, Washington.
May 1999 Brady expands its presence in Australia with the acquisition of sign
and identification products manufacturer Visi Sign Pty. Ltd., Victoria,
Australia.
May 1999
Brady moves trading of its stock to the New York Stock Exchange under the symbol
BRC.
July 1999
Brady acquires the graphics division of SOFT S.A., Lyon, France, a
printing-system developer and distributor with sales offices in France, Germany
and Spain.
July 1999
Brady acquires Holman Groupe S.A., Rungis, France, a leading European provider
of automatic identification and data collection products and services.
July 1999
Brady stock ends the fiscal year at a price of $35 per share.
Business Profiles
Brady has operations in 20 countries and reaches more than 70 countries through
distribution and direct-marketing efforts. The Company's businesses are
organized in three global groups.
[3 PIE CHARTS]
8
1999 Sales by Region
United States 55%
Europe 32%
Asia Pacific 7%
Canada & Latin America 6%
1999 Sales by Business Segments
Identification Solutions & Specialty Tapes 40%
Direct Marketing 34%
Graphics 26%
Markets Brady Serves
Manufacturing
Electrical
Chemical, Pharmaceutical,Pulp & Paper
Transportation Equipment
Other Manufacturing
Telecommunication
Electronic & Computer
Construction
Healthcare & Other Services
Retail & Wholesale Trade
Government & Education
Other
Brady's identification and materials solutions are used in a variety of markets.
Identification Solutions & Specialty Tapes
The world's leading manufacturers use Brady identification solutions to increase
efficiency, productivity and quality.
Operations and Products:
Identification Solutions: products for wire and cable marking; custom preprinted
and blank labels; portable printing systems, software and accessories for
on-site identification solutions; and label-printing and application equipment.
Software Solutions: automatic identification and data-collection systems;
radio-frequency tags and scanners; and custom-designed information- and
asset-management software and services.
Specialty Tapes: custom die-cut or slit materials for use in a wide range of
devices such as computer disk drives, pagers, cellular phones, radios and
audio/video cassettes.
Coated Products: high-performance materials using vinyl, polyester, aluminum,
copper, tissue and cloth substrates coated with adhesives and/or topcoats.
Key Markets:
electrical, electronic, telecommunication, computer, warehousing, automotive,
aerospace, and other manufacturing industries.
9
1999 Highlights:
- - Introduced the TLS2200(tm) Thermal Labeling System, heralded as the "next
generation" in portable label-printing technology; new high-performance label
solutions for clean electronic assembly environments; tire-identification
labels; high-adhesion labels for rough surface applications; award-winning
automatic identification and data-collection software; and the PAM 6000
dual-head printer applicator machine.
- - Engineered a new process for making precision die-cut adhesives for the
cellular phone industry.
- - Acquired VEB Sistemas de Etiquetas Ltda. in Sao Paulo, Brazil; Barcodes West
Inc., Seattle, Washington; and Holman Groupe S.A., Rungis, France.
- - Expanded manufacturing capabilities in Europe and sales presence in
Asia/Pacific markets and expanded Internet presence with European Web sites.
- - Exited non-core businesses.
2000 Strategic Initiatives:
Expand global manufacturing and sales support infrastructure; develop innovative
new materials, printing systems and integrated automatic identification and
data-collection systems; use e-business technology to add even more value to
distributors and customers.
Graphics
Brady products and services provide visual solutions to make the workplace safer
and more productive.
Operations and Products:
Signmark(r): a broad range of visually instructive products including signs,
tags, labels, tapes, safety devices, software, and sign- and label-printing
systems; as well as consulting and other services to help companies comply with
regulations and increase productivity.
Varitronic Systems: labeling and lettering systems; poster printers and
laminating equipment to aid in training, education and communication in the
classroom and business environments.
Key Markets:
chemical, pulp and paper, automotive and other manufacturing industries,
warehousing, construction, training, government, education and legal.
1999 Highlights:
- - Introduced HandiMark(tm) Portable Label Maker and Merlin(r)II Portable
Labeling System; MarkWare(tm) Facility Identification Software; and redesigned
safety labels and signs for new ANSI standards.
- - Launched Visually Instructive Plant(tm) program to help organize facilities
for improved productivity.
- - Acquired Visi Sign Pty. Ltd. of Victoria, Australia, and the graphics division
of SOFT S.A., Lyon, France.
- - Received awards including the Customer Focused Quality Award (CFQ1) from W.W.
Grainger Inc. for the fifth consecutive year.
2000 Strategic Initiatives:
10
Develop and introduce innovative solutions to meet customers' needs for
productivity as well as safety and security; fully exploit all channels in
Europe; expand marketing presence in Asia; capitalize on trends in education in
the United States; create closer relationships with customers and distributors
through the power of e-business.
Direct Marketing
Offering more than 20,000 products in 15 countries and through the Internet,
Brady's Direct Marketing Group is the world's leading provider of safety and
facility identification products via direct mail catalogs, telemarketing and
interactive Internet sites.
Operations and Products:
Seton, Signals, Raydek and other brands: signs, labels, nameplates, tags,
lockout devices, traffic-control products, tapes, pipe and valve markers,
letters and numbers, label-printing systems, safety training and awareness
products, first-aid products, and general safety products.
Key Markets:
manufacturing, construction, property management, healthcare, education,
wholesale trade, finance, insurance, real estate, general maintenance and
safety.
1999 Highlights:
- - Introduced new Duraguard(r) Property Identification Tags, manufactured using
proprietary equipment and materials to offer custom bar code, sequential or
non-sequential numbering and lettering.
- - Established a distribution and manufacturing center in California to serve the
western United States.
- - Acquired the name brand Raydek Safety Products in the United Kingdom.
- - Revamped Seton-U.S. and Seton-U.K. Web sites offering full on-line ordering of
more than 46,000 products.
- - Expanded sign-manufacturing operations in the United Kingdom to provide
24-hour turnaround of custom signs.
2000 Strategic Initiatives:
Expand geographically, particularly in Asia, by acquiring or establishing
additional brands and manufacturing sites; continue emphasis on vertical
integration to improve delivery times, reduce freight and duty expenses, improve
quality and offset currency fluctuations; introduce proprietary, highly
differentiated products globally; build on Internet presence and international
infrastructure to provide rapid delivery of short-run customized products.
A Discussion with Hatherine Hudson
Q&A
Brady is Moving Forward
11
Q: Describe Brady's customer base and channels to market.
Our customer base includes more than 300,000 different companies - Airbus
Industrie, Boeing, Ericsson, General Motors, Johnson & Johnson, Lucent,
Motorola, Rockwell Automation, Seagate and Siemens, to name a few.
We have multiple channels to market. More than 4,000 distributors - such as W.W.
Grainger - sell a wide range of Brady products. Seton, our direct-marketing arm,
sells safety and facility identification products to end users via catalogs,
telemarketing and the Internet (www.seton.com). We also have a field sales force
serving large multinational companies.
Q: What are the Company's competitive advantages?
Our significant expertise in chemistry, materials science, printing systems and
software has translated into thousands of high-performance products, including
printed circuit board labels and signs in petrochemical plants, where Brady
materials withstand chemicals, temperatures above 1,000 degrees Fahrenheit, wave
solder baths, vulcanization processes and other harsh conditions.
And with research and development, manufacturing, warehousing, and sales and
service operations around the world, we are uniquely positioned to serve the
needs of multinational companies with our more than 30,000 stock products or
custom solutions delivered fast nearly anywhere in the world.
Q: What is Brady's market position?
Brady is a world leader in safety and facility identification, wire
identification, die-cut materials for telecommunication and computer
applications, and software for generating bar-code labels, among others. We see
significant opportunity for further market penetration and growth for Brady, as
markets where we operate are quite fragmented. There is also strong long-term
potential for us internationally, especially as developing nations begin to
focus more on safety and productivity.
Q: What is your expectation for international growth?
Currently we have operations in 20 countries and about 45 percent of Brady's
sales are from international operations. Our international business should grow
at a faster rate than our U.S. business as we continue to increase our market
penetration in countries where we currently operate and also start up in other
countries with greenfield operations, acquisitions or alliances.
Q: What are Brady's goals for the future?
We are focused on value creation for the long term and therefore typically look
at things on a rolling five-year basis rather than having a short-term,
year-to-year orientation. Our goals are to grow sales at a compound annual
growth rate of 15 percent, grow net income at a faster rate than sales, and
achieve positive shareholder value enhancement (SVE).
Q: What is SVE?
Shareholder value enhancement is Brady's version of economic value added or EVA.
It is a financial measure defined as net operating profit after tax minus (net
assets times the cost of capital). SVE helps us measure whether we are providing
a sufficient return on our assets - a return that exceeds what investors require
12
for a company with similar investment characteristics. We've been using this
measure since 1993 and have consistently achieved a positive return, even at our
high cost of capital of 12.5 percent. Throughout the world, Brady managers and
employees know that revenue growth, cost control and resource utilization drive
SVE, and they have bonus compensation tied to SVE performance.
Q: How have you done in achieving your goals in the last five years?
We have done quite well. We have been successful in creating value for
shareholders, with positive SVE every year. And we achieved a compound annual
growth rate in net income of 16 percent.
We fell short on our sales-growth goal of 15 percent, achieving a compound
annual growth rate of 13 percent in sales for the last five years. While 13
percent is a solid annual growth rate, the miss on the top line was due
primarily to the effects of the Asian economic crisis and a slowdown in U.S.
industrial markets in 1998 and 1999. We believe that through acquisitions, new
product development, geographic expansion and market penetration, Brady has the
potential to achieve 15 percent or higher compound annual sales growth over the
long term.
Q: What trends will support Brady's drive for double-digit growth?
There are several trends that favor Brady. One is that companies are
increasingly striving to improve their quality and efficiency. That bodes well
for Brady as a supplier of products and services that help companies increase
productivity, performance, safety and security.
As multinational companies seek to trim their number of suppliers, Brady is
uniquely positioned to meet companies' identification needs on a global scale.
We also expect that governments in developing countries will increasingly
recognize the value of safety devices, warning and instructional signs and
labels in helping to improve employee safety and productivity. Brady will be
there with the right products, services and solutions.
Through a steady stream of innovative, value-adding products and services, we've
typically been able to achieve growth rates above and beyond what the normal
industry growth rates are in our markets.
And, finally, the Internet is an exciting avenue for growth. It makes Brady
products accessible to many more markets and geographies.
Q: What are you doing in the area of new product development?
We strive to have 25 percent of our sales come from products and services
introduced within the last three years. To support this, we invest about 4
percent of our sales in research and development every year. Also we have major
initiatives underway to speed our new-product-development process through
teamwork across divisions and geographies, use of common platforms in our
systems development, and robust project management.
Q: What types of companies do you seek to acquire?
Acquisition candidates include companies that would increase our penetration in
current markets and geographies or enable us to take our current product lines
into markets that we haven't yet entered. We also look for companies that will
bring us new technologies or capabilities, as was the case when we acquired
13
software companies in 1998 and 1999. We look to acquire strong companies, in our
current or target markets, that range in size from $10 million to $100 million
in annual revenues.
Q: What are you doing in the area of managing and enhancing intellectual assets
at your Company?
We ensure we bring in, develop and retain talent to enable us to add value and
succeed in a fast-changing marketplace. Brady is most successful when leveraging
the creativity and diversity of empowered people across functional, divisional
and geographic boundaries. That's why we have built a strong culture at Brady
based on teamwork, customer focus, growth, value and honesty. Teams and tools
such as collaborative groupware and workflow software enable us to manage and
continually build upon the knowledge, best practices and ideas we currently
have. And on-site training programs and seminars as well as tuition
reimbursement for advanced education help employees continually grow and advance
their skills.
As a Company that has a high level of innovation, we protect our intellectual
property by patenting some of our developments while holding others as trade
secrets.
Q: What do the Internet and electronic commerce mean for Brady?
The Internet opens up four major opportunities for Brady. The first is to
improve our connection and responsiveness to our current customers. Brady
distributors can now receive information and place orders directly over the
Internet. Seton customers can do the same. Basically, we are now "open for
business" 24 hours a day, seven days a week via the World Wide Web.
Second, electronic commerce will reduce our cost structure. As companies do more
business electronically, we can reduce our paper, printing and postage expense
by guiding people to fully browsable catalogs on our Web sites.
Third, we can establish communities of interest that deal directly with customer
problems and solutions. Safety engineers, facility maintenance managers, people
who track corporate assets and other groups will be able to find and share
meaningful information through Brady over the Internet.
Finally, the Internet offers the opportunity for us to efficiently create
targeted market probes to develop new business.
Q: Where do you see Brady five years from now?
Over the next few years, we want to see Brady really make its mark as an
industrial company that has embraced, driven and profited from the world's move
from the Industrial Age to the Information Age.
Our electronic-commerce efforts are much more than building pretty Web sites. We
are using intranets to connect ourselves to our business partners. We're
designing manufacturing processes that can be driven over the Internet. We're
providing goods, software and services via the World Wide Web. And we're
creating new businesses that will be totally Internet based.
The Brady of the future will be much more global and electronic.
This is an exciting time for Brady. We have strong financial resources and
dedicated, creative people who can really make it happen.
14
Financial Review
Table of Contents
Selected Financial Data 28
Management's Discussion and Analysis of
Results of Operations and Financial Condition 30
Consolidated Financial Statements & Notes 35
Independent Auditors' Report 50
Shareholder Services 50
Directors, Corporate Officers & Executives 51
Locations Back Cover
[6 BAR CHARTS]
Diluted Earnings Per Share and Dividends
in dollars
94 1.07
95 1.53
96 1.66
97 1.95
98 2.04*
99 2.36*
In September 1999, Brady increased its dividend payout for the 14th consecutive
year. It is now $0.68 per share.
*excluding nonrecurring items
Earnings Before Interest, Taxes, Depreciation and Amortization
Excluding nonrecurring items, as % of sales
94 15.5
95 17.0
96 15.4
97 15.6
98 14.2
99 17.0
Earnings before interest, taxes, depreciation and amortization rose 24 percent
to $80 million in 1999.
Stockholders' Investment
in millions
94 145
95 171
96 189
97 207
98 233
99 261
15
Stockholders' investment continues to grow, reflecting Brady's increased
profits.
Cash Flow From Operations
in millions
94 33
95 22
96 35
97 40
98 47
99 61
Cash provided by operating activities increased 30 percent in 1999, reflecting
growth and efficiency at Brady.
1999 Cash Generation and Deployment
in $ millions
Operations 61
Proceeds from Issuance of Common Stock 2
Acquisitions -31
Capital Expenditures -10
Dividends -14
With strong cash flow, Brady has the resources to accelerate growth.
Sales From International Operations
in millions
94 95
95 129
96 157
97 181
98 198
99 210
With operations in 20 countries and counting, Brady has significant
opportunities for continued growth internationally.
Selected Financial Information
Years Ended July 31, 1989 through 1999
(Dollars in Thousands, Except Per Share Amounts) 1999 1998 1997 1996 1995 1994
-------------------------------------------------------------
Operating Data
Net sales $470,862 $455,150 $426,081 $359,542 $314,362 $255,841
Operating expenses:
Cost of products sold 202,203 204,895 194,096 166,426 143,634 118,116
Research and development 17,724 20,287 16,300 11,309 10,426 10,318
Selling, general and administrative 187,774 178,648 165,317 140,642 119,717 97,932
Nonrecurring (credit) charge (611) 5,390 - - - -
Years Ended July 31, 1989 through 1999
(Dollars in Thousands, Except Per Share Amounts) 1993 1992 1991 1990 1989
----------------------------------------------------
Operating Data
Net sales $242,970 $235,965 $211,063 $191,161 $174,174
Operating expenses:
Cost of products sold 114,301 110,130 96,797 84,952 75,620
Research and development 12,132 10,001 9,176 7,355 6,168
Selling, general and administrative 92,449 93,931 84,936 76,596 71,292
Nonrecurring (credit) charge (1,236) 6,562 - - 6,465
16
Years Ended July 31, 1989 through 1999
(Dollars in Thousands, Except Per Share Amounts) 1999 1998 1997 1996 1995 1994
-----------------------------------------------------------
Total operating expenses 407,090 409,220 375,713 318,377 273,777 226,366
Operating income 63,772 45,930 50,368 41,165 40,585 29,475
Other income and (expense):
Investment and other income - net 1,455 638 1,159 4,570 4,609 837
Interest expense (445) (403) (256) (302) (555) (410)
Net other income 1,010 235 903 4,268 4,054 427
Income before income taxes, extraordinary
item and cumulative effect of changes
in accounting principles 64,782 46,165 51,271 45,433 44,639 29,902
Income taxes 25,198 18,129 19,564 17,406 16,728 11,362
Income before extraordinary item and
cumulative effect of changes in
accounting principles 39,584 28,036 31,707 28,027 27,911 18,540
Extraordinary item:
Gain on proceeds of officer's life
insurance policies, net - - - - - -
Income before cumulative effect of changes
in accounting principles 39,584 28,036 31,707 28,027 27,911 18,540
Cumulative effect of changes in accounting
principles for:
Postretirement benefits
(net of income taxes of $2,663) - - - - - -
Income taxes - - - - - -
Catalog costs - - - - - -
Net income $ 39,584 $ 28,036 $ 31,707 $ 28,027 $ 27,911 $ 18,540
Net income per Common Share (Diluted):
Class A Nonvoting $ 1.73 $ 1.23 $ 1.43 $ 1.26 $ 1.26 $ .84
Class B Voting $ 1.70 $ 1.20 $ 1.40 $ 1.23 $ 1.23 $ .81
Cash dividends on:
Class A Common Stock $ .64 $ .60 $ .52 $ .40 $ .27 $ .23
Class B Common Stock $ .61 $ .57 $ .49 $ .37 $ .23 $ .19
Balance Sheet (at year end)
Working capital $129,884 $125,386 $130,724 $109,688 $129,938 $ 100,023
Total assets 351,120 311,824 291,662 261,835 230,005 202,509
Long-term debt, less current maturities 1,402 3,716 3,890 1,809 1,903 1,855
Stockholders' investment 260,564 233,373 206,547 189,263 170,823 145,129
Years Ended July 31, 1989 through 1999
(Dollars in Thousands, Except Per Share Amounts) 1993 1992 1991 1990 1989
----------------------------------------------------
Total operating expenses 217,646 220,624 190,909 168,903 159,545
Operating income 25,324 15,341 20,154 22,258 14,629
Other income and (expense):
Investment and other income - net 559 239 2,845 4,004 2,380
Interest expense (54) (219) (548) (646) (356)
Net other income 505 20 2,297 3,358 2,024
Income before income taxes, extraordinary
item and cumulative effect of changes
in accounting principles 25,829 15,361 22,451 25,616 16,653
Income taxes 8,973 6,972 7,054 10,606 6,778
Income before extraordinary item and
cumulative effect of changes in
accounting principles 16,856 8,389 15,397 15,010 9,875
Extraordinary item:
Gain on proceeds of officer's life
insurance policies, net - - - - 4,625
Income before cumulative effect of changes
in accounting principles 16,856 8,389 15,397 15,010 14,500
Cumulative effect of changes in accounting
principles for:
Postretirement benefits
(net of income taxes of $2,663) - (3,995) - - -
Income taxes - 661 - - -
Catalog costs - - - - 1,233
Net income $ 16,856 $ 5,055 $ 15,397 $ 15,010 $ 15,733
Net income per Common Share (Diluted):
Class A Nonvoting $ .77 $ .22 $ .70 $ .69 $ .70
Class B Voting $ .74 $ .19 $ .67 .66 $ .67
Cash dividends on:
Class A Common Stock $ .20 $ .19 $ .16 $ .13 $ .09
Class B Common Stock $ .17 $ .15 $ .13 $ .10 $ .06
Balance Sheet (at year end)
Working capital $ 77,943 $ 66,093 $ 70,883 $ 67,797 $ 53,056
Total assets 179,901 173,054 156,812 147,197 129,890
Long-term debt, less current maturities 1,978 2,524 1,982 3,298 3,637
Stockholders' investment 128,068 119,771 115,260 103,784 89,443
Management's Discussion and Analysis of Results of Operations and Financial
Condition
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes appearing in this annual
report.
Overview
Between fiscal 1996 and 1999, the Company experienced sales growth while
reducing cost of products sold as a percentage of net sales. It made significant
improvements in productivity and asset utilization through the successful
implementation of a team-oriented approach to quality, growth and cost
reduction. To further enhance teamwork, in February 1995, the Company's
operations were realigned into three global groups, each headed by a group vice
president. The groups are (i) the Identification Solutions & Specialty Tapes
Group, (ii) the Graphics Group, and (iii) the Direct Marketing Group.
During fiscal 1996, to implement the Company's growth strategy discussed below,
the Company increased expenditures related to new products, geographic expansion
and acquisitions. This included investments in global information systems and
increased sales and marketing activities. Investments in these key areas
17
resulted in selling, general and administrative expenses as a percentage of
sales of 39.1% for fiscal 1996, 38.8% for fiscal 1997, 39.3% for fiscal 1998 and
39.9% for fiscal 1999. Management believes these investments will solidify the
Company's competitive position and assist the Company in building a base for
sustainable long-term growth.
The Company's growth strategy is focused on four key elements: introducing new
products for current and new markets and applications; geographic expansion in
selected markets worldwide; strategic acquisitions and joint ventures; and
increasing market penetration in existing markets.
The Company introduced several new products in fiscal 1999, including the
TLS2200(tm) Thermal Labeling System, the HandiMark(tm) Portable Label Maker, the
Merlin(r)II Portable Labeling System, Bradyprinter(tm) Model 600 X-Plus Labeling
System, PAM 6000 printer applicator machine, Markware(tm) Facility
Identification Software, Brady Clean ID(tm) labels, heavy-duty tire
identification labels, Mondo Bondo(tm) high-adhesion labels and WavePoint(tm)
Read/Write Radio Frequency Identification tags and readers.
During fiscal 1999, the Company opened a distribution center in California
serving the western United States.
The Company completed the acquisitions of SOFT S.A. (France) and the Holman
Groupe S.A. (France) in July 1999, Visi Sign Pty. Ltd (Australia) in May 1999,
Barcodes West Inc. (United States) in March 1999, VEB Sistemas de Etiquetas
Ltda. (Brazil) in August 1998, GrafTek Inc. (Canada) in April 1998, Techniques
Avancees (France) in March 1998, Signals S.A. (France) in April 1997, Varitronic
Systems, Inc. (United States) in April 1996, The Hirol Company (United States)
in January 1996 and TechPress II Limited (England) in November 1995.
To increase market penetration in fiscal 1999, the Company continued its
investment in sales, marketing and catalog efforts worldwide. Access to
information about Brady products was made easier through the launch of an
improved Internet site. The trading market and profile of Brady stock was also
improved when the Company listed on the New York Stock Exchange in May 1999.
Year Ended July 31, 1999, Compared to Year Ended July 31, 1998
Sales for fiscal 1999 increased by $15,712,000 or 3.5% over fiscal 1998. Sales
of the Company's international operations increased 5.9%. In local currencies,
continued market penetration in Brady's operations outside the United States
increased international sales by 3.4%. The acquisitions of Techniques Avancees,
GrafTek Inc., VEB Sistemas de Etiquetas Ltda. and Visi Sign Pty. Ltd increased
international sales in local currencies by another 3.4%. These increases were
somewhat offset by the negative effect of fluctuations in the exchange rates
used to translate financial results into U.S. currency, which reduced
international sales growth by 0.9 percentage points. Sales of the Company's U.S.
operations increased 1.6%, due primarily to the acquisition of Barcodes West
Inc.
The cost of products sold as a percentage of sales decreased from 45.0% to
42.9%. Last year's cost of products sold included a charge of $1,515,000
($920,000 after tax) for the write-down of certain inventories. Excluding this
charge, cost of products sold as a percentage of sales decreased from 44.7% to
42.9%. This improvement was primarily caused by changes in product mix towards
products with higher margins, reduced expenses as a result of the workforce
reduction in August 1998 and manufacturing efficiencies from the Company's
continuous improvement efforts.
18
Selling, general and administrative expenses as a percentage of sales increased
from 39.3% to 39.9%. Last year's expenses included a charge of $540,000
($328,000 after tax) for the write-down of certain assets. Excluding this
charge, selling, general and administrative expenses as a percentage of sales
increased from 39.1% to 39.9%. The increase was primarily caused by a higher
bonus accrual as a result of the Company's significant improvement in
profitability and higher amortization expense from the goodwill generated by the
Company's acquisitions. The completion of certain product development projects
as well as restructuring of the research and development effort to increase
teamwork and focus on key product segments caused research and development
expenses to decrease 12.6% from the prior year. As a percentage of sales,
research and development expenses decreased from 4.5% to 3.8%.
The Company recorded a $611,000 ($366,000 after tax) nonrecurring credit this
year for adjusting the severance costs associated with the workforce reduction.
Last year the Company recorded a nonrecurring charge of $5,390,000 ($3,272,000
after tax) related primarily to a provision for severance costs associated with
a 7.5% reduction in its workforce.
Operating income increased $17,842,000 to $63,772,000 in fiscal 1999 as the
improved gross margin more than offset the higher selling, general and
administrative expenses. Excluding the nonrecurring items in both years (a
charge in 1998 and a credit in 1999), operating income increased 18.3%, from
$53,375,000 to $63,161,000.
Investment and other income increased $817,000 from the prior year. Last year
included losses of $406,000 ($246,000 after tax) on the disposal of certain
assets.
Income before income taxes was $64,782,000, an increase of 40.3% compared to
fiscal 1998's $46,165,000. Excluding the nonrecurring items in both years,
income before income taxes increased 18.8% compared to the prior year.
The Company's effective tax rate decreased slightly from 39.3% for fiscal 1998
to 38.9% for fiscal 1999.
Net income was $39,584,000 for fiscal 1999, compared to $28,036,000 for fiscal
1998 because of the factors cited above. Excluding the $366,000 nonrecurring
credit in fiscal 1999 and the $4,766,000 one-time charges in fiscal 1998, net
income increased 19.6% over the prior year.
Business Segment Operating Results
Identification Solutions & Specialty Tapes (ISST) Group
ISST sales increased 5.6% in fiscal 1999 (up about 6% in constant currency) from
fiscal 1998, following an increase of 5.6% in fiscal 1998 versus 1997. The
increase in 1999 was primarily the result of the acquisitions of GrafTek and
Techniques Avancees late last year and this year's acquisitions of VEB and
Barcodes West. Sales were up in the Americas and Europe and down in Asia. The
increase in 1998 versus 1997 was primarily a result of the growth in base
business, solid new product sales and the two software acquisitions late in
fiscal 1998.
Excluding the effect of one-time items, profit as a percentage of sales
increased slightly from 14.9% last year to 15.1% this year. Cost savings from
the workforce reduction early in the fiscal year offset increased expenses from
19
the new coating line and acquisitions. Comparing fiscal 1998 to 1997, profit as
a percentage of sales declined from 15.3% to 14.9% primarily as a result of a
planned scaling back of external coating to focus on upcoming new material
product developments.
Graphics Group
Graphics sales decreased 1.9% in fiscal 1999 (down about 2% in constant
currency) from fiscal 1998, following an increase of 2.1% from 1997. The
decrease in sales of Colorpix wide-format color inkjet printers and related
materials was the primary reason for this change in 1999. This product line was
de-emphasized in the face of industry stagnation and thinning margins. Sales
were down slightly in the Americas and Europe and up in Asia. The 1998 increase
from 1997 was a result of higher sales of the Colorpix product line.
Excluding the effect of one-time items, profit as a percentage of sales
increased significantly from 8.9% last year to 14.8% this year. This profit
improvement was generated despite the drop in sales as a result of a reduced
expense structure after the workforce reduction and the group's refocusing of
resources on the most value-adding growth and profit opportunities. Profit as a
percentage of sales decreased from 11.6% in fiscal 1997 to 8.9% in fiscal 1998
due primarily to technical and developmental expenses associated with the
Colorpix product line.
Direct Marketing Group
Direct Marketing sales increased 5.4% in fiscal 1999 (up about 6% in constant
currency) from fiscal 1998 and 12.7% in fiscal 1998 over 1997. Sales growth
continued to be stronger in Europe than in the United States. In general, sales
in Europe were strong in the first six months of fiscal 1999, but growth slowed
in the second half of the fiscal year. For the year, sales were up in Europe and
flat in the Americas. The sales increase in 1998 compared to 1997 was helped by
the acquisition of Signals in April 1997.
Excluding the effect of one-time items, profit as a percentage of sales
increased from 13.1% in fiscal 1997 to 14.9% last year and 18.0% this year. The
primary reasons for this improvement are higher gross margins as a result of
vertical integration and better return on advertising investments due to
detailed profit analysis by product and improved mailing effectiveness.
Year Ended July 31, 1998, Compared to Year Ended July 31, 1997
Sales for fiscal 1998 increased by $29,069,000 or 6.8% over fiscal 1997. Sales
of the Company's international operations increased 9.5%. In local currencies,
continued market penetration in Brady's operations outside the United States
increased international sales by 13.2%. The acquisitions of Signals S.A.,
Techniques Avancees and GrafTek Inc. increased international sales in local
currencies by 4.4%. These increases were somewhat offset by the negative effect
of fluctuations in the exchange rates used to translate financial results into
U.S. currency, which reduced international sales growth by 8.1 percentage
points. Sales of the Company's U.S. operations increased 4.9%, due primarily to
increases in the sales of the Company's core products.
The cost of products sold as a percentage of sales decreased from 45.6% to
45.0%. Reduced costs due to changes in product mix and manufacturing
efficiencies from the Company's continuous improvement efforts were partially
offset by increased depreciation and amortization expenses from the
acquisitions. Cost of products sold for fiscal 1998 included a charge of
20
$1,515,000 ($920,000 after tax) for the write-down of certain inventories. Cost
of products sold for fiscal 1997 included a charge of $1,200,000 ($715,000 after
tax) for restructuring the Company's European operations and consolidating the
Hirol Division's production operations into the Company's existing operations in
the United States and in the United Kingdom. Excluding these charges, the cost
of products sold as a percentage of sales decreased from 45.3% to 44.7%.
Selling, general and administrative expenses as a percentage of sales increased
from 38.8% to 39.3%. The increase reflects the expenses related to the Company's
ongoing investment in sales and marketing activities and building its global
information technology infrastructure. The 1998 expenses included a charge of
$540,000 ($328,000 after tax) for the write-down of certain assets. The 1997
expenses included a charge of $300,000 ($180,000 after tax) for the
restructuring mentioned above. Excluding these charges, selling, general and
administrative expenses as a percentage of sales increased from 38.7% to 39.1%.
Research and development expenses increased 24.5% over the prior year,
reflecting the Company's continued commitment to process improvement and new
product development. As a percentage of sales, research and development expenses
increased from 3.8% to 4.5%.
During fiscal 1998, the Company recorded a nonrecurring charge of $5,390,000
($3,272,000 after tax) related primarily to a provision for severance costs
associated with a 7.5% reduction in its workforce at its operations around the
world. Severance payments for approximately 200 people totaled $5,024,000. The
remainder of the charge related to the write-off of assets associated with
discontinuing the Company's contract taping service and cover tape product line.
Operating income decreased $4,438,000 to $45,930,000 in fiscal 1998 as the
one-time charges and the increase in research and development expenses more than
offset the improvement in gross margin. Excluding the one-time charges in both
years, operating income increased 2.9% from $51,868,000 to $53,375,000.
Investment and other income decreased $521,000 from 1997. The 1998 results
include $406,000 ($246,000 after tax) of losses on the disposal of certain
assets.
Income before income taxes was $46,165,000, a decrease of 10.0% compared to
fiscal 1997's $51,271,000. Excluding the one-time charges in both years, income
before income taxes increased 2.4% compared to the prior year.
The Company's effective tax rate increased from 38.2% for fiscal 1997 to 39.3%
for fiscal 1998 due to higher tax rates for the Company's international
operations.
Net income was $28,036,000 for fiscal 1998, compared to $31,707,000 for fiscal
1997 because of the factors cited above. Excluding the $4,766,000 one-time
charges in fiscal 1998 and the $895,000 restructuring charge in fiscal 1997, net
income increased 0.6% over the prior year.
Year Ended July 31, 1997, Compared to Year Ended July 31, 1996
Sales for fiscal 1997 increased by $66,539,000 or 18.5% over fiscal 1996. Sales
of the Company's international operations increased by 15.5%. Real growth
through continued market penetration in Europe and the Far East increased
international sales 12.7%. The acquisitions of TechPress II Limited and Signals
S.A. and the startup of the Company's Korean joint venture increased
international sales 5.7%. These increases were offset by the negative effect of
fluctuations in the exchange rates used to translate financial results into U.S.
21
currency which reduced international sales by 2.9%. Sales of the Company's U.S.
operations increased 20.8% for the year ended July 31, 1997. The acquisitions of
Varitronic Systems, Inc. and The Hirol Company contributed 11.8% of this
increase, with growth in the sales of the Company's core products making up the
balance.
The cost of products sold as a percentage of sales decreased from 46.3% to 45.6%
due to changes in product mix and manufacturing efficiencies from the Company's
continuous improvement efforts, offsetting increased depreciation expenses from
the acquisitions. Cost of products sold for fiscal 1997 included a charge in the
second quarter of $1,200,000 ($715,000 after tax) for restructuring the
Company's European operations and consolidating The Hirol Company's production
operations into the Company's existing operations in the United States and in
the United Kingdom. Selling, general and administrative expenses as a percentage
of sales decreased slightly from 39.1% to 38.8%, as the Company's continuing
cost control efforts more than offset the Company's ongoing investment in
building its global information technology infrastructure. Selling, general and
administrative expenses for fiscal 1997 included a charge of $300,000 ($180,000
after tax) for the restructuring mentioned above. The acquisitions and the
Company's commitment to process improvements and new product development
resulted in research and development expenses increasing by 44.1% over fiscal
1996. As a percentage of sales, research and development expenses increased from
3.2% to 3.8%.
Operating income increased by $9,203,000 or 22.4% over fiscal 1996, as the
increase in research and development expenses was offset by improved gross
margins and the spreading of fixed costs over a larger sales base.
Investment and other income decreased $3,411,000 from the prior year as a result
of lower investment income because of lower cash balances as a result of the
acquisitions in the prior year and foreign exchange losses. In addition,
investment and other income for fiscal 1996 included $1,750,000 ($950,000 after
tax) from the gain on the sale of a building in Germany.
Income before income taxes increased to $51,271,000, an increase of 12.9%
compared to fiscal 1996's $45,433,000. Excluding the 1997 restructuring charges
and the 1996 gain on the sale of the German building, income before income taxes
increased 20.8% compared to the prior year.
The Company's effective tax rate decreased slightly from 38.3% for fiscal 1996
to 38.2% for fiscal 1997.
Net income was $31,707,000 for fiscal 1997, compared to $28,027,000 for fiscal
1996 because of the factors cited above. Excluding the $895,000 restructuring
charge in 1997 and the $950,000 gain on the sale of the building in Germany in
1996, fiscal 1997 net income increased 20.4% compared to the prior year.
Liquidity
The Company's liquidity remains strong. Cash and cash equivalents were
$75,466,000 at July 31, 1999, compared to $65,609,000 at July 31, 1998, and
$65,329,000 at July 31, 1997. Working capital increased $4,498,000 during fiscal
1999 and equaled $129,884,000 at July 31, 1999.
The Company has maintained significant cash balances due in large part to its
strong operating cash flow, which totaled $61,357,000 for fiscal 1999,
$47,207,000 for fiscal 1998, and $39,911,000 for fiscal 1997. Capital
expenditures were $9,889,000 in fiscal 1999, $17,189,000 in fiscal 1998, and
22
$8,777,000 in fiscal 1997. The increase in fiscal 1998 was primarily from
progress payments made on the Company's new coating line. Financing activities,
primarily the payment of dividends to the Company's stockholders, consumed
$12,533,000 of cash in fiscal 1999, $12,147,000 in fiscal 1998, and $9,166,000
in fiscal 1997.
In September 1999, the Company entered into a $150,000,000 revolving loan
agreement with six banks.
Long-term debt as a percentage of long-term debt plus stockholders' investment
was 0.5% at July 31, 1999, compared to 1.6% at July 31, 1998, and 1.8% at July
31, 1997.
The Company continues to seek opportunities to invest in new products and new
markets and in strategic acquisitions and joint ventures which fit its growth
strategy. Management believes the Company's cash and cash equivalents, available
line of credit, and the cash flow it generates from operating activities are
adequate to meet the Company's current investing and financing needs.
Inflation
Essentially all of the Company's revenue is derived from the sale of its
products in competitive markets. Because prices are influenced by market
conditions, it is not always possible to fully recover cost increases through
pricing. Changes in product mix from year to year and timing differences in
instituting price changes make it virtually impossible to accurately define the
impact of inflation on profit margins.
Market Risk
The Company's business operations give rise to market risk exposure due to
changes in foreign exchange rates. To manage that risk effectively, the Company
enters into hedging transactions, according to established guidelines and
policies, that enable it to mitigate the adverse effects of this financial
market risk.
The global nature of the Company's business requires active participation in the
foreign exchange markets. As a result of investments, production facilities and
other operations on a global scale, the Company has assets, liabilities and cash
flows in currencies other than the U.S. Dollar. The primary objective of the
Company's foreign exchange risk management is to minimize the impact of currency
movements on intercompany transactions and foreign raw material imports. To
achieve this objective, the Company hedges known exposures using forward
contracts. Main exposures are related to transactions denominated in the British
Pound, the Euro (primarily the Belgian Franc, Deutsche Mark and French Franc),
Canadian Dollar, Japanese Yen and Australian Dollar. The risk of these hedging
instruments is not material.
Euro Conversion
On January 1, 1999, the Euro was adopted as the national currency of 11 European
Union member nations. During a three-year transition period, the Euro will be
used as a non-cash transactional currency. The Company began conducting business
in Euros in January 1999, and will change its functional currencies during the
three-year transition period. The conversion to the Euro is not expected to have
a significant operational impact or a material impact on the results of
operations, cash flows or financial condition of the Company.
23
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to process certain date-based
information. This could result in a system failure or miscalculations causing
disruptions of operations and the inability to engage in normal business
activities. Many of the Company's systems, including information and computer
systems and automated equipment, will be affected by this issue.
The Company has a comprehensive plan to address potential Year 2000 issues. The
plan includes (i) the complete inventory of all in-house computers, software and
other equipment utilizing microprocessors and the identification of all hardware
and software; (ii) modification of the affected systems; and (iii) testing the
modified systems and auditing the system for final compliance. The Company is
using both internal and external resources to implement its plan. The Company
has generally completed the inventory and modification phases of the plan and is
at various stages of testing and auditing these systems. The Company feels it
has adequate time to assess and correct any significant issues that materialize.
The Company estimates that at the conclusion of its various Year 2000 efforts,
including conversion, testing and contingency planning, it will have spent
approximately $2,500,000 over a multi-year period. Costs associated with this
issue have been and will continue to be expensed as incurred and are not
expected to have a material effect on the results of operations, cash flows or
financial condition of the Company. Although the Company believes its efforts
will be successful, any failure or delay could result in the disruption of
business and in the Company incurring substantial expense. To minimize any such
potential impact, the Company initiated a global contingency planning effort
designed to support critical business operations.
As a third-party supplier of software and printing systems to other companies,
the Company has posted its own product compliance status on its Internet site
(www.bradycorp.com).
The Company has completed the process of formally communicating with all of its
significant suppliers and customers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year 2000
Compliance issues. A failure of the Company's suppliers, customers and other
third parties to address adequately their Year 2000 readiness could
significantly affect the Company's business. As part of its contingency planning
efforts, the Company identified alternate sources or strategies where
significant exposures were identified.
Finally, the Year 2000 presents a number of other risks and uncertainties that
could affect the Company, including utilities and telecommunications failures,
competition for personnel skilled in the resolution of Year 2000 issues, and the
nature of government responses to Year 2000 issues, among others. While the
Company continues to believe that the Year 2000 matters discussed above will not
have a material impact on its results of operations, cash flows or financial
condition, it remains uncertain whether or to what extent the Company may be
affected.
The Year 2000 statements set forth above are designated as "Year 2000 Readiness
Disclosures" pursuant to the Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271).
Forward-Looking Statements
24
Matters in this Annual Report may contain forward-looking information, as
defined in the Private Securities Litigation Reform Act of 1995. All such
forward-looking information in this report involves risks and uncertainties
including, but not limited to, variations in the economic or political
conditions in the countries with which the Company does business; fluctuations
in currency exchange rates for international currencies versus the U.S. dollar;
technology changes; the continued availability of sources of supply; domestic
and international economic conditions and growth rates; the ability of the
Company to timely adjust its cost structure to changes in levels of sales,
product mix and low levels of order backlog; the ability of the Company to make
sufficient strategic acquisitions at reasonable prices; the ability of the
Company to integrate the acquired businesses within a reasonable period of time;
and other risks indicated in filings by the Company with the Securities and
Exchange Commission. The Company cautions that forward-looking statements are
not guarantees, since there are inherent difficulties in predicting future
results, and that actual results could differ materially from those expressed or
implied in forward-looking statements.
Consolidated Balance Sheets
(Dollars in Thousands) July 31, 1999 and 1998 1999 1998
Assets
Current assets:
Cash and cash equivalents (Note 1) $ 75,466 $ 65,609
Accounts receivable, less allowance for losses ($2,339
and $2,011, respectively) 73,290 63,365
Inventories (Note 1):
Finished products 23,368 22,836
Work-in-process 2,878 3,967
Raw materials and supplies 11,281 11,641
Total inventories 37,527 38,444
Prepaid expenses and other current assets (Notes 1, 3 and 4) 16,886 16,635
Total current assets 203,169 184,053
Other assets:
Intangibles - net (Note 1) 72,941 53,528
Other (Note 4) 8,026 7,078
Property, plant and equipment (Notes 1 and 5):
Cost:
Land 5,008 4,988
Buildings and improvements 41,417 39,595
Machinery and equipment 101,324 83,146
Construction in progress 2,229 11,705
149,978 139,434
Less accumulated depreciation 82,994 72,269
Net property, plant and equipment 66,984 67,165
Total $351,120 $311,824
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $ 19,378 $ 15,761
Wages and amounts withheld from employees 23,186 19,542
Taxes, other than income taxes 2,290 2,033
Accrued income taxes 12,516 9,276
Other current liabilities (Note 3) 13,289 11,647
Current maturities on long-term debt (Note 5) 2,626 408
Total current liabilities 73,285 58,667
Long-term debt, less current maturities (Note 5) 1,402 3,716
Other liabilities (Note 3) 15,869 16,068
Total liabilities 90,556 78,451
Stockholders' investment (Notes 1 and 6):
Preferred Stock (aggregate liquidation preference of $3,026
at July 31, 1999) 2,855 2,855
25
Common Stock:
Class A Nonvoting - issued and outstanding 20,839,841 and 20,726,863 shares,
respectively, (aggregate liquidation
preference of $34,803 at July 31, 1999) 208 207
Class B Voting - issued and outstanding 1,769,314 shares 18 18
Additional paid-in capital 28,383 26,131
Earnings retained in the business 233,521 208,254
Treasury stock - 4,548 shares of Class A Nonvoting Common Stock, at cost (132) -
Cumulative other comprehensive income (1,958) (1,068)
Other (2,331) (3,024)
Total stockholders' investment 260,564 233,373
Total $351,120 $311,824
See Notes to Consolidated Financial Statements.
Consolidated Statements of Income
Years Ended July 31, 1999, 1998 and 1997
(Dollars in Thousands, Except Per Share Amounts) 1999 1998 1997
Net sales $470,862 $455,150 $426,081
Operating expenses:
Cost of products sold 202,203 204,895 194,096
Research and development 17,724 20,287 16,300
Selling, general and administrative 187,774 178,648 165,317
Nonrecurring (credit) charge (Note 10) (611) 5,390 -
Total operating expenses 407,090 409,220 375,713
Operating income 63,772 45,930 50,368
Other income and (expense):
Investment and other income - net 1,455 638 1,159
Interest expense (445) (403) (256)
Net other income 1,010 235 903
Income before income taxes 64,782 46,165 51,271
Income taxes (Notes 1 and 4) 25,198 18,129 19,564
Net income $ 39,584 $ 28,036 $ 31,707
Net income per Common Share (Notes 6 and 8):
Class A Nonvoting:
Basic $ 1.74 $ 1.24 $ 1.44
Diluted $ 1.73 $ 1.23 $ 1.43
Class B Voting:
Basic $ 1.71 $ 1.21 $ 1.41
Diluted $ 1.70 $ 1.20 $ 1.40
See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders' Investment
Years Ended July 31, 1999, 1998 and 1997
(Dollars in Thousands, Except Per Share Amounts)
Additional Earnings Other Total
Preferred Common Paid-in Retained in Treasury Comprehensive Comprehensive
Stock Stock Capital the Business Stock Income Other Income
Balances at July 31, 1996 $ 2,855 $ 219 $ 8,415 $ 173,491 $ - $ 4,283 $ - -
26
Net income - - - 31,707 - - - $31,707
Net currency translation adjustment - - - - - (3,986) - (3,986)
Total comprehensive income - - - - - - - 27,721
Issuance of 77,753 shares of Class A Common Stock
under stock option plan - 1 835 - - - - -
Tax benefit from exercise of stock options - - 323 - - - -
- -
Cash dividends on Preferred Stock:
1979 series - $10 a share - - - (220) - - - -
6% and 1972 series - $6 a share - - - (39) - - - -
Cash dividends on Common Stock:
Class A - $.52 a share - - - (10,476) - - - -
Class B - $.49 a share - - - (861) - - - -
Balances at July 31, 1997 2,855 220 9,573 193,602 - 297 - -
Net income - - - 28,036 - - - 28,036
Net currency translation adjustment - - - - - (1,365) - (1,365)
Total comprehensive income - - - - - - - 26,671
Issuance of 57,282 shares of Class A Common Stock
under stock option plan - - 941 - - - -
Other - 5 15,268 - - - (3,024)
Tax benefit from exercise of stock options - - 349 - - - -
Cash dividends on Preferred Stock:
1979 series - $10 a share - - - (220) - - -
6% and 1972 series - $6 a share - - - (39) - - -
Cash dividends on Common Stock:
Class A - $.60 a share - - - (12,122) - - -
Class B - $.57 a share - - - (1,003) - - -
Balances at July 31, 1998 2,855 225 26,131 208,254 - (1,068) (3,024)
Net income - - - 39,584 - - - 39,584
Net currency translation adjustment - - - - - (890) - (890)
Total comprehensive income - - - - - - - $38,694
Issuance of 112,978 shares of Class A Common Stock
under stock option plan - 1 1,880 - - - -
Other - - - - - - 693
Tax benefit from exercise of stock options - - 372 - - - -
Cash dividends on Preferred Stock:
1979 series - $10 a share - - - (220) - - -
6% and 1972 series - $6 a share - - - (39) - - -
Acquisition of treasury stock, 4,548 shares, at cost - - (132) - - -
Cash dividends on Common Stock:
Class A - $.64 a share - - - (12,985) - - -
Class B - $.61 a share - - - (1,073) - - -
Balances at July 31, 1999 $2,855 $226 $28,383 $233,521$(132) $(1,958) $(2,331)
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Years Ended July 31, 1999, 1998 and 1997 1999 1998 1997
Operating activities:
Net income $39,584 $28,036 $31,707
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 11,263 11,047 12,183
Amortization 3,886 2,241 1,968
Loss on sale of property, plant
and equipment 181 349 139
Provision for losses on accounts receivable 966 970 663
Other 693 212 -
Nonrecurring (credit) charge (611) 5,390 -
Changes in operating assets and liabilities
(net of effects of business acquisitions):
Accounts receivable (4,899) 1,066 (12,796)
Inventory 5,547 5,705 (4,818)
27
Prepaid expenses and other assets (1,643) (3,159) 2,342
Accounts payable and accrued liabilities 4,330 (4,285) 6,147
Income taxes 3,313 (36) 3,334
Deferred income taxes (1,069) (4,508) (1,118)
Other liabilities (184) 4,179 160
Net cash provided by operating activities 61,357 47,207 39,911
Investing activities:
Acquisitions of businesses, net of
cash acquired (31,107) (19,306) (6,724)
Purchases of property, plant and equipment (9,889) (17,189) (8,777)
Proceeds from sale of property, plant
and equipment 232 500 908
Other (176) 169 292
Net cash (used in) investing activities (40,940) (35,826) (14,301)
Financing activities:
Payment of dividends (14,317) (13,384) (11,596)
Proceeds from issuance of Common Stock 2,252 941 835
Proceeds from long-term borrowings 310 829 2,236
Principal payments on long-term debt (778) (533) (641)
Net cash (used in) financing activities (12,533) (12,147) (9,166)
Effect of exchange rate changes on cash 1,973 1,046 (396)
Net increase in cash and cash equivalents 9,857 280 16,048
Cash and cash equivalents, beginning of year 65,609 65,329 49,281
Cash and cash equivalents, end of year $75,466 $65,609 $65,329
Supplemental disclosure of cash flow information: Cash paid during the
year for:
Interest $ 409 $ 277 $ 258
Income taxes, net of refunds 22,107 22,580 18,987
Acquisitions:
Fair value of assets acquired, net of cash 15,017 2,619 3,058
Liabilities assumed (6,291) (1,471) (1,375)
Goodwill 22,381 18,158 5,041
Net cash paid for acquisitions $31,107 $19,306 $ 6,724
Class A Common Stock issued to fund
deferred compensation plan - $11,555 -
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Years Ended July 31, 1999, 1998 and 1997
Note 1
Summary of Significant Accounting Policies
Principles of Consolidation The accompanying consolidated financial statements
include the accounts of Brady Corporation and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
28
Fair Value of Financial Instruments The Company believes the carrying amount of
its financial instruments (cash and cash equivalents, accounts receivable,
accounts payable and long-term debt) is a reasonable estimate of the fair value
of these instruments.
Cash Equivalents The Company considers all highly liquid investments with
maturities of three months or less when acquired to be cash equivalents.
Inventories Inventories are stated at the lower of cost or market. Cost has been
determined using the last-in, first-out (LIFO) method for certain domestic
inventories (approximately 39% and 48% of total inventories at July 31, 1999 and
1998, respectively) and the first-in, first-out method for other inventories.
The difference between the carrying value of domestic inventories stated at LIFO
cost and the value of such inventories stated at replacement cost was $4,988,000
at July 31, 1999, and $5,319,000 at July 31, 1998.
Depreciation The cost of buildings and improvements and machinery and equipment
is being depreciated over their estimated useful lives using the straight-line
method for financial reporting purposes.
Intangible Assets The excess of cost over fair value of the net assets of
businesses acquired is amortized using the straight-line method over various
periods ranging from 10 to 40 years. The weighted average amortization period is
23 years at July 31, 1999.
Impairment of Long-Lived Assets The Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets may warrant revision or that the remaining balance of an asset
may not be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of assets from expected future operating cash
flows on an undiscounted basis. In the opinion of management, no such impairment
existed as of July 31, 1999.
Catalog Costs Catalog costs are initially capitalized and amortized over the
estimated useful lives of the publications (generally eight months). At July 31,
1999 and 1998, $4,600,000 and $5,220,000, respectively, of prepaid catalog costs
were included in prepaid expenses and other current assets.
Foreign Currency Translation Foreign currency assets and liabilities are
translated into United States dollars at end of period rates of exchange, and
income and expense accounts are translated at the weighted average rates of
exchange for the period. Resulting translation adjustments are included as a
separate component of stockholders' investment.
Hedging The Company enters into forward foreign exchange contracts to hedge
committed intercompany foreign currency transactions. Such exchange contracts
generally have maturities of one year. At July 31, 1999 and 1998, exchange
contracts aggregating approximately $19,830,000 and $21,425,000, respectively,
were outstanding.
Income Taxes The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
29
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Accounting Standards Adopted Effective August 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (Statement 131). Statement 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See footnote 7.
Accounting Standards to Be Adopted In 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company is
currently evaluating the impact of this statement on the consolidated financial
statements. This statement is required to be adopted in fiscal 2001.
Note 2
Acquisitions of Businesses
Effective August 29, 1996, the Company entered into a joint venture, W. H. Brady
Korea Co. Ltd., in Okcheon, Korea. Brady gained 100 percent ownership of the
company, now named Brady Korea Ltd., in September 1998. The company produces
labels and markets printers and other Brady products.
Effective April 30, 1997, the Company acquired the common stock of Signals S.A.
located in LaRochelle, France, a marketer of safety and facility identification
products, for cash of approximately $9,600,000.
Effective March 9, 1998, the Company acquired the common stock of Techniques
Avancees located in Auch, France, a bar-code labeling software developer, for
cash of $10,735,000 and a payable of $1,030,000.
Effective April 30, 1998, the Company acquired the common stock of GrafTek Inc.
located in Toronto, Ontario, Canada, a bar-code labeling software developer, for
cash of $8,528,000 and a payable of $933,000.
Effective August 11, 1998, the Company acquired the common stock of VEB Sistemas
de Etiquetas Ltda, in Sao Paulo, Brazil, an industrial label manufacturer, for
cash of approximately $4,400,000.
Effective March 25, 1999, the Company acquired the assets of Barcodes West Inc.
located in Seattle, Washington, a label manufacturer and software and service
provider, for cash of approximately $5,757,000.
Effective May 7, 1999, the Company acquired the common stock of Visi Sign Pty.
Ltd. located in Victoria, Australia, a manufacturer of identification products,
for cash of approximately $1,396,000. The purchase price of this acquisition is
subject to change based on post-closing adjustments.
Effective July 7, 1999, the Company acquired the common stock of Holman Groupe
S.A. located in Rungis, France, an automatic identification and application
30
specialist, for cash of approximately $5,343,000 and a payable of approximately
$554,000. The purchase price of this acquisition is subject to change based on
post-closing adjustments.
Effective July 30, 1999, the Company acquired the common stock of the graphics
division of SOFT S.A., located in Lyon, France, a developer and distributor of
printing systems, for cash of approximately $14,044,000. The purchase price of
this acquisition is subject to change based on post-closing adjustments.
Effective September 3, 1999, the Company acquired certain assets of a direct
marketer of signs, labels and identification products for cash of approximately
$5,600,000. The purchase price of this acquisition is subject to change based on
post-closing adjustments.
These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations have been included since
the dates of acquisition in the accompanying financial statements. The pro forma
results of operations of the above acquisitions are not significant to the
financial statements.
Note 3
Employee Benefit Plans
The Company provides postretirement medical, dental and vision benefits for all
regular full- and part-time domestic employees (including spouses) who retire on
or after attaining age 55 with 15 years of credited service. Credited service
begins accruing at the later of age 40 or date of hire. All active employees
first eligible to retire after July 31, 1992, will be covered by an unfunded,
contributory postretirement healthcare plan where employer contributions will
not exceed a Defined Dollar Benefit amount, regardless of the cost of the
program. Employer contributions to the plan will be based on the employee's age
and service at retirement.
The Company accounts for postretirement benefits other than pensions in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." The Company funds benefit costs on a pay-as-you-go basis.
The following table provides a reconciliation of the changes in the Plan's
benefit obligations at July 31, 1999, 1998 and 1997:
(Dollars in Thousands) 1999 1998 1997
Obligation at beginning of fiscal year $6,802 $6,142 $5,476
Service cost 472 328 260
Interest cost 602 473 447
Plan amendments 307 - -
Actuarial loss 242 158 241
Benefit payments (321) (299) (282)
Obligation at end of fiscal year $8,104 $6,802 $6,142
There are no plan assets due to the nature of the Plan. During fiscal 1999,
$307,000 of expense was recognized due to the addition of employees from prior
acquisitions.
The following table shows the unfunded status of the Plan as of July 31, 1999
and 1998:
(Dollars in Thousands) 1999 1998
31
Unfunded status at July 31 $8,104 $6,802
Unrecognized net actuarial gain 2,107 2,333
Unrecognized prior service cost (285) -
Accumulated postretirement benefit obligation liability $9,926 $9,135
The following table provides the components of net periodic benefit cost for the
Plan for fiscal years 1999, 1998 and 1997:
(Dollars in Thousands) Year Ended July 31, 1999 1998 1997
Net periodic postretirement benefit cost included the following components:
Service cost-benefits attributed to service during
the period $ 472 $328 $260
Prior service cost 22 - -
Interest cost on accumulated postretirement
benefit obligation 602 473 447
Amortization of (gain) (46) (150) (187)
Periodic postretirement benefit cost 1,050 651 520
Net periodic postretirement benefit cost $1,050 $651 $520
The assumed healthcare cost trend rates used in measuring the accumulated
postretirement benefit obligation were 6.0% in 1999 and gradually declining to
5.5% by the year 2000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 8% in 1999 and 7.3% in 1998.
If the healthcare cost trend rate assumptions were increased by 1% or decreased
by 1%, the accumulated postretirement benefit obligation as of July 31, 1999,
would be increased by $51,000 and decreased by $109,000, respectively. The
effect of this change on the sum of the service cost and interest cost would not
be material.
The Company has retirement and profit-sharing plans covering substantially all
full-time domestic employees and certain of its foreign subsidiaries.
Contributions to the plans are determined annually based on earnings of the
respective companies and employee contributions. At July 31, 1999 and 1998,
$4,761,000 and $4,898,000, respectively, of accrued profit-sharing contributions
were included in other current liabilities.
The Company also has deferred compensation plans for directors, officers and key
executives utilizing the phantom stock plan concept. At July 31, 1999 and 1998,
$5,838,000 and $6,349,000, respectively, of deferred compensation was included
in current and other long-term liabilities.
During fiscal 1998, the Company adopted a new deferred compensation plan that
invests solely in shares of the Company's Class A Nonvoting Common Stock.
Participants in the old phantom stock plan were allowed to convert their
balances in the old plan to this new plan. The new plan was funded initially by
the issuance of 372,728 shares of Class A Nonvoting Common Stock to a Rabbi
Trust. All deferrals into the new plan result in purchases of Class A Nonvoting
Common Stock by the Rabbi Trust on the open market. No deferrals are allowed
into the old plan. Shares held by the Rabbi Trust are distributed to
participants upon separation from the Company as defined in the plan agreement.
32
The amounts charged to income for the plans described above were $7,589,000 in
1999, $8,038,000 in 1998 and $7,092,000 in 1997.
The Company has a voluntary employee benefit trust for the purpose of funding
employee medical benefits and certain other employee benefits. At July 31, 1999
and 1998, $2,204,000 and $2,344,000, respectively, of payments to the trust to
fund such benefits were included in prepaid expenses and other current assets.
Note 4
Income Taxes
Income taxes consist of the following:
(Dollars in Thousands) Year Ended July 31, 1999 1998 1997
Currently payable:
Federal $17,668 $14,570 $13,875
Foreign 6,747 5,883 3,812
State 1,852 1,803 2,995
26,267 22,256 20,682
Deferred (credit):
Federal (1,186) (3,373) (1,832)
Foreign 73 (181) 1,188
State 44 (573) (474)
(1,069) (4,127) (1,118)
Total $25,198 $18,129 $19,564
Deferred income taxes result from timing differences in the recognition of
revenues and expenses for financial statement and income tax purposes. These
differences relate principally to depreciation and certain expenses not
deductible for tax reporting until paid.
Pre-tax income consists of the following:
(Dollars in Thousands) Year Ended July 31, 1999 1998 1997
United States $42,180 $32,743 $38,493
Foreign 22,602 13,422 12,778
Total $64,782 $46,165 $51,271
The approximate tax effects of temporary differences are as follows:
(Dollars in Thousands) July 31, 1999 Assets Liabilities Total
Inventories $ 2,788 $ - $ 2,788
Prepaid catalog costs - (1,048) (1,048)
Employee benefits - (304) (304)
Allowance for doubtful accounts 419 - 419
Other, net 4,614 (29) 4,585
Current 7,821 (1,381) 6,440
Excess of tax over book depreciation - (1,611) (1,611)
Deferred compensation 6,420 - 6,420
Postretirement benefits 3,871 - 3,871
Tax loss carryforwards 4,059 - 4,059
Less valuation allowance (3,278) - (3,278)
Other, net 320 (2,654) (2,334)
Noncurrent 11,392 (4,265) 7,127
Total $19,213 $ (5,646) $13,567
33
(Dollars in Thousands) July 31, 1998 Assets Liabilities Total
Inventories $ 2,236 $ - $ 2,236
Prepaid catalog costs - (968) (968)
Employee benefits 480 - 480
Allowance for doubtful accounts 354 - 354
Other, net 4,518 (270) 4,248
Current 7,588 (1,238) 6,350
Excess of tax over book depreciation - (2,034) (2,034)
Deferred compensation 6,572 - 6,572
Postretirement benefits 3,634 - 3,634
Tax loss carryforwards 4,649 - 4,649
Less valuation allowance (4,649) - (4,649)
Other, net 992 (2,720) (1,728)
Noncurrent 11,198 (4,754) 6,444
Total $18,786 $ (5,992) $12,794
At July 31, 1999 and 1998, $6,440,000 and $6,350,000, respectively, of net
deferred tax assets were included in prepaid expenses and other current assets.
At July 31, 1999 and 1998, $7,127,000 and $6,444,000, respectively, of net
deferred tax assets were included in other assets.
A reconciliation of the tax computed by applying the statutory U.S. Federal
income tax rate to income before income taxes to the total income tax provision
is as follows:
(Dollars in Thousands) Year Ended July 31, 1999 1998 1997
Tax at statutory rate $22,674 $16,157 $17,945
State income taxes, net of Federal tax benefits 1,204 1,517 2,248
International losses with no related tax benefits 1,296 1,350 1,196
International rate differential 986 (345) (668)
Rate variances arising from foreign subsidiary
distributions (1,481) (391) (155)
Other, net 516 (159) (1,002)
Total income tax provision $25,195 $18,129 $19,564
Effective tax rate 38.9% 39.3% 38.2%
The Company's policy is to remit earnings from foreign subsidiaries only to the
extent any resultant foreign income taxes are creditable in the United States.
Accordingly, the Company does not currently provide for the additional United
States and foreign income taxes which would become payable upon remission of
undistributed earnings of foreign subsidiaries.
The cumulative undistributed earnings of such companies at July 31, 1999,
amounted to approximately $42,840,000. If all such undistributed earnings were
remitted, the additional provision for foreign income taxes that would be
required would not have a material impact on the Company.
Note 5
Long-Term Debt
Long-term debt consists of the following:
(Dollars in Thousands) July 31, 1999 1998
6.25% Industrial Development Revenue Bonds payable on
34
December 1, 2001 $1,000 $1,000
Korean bank debt 2,497 2,485
Other 531 639
4,028 4,124
Less current maturities 2,626 408
$1,402 $3,716
The Industrial Development Revenue Bonds are collateralized by first mortgages
on certain property with a net carrying amount of approximately $4,278,000 at
July 31, 1999. The Company's long-term debt approximates fair value.
Maturities on long-term debt are as follows:
(Dollars in Thousands) Year Ending July 31,
2000 $2,626
2001 117
2002 1,084
2003 74
2004 74
Thereafter 53
On September 23, 1999, the Company entered into a $150,000,000 multicurrency
revolving loan agreement with a group of six banks. Under the agreement, the
Company has the option to elect to have interest rates determined based upon the
prime rate at PNC Bank N.A. plus margin or a LIBOR rate plus margin. A
commitment fee is payable on the unused amount of credit.
Note 6
Stockholders' Investment
Information as to the Company's capital stock at July 31, 1999 is as follows:
Shares Shares
(Dollars in Thousands) Authorized Issued Amount
Preferred Stock, $.01 par value 5,000,000 0 $ -
Cumulative Preferred Stock:
6% Cumulative 5,000 3,984 399
1972 Series 10,000 2,600 260
1979 Series 30,000 21,963 2,196
$2,855
Common Stock, $.01 par value:
Class A Nonvoting 100,000,000 20,839,841 $ 208
Class B Voting 10,000,000 1,769,314 18
$ 226
Each share of $100 par value Cumulative Preferred Stock is entitled to receive
cumulative cash dividends and may be redeemed, under certain circumstances, by
the Company at par value plus accrued dividends plus a premium of 6% of the par
value. Such shares, which are held by the initial holder thereof, are subject to
redemption only if the holder consents thereto.
Before any dividend may be paid on the Class B Common Stock, holders of Class A
Common Stock are entitled to receive an annual, noncumulative cash dividend of
$.0333 per share. Thereafter, any further dividend in that fiscal year must be
paid on each share of Class A Common Stock and Class B Common Stock on an equal
basis.
35
Holders of Class A Common Stock are not entitled to vote on corporate matters,
unless, in each of the three preceding fiscal years, the $.0333 preferential
dividend described above has not been paid in full. Holders of the Class A
Common Stock are entitled to one vote per share for the entire fiscal year
immediately following the third consecutive fiscal year in which the
preferential dividend is not paid in full. Holders of Class B Common Stock are
entitled to one vote per share for the election of directors and for all other
purposes.
Upon liquidation, dissolution or winding up of the Company, and after
distribution of any amounts due to holders of Cumulative Preferred Stock,
holders of Class A Common Stock are entitled to receive the sum of $1.67 per
share before any payment or distribution to holders of Class B Common Stock.
Thereafter, holders of Class B Common Stock are entitled to receive a payment or
distribution of $1.67 per share. Thereafter, holders of Class A Common Stock and
Class B Common Stock share equally in all payments or distributions upon
liquidation, dissolution or winding up of the Company.
The preferences in dividends and liquidation rights of Class A Common Stock over
Class B Common Stock will terminate at any time that the voting rights of Class
A Common Stock and Class B Common Stock become equal.
The following is a summary of other activity in stockholders' investment for the
years ended July 31, 1998 and 1999:
Shares Held
Unearned Deferred in Rabbi
Restricted Comp- Trust,
(Dollars in Thousands) Stock ensation at Cost Total
Issuance of 125,000 shares of Class A
Common Stock $ (3,718) $ - $ - $ (3,718)
Issuance of 372,728 shares of Class A
Common Stock to Rabbi Trust to
fund deferred compensation plan - 11,555 (11,555) -
Purchase of 11,900 shares of Class A
Common Stock purchased by the
Rabbi Trust related to deferred
compensation plan - 482 (482) -
Amortization of restricted stock 694 - - 694
Balances July 31, 1998 $ (3,024) $ 12,037 $ (12,037) $ (3,024)
Sale of 59,953 shares of Class A Common
Stock purchased by the Rabbi Trust
related to deferred compensation plan - (1,814) 1,814 -
Purchase of 44,865 shares of Class A
Common Stock purchased by the
Rabbi Trust related to deferred
compensation plan - 1,008 (1,008) -
Amortization of restricted stock 693 - - 693
Balances July 31, 1999 $ (2,331) $ 11,231 $ (11,231) $ (2,331)
The Company's Nonqualified Stock Option Plans allow the granting of stock
options to various officers, directors and other employees of the Company at
prices equal to fair market value at the date of grant. The Company has reserved
1,500,000 and 2,125,000 shares of Class A Nonvoting Common Stock for issuance
under the 1989 and 1997 Plans, respectively. Options granted prior to 1992
become exercisable once the employees have been continuously employed for six
36
months after the grant date. Generally, options granted in 1992 and thereafter
will not be exercisable until one year after the date of grant, to the extent of
one-third per year.
Changes in the Options are as follows:
Weighted
Average
Option Options Exercise
Price Outstanding Price
Balance, July 31, 1996 $6.83-$25.17 808,108 $17.46
Options granted 21.75-23.88 777,700 23.51
Options exercised 6.83-25.17 (77,753) 10.75
Options cancelled 6.83-25.17 (46,302) 18.15
Balance, July 31, 1997 $6.83-$25.17 1,461,753 $21.01
Options granted 30.66-34.00 260,150 31.49
Options exercised 6.83-25.17 (57,282) 16.44
Options cancelled 21.75-31.38 (24,600) 23.74
Balance, July 31, 1998 $6.83-$34.00 1,640,021 $22.79
Options granted 19.19-24.25 351,400 19.56
Options exercised 6.83-31.38 (117,526) 16.00
Options cancelled 12.17-34.00 (73,461) 26.63
Balance, July 31, 1999
(721,187 options exercisable) $6.83-$34.00 1,800,434 $22.45
Available for grant after July 31, 1999 1,162,419
The following table summarizes information about stock options outstanding at
July 31, 1999:
Options Outstanding Options Exercisable
Weighted
Shares Average Weighted Shares Weighted
Outstanding Remaining Average Exercisable Average
Range of at July 31, Contractual Exercise at July 31, Exercise
Exercise Prices 1999 Life-Years Price 1999 Price
$ 6.83-$15.00 196,201 3.8 years $12.47 196,201 $12.47
$15.01-$25.00 1,158,065 7.9 years 21.82 232,818 20.50
$25.01-$34.00 446,168 7.3 years 28.45 292,168 26.85
$ 6.83-$34.00 1,800,434 7.3 years $22.45 721,187 $20.89
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 establishes a fair value based method of accounting for
stock-based compensation; however, it allows entities to continue accounting for
employee stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees. SFAS No. 123 requires certain disclosures, including pro forma net
income and earnings per share as if the fair-value-based accounting method had
been used for employee stock-based compensation cost. The Company has decided to
adopt SFAS No. 123 through disclosure with respect to employee stock-based
compensation.
If the Company had elected to recognize compensation cost for the Stock Option
Plans based on the fair value at the grant dates for awards under those plans,
consistent with the method prescribed by SFAS No. 123, net income and net income
per common share would have been changed to the pro forma amounts indicated
below:
37
1999 1998 1997
Net income:
As reported $39,584 $28,036 $31,707
Pro forma 37,972 26,816 30,939
Net income per Class A Common Share - Diluted:
As reported $ 1.73 $ 1.23 $ 1.44
Pro forma 1.66 1.17 1.39
The fair value of stock options used to compute pro forma net income and net
income per common share disclosure is the estimated present value at grant date
using the Black-Scholes option-pricing model with weighted average assumptions
for fiscal years 1999, 1998 and 1997 as follows:
1999 1998 1997
Risk-free interest rate 6.2% 5.7% 6.3%
Expected volatility 37.8% 30.5% 27.1%
Dividend yield 2.4% 2.2% 2.1%
Expected option life 4.1 years 4.4 years 4.1 years
Note 7
Segment Information
Brady Corporation's reportable segments are business units that are each managed
separately because they manufacture and/or distribute distinct products using
different processes.
Brady Corporation has three reportable segments: the Identification Solutions &
Specialty Tapes Group, the Graphics Group and the Direct Marketing Group.
The Identification Solutions & Specialty Tapes Group consists of Identification
Solutions; Brady Software Solutions; Specialty Tapes; and Coated Products.
Identification Solutions develops, manufactures and sells wire and cable
markings, high-performance labels, printing systems, and packaged software
mainly to the electrical, electronic, telecommunications, automotive and general
industrial markets. Brady Software Solutions is focused on the Automatic
Identification and Data Collection market and its solutions consist of
high-performance labels and labeling systems tied together with bar-code design
and print software, data-collection equipment, inventory services, application
engineering and integration services. Specialty Tapes manufactures custom
die-cut parts and slit-to-width specialty tapes. Die-cut parts are engineered to
provide improved functionality and easier assembly of electronic products such
as phones, pagers and disk drives. Specialty tapes are used by audio and video
tape duplicators. Coated Products develops and coats specialty materials using a
wide variety of substrates such as polyester, polyimide, cloth, metal and paper.
Coatings include custom adhesive systems as well as high-performance topcoats.
These materials are sold in bulk roll form, or as converted products through
other Brady units.
The Graphics Group consists primarily of Signmark(r), and Varitronic Systems.
Signmark manufactures and sells signs, labels, tags and safety devices; printers
and accessories for do-it-yourself industrial signage and labels; regulatory
training programs and products; and accident-prevention tags and other visual
warning systems. These products enable customers to comply with government
regulations and other standards to make their workplace safe, instructive and
productive. Varitronic Systems produces and markets printing systems including
lettering and labeling systems, poster printers, supplies and laminating
38
equipment. Markets served by this group include pulp and paper, chemical,
electrical, transportation and other manufacturing, as well as construction,
government and education.
The Direct Marketing Group sells a variety of products to end users via
direct-mail catalogs, telemarketing and the Internet. Its products include more
than 20,000 products including signs; property identification tags; hazardous
materials and regulatory training programs and products; and office accessories.
The Direct Marketing Group serves manufacturing markets as well as construction,
wholesale trade, finance, insurance, government, education, healthcare and other
service industries.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, not including interest, goodwill and
exchange gain or loss. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at cost plus a standard percentage
markup. Intercompany profit is eliminated in consolidation.
Identification
Solutions & Direct Corporate and
Specialty Tapes Graphics Marketing Eliminations Totals
Year ended July 31, 1999:
Revenues from external customers $190,189 $122,856 $157,817 $ - $470,862
Intersegment revenues 3,042 1,982 865 (5,889) -
Nonrecurring (credit) charge (104) 21 (25) (503) (611)
Depreciation and amortization expense 8,942 3,019 1,896 1,292 15,149
Profit (loss) 28,908 18,207 28,371 (7,456) 68,030
Assets 121,487 78,459 48,463 102,711 351,120
Expenditures for long-lived assets 5,575 2,017 1,462 835 9,889
Year ended July 31, 1998:
Revenues from external customers $180,159 $125,283 $149,708 $ - $455,150
Intersegment revenues 2,970 1,512 790 (5,272) -
Nonrecurring charge 1,098 1,640 779 1,873 5,390
Depreciation and amortization expense 5,928 4,156 1,893 1,311 13,288
Profit (loss) 25,715 9,493 21,565 (8,375) 48,398
Assets 106,012 66,257 47,626 91,929 311,824
Expenditures for long-lived assets 4,683 10,374 1,410 722 17,189
Year ended July 31, 1997:
Revenues from external customers $170,546 $122,673 $132,862 $ - $426,081
Intersegment revenues 3,218 1,338 134 (4,690) -
Depreciation and amortization expense 5,609 5,146 1,742 1,654 14,151
Profit (loss) 26,054 14,210 17,405 (5,927) 51,742
Assets 86,209 71,414 44,491 89,548 291,662
Expenditures for long-lived assets 4,125 1,685 982 1,985 8,777
Year Ended July 31, 1999 1998 1997
Profit reconciliation:
Total profit or loss for reportable segments $75,486 $56,773 $57,669
Corporate and eliminations (7,456) (8,375) (5,927)
Unallocated amounts:
Goodwill (3,416) (1,793) (1,014)
Interest-net 1,975 2,259 1,735
Foreign exchange (975) (1,863) (1,112)
Other (832) (836) (80)
Income before income taxes $64,782 $46,165 $51,271
39
Revenues* Total Assets**
Year Ended July 31, Year Ended July 31,
1999 1998 1997 1999 1998 1997
Geographic information:
United States $292,341 $286,813 $276,965 $170,021 $160,408 $168,600
Europe 149,522 139,061 123,529 84,234 66,885 52,242
Other foreign countries 60,597 59,948 58,034 34,298 26,910 24,667
Corporate assets and eliminations (31,598) (30,672) (32,447) 62,567 57,621 46,153
Consolidated total $470,862 $455,150 $426,081 $351,120 $311,824 $291,662
**Revenues are attributed based on country of origin.
**Corporate assets consist primarily of cash and cash equivalents. Eliminations
consist of intercompany receivables between regions.
Note 8
Net Income Per Common Share
Net income per Common Share is computed by dividing net income (after deducting
the applicable Preferred Stock dividends and preferential Class A Common Stock
dividends) by the weighted average Common Shares outstanding of 22,537,393 for
1999, 22,357,686 for 1998 and 21,908,318 for 1997. The preferential dividend on
the Class A Common Stock of $.0333 per share has been added to the net income
per Class A Common Share for all years presented.
For the year ended July 31, 1998, the Company adopted 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. Reconciliations of the numerator
and denominator of the basic and diluted per share computations for the
Company's Class A and Class B Common Stock are summarized as follows:
Fiscal 1999 Fiscal 1998 Fiscal 1997
Numerator:
Net income $39,584,000 $28,036,000 $31,707,000
Less: Preferred stock dividends (259,134) (259,134) (259,134)
Numerator for basic and diluted Class A
earnings per share 39,324,866 27,776,866 31,447,866
Less:
Preferential dividends (690,541) (676,298) (670,454)
Preferential dividends on dilutive stock options (2,739) (9,140) (3,843)
Numerator for basic and diluted Class B
earnings per share $38,631,586 $27,091,428 $30,773,569
Denominator:
Denominator for basic earnings per share for
both Class A and B 22,537,393 22,357,686 21,908,318
Plus: Effects of dilutive stock options 145,577 244,239 144,100
Denominator for diluted earnings per share for
both Class A and B 22,682,970 22,601,925 22,052,418
Fiscal 1999 Fiscal 1998 Fiscal 1997
Class A Common Stock earnings per share calculation:
Basic $1.74 $1.24 $1.44
Diluted 1.73 1.23 1.43
Class B Common Stock earnings per share calculation:
Basic $1.71 $1.21 $1.41
Diluted 1.70 1.20 1.40
Options to purchase 446,168, 258,850 and 269,401 shares of Class A Common Stock
were not included in the computations of diluted earnings per share for fiscal
years 1999, 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.
40
Note 9
Commitments
The Company has entered into various noncancellable operating lease agreements.
Rental expense charged to operations was $8,884,000 for 1999; $9,015,000 for
1998; and $7,357,000 for 1997. Future minimum lease payments required under such
leases in effect at July 31, 1999, are as follows (by fiscal year):
2000 $ 7,739,000
2001 7,344,000
2002 2,289,000
2003 1,161,000
2004 902,000
Thereafter 1,843,000
$21,278,000
Note 10
Nonrecurring and One-Time Charges
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring
charge of $5,390,000 related primarily to a provision for severance costs
associated with a reduction in workforce at its operations around the world. In
response to a softening of sales that began in April 1998, the Company announced
in July 1998 that it would be reducing its workforce. A workforce reduction of
7.5%, approximately 200 people, was essentially completed in August 1998.
Severance costs associated with this reduction totaled $5,024,000. The remainder
of the nonrecurring charge represents a write-off of assets associated with
exiting two small product lines. The Company discontinued its contract taping
service and cover tape product line resulting in asset write-offs of $188,000
and $178,000, respectively. These were noncash charges.
A reconciliation of activity with respect to the Company's restructuring is as
follows:
Provision, July 31, 1998 $ 5,390,000
Noncash asset write-offs (366,000)
Cash payments associated with severance (4,150,000)
Amounts taken to income (611,000)
Ending balance, July 31, 1999 $ 263,000
In addition to the nonrecurring charge above, the Company recorded $2,461,000 in
one-time charges in the fourth quarter of fiscal 1998 for the write-down of
certain inventories and other assets. Substantially all this amount is noncash
and was charged to cost of sales.
These nonrecurring and one-time charges total $7,851,000 ($4,766,000 after tax)
or approximately $0.21 per diluted share, in 1998.
Independent Auditors' Report
To the Board of Directors and Stockholders
of Brady Corporation
41
We have audited the accompanying consolidated balance sheets of Brady
Corporation and subsidiaries as of July 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' investment and cash flows for
each of the three years in the period ended July 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies at July 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended July 31, 1999, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 23, 1999
Shareholder Services
Common Shares
Brady Corporation Class A Common Stock trades on the
New York Stock Exchange under the symbol BRC. As of September 24, 1999, there
were 411 Class A Common Stock shareholders of record and about 5,000 beneficial
shareholders. There are two Class B Common Stock shareholders.
Quarterly Stock Data
1999 1998 1997
High Low High Low High Low
4th Quarter $35.00 $24.13 $32.75 $19.63 $30.50 $22.00
3rd Quarter $27.50 $19.50 $35.75 $29.31 $27.75 $22.50
2nd Quarter $29.38 $22.50 $33.00 $29.00 $24.75 $20.50
1st Quarter $23.13 $16.25 $35.00 $27.38 $25.25 $21.50
Dividends
Brady has paid dividends on its Common Stock every quarter since going public in
June 1984, and the Company has increased the dividend every year for each of the
past 14 years. At its September 1999 meeting, the Board of Directors increased
the quarterly dividend on Class A Common Stock to 17 cents per share per
quarter, or $0.68 per year. Dividends are normally paid on the last day of
October, January, April and July.
42
Dividend Reinvestment
Shareholders of record may have their dividends automatically reinvested in
Brady stock through a Dividend Reinvestment Program. For more information on
this program, see the description on the Internet at www.bradycorp.com or call
Brady's investor line at 414-438-6918.
Stock Transfer Agent
Firstar Trust Company, 1555 North RiverCenter Drive,
Suite 301, Milwaukee, WI 53212; phone: 1-800-637-7549.
Brady Information
Brady's Internet site at www.bradycorp.com contains investor presentations, 10-K
and 10-Q filings, annual reports, news releases, frequently asked investor
questions, stock prices, product information and a variety of other information
about Brady.
Information Requests and Investor News Line
A phone system at 414-438-6918 enables you to listen to financial news
highlights, request printed 10-K and other financial information, request
dividend reinvestment information, or be transferred to an investor relations
representative. Or you may send your information requests to Investor Relations,
Brady Corporation, P.O. Box 571, Milwaukee, WI 53201-0571, or e-mail
investor@bradycorp.com.
Analyst, Investor and Media Contact
Laurie Bernardy, vice-president of corporate communications, 414-438-6880.
Annual Meeting
The Brady Corporation Annual Meeting will be at 9 a.m., Wednesday, November 17,
1999, at the Milwaukee Athletic Club, 758 N. Broadway, Milwaukee, Wisconsin.
Highlights will be posted on the Internet at www.bradycorp.com.
Our 1999 Annual Report represents a consolidation of projects meant to control
costs while advancing Brady's Internet-based communications. The "Safety,
Security, Productivity, Performance" section will be used by Brady operations as
a stand-alone brochure in nine languages in the years ahead. Also, the report's
horizontal layout reflects our focus on Internet-based communications. Check out
www.bradycorp.com for an interactive version of the annual report as well as
other investment information.
Directors
Richard A. Bemis, 58, has been a director of Brady since January 1990. He is
president and CEO of Bemis Manufacturing Company, a manufacturer of molded
plastic products in Sheboygan Falls, Wisconsin.
Robert C. Buchanan, 59, has been a director of Brady since November 1987. He is
president and CEO of the Fox Valley Corporation, a specialty paper manufacturer
in Appleton, Wisconsin.
43
Dr. Frank W. Harris, 57, has been a director of Brady since November 1991. He is
a distinguished professor of polymer science and bio-medical engineering at the
Institute of Polymer Science, University of Akron, in Akron, Ohio.
Irwin Helford, 65, has been a director of Brady since November 1998. He is
former chairman of Viking Office Products, Inc., Torrance, California, and vice
chairman of Office Depot, Inc.
*Katherine M. Hudson, 52, joined Brady in January 1994 as president, chief
executive officer and director. Before joining Brady, she was a vice president
at Eastman Kodak Company and general manager of Kodak's Professional, Printing
and Publishing Imaging Division. She is also a director of Case Corporation and
Honeywell, Inc.
*Peter J. Lettenberger, 62, has served as a director and secretary of Brady
since January 1977. He is a partner in the law firm of Quarles & Brady,
Milwaukee, Wisconsin, and serves as general counsel to Brady.
Gary E. Nei, 55, has been a director of Brady since November 1992. He is
chairman of B&B Publishing, a publishing company in Walworth, Wisconsin.
Roger D. Peirce, 62, has served as a Brady director since September 1988. He is
secretary and treasurer of Jor-Mac Company, Inc, a manufacturer of metal
products in Grafton, Wisconsin.
Corporate Officers and Executives
*Katherine M. Hudson
president and chief executive officer
*Frank M. Jaehnert
vice president and chief financial officer
Laurie A. Bernardy
vice president - corporate communications
*Richard L. Fisk
vice president - Direct Marketing Group
*David R. Hawke
vice president - Graphics Group
Gary L. Johnson
vice president - corporate development
*Michael O. Oliver
vice president - human resources
*Donald E. Rearic
vice president, treasurer and assistant secretary
*Thomas E. Scherer
vice president, controller and assistant secretary
*David W. Schroeder
44
vice president - Identification Solutions & Specialty Tapes Group
David B. Winter
vice president and chief information officer
Brady Locations
United States
Brady Corporation
P.O. Box 571
Milwaukee, WI 53201
Brady Worldwide, Inc. - Identification Solutions
6555 W. Good Hope Rd.
Milwaukee, WI 53223
Brady Worldwide, Inc. - Specialty Tapes
N144 W5690 Pioneer Road
Cedarburg, WI 53012
Brady Worldwide, Inc. -
Coated Products
P.O. Box 298
2230 W. Florist Ave.
Milwaukee, WI 53201-0298
Brady Worldwide, Inc. - Signmark(r)
2221 W. Camden Rd.
Milwaukee, WI 53209
Brady Software Solutions
727 W. Glendale Ave.
Glendale, WI 53209
Seton Identification Products
20 Thompson Rd.
Branford, CT 06405
Seton Identification Products
4451 Eucalyptus Ave.
Suite 330
Chino, CA 91710
Varitronic Systems, Inc.
6835 Winnetka Circle
Brooklyn Park, MN 55428
Barcodes West Inc.
1560 First Avenue South
Seattle, WA 98134
BCW Inventory Services
1766 S. Naperville Rd.
Wheaton, IL 60187
Australia
45
Brady Australia Pty. Ltd.
Seton Australia Pty. Ltd.
2 Pat Devlin Close
Chipping Norton NSW 2170
Australia
Visi Sign Pty. Ltd.
10 Reid Street
Bayswater, Victoria 3153
Australia
Belgium
W.H. Brady, N.V.
Industrie Park C/3
Lindestraat 20
B-9240 Zele, Belgium
Brazil
W.H.B. do Brasil Ltda.
Rua Rosangela Donata
De Oliveira 30
06236-110 Osasco
Sao Paulo, Brazil
Seton do Brasil
Centro Empresarial Alphaville
Av. Jurua, 105 - Modulo 4
06455-908 Barueri
Sao Paulo, Brazil
Canada
W.H.B. Identification
Solutions, Inc.
Seton-Canada
56 Leek Crescent
Richmond Hill
Ontario, Canada
China
Brady Corporation S.E.A. Pte. Ltd.
Room 806, Bright China
Chang An Building
7 Jian Guo Men Nei Da Jie
Dong Cheng District
Beijing, PRC
Brady (Wuxi) Co. Ltd.
No. 229
Xingchuang Ba Lu
Wuxi-Singapore Industrial Park
Wuxi, Jinagsu, PRC 214028
France
46
Brady France
2 Place Marcel Rebuffat
BP 362 - Parc de Villejust
91959 Les Ulis Cedex, France
Seton S.A.
113 Rue Horace Vernet - BP 181
59054 Roubaix Cedex 1, France
Signals S.A.
Rond Point de la Republique
Z.I. de la Rochelle
17187 Perigny Cedex, France
Holman Groupe
Periprint, MII, TFF
112/116 Rue des Solets
Silic 515
94623 Rungis Cedex, France
Brady LettraSoft S.A.
50 Rue des Rancy
69003 Lyons, France
Brady Software Group Europe
Z.I. Est
2, rue Van Gogh
32000 Auch, France
Germany
W.H. Brady GmbH
Lagerstrasse 13
64807 Dieburg
Germany
Seton GmbH
Otto-Hahn-Str. 5-7
63222 Langen, Germany
SOFT GmbH
Felix Klein Strasse 2
40474 Duesseldorf, Germany
Hong Kong
Brady Corporation S.E.A. Pte. Ltd.
Unit 03/04, 18th Floor
CRE Centre
889 Cheung Sha Wan
Kowloon, Hong Kong
Italy
Brady Italia
Seton Italia
Via Luigi Lazzaroni 7
47
21047 Saronno (VA), Italy
Japan
Nippon Brady K.K.
TVP Building 3F
3-9-13 Moriya-cho, Kanagawa-ku
Yokohama, Kanagawa 221-0022
Japan
Korea
Brady Korea Ltd.
5F Hyo-Won Bld.
99-5 GaRak-Dong, SongPa-Ku
Seoul, 138-720
Republic of Korea
Brady Korea Ltd.
130-8 Dong An-Ri, Okcheon-EUP
Okcheon-Gun, Chung Buk,
373-800
Republic of Korea
Malaysia
Brady Corporation S.E.A. Pte. Ltd.
15, 1st Floor
Lorong Mayang Pasir 5
Bayan Baru, 11950
Penang, Malaysia
Mexico
W.H. Brady S. de R.L. de C.V.
Avda. Ejercito Nacional
No. 718, 1 er Piso
Colonia Chapultepec Morales
11590 Mexico D.F., Mexico
Philippines
Brady Corporation S.E.A. Pte. Ltd.
9 Narra Drive
Palmera Heights III
Valley Golf, Cainta Rizal
Philippines 1900
Singapore
Brady Corporation S.E.A. Pte. Ltd.
Brady Corporation Asia Pte. Ltd.
55 Ayer Rajah Crescent #03-25
Ayer Rajah Industrial Estate
Singapore 139949
Spain
48
SOFT Iberica, S.L.
Hospitalet de Llobregat 08903
Spain
Sweden
Brady AB
Karins vag 5
194 54 Upplands Vasby
Sweden
Taiwan
Brady Corporation
S.E.A. Pte. Ltd.
6F-2, 412, Chung Hsiao E. Rd.
SEC 5
Taipei 110, Taiwan
United Kingdom
W.H. Brady Co. Ltd.
Wildmere Industrial Estate
Banbury, Oxfordshire
OX16 7JU
United Kingdom
Seton Limited
Canada Close
Banbury, Oxon 0X16 7RT
United Kingdom