UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number 1-14959
BRADY CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0178960
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6555 WEST GOOD HOPE ROAD, MILWAUKEE, WISCONSIN 53223
----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(414) 358-6600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 20, 2002, there were outstanding 21,345,841 shares of Class A
Common Stock and 1,769,314 shares of Class B Common Stock. The Class B Common
Stock, all of which is held by an affiliate of the Registrant, is the only
voting stock.
FORM 10-Q
BRADY CORPORATION
INDEX
Page
----
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of
Income and Income Retained in the Business 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Certifications 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) (Unaudited)
ASSETS October 31, 2002 July 31, 2002
---------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 79,285 $ 75,969
Accounts receivable, less allowance for losses ($3,300 and $3,206
respectively) 77,897 76,246
Inventories 37,855 36,718
Prepaid expenses and other current assets 20,145 21,093
---------------- -------------
TOTAL CURRENT ASSETS 215,182 210,026
OTHER ASSETS:
Goodwill - net 108,339 108,053
Other 21,650 21,555
---------------- -------------
129,989 129,608
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land 5,606 5,612
Buildings and improvements 50,052 50,122
Machinery and equipment 128,083 127,955
Construction in progress 5,319 3,062
---------------- -------------
189,060 186,751
Less accumulated depreciation 108,363 105,860
---------------- -------------
NET PROPERTY, PLANT AND EQUIPMENT 80,697 80,891
---------------- -------------
TOTAL $ 425,868 $ 420,525
================ =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 27,221 $ 26,294
Wages and amounts withheld from employees 25,348 26,251
Taxes, other than income taxes 2,610 2,396
Accrued income taxes 8,577 6,312
Other current liabilities 16,048 12,847
Short-term borrowings and current maturities on long-term debt 15 162
---------------- -------------
TOTAL CURRENT LIABILITIES 79,819 74,262
LONG-TERM DEBT, LESS CURRENT MATURITIES 3,819 3,751
OTHER LIABILITIES 17,572 18,270
---------------- -------------
TOTAL LIABILITIES 101,210 96,283
STOCKHOLDERS' INVESTMENT:
Preferred stock -- 2,855
Class A nonvoting common stock - Issued and outstanding 21,345,841
and 21,356,605 shares, respectively 213 214
Class B voting common stock - Issued and outstanding 1,769,314 shares 18 18
Treasury Stock - 18,262 and 4,548 class A common shares, at cost (509) (132)
Additional paid-in capital 41,601 41,526
Income retained in the business 291,231 287,674
Cumulative other comprehensive (loss) (7,710) (7,665)
Other (186) (248)
---------------- -------------
TOTAL STOCKHOLDERS' INVESTMENT 324,658 324,242
---------------- -------------
TOTAL $ 425,868 $ 420,525
================ =============
See Notes to Condensed Consolidated Financial Statements
3
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND INCOME RETAINED IN THE BUSINESS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended October 31,
2002 2001
---------- ----------
Net Sales $ 138,662 $ 130,001
Operating expenses:
Cost of products sold 68,445 63,123
Research and development 4,071 4,452
Selling, general and administrative 53,772 50,758
---------- ----------
Total operating expenses 126,288 118,333
Operating income 12,374 11,668
Other income and (expense):
Investment and other income - net 86 582
Interest expense (35) (16)
---------- ----------
Income before income taxes 12,425 12,234
Income taxes 4,226 4,239
---------- ----------
Net Income 8,199 7,995
Income retained in business at beginning of period 287,674 276,779
Less:
Redemption premium on preferred stock (171)
Preferred stock dividends (65)
Common stock dividends (4,471) (4,190)
---------- ----------
Income retained in business at end of period $ 291,231 $ 280,519
========== ==========
Net income per Class A Nonvoting Common Share
Basic $ 0.35 $ 0.35
========== ==========
Diluted $ 0.35 $ 0.34
========== ==========
Net income per Class B Voting Common Share
Basic $ 0.32 $ 0.32
========== ==========
Diluted $ 0.32 $ 0.31
========== ==========
See Notes to Condensed Consolidated Financial Statements
4
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (Unaudited)
Three Months Ended
October 31,
2002 2001
---------- ----------
Operating activities:
Net income $ 8,199 $ 7,995
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,295 3,923
Loss on sale of property, plant & equipment 107 --
Provision for losses on accounts receivable 415 438
Amortization of restricted stock 62 174
Changes in operating assets and liabilities (Net of effects of business acquisitions):
Accounts receivable (1,869) (2,534)
Inventory (1,103) 823
Prepaid expenses and other assets (812) 2,581
Accounts payable, accrued expenses and other liabilities 2,605 2,989
Income taxes 2,420 1,335
---------- ----------
Net cash provided by operating activities 14,319 17,724
Investing activities:
Purchases of property, plant and equipment (3,862) (2,116)
Proceeds from sale of property, plant and equipment 1 149
---------- ----------
Net cash used in investing activities (3,861) (1,967)
Financing activities:
Payment of dividends (4,642) (4,255)
Proceeds from issuance of Class A Common Stock 74 783
Principal payments on debt (86) (27)
Redemption of preferred stock (3,026) --
Purchase of treasury Stock (377) --
Proceeds from short-term borrowings-net -- 221
---------- ----------
Net cash used in financing activities (8,057) (3,278)
Effect of exchange rate changes on cash 915 (823)
---------- ----------
Net increase in cash and cash equivalents 3,316 11,656
Cash and cash equivalents, beginning of period 75,969 62,811
---------- ----------
Cash and cash equivalents, end of period $ 79,285 $ 74,467
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Interest $ 30 $ 63
Income taxes, net of refunds 3,076 2,698
See Notes to Condensed Consolidated Financial Statements
5
BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended October 31, 2002
(Unaudited)
NOTE A - Basis of Presentation
The condensed consolidated financial statements included herein have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Company, the foregoing statements contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial position of
the Company as of October 31, 2002 and July 31, 2002, its results of operations
for the three months ended October 31, 2002 and 2001, and its cash flows for the
three months ended October 31, 2002 and 2001. The condensed consolidated balance
sheet at July 31, 2002 has been derived from the audited consolidated financial
statements of that date and condensed. The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts therein. Due to the inherent uncertainty involved in making
estimates, actual results in future periods may differ from the estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to rules and regulations of the Securities and Exchange Commission. Accordingly,
the condensed consolidated financial statements do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statement presentation.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K for the year ended
July 31, 2002.
It is not practical to segregate the amounts of raw material, work in
process or finished goods at the respective interim balance sheet dates.
NOTE B - New Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting for and the reporting of the impairment or disposal of long-lived
assets and was effective for the Company on August 1, 2002. This pronouncement
did not have a material effect on the Company's financial results.
NOTE C - Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the quarter ended
October 31, 2002, are as follows:
Graphics &
Workplace
ISST Solutions Total
------------ ------------ ------------
Balance as of July 31, 2002 $ 59,884,000 $ 48,169,000 $108,053,000
Goodwill acquired during the period -- -- --
Translation adjustments and other 122,000 164,000 286,000
------------ ------------ ------------
Balance as of October 31, 2002 $ 60,006,000 $ 48,333,000 $108,339,000
============ ============ ============
6
Other long-term assets include patents, trademarks, non-compete
agreements and other intangibles with finite lives being amortized in accordance
with SFAS No. 142 "Goodwill and Other Intangible Assets". The net book value of
these assets was $3,758,000 and $3,918,000 at October 31, 2002 and July 31,
2002, respectively. At October 31, 2002, this amount consisted of $2,864,000
related to patents and trademarks and $894,000 related to non-compete
agreements. Amortization expense related to intangible assets was not material.
NOTE D - Comprehensive Income
Total comprehensive income, which was comprised of net income, foreign
currency adjustments and net unrealized gains and losses from cash flow hedges,
amounted to approximately $8,154,000 and $7,947,000 for the three months ended
October 31, 2002 and 2001, respectively.
NOTE E - Net Income Per Common Share
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 2003 Fiscal 2002
----------- -----------
(Dollars in thousands, except per share amounts) 1st Quarter 1st Quarter
----------- -----------
Numerator:
Net income $ 8,199 $ 7,995
Less: Preferred stock dividends and premium on
redemption of preferred stock (171) (65)
----------- -----------
Numerator for basic and diluted
Class A net income per share 8,028 7,930
Less: Preferential dividends (711) (705)
Less: Preferential dividends on
dilutive stock options (7) (10)
----------- -----------
Numerator for basic and diluted
Class B net income per share $ 7,310 $ 7,215
=========== ===========
Denominator:
Denominator for basic net income per
share for both Class A and Class B 23,116 22,937
Plus: Effect of dilutive stock options 218 313
----------- -----------
Denominator for diluted net income per
share for both Class A and Class B 23,334 23,250
=========== ===========
Class A Common Stock net income per share:
Basic $ 0.35 $ 0.35
Diluted $ 0.35 $ 0.34
Class B Common Stock net income per share:
Basic $ 0.32 $ 0.32
Diluted $ 0.32 $ 0.31
7
Options to purchase 495,000 and 75,000 shares of Class A Common Stock
were not included in the computations of diluted net income per share for the
quarters ended October 31, 2002 and 2001, respectively, because the option
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
NOTE F - Restructuring
During the fourth quarters of fiscal 2002 and 2001, the Company
recorded nonrecurring charges of $3,030,000 and $9,560,000, respectively,
related primarily to facilities consolidations and workforce reductions.
Reconciliations of activity with respect to the Company's restructuring actions
are as follows:
Fiscal 2002 Fiscal 2001
Restructuring Restructuring
------------- -------------
Ending balance, July 31, 2002 $ 2,239,000 $ 1,748,000
Fiscal 2003 first quarter activity:
Cash payments associated with severance and other (542,000) (394,000)
------------- -------------
Ending balance, October 31, 2002 $ 1,697,000 $ 1,354,000
============= =============
NOTE G - Preferred Stock Redemption
On August 1, 2002, all Cumulative Preferred Stock was redeemed at a 6%
premium for approximately $3 million. Each share of $100 par value Cumulative
Preferred Stock was entitled to receive cumulative cash dividends and could 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 were held by
the initial holder thereof, were subject to redemption only if the holder
consented thereto.
NOTE H - Segment Information
The Company's reportable segments are business units that are each
managed separately because they manufacture and/or distribute distinct products
to differentiated markets. The Company has two reportable segments: the
Identification Solutions & Specialty Tapes Group and the Graphics and Workplace
Solutions Group. Following is a summary of segment information for the three
months ended October 31, 2002 and 2001:
(Dollars in Thousands) Identification
Solutions & Graphics & Corporate
Specialty Workplace and
Tapes Solutions Eliminations Totals
-------------- ------------ ------------ ------------
Three months ended October 31, 2002:
Revenues from external customers $ 57,658 $ 81,004 -- $ 138,662
Intersegment revenues 131 153 $ (284) --
Profit (loss) 8,973 19,113 (529) 27,557
Three months ended October 31, 2001:
Revenues from external customers $ 57,082 $ 72,919 -- $ 130,001
Intersegment revenues 121 590 $ (711) --
Profit (loss) 9,038 18,652 (560) 27,130
8
Following is a reconciliation of profit for the three months ended October 31,
2002 and 2001:
(Dollars in Thousands) Fiscal 2003 Fiscal 2002
----------- -----------
1st Quarter 1st Quarter
----------- -----------
Total profit from reportable segments $ 28,086 $ 27,690
Corporate and eliminations (529) (560)
Unallocated amounts:
Administrative costs (14,335) (14,303)
Interest-net 127 159
Foreign exchange (76) 406
Other (848) (1,158)
----------- -----------
Income before income taxes $ 12,425 $ 12,234
=========== ===========
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the three months ended October 31, 2002, sales of $138,662,000 were
6.7% higher than the same quarter of the previous year. Sales of the Company's
international operations increased 11.1% from the first quarter of last year.
This increase was aided by the positive effect of fluctuations in the exchange
rates used to translate financial results into U.S. currency, which increased
international sales growth by 5.4% in the quarter. International base sales
(excludes the effect of acquisitions) in local currencies increased 4.9% for the
quarter, while acquisitions added 0.8%. Sales of the Company's U.S. operations
increased 2.9% in the quarter. The increase was due to the acquisitions of
Strandware, Inc. and Temtec, Inc., which increased U.S. sales growth by 3.4% for
the quarter. U.S. base sales declined 0.5% for the quarter.
The cost of products sold as a percentage of sales increased from 48.6%
to 49.4% for the quarter ended October 31, 2002 compared to the same period of
the previous year. This increase was due primarily to the initial production
costs for two new printer products. Selling, general and administrative (SG&A)
expenses as a percentage of sales decreased to 38.8% for the quarter ended
October 31, 2002, from 39.0% for the same quarter of the prior year due to
increased sales volume.
As a percentage of sales, research and development expenses decreased
from 3.4% to 2.9% for the quarter, compared to the same period of the previous
year. The decrease is primarily due to the timing of project expenses in advance
of the launch of the Company's Globalmark and ID Pal printers in the prior year.
Operating income was $12,374,000 for the quarter compared to
$11,668,000 for the same period last year because of the factors cited above.
Investment and other income decreased $496,000 for the quarter compared
to same period last year due to the net effect of foreign exchange, primarily on
intercompany transactions.
Income before income taxes increased 1.6% for the quarter, compared to
prior year results. The Company's effective tax rate was 34.0% for the quarter
ended October 31, 2002 and 34.6% for the same quarter of the previous year.
Net income for the three months ended October 31, 2002, increased 2.6%
to $8,199,000 compared to $7,995,000 for the same quarter of the previous year.
On a Class A Common Share basis, diluted net income for the three months ended
October 31, 2002, was $0.35 compared to $0.34 per share for the same quarter of
the previous year.
In recent years, there have been some elements of seasonality to
Brady's business, particularly in the second quarter when there are fewer
billing days. For the current fiscal year, management expects earnings for the
quarter ending January 31, 2003 to be comparable to the same quarter of fiscal
2002. While we will experience lower sales in second quarter due to the fewer
billing days, we expect that our operating expenses will be similar in dollar
amount to those experienced in the first quarter of fiscal 2003. Improvement in
revenue and earnings, consistent with our initial guidance given earlier this
year of $535 million to $545 million in revenues and net income of approximately
7% of revenues, is expected in the second half of the fiscal year provided the
global economy continues its current improvement.
10
Business Segment Operating Results
Identification Solutions & Specialty Tapes (ISST) Group:
ISST sales increased 1.0% for the three months ended October 31, 2002,
from the same period last year. Base sales in local currency decreased 1.7% in
the quarter. The decrease in base sales was offset by the positive effect of
fluctuations in the exchange rates used to translate financial results into U.S.
currency, which increased sales within the group by 1.8% in the quarter.
Acquisitions increased sales over the prior year 0.9% in the quarter. North
America and Asia each showed sales declines in local currency for the quarter,
while Europe and Latin America sales showed increases in the quarter. The
domestic decrease of 2.1% was related to softness in the electronic, electrical
and industrial markets. The base sales decrease of 11.2%, in local currencies,
for the quarter in Asia was due to a decline in disk drive sales over the same
quarter of the prior year and reductions in the scale of our Korean operations.
Sales in Europe increased 16.4% in US dollars for the quarter. This increase was
aided by an 8.6% increase due to the positive impact of foreign currency
exchange. The base increase of 7.1%, excluding acquisitions and the effect of
foreign currencies, was due to strong performance in the telecommunications
industry. Latin American sales in local currencies increased 17.0% for the
quarter, while sales in US dollars decreased 1.8% over the same period of the
prior year. The decrease is due to deteriorating exchange rates, primarily in
Brazil. Profit as a percentage of sales decreased from 15.8% to 15.6% for the
quarter due to the sales declines in Asia discussed above.
Graphics & Workplace Solutions Group:
Graphics & Workplace Solutions' sales increased 11.1% for the quarter.
Base sales in local currency increased 4.9% in the quarter, compared to the same
period last year. Sales were positively affected by fluctuations in the exchange
rates used to translate financial results into U.S. currency, which increased
sales within the group by 3% in the quarter. Sales were also aided by
acquisitions, which increased sales 3.2% for the quarter, compared to the same
period in the prior year. Sales in local currencies for the quarter were up
slightly in North America, Europe had strong single-digit sales growth, and we
saw high double digit increases in Latin America and Asia Pacific. Asia Pacific
sales in local currencies were up 30.9% for the quarter compared to the same
period in the prior year. This includes an increase of 11.0% for the quarter due
to acquisitions. The base increase in Asia Pacific sales was largely due to the
strong performance of the base business in Australia. Sales in Latin America in
local currencies increased 41.7% for the quarter. This increase was reduced by
the negative effect of fluctuations in the exchange rates used to translate
financial results into U.S. currency, which decreased sales by 23.6% in the
quarter. Profit as a percentage of sales decreased from 25.6% to 23.6% in the
quarter, compared with the same period the prior year. The decrease is primarily
due to lower gross margins in the United States related to initial production
costs for new product lines. Increased operating expenses also reduced group
profits due to the timing of direct marketing expenses and larger investment in
the groups European direct mail plan.
Financial Condition
The Company's liquidity remained strong. The current ratio as of
October 31, 2002, was 2.7, down slightly from the current ratio at July 31, 2002
of 2.8. Cash and cash equivalents were $79,285,000 at October 31, 2002, compared
to $75,969,000 at July 31, 2002. The increase was primarily due to continued
strong cash flow provided by operating activities, offset by investments in
property, plant and equipment, payment of dividends and redemption of preferred
stock. Working capital decreased $401,000 during the three months ended October
31, 2002, to $135,363,000.
11
Cash flow from operations totaled $14,319,000 for the three months
ended October 31, 2002, compared to $17,724,000 for the same period last year.
The decrease was the result of higher inventories due to the increased sales
volume and higher prepaid expenses due to timing of the funding for the
Company's benefits plan. Capital expenditures were $3,862,000 in the three
months ended October 31, 2002, compared to $2,116,000 in the same period last
year. Cash used in financing activities was $8,057,000 for the three-month
period ended October 31, 2002, resulting primarily from payments of dividends to
the Company's stockholders, redemption of preferred stock, and purchase of
treasury stock. Cash flows used in financing activities for the same period last
year were $3,278,000 related to payment of dividends, offset by proceeds from
issuance of common stock.
Long-term debt as a percentage of long-term debt plus stockholders'
investment was 1.2% and 1.1% at October 31, 2002 and July 31, 2002,
respectively. Subsequent to October 31, 2002, the Company successfully exited a
capital lease of a domestic facility. This capital lease represented
approximately $3 million of the long-term debt balance at October 31, 2002.
The Company maintains a maximum $200 million line of credit (based on
certain financial ratios of the Company) with a group of six banks, none of
which was being utilized as of October 31, 2002. At October 31, 2002,
approximately $96.5 million of the line of credit was available to the Company.
The Company is in compliance with the covenants of the line of credit agreement.
The Company continues to seek opportunities to invest in new products,
new markets and strategic acquisitions and joint ventures, which fit its growth
strategy. Management believes that its cash and cash equivalents, the cash flow
it generates from operating activities and available line of credit are adequate
to meet the Company's current and anticipated investing and financing needs.
The Company does not have material off-balance sheet arrangements or
related party transactions. The Company is not aware of factors that are
reasonably likely to adversely affect liquidity trends, other than the risk
factors described in other Company filings. However, the following additional
information is provided to assist financial statement users.
Operating Leases - These leases generally are entered into only for
non-strategic investments (e.g., warehouses, office buildings, computer
equipment) where the economic profile is favorable.
Purchase Commitments - The Company has purchase commitments for
materials, supplies, services, and property, plant and equipment as part of the
ordinary conduct of business. In the aggregate, such commitments are not in
excess of current market prices. Due to the proprietary nature of many of the
Company's materials and processes, certain supply contracts contain penalty
provisions for early termination. The Company does not believe a material amount
of penalties to be incurred under these contracts based upon historical
experience and current expectations.
Other Contractual Obligations - The Company does not have material
financial guarantees or other contractual commitments that are reasonably likely
to adversely affect liquidity.
Related Party Transactions - The Company does not have any related
party transactions that materially affect the results of operations, cash flow
or financial condition.
12
Forward-Looking Statements
Except for historical information, the Company's reports to the
Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press
releases, as well as other public documents and statements, may contain
"forward-looking statements," as defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are often identified by
words such as "intend," "anticipate," "assume," "believe," "estimate," "expect,"
"plan," "project," "will," and other expressions, which refer to future events
and trends.
The ability of the Company to attain management's goals and objectives
are materially dependent on numerous factors. These factors, which include
economic conditions, currency fluctuations, cost of raw materials, reliance on
suppliers, new products, acquisitions, intellectual property, environmental
issues, political considerations and others are more fully described in the
Company's 2002 Form 10-K filed with the Securities and Exchange Commission. Such
factors could cause actual results to differ materially from those in the
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 a
portion of known exposures using forward contracts. Main exposures are related
to transactions denominated in the British Pound, the Euro, Canadian Dollar,
Japanese Yen and Australian Dollar. The risk of these hedging instruments is not
material.
The Company could be exposed to interest rate risk through its
corporate borrowing activities. The objective of the Company's interest rate
risk management activities is to manage the levels of the Company's fixed and
floating interest rate exposure to be consistent with the Company's preferred
mix. The interest rate risk management program consists of entering into
approved interest rate derivatives when there is a desire to modify the
Company's exposure to interest rates. As of October 31, 2002, the Company has
not entered into any interest rate derivatives.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this Form 10-Q, Brady
Corporation management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.
13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Written Statement of Chief Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Written Statement of Chief Financial Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
The Company was not required to file and did not file
a report on Form 8-K during the quarter ended October
31, 2002.
14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
BRADY CORPORATION
Date: December 12, 2002 /s/ K. M. Hudson
----------------- ----------------
K. M. Hudson
President & Chief Executive Officer
Date: December 12, 2002 /s/ D.W. Schroeder
----------------- ------------------
D.W. Schroeder
Sr. Vice President & Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)
15
CERTIFICATIONS
I, Katherine M. Hudson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brady Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 12, 2002
/s/ KATHERINE M. HUDSON
-----------------------
Katherine M. Hudson
President and Chief Executive Officer
16
I, David W. Schroeder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brady Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 12, 2002
/s/ DAVID W. SCHROEDER
----------------------
David W. Schroeder
Senior Vice President and Chief Financial Officer
17