UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|
|
|
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Quarterly Period Ended
April 30, 2011
OR
|
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|
o
|
|
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)
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|
Wisconsin
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39-0178960
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|
(State or other jurisdiction of
incorporation or organization)
|
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(I.R.S. Employer
Identification No.)
|
6555 West Good Hope Road, Milwaukee, Wisconsin 53223
(Address of principal executive offices)
(Zip Code)
(414) 358-6600
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
þ
|
|
Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
As of
May 31, 2011, there were outstanding 49,278,752 shares of Class A Nonvoting Common Stock and
3,538,628 shares of Class B Voting Common Stock. The Class B Common Stock, all of which is held by
affiliates of the Registrant, is the only voting stock.
FORM 10-Q
BRADY CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
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|
|
ITEM 1.
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|
FINANCIAL STATEMENTS
|
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
|
July 31, 2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
373,978
|
|
|
$
|
314,840
|
|
Accounts receivable net
|
|
|
235,634
|
|
|
|
221,621
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished products
|
|
|
59,727
|
|
|
|
52,906
|
|
Work-in-process
|
|
|
14,741
|
|
|
|
13,146
|
|
Raw materials and supplies
|
|
|
28,034
|
|
|
|
28,620
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
102,502
|
|
|
|
94,672
|
|
Prepaid expenses and other current assets
|
|
|
39,614
|
|
|
|
37,839
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
751,728
|
|
|
|
668,972
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
799,395
|
|
|
|
768,600
|
|
Other intangible assets
|
|
|
96,386
|
|
|
|
103,546
|
|
Deferred income taxes
|
|
|
52,744
|
|
|
|
39,103
|
|
Other
|
|
|
19,633
|
|
|
|
20,808
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
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Cost:
|
|
|
|
|
|
|
|
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Land
|
|
|
6,416
|
|
|
|
6,265
|
|
Buildings and improvements
|
|
|
103,060
|
|
|
|
101,138
|
|
Machinery and equipment
|
|
|
302,017
|
|
|
|
289,727
|
|
Construction in progress
|
|
|
13,601
|
|
|
|
9,873
|
|
|
|
|
|
|
|
|
|
|
|
425,094
|
|
|
|
407,003
|
|
Less accumulated depreciation
|
|
|
284,334
|
|
|
|
261,501
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
|
140,760
|
|
|
|
145,502
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,860,646
|
|
|
$
|
1,746,531
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT
|
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
90,621
|
|
|
$
|
96,702
|
|
Wages and amounts withheld from employees
|
|
|
67,316
|
|
|
|
67,285
|
|
Taxes, other than income taxes
|
|
|
9,061
|
|
|
|
7,537
|
|
Accrued income taxes
|
|
|
17,399
|
|
|
|
10,138
|
|
Other current liabilities
|
|
|
65,300
|
|
|
|
50,862
|
|
Current maturities on long-term obligations
|
|
|
61,264
|
|
|
|
61,264
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
310,961
|
|
|
|
293,788
|
|
Long-term obligations, less current maturities
|
|
|
351,789
|
|
|
|
382,940
|
|
Other liabilities
|
|
|
65,741
|
|
|
|
64,776
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
728,491
|
|
|
|
741,504
|
|
Stockholders investment:
|
|
|
|
|
|
|
|
|
Class A nonvoting common stock Issued 51,261,487 and 51,261,487
shares, respectively and outstanding 49,226,952 and 48,875,716
shares, respectively
|
|
|
513
|
|
|
|
513
|
|
Class B voting common stock Issued and outstanding 3,538,628 shares
|
|
|
35
|
|
|
|
35
|
|
Additional paid-in capital
|
|
|
308,908
|
|
|
|
304,205
|
|
Earnings retained in the business
|
|
|
769,081
|
|
|
|
718,512
|
|
Treasury stock 1,724,535 and 2,175,771 shares, respectively, of
Class A nonvoting common stock, at cost
|
|
|
(51,959
|
)
|
|
|
(66,314
|
)
|
Accumulated other comprehensive income
|
|
|
109,840
|
|
|
|
50,905
|
|
Other
|
|
|
(4,263
|
)
|
|
|
(2,829
|
)
|
|
|
|
|
|
|
|
Total stockholders investment
|
|
|
1,132,155
|
|
|
|
1,005,027
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,860,646
|
|
|
$
|
1,746,531
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
|
|
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|
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|
|
|
|
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|
Three Months Ended April 30,
|
|
|
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|
|
Nine Months Ended April 30,
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
Net sales
|
|
$
|
337,896
|
|
|
$
|
321,887
|
|
|
|
4.9
|
%
|
|
$
|
996,493
|
|
|
$
|
936,202
|
|
|
|
6.4
|
%
|
Cost of products sold
|
|
|
170,258
|
|
|
|
161,690
|
|
|
|
5.3
|
%
|
|
|
505,333
|
|
|
|
471,644
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
167,638
|
|
|
|
160,197
|
|
|
|
4.6
|
%
|
|
|
491,160
|
|
|
|
464,558
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
10,550
|
|
|
|
10,709
|
|
|
|
(1.5
|
%)
|
|
|
32,226
|
|
|
|
30,950
|
|
|
|
4.1
|
%
|
Selling, general and administrative
|
|
|
115,006
|
|
|
|
111,227
|
|
|
|
3.4
|
%
|
|
|
332,394
|
|
|
|
328,638
|
|
|
|
1.1
|
%
|
Restructuring charge (See Note J)
|
|
|
1,211
|
|
|
|
2,347
|
|
|
|
(48.4
|
%)
|
|
|
6,986
|
|
|
|
9,597
|
|
|
|
(27.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
126,767
|
|
|
|
124,283
|
|
|
|
2.0
|
%
|
|
|
371,606
|
|
|
|
369,185
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
40,871
|
|
|
|
35,914
|
|
|
|
13.8
|
%
|
|
|
119,554
|
|
|
|
95,373
|
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income net
|
|
|
1,428
|
|
|
|
121
|
|
|
|
1080.2
|
%
|
|
|
2,892
|
|
|
|
1,273
|
|
|
|
127.2
|
%
|
Interest expense
|
|
|
(5,103
|
)
|
|
|
(5,147
|
)
|
|
|
(0.9
|
%)
|
|
|
(16,640
|
)
|
|
|
(15,472
|
)
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
37,196
|
|
|
|
30,888
|
|
|
|
20.4
|
%
|
|
|
105,806
|
|
|
|
81,174
|
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
8,607
|
|
|
|
7,193
|
|
|
|
19.7
|
%
|
|
|
26,737
|
|
|
|
20,810
|
|
|
|
28.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,589
|
|
|
$
|
23,695
|
|
|
|
20.7
|
%
|
|
$
|
79,069
|
|
|
$
|
60,364
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
|
20.0
|
%
|
|
$
|
1.50
|
|
|
$
|
1.15
|
|
|
|
30.4
|
%
|
Diluted net income
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
|
20.0
|
%
|
|
$
|
1.49
|
|
|
$
|
1.14
|
|
|
|
30.7
|
%
|
Dividends
|
|
$
|
0.18
|
|
|
$
|
0.175
|
|
|
|
2.9
|
%
|
|
$
|
0.54
|
|
|
$
|
0.525
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Class B Voting Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
|
20.0
|
%
|
|
$
|
1.48
|
|
|
$
|
1.13
|
|
|
|
31.0
|
%
|
Diluted net income
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
|
20.0
|
%
|
|
$
|
1.47
|
|
|
$
|
1.12
|
|
|
|
31.3
|
%
|
Dividends
|
|
$
|
0.18
|
|
|
$
|
0.175
|
|
|
|
2.9
|
%
|
|
$
|
0.523
|
|
|
$
|
0.508
|
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,701
|
|
|
|
52,427
|
|
|
|
|
|
|
|
52,581
|
|
|
|
52,378
|
|
|
|
|
|
Diluted
|
|
|
53,337
|
|
|
|
52,873
|
|
|
|
|
|
|
|
53,067
|
|
|
|
52,971
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
April 30,
|
|
|
|
(Unaudited)
|
|
|
|
2011
|
|
|
2010
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
79,069
|
|
|
$
|
60,364
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
37,522
|
|
|
|
40,276
|
|
Non-cash portion of restructuring charges
|
|
|
2,155
|
|
|
|
1,455
|
|
Non-cash portion of stock-based compensation expense
|
|
|
9,396
|
|
|
|
7,574
|
|
Gain on the divestiture of business
|
|
|
(4,394
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
(9,018
|
)
|
|
|
(4,582
|
)
|
Changes in operating assets and liabilities (net of effects of business
acquisitions/divestitures):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
211
|
|
|
|
(17,192
|
)
|
Inventories
|
|
|
(1,491
|
)
|
|
|
3,887
|
|
Prepaid expenses and other assets
|
|
|
772
|
|
|
|
(5,273
|
)
|
Accounts payable and accrued liabilities
|
|
|
(8,355
|
)
|
|
|
31,493
|
|
Income taxes
|
|
|
4,579
|
|
|
|
152
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
110,446
|
|
|
|
118,154
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(7,970
|
)
|
|
|
(30,431
|
)
|
Divestiture of business, net of cash retained in business
|
|
|
12,979
|
|
|
|
|
|
Payments of contingent consideration
|
|
|
(979
|
)
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(13,671
|
)
|
|
|
(20,927
|
)
|
Other
|
|
|
(379
|
)
|
|
|
1,197
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,020
|
)
|
|
|
(50,161
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Payment of dividends
|
|
|
(28,500
|
)
|
|
|
(27,560
|
)
|
Proceeds from issuance of common stock
|
|
|
7,154
|
|
|
|
3,494
|
|
Principal payments on debt
|
|
|
(42,514
|
)
|
|
|
(26,143
|
)
|
Income tax benefit from the exercise of stock options and deferred compensation
distribution
|
|
|
1,075
|
|
|
|
182
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(62,785
|
)
|
|
|
(50,027
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
21,497
|
|
|
|
984
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
59,138
|
|
|
|
18,950
|
|
Cash and cash equivalents, beginning of period
|
|
|
314,840
|
|
|
|
188,156
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
373,978
|
|
|
$
|
207,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest, net of capitalized interest
|
|
$
|
16,379
|
|
|
$
|
18,217
|
|
Income taxes, net of refunds
|
|
|
26,695
|
|
|
|
18,296
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired, net of cash and goodwill
|
|
$
|
4,624
|
|
|
$
|
15,366
|
|
Liabilities assumed
|
|
|
(1,446
|
)
|
|
|
(5,201
|
)
|
Goodwill
|
|
|
4,792
|
|
|
|
20,266
|
|
|
|
|
|
|
|
|
Net cash paid for acquisitions
|
|
$
|
7,970
|
|
|
$
|
30,431
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5
BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended April 30, 2011
(Unaudited)
(In thousands, except share and per share amounts)
NOTE A Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Brady
Corporation and subsidiaries (the Company or Brady) 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 adjustments necessary to
present fairly the financial position of the Company as of April 30, 2011 and July 3l, 2010, its
results of operations for the three and nine months ended April 30, 2011 and 2010, and its cash
flows for the nine months ended April 30, 2011 and 2010. The condensed consolidated balance sheet
as of July 31, 2010 has been derived from the audited consolidated financial statements of that
date. The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America (GAAP) 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 GAAP have been 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 GAAP 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
Companys latest annual report on Form 10-K for the year ended July 31, 2010.
The Company has reclassified certain prior year financial statement amounts to conform to
their current year presentation. The operating activities including Other, Other liabilities,
and Accounts payable and accrued liabilities, which were previously disclosed as single line
items, have been combined and reported as Accounts payable and accrued liabilities on the
Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2011 and 2010.
These reclassifications had no effect on total assets, net income, or earnings per share.
NOTE B Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended April 30, 2011, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
Europe
|
|
|
Asia-Pacific
|
|
|
Total
|
|
Balance as of July 31, 2010
|
|
$
|
425,018
|
|
|
$
|
163,189
|
|
|
$
|
180,393
|
|
|
$
|
768,600
|
|
Current year acquisitions
|
|
|
|
|
|
|
|
|
|
|
4,792
|
|
|
|
4,792
|
|
Current year divestitures
|
|
|
(3,696
|
)
|
|
|
(8,380
|
)
|
|
|
|
|
|
|
(12,076
|
)
|
Translation adjustments
|
|
|
4,203
|
|
|
|
18,847
|
|
|
|
15,029
|
|
|
|
38,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2011
|
|
$
|
425,525
|
|
|
$
|
173,656
|
|
|
$
|
200,214
|
|
|
$
|
799,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill increased $30,795 during the nine months ended April 30, 2011. Of the $30,795
increase, $38,079 was due to the positive effects of foreign currency translation and $4,792
resulted from the acquisition of ID Warehouse during the second quarter of fiscal 2011. The
increase was offset by a $12,076 decrease in goodwill as a result of the divestiture of the
Companys Teklynx business during the second quarter of fiscal 2011. See Note L, Acquisitions and
Divestitures for further discussion.
6
Other intangible assets include patents, trademarks, customer relationships, non-compete
agreements and other intangible assets with finite lives being amortized in accordance with
accounting guidance for goodwill and other intangible assets. The net book value of these assets
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
|
July 31, 2010
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
Amortized other
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
5
|
|
|
$
|
9,687
|
|
|
$
|
(8,452
|
)
|
|
$
|
1,235
|
|
|
|
5
|
|
|
$
|
9,314
|
|
|
$
|
(7,855
|
)
|
|
$
|
1,459
|
|
Trademarks and other
|
|
|
7
|
|
|
|
9,434
|
|
|
|
(6,505
|
)
|
|
|
2,929
|
|
|
|
7
|
|
|
|
8,823
|
|
|
|
(5,685
|
)
|
|
|
3,138
|
|
Customer relationships
|
|
|
7
|
|
|
|
164,840
|
|
|
|
(115,293
|
)
|
|
|
49,547
|
|
|
|
7
|
|
|
|
152,720
|
|
|
|
(95,996
|
)
|
|
|
56,724
|
|
Non-compete agreements
|
|
|
4
|
|
|
|
13,523
|
|
|
|
(12,709
|
)
|
|
|
814
|
|
|
|
4
|
|
|
|
11,930
|
|
|
|
(11,059
|
)
|
|
|
871
|
|
Other
|
|
|
4
|
|
|
|
2,731
|
|
|
|
(2,723
|
)
|
|
|
8
|
|
|
|
4
|
|
|
|
3,309
|
|
|
|
(3,297
|
)
|
|
|
12
|
|
Unamortized other
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
N/A
|
|
|
|
41,853
|
|
|
|
|
|
|
|
41,853
|
|
|
|
N/A
|
|
|
|
41,342
|
|
|
|
|
|
|
|
41,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
242,068
|
|
|
$
|
(145,682
|
)
|
|
$
|
96,386
|
|
|
|
|
|
|
$
|
227,438
|
|
|
$
|
(123,892
|
)
|
|
$
|
103,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of goodwill and other intangible assets in the Condensed Consolidated Balance Sheet
at April 30, 2011 differs from the value assigned to them in the allocation of purchase price due
to the effect of fluctuations in the exchange rates used to translate financial statements into the
United States Dollar between the date of acquisition and April 30, 2011. The acquisition completed
during the nine months ended April 30, 2011 increased the customer relationships by $1,846 and
increased the amortizable trademarks by $487. See Note L, Acquisitions and Divestitures for
further discussion.
Amortization expense on intangible assets was $5,117 and $5,160 for the three-month periods
ended April 30, 2011 and 2010, respectively and $15,387 and $16,395 for the nine-month periods
ended April 30, 2011 and 2010, respectively. Annual amortization is projected to be $20,740,
$16,794, $10,959, $5,941 and $5,531 for the years ending July 31, 2011, 2012, 2013, 2014 and 2015,
respectively.
NOTE C Comprehensive Income
Total comprehensive income for the periods presented was a follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
Nine Months Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
28,589
|
|
|
$
|
23,695
|
|
|
$
|
79,069
|
|
|
$
|
60,364
|
|
Unrealized (loss) gain on cash flow hedges
|
|
|
(315
|
)
|
|
|
110
|
|
|
|
(1,206
|
)
|
|
|
63
|
|
Amortization of gain on post-retirement medical, dental and vision plan
|
|
|
(31
|
)
|
|
|
(63
|
)
|
|
|
(126
|
)
|
|
|
(208
|
)
|
Foreign currency translation adjustments
|
|
|
30,512
|
|
|
|
(1,758
|
)
|
|
|
60,267
|
|
|
|
4,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
58,755
|
|
|
$
|
21,984
|
|
|
$
|
138,004
|
|
|
$
|
64,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in total comprehensive income for the quarter ended April 30, 2011 as
compared to April 30, 2010 was primarily due to the depreciation of the U.S. dollar against other
currencies.
7
NOTE D Net Income Per Common Share
In June 2008, the Financial Accounting Standards Board (FASB) issued accounting guidance
addressing whether instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the earnings allocation in
computing earnings per share. This guidance requires that all outstanding unvested share-based
payment awards that contain rights to non-forfeitable dividends be considered participating
securities in undistributed earnings with common shareholders. The Company adopted the guidance
during the first quarter of fiscal 2010. As a result, the dividends on the Companys
performance-based restricted shares are included in the basic and diluted earnings per share
calculations for the respective periods presented.
Reconciliations of the numerator and denominator of the basic and diluted per share
computations for the Companys Class A and Class B common stock are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
Nine Months Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (numerator for basic and diluted Class A
net income per share)
|
|
$
|
28,589
|
|
|
$
|
23,695
|
|
|
$
|
79,069
|
|
|
$
|
60,364
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock dividends
|
|
|
(56
|
)
|
|
|
(37
|
)
|
|
|
(168
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted Class A net income
per share
|
|
$
|
28,533
|
|
|
$
|
23,658
|
|
|
$
|
78,901
|
|
|
$
|
60,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferential dividends
|
|
|
|
|
|
|
|
|
|
|
(820
|
)
|
|
|
(816
|
)
|
Preferential dividends on dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted Class B net income
per share
|
|
$
|
28,533
|
|
|
$
|
23,658
|
|
|
$
|
78,075
|
|
|
$
|
59,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share for both
Class A and Class B
|
|
|
52,701
|
|
|
|
52,427
|
|
|
|
52,581
|
|
|
|
52,378
|
|
Plus: Effect of dilutive stock options
|
|
|
636
|
|
|
|
446
|
|
|
|
486
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share for both
Class A and Class B
|
|
|
53,337
|
|
|
|
52,873
|
|
|
|
53,067
|
|
|
|
52,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Nonvoting Common Stock net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
$
|
1.50
|
|
|
$
|
1.15
|
|
Diluted
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
$
|
1.49
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Voting Common Stock net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
$
|
1.48
|
|
|
$
|
1.13
|
|
Diluted
|
|
$
|
0.54
|
|
|
$
|
0.45
|
|
|
$
|
1.47
|
|
|
$
|
1.12
|
|
Options to purchase approximately 2,500,000 and 3,100,000 shares of Class A Nonvoting Common
Stock for the three and nine months ended April 30, 2011, respectively, and 2,800,000 and
2,700,000 shares of Class A Nonvoting Common Stock for the three and nine months ended April 30,
2010, respectively, were not included in the computations of diluted net income per share because
the option exercise price was greater than the average market price of the common shares and,
therefore, the effect would be anti-dilutive.
8
NOTE E Segment Information
The Company evaluates short-term segment performance based on segment profit or loss and
customer sales. Corporate long-term performance is evaluated based on shareholder value enhancement
(SVE), which incorporates the cost of capital as a hurdle rate for capital expenditures, new
product development, and acquisitions. Segment profit or loss does not include certain
administrative costs, such as the cost of finance, information technology and human resources,
which are managed as global functions. Restructuring charges, stock options, interest, investment
and other income and income taxes are also excluded when evaluating performance.
The Company is organized and managed on a geographic basis by region. Each of these regions,
Americas, Europe and Asia-Pacific, has a President that reports directly to the Companys chief
operating decision maker, its Chief Executive Officer. Each region has its own distinct operations,
is managed by its own management team, maintains its own financial reports and is evaluated based
on regional segment profit. The Company has determined that these regions comprise its operating
and reportable segments based on the information used by the Chief Executive Officer to allocate
resources and assess performance.
Intersegment sales and transfers are recorded at cost plus a standard percentage markup.
Intercompany profit is eliminated in consolidation. It is not practicable to disclose
enterprise-wide revenue from external customers on the basis of product or service.
Following is a summary of segment information for the three and nine months ended April 30,
2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
And
|
|
|
|
|
|
|
Americas
|
|
|
Europe
|
|
|
Asia-Pacific
|
|
|
Regions
|
|
|
Eliminations
|
|
|
Totals
|
|
Three months ended April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
149,217
|
|
|
$
|
105,894
|
|
|
$
|
82,785
|
|
|
$
|
337,896
|
|
|
$
|
|
|
|
$
|
337,896
|
|
Intersegment revenues
|
|
|
9,938
|
|
|
|
696
|
|
|
|
5,960
|
|
|
|
16,594
|
|
|
|
(16,594
|
)
|
|
|
|
|
Segment profit
|
|
|
38,292
|
|
|
|
28,938
|
|
|
|
9,976
|
|
|
|
77,206
|
|
|
|
(3,561
|
)
|
|
|
73,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
144,413
|
|
|
$
|
98,152
|
|
|
$
|
79,322
|
|
|
$
|
321,887
|
|
|
$
|
|
|
|
$
|
321,887
|
|
Intersegment revenues
|
|
|
11,624
|
|
|
|
791
|
|
|
|
4,443
|
|
|
|
16,858
|
|
|
|
(16,858
|
)
|
|
|
|
|
Segment profit
|
|
|
33,858
|
|
|
|
27,472
|
|
|
|
12,775
|
|
|
|
74,105
|
|
|
|
(3,558
|
)
|
|
|
70,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
431,216
|
|
|
$
|
301,985
|
|
|
$
|
263,292
|
|
|
$
|
996,493
|
|
|
$
|
|
|
|
$
|
996,493
|
|
Intersegment revenues
|
|
|
30,729
|
|
|
|
2,209
|
|
|
|
18,306
|
|
|
|
51,244
|
|
|
|
(51,244
|
)
|
|
|
|
|
Segment profit
|
|
|
108,666
|
|
|
|
82,165
|
|
|
|
38,330
|
|
|
|
229,161
|
|
|
|
(12,087
|
)
|
|
|
217,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
402,255
|
|
|
$
|
289,101
|
|
|
$
|
244,846
|
|
|
$
|
936,202
|
|
|
$
|
|
|
|
$
|
936,202
|
|
Intersegment revenues
|
|
|
32,657
|
|
|
|
3,367
|
|
|
|
13,344
|
|
|
|
49,368
|
|
|
|
(49,368
|
)
|
|
|
|
|
Segment profit
|
|
|
90,205
|
|
|
|
78,281
|
|
|
|
38,589
|
|
|
|
207,075
|
|
|
|
(10,161
|
)
|
|
|
196,914
|
|
Following is a reconciliation of segment profit to net income for the three months and nine months
ended April 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
Nine months ended:
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Total profit from reportable segments
|
|
$
|
77,206
|
|
|
$
|
74,105
|
|
|
$
|
229,161
|
|
|
$
|
207,075
|
|
Corporate and eliminations
|
|
|
(3,561
|
)
|
|
|
(3,558
|
)
|
|
|
(12,087
|
)
|
|
|
(10,161
|
)
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative costs
|
|
|
(31,563
|
)
|
|
|
(32,286
|
)
|
|
|
(90,534
|
)
|
|
|
(91,944
|
)
|
Restructuring charges
|
|
|
(1,211
|
)
|
|
|
(2,347
|
)
|
|
|
(6,986
|
)
|
|
|
(9,597
|
)
|
Investment and other income
|
|
|
1,428
|
|
|
|
121
|
|
|
|
2,892
|
|
|
|
1,273
|
|
Interest expense
|
|
|
(5,103
|
)
|
|
|
(5,147
|
)
|
|
|
(16,640
|
)
|
|
|
(15,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
37,196
|
|
|
|
30,888
|
|
|
|
105,806
|
|
|
|
81,174
|
|
Income taxes
|
|
|
(8,607
|
)
|
|
|
(7,193
|
)
|
|
|
(26,737
|
)
|
|
|
(20,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,589
|
|
|
$
|
23,695
|
|
|
$
|
79,069
|
|
|
$
|
60,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTE F Stock-Based Compensation
The Company has an incentive stock plan under which the Board of Directors may grant
nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted
shares of Class A Nonvoting Common Stock to employees. Additionally, the Company has a nonqualified
stock option plan for non-employee directors under which stock options to purchase shares of Class
A Nonvoting Common Stock are available for grant. The stock options have an exercise price equal to
the fair market value of the underlying stock at the date of grant and generally vest ratably over
a three-year period, with one-third becoming exercisable one year after the grant date and
one-third additional in each of the succeeding two years. Stock options issued under these plans,
referred to herein as service-based stock options, generally expire 10 years from the date of
grant. The Company also grants stock options to certain executives and key management employees
that vest upon meeting certain financial performance conditions over the vesting schedule described
above; these options are referred to herein as performance-based stock options. Performance-based
stock options expire 10 years from the date of grant. Restricted shares have an issuance price
equal to the fair market value of the underlying stock at the date of grant. The Company granted
restricted shares in fiscal 2008 and fiscal 2011 that have an issuance price equal to the fair
market value of the underlying stock at the date of grant. The restricted shares vest at the end of
a five-year period, with respect to the restricted shares issued in fiscal 2008, and ratably at the
end of years 3, 4 and 5 with respect to the restricted shares issued in fiscal 2011, and upon
meeting certain financial performance conditions; these shares are referred to herein as
performance-based restricted shares.
As of April 30, 2011, the Company has reserved 5,885,249 shares of Class A Nonvoting Common
Stock for outstanding stock options and restricted shares and 740,000 shares of Class A Nonvoting
Common Stock for future issuance of stock options and restricted shares under the various plans.
The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares
under these plans.
The Company recognizes the compensation cost of all share-based awards on a straight-line
basis over the vesting period of the award. Total stock compensation expense recognized by the
Company during the three months ended April 30, 2011 and 2010 was $2,527 ($1,541 net of taxes) and
$2,418 ($1,475 net of taxes), respectively, and expense recognized during the nine months ended
April 30, 2011 and 2010 was $9,396 ($5,732 net of taxes) and $7,574 ($4,620 net of taxes),
respectively. As of April 30, 2011, total unrecognized compensation cost related to share-based
compensation awards was $18,384 pre-tax, net of estimated forfeitures, which the Company expects to
recognize over a weighted-average period of 2.2 years.
The Company has estimated the fair value of its service-based and performance-based option
awards granted during the nine months ended April 30, 2011 and 2010 using the Black-Scholes option
valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are
reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 30, 2011
|
|
|
April 30, 2010
|
|
|
|
|
|
|
|
Performance-
|
|
|
|
|
|
|
Performance-
|
|
|
|
Service-Based
|
|
|
Based Option
|
|
|
Service-Based
|
|
|
Based Option
|
|
Black-Scholes Option Valuation Assumptions
|
|
Option Awards
|
|
|
Awards
|
|
|
Option Awards
|
|
|
Awards
|
|
Expected term (in years)
|
|
|
5.91
|
|
|
|
6.57
|
|
|
|
5.95
|
|
|
|
6.57
|
|
Expected volatility
|
|
|
40.22
|
%
|
|
|
39.39
|
%
|
|
|
39.85
|
%
|
|
|
38.72
|
%
|
Expected dividend yield
|
|
|
1.94
|
%
|
|
|
1.96
|
%
|
|
|
3.02
|
%
|
|
|
3.02
|
%
|
Risk-free interest rate
|
|
|
1.65
|
%
|
|
|
2.35
|
%
|
|
|
2.65
|
%
|
|
|
3.03
|
%
|
Weighted-average market value of
underlying stock at grant date
|
|
$
|
29.10
|
|
|
|
28.43
|
|
|
$
|
28.73
|
|
|
|
28.73
|
|
Weighted-average exercise price
|
|
$
|
29.10
|
|
|
|
28.35
|
|
|
$
|
28.73
|
|
|
|
29.78
|
|
Weighted-average fair value of options
granted during the period
|
|
$
|
9.58
|
|
|
|
9.87
|
|
|
$
|
8.78
|
|
|
|
8.70
|
|
The Company uses historical data regarding stock option exercise behaviors to estimate the
expected term of options granted based on the period of time that options granted are expected to
be outstanding. Expected volatilities are based on the historical volatility of the Companys
stock. The expected dividend yield is based on the Companys historical dividend payments and
historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
on the grant date for the length of time corresponding to the expected term of the option. The
market value is obtained by taking the average of the high and the low stock price on the date of
the grant.
The Company granted 100,000 shares of performance-based restricted stock to Frank M. Jaehnert,
the Companys President and Chief Executive Officer, in August of 2010, with a grant price and fair
value of $28.35. The Company also granted 210,000 shares of performance-based restricted stock
during fiscal 2008, with a grant price and fair value of $32.83. As of April 30, 2011, 310,000
performance-based restricted shares were outstanding.
The Company granted 465,000 performance-based stock options during the nine months ended April
30, 2011, with a weighted average exercise price of $28.35 and a weighted average fair value of
$9.87. The Company also granted 897,500 service-based stock options during the nine months ended
April 30, 2011, with a weighted average exercise price of $29.10 and a weighted average fair value
of $9.58.
10
A summary of stock option activity under the Companys share-based compensation plans for the
nine months ended April 30, 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at July 31, 2010
|
|
|
5,108,736
|
|
|
$
|
28.69
|
|
|
|
|
|
|
|
|
|
New grants
|
|
|
1,362,500
|
|
|
$
|
28.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(366,488
|
)
|
|
$
|
19.43
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(292,499
|
)
|
|
$
|
31.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2011
|
|
|
5,812,249
|
|
|
$
|
29.16
|
|
|
|
6.62
|
|
|
$
|
48,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2011
|
|
|
3,359,215
|
|
|
$
|
29.70
|
|
|
|
5.00
|
|
|
$
|
26,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 3,359,215 and 3,104,089 options exercisable with a weighted average exercise price
of $29.70 and $28.34 at April 30, 2011 and 2010, respectively. The cash received from the exercise
of options during the quarters ended April 30, 2011 and 2010 was $2,244 and $1,822, respectively.
The cash received from the exercise of options during the nine months ended April 30, 2011 and 2010
was $7,154 and $3,494, respectively. The cash received from the tax benefit on stock options
exercised during the quarter ended April 30, 2011 and 2010 was $695 and $462, respectively. The
cash received from the tax benefit on options exercised during the nine months ended April 30, 2011
and 2010 was $1,398 and $845, respectively.
The total intrinsic value (defined as the amount by which the fair value of the underlying
stock exceeds the exercise price of an option) of options exercised during the nine months ended
April 30, 2011 and 2010, based upon the average market price during the period, was $4,907 and
$2,660, respectively. The total fair value of stock options vested during the nine months ended
April 30, 2011 and 2010 was $6,775 and $5,294, respectively.
NOTE G Stockholders Investment
In fiscal 2009, the Companys Board of Directors authorized share repurchase plans for the
Companys Class A Nonvoting Common Stock. The share repurchase plans were implemented by purchasing
shares in the open market or privately negotiated transactions, with repurchased shares available
for use in connection with the Companys stock-based plans and for other corporate purposes. The
Company reacquired approximately 102,067 shares of its Class A Common Stock for $2.5 million in
fiscal 2010 in connection with its stock repurchase plans. No shares were reacquired during the
nine months ended April 30, 2011. As of April 30, 2011, there remained 204,133 shares to purchase
in connection with this share repurchase plan.
NOTE H Employee Benefit Plans
The Company provides postretirement medical, dental and vision benefits for eligible regular
full and part-time domestic employees (including spouses) outlined by the plan. Postretirement
benefits are provided only if the employee was hired prior to April 1, 2008, and retires on or
after attainment of 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, are 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 are based on the employees age and service at
retirement.
The Company funds benefit costs on a pay-as-you-go basis. There have been no changes to the
components of net periodic benefit cost or the amount that the Company expects to fund in fiscal
2011 from those reported in Note 3 to the consolidated financial statements included in the
Companys latest annual report on Form 10-K for the year ended July 31, 2010.
11
NOTE I Fair Value Measurements
The Company adopted new accounting guidance on fair value measurements on August 1, 2008 as it
relates to financial assets and liabilities. The Company adopted the new accounting guidance on
fair value measurements for its nonfinancial assets and liabilities on August 1, 2009. The
accounting guidance applies to other accounting pronouncements that require or permit fair value
measurements, defines fair value based upon an exit price model, establishes a framework for
measuring fair value, and expands the applicable disclosure requirements. The accounting guidance
indicates, among other things, that a fair value measurement assumes that a transaction to sell an
asset or transfer a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or liability.
The accounting guidance on fair value measurements establishes a fair market value hierarchy
for the pricing inputs used to measure fair market value. The Companys assets and liabilities
measured at fair market value are classified in one of the following categories:
|
|
Level 1
Assets or liabilities for which fair value is based on quoted market prices in
active markets for identical instruments as of the reporting date.
|
|
|
Level 2
Assets or liabilities for which fair value is based on valuation models for
which pricing inputs were either directly or indirectly observable.
|
|
|
Level 3
Assets or liabilities for which fair value is based on valuation models with
significant unobservable pricing inputs and which result in the use of management estimates.
|
The following tables set forth by level within the fair value hierarchy, the Companys
financial assets and liabilities that were accounted for at fair value on a recurring basis at
April 30, 2011, and July 31, 2010, according to the valuation techniques the Company used to
determine their fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Inputs
|
|
|
|
|
|
|
|
|
Considered as
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
Balance Sheet
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
Classification
|
April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities
|
|
$
|
11,236
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,236
|
|
|
Other assets
|
Foreign exchange contracts cash flow hedges
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
11,236
|
|
|
$
|
65
|
|
|
$
|
|
|
|
$
|
11,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts cash flow hedges
|
|
$
|
|
|
|
$
|
1,672
|
|
|
|
|
|
|
$
|
1,672
|
|
|
Other current liabilities
|
Foreign exchange contracts net investment hedge
|
|
|
|
|
|
|
14,069
|
|
|
|
|
|
|
|
14,069
|
|
|
Other current liabilities
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
Foreign currency denominated debt net
investment hedge
|
|
|
|
|
|
|
109,110
|
|
|
|
|
|
|
|
109,110
|
|
|
Long term obligations, less current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
124,851
|
|
|
$
|
|
|
|
$
|
124,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities
|
|
$
|
8,757
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,757
|
|
|
Other assets
|
Foreign exchange contracts cash flow hedges
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
156
|
|
|
Prepaid expenses and other current assets
|
Foreign exchange contracts
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
8,757
|
|
|
$
|
180
|
|
|
$
|
|
|
|
$
|
8,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts cash flow hedges
|
|
$
|
|
|
|
$
|
829
|
|
|
$
|
|
|
|
$
|
829
|
|
|
Other current liabilities
|
Foreign exchange contracts
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
Other current liabilities
|
Foreign currency denominated debt net
investment hedge
|
|
|
|
|
|
|
97,747
|
|
|
|
|
|
|
|
97,747
|
|
|
Long term obligations, less current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
98,640
|
|
|
$
|
|
|
|
$
|
98,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following methods and assumptions were used to estimate the fair value of each
class of financial instrument:
|
|
Trading Securities:
The Companys deferred compensation investments consist of investments in
mutual funds. These investments were classified as Level 1 as the shares of these investments
trade with sufficient frequency and volume to enable the Company to obtain pricing information on
an ongoing basis.
|
|
|
Foreign currency exchange contacts:
The Companys foreign currency exchange contracts were
classified as Level 2, as the fair value was based on the present value of the future cash flows
using external models that use observable inputs, such as interest rates, yield curves and
foreign currency exchange rates. See Note K, Derivatives and Hedging Activities for additional
information.
|
|
|
Foreign currency denominated debt net investment hedge:
The Companys foreign currency
denominated debt designated as a net investment hedge was classified as Level 2, as the fair
value was based on the present value of the future cash flows using external models that use
observable inputs, such as interest rates, yield curves and foreign currency exchange rates. See
Note K, Derivatives and Hedging Activities for additional information.
|
There have been no transfers of assets or liabilities between the fair value hierarchy levels,
outlined above, during the nine months ended April 30, 2011.
The Companys financial instruments, other than those presented in the disclosures above,
include cash, notes receivable, accounts receivable, accounts payable, accrued liabilities and
short-term and long-term debt. The fair values of cash, accounts receivable, accounts payable, and
accrued liabilities approximated carrying values because of the short-term nature of these
instruments.
The estimated fair value of the Companys long-term obligations including current maturities,
based on the quoted market prices for similar issues and on the current rates offered for debt of
similar maturities, was $430,276 and $467,479 at April 30, 2011 and July 31, 2010, respectively, as
compared to the carrying value of $413,053 and $444,204 at April 30, 2011 and July 31, 2010,
respectively.
Disclosures for nonfinancial assets and liabilities that are measured at fair value, but are
recognized and disclosed at fair value on a nonrecurring basis, were required prospectively
beginning August 1, 2009. During the nine months ended April 30, 2011, the Company had no
significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent
to their initial recognition other than for the acquisition of ID Warehouse and divestiture of the
Teklynx business. See Note L, Acquisitions and Divestitures for further information.
NOTE J Restructuring
In fiscal 2010, the Company continued the execution of its restructuring actions announced in
fiscal 2009. As a result of these actions, the Company recorded restructuring charges of $15,314
in fiscal 2010. The restructuring charges included $10,850 of employee separation costs, $2,260 of
non-cash fixed asset write-offs, $1,493 of other facility closure related costs, and $711 of
contract termination costs. The Company continued executing its restructuring actions during the
nine months ended April 30, 2011.
During the three and nine months ended April 30 2011, the Company recorded restructuring
charges of $1,211 and $6,986, respectively. The year-to-date charges of $6,986 consisted of $4,531
of employee separation costs, $2,155 of fixed asset write-offs, and $300 of other facility closure
related costs and contract termination costs. Of the $6,986 of restructuring charges recorded
during the nine months ended April 30, 2011, $4,401 was incurred in the Americas, $2,457 was
incurred in Europe, and $128 was incurred in Asia-Pacific. The charges for employee separation
costs consisted of severance pay, outplacement services, medical and other related benefits. The
costs related to these restructuring activities have been recorded on the condensed consolidated
statements of income as restructuring charges. The Company expects the majority of the remaining
cash payments to be made during the next twelve months.
A reconciliation of the Companys fiscal 2011 restructuring activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Asset Write-
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
offs
|
|
|
Other
|
|
|
Total
|
|
Beginning balance, July 31, 2010
|
|
$
|
6,055
|
|
|
$
|
|
|
|
$
|
106
|
|
|
$
|
6,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
2,665
|
|
|
|
951
|
|
|
|
25
|
|
|
|
3,641
|
|
Non-cash write-offs
|
|
|
|
|
|
|
(951
|
)
|
|
|
|
|
|
|
(951
|
)
|
Cash payments
|
|
|
(3,413
|
)
|
|
|
|
|
|
|
(112
|
)
|
|
|
(3,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, October 31, 2010
|
|
$
|
5,307
|
|
|
$
|
|
|
|
$
|
19
|
|
|
$
|
5,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
1,213
|
|
|
|
763
|
|
|
|
158
|
|
|
|
2,134
|
|
Non-cash write-offs
|
|
|
|
|
|
|
(763
|
)
|
|
|
|
|
|
|
(763
|
)
|
Cash payments
|
|
|
(2,679
|
)
|
|
|
|
|
|
|
(169
|
)
|
|
|
(2,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, January 31, 2011
|
|
$
|
3,841
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
3,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
653
|
|
|
|
441
|
|
|
|
117
|
|
|
|
1,211
|
|
Non-cash write-offs
|
|
|
|
|
|
|
(441
|
)
|
|
|
|
|
|
|
(441
|
)
|
Cash payments
|
|
|
(1,823
|
)
|
|
|
|
|
|
|
(117
|
)
|
|
|
(1,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, April 30, 2011
|
|
$
|
2,671
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
NOTE K Derivatives and Hedging Activities
The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate
risk of specific foreign currency denominated transactions and net investments. These contracts
typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future
date, with maturities of 12 months or less, which qualify as either cash flow hedges or net
investment hedges under the accounting guidance for derivative instruments and hedging activities.
The primary objectives of the Companys foreign currency exchange risk management are to minimize
the impact of currency movements due to products purchased in other than the respective
subsidiaries functional currency and to minimize the impact of currency movements on the Companys
net investment denominated in a currency other than the U.S. dollar. To achieve this objective, the
Company hedges a portion of known exposures using forward foreign exchange currency contracts. As
of April 30, 2011 and July 31, 2010, the notional amount of outstanding forward exchange contracts
was $120,475 and $45,328, respectively.
Hedge effectiveness is determined by how closely the changes in the fair value of the hedging
instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting
is permitted only if the hedging relationship is expected to be highly effective at the inception
of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge
ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not
significant for the three-month or nine-month periods ended April 30, 2011 and 2010.
The Company hedges a portion of known exposure using forward exchange contracts. Main
exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar,
Australian Dollar, Singapore Dollar, Swedish Krona, Japanese Yen, Swiss Franc, and the Korean Won.
Generally, these risk management transactions will involve the use of foreign currency derivatives
to protect against exposure resulting from sales and identified inventory or other asset purchases.
The Company has designated a portion of its foreign exchange contracts as cash flow hedges and
recorded these contracts at fair value on the Condensed Consolidated Balance Sheets. For these
instruments, the effective portion of the gain or loss on the derivative is reported as a component
of other comprehensive income (OCI) and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. At April 30, 2011 and July 31, 2010,
unrealized losses of $2,210 and $493 have been included in OCI, respectively. All balances are
expected to be reclassified from OCI to earnings during the next twelve months when the hedged
transactions impact earnings.
At April 30, 2011 and July 31, 2010, the Company had $65 and $156 of forward exchange
contracts designated as cash flow hedges included in Prepaid expenses and other current assets on
the accompanying Condensed Consolidated Balance Sheets. At April 30, 2011 and July 31, 2010, the
Company had $1,672 and $829, respectively, of forward exchange contracts designated as cash flow
hedges included in Other current liabilities on the accompanying Condensed Consolidated Balance
Sheets. At April 30, 2011 and July 31, 2010, the U.S. dollar equivalent of these outstanding
forward foreign exchange contracts totaled $20,475 and $32,020, respectively, including contracts
to sell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and Swiss Franc.
On May 13, 2010, the Company completed the private placement of 75.0 million aggregate
principal amount of senior unsecured notes to accredited institutional investors. This
Euro-denominated debt obligation was designated as a net investment hedge to hedge portions of the
Companys net investment in Euro-denominated foreign operations. As net investment hedges, the
currency effects of the debt obligations are reflected in the foreign currency translation
adjustments component of accumulated other comprehensive income where they offset gains and losses
recorded on the Companys net investment in Euro-denominated operations. The Companys foreign
denominated debt obligations are valued under a market approach using publicized spot prices.
During the three and nine month period ended April 30, 2011, the Company used forward foreign
exchange currency contracts designated as net investment hedges to hedge portions of the Companys
net investments in Euro-denominated foreign operations. For hedges that meet the effectiveness
requirements, the net gains or losses attributable to changes in spot exchange rates are recorded
in the foreign exchange translation adjustment component of accumulated other comprehensive income
where it offsets gains and losses recorded on the Companys net investment in Euro-denominated
foreign operations. Any ineffective portions are recognized in earnings. Recognition in earnings of
amounts previously recorded in cumulative translation is limited to circumstances such as complete
or substantially complete liquidation of the net investment in the hedged foreign operation. At
April 30, 2011, the Company had $14,069 of forward foreign exchange currency contracts designated
as net investment hedges included in Other current liabilities on the Condensed Consolidated
Balance Sheet. At April 30, 2011, the U.S dollar equivalent of these outstanding forward foreign
exchange contracts totaled $100,000. There were no forward foreign exchange contracts designated
as net investment hedges outstanding as of July 31, 2010.
14
Fair values of derivative instruments in the Condensed Consolidated Balance Sheets were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
April 30, 2011
|
|
|
July 31, 2010
|
|
|
April 30, 2011
|
|
|
July 31, 2010
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
65
|
|
|
Prepaid expenses and other current assets
|
|
$
|
156
|
|
|
Other current liabilities
|
|
$
|
1,672
|
|
|
Other current liabilities
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency denominated debt
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
Long term obligations, less current maturities
|
|
$
|
109,110
|
|
|
Long term obligations, less current maturities
|
|
$
|
97,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
Other current liabilities
|
|
$
|
14,069
|
|
|
Other current liabilities
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
65
|
|
|
|
|
|
|
$
|
156
|
|
|
|
|
|
|
$
|
124,851
|
|
|
|
|
|
|
$
|
98,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
24
|
|
|
Other current liabilities
|
|
$
|
|
|
|
Other current liabilities
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
24
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax effects of derivative instruments designated as cash flow hedges and net investment
hedges on the Condensed Consolidated Statements of Income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or
|
|
|
Amount of Gain or (Loss)
|
|
|
Location of
|
|
|
Amount of Gain or (Loss)
|
|
|
|
Amount of Gain or (Loss)
|
|
|
(Loss)
|
|
|
Reclassified From
|
|
|
Gain or
|
|
|
Recognized in Income on
|
|
|
|
Recognized in OCI on
|
|
|
Reclassified
|
|
|
Accumulated OCI Into Income
|
|
|
(Loss)
|
|
|
Derivative (Ineffective
|
|
|
|
Derivative (Effective Portion)
|
|
|
From
|
|
|
(Effective Portion)
|
|
|
Recognized
|
|
|
Portion)
|
|
|
|
Nine
|
|
|
Nine
|
|
|
Accumulated
|
|
|
Nine
|
|
|
Nine
|
|
|
in Income
|
|
|
Nine
|
|
|
Nine
|
|
Derivatives in
|
|
months
|
|
|
months
|
|
|
OCI into
|
|
|
months
|
|
|
months
|
|
|
on
|
|
|
months
|
|
|
months
|
|
Cash Flow
|
|
ended
|
|
|
ended
|
|
|
Income
|
|
|
ended
|
|
|
ended
|
|
|
Derivative
|
|
|
ended
|
|
|
ended
|
|
Hedging
|
|
April 30,
|
|
|
April 30,
|
|
|
(Effective
|
|
|
April 30,
|
|
|
April 30,
|
|
|
(Ineffective
|
|
|
April
|
|
|
April 30,
|
|
Relationships
|
|
2011
|
|
|
2010
|
|
|
Portion)
|
|
|
2011
|
|
|
2010
|
|
|
Portion)
|
|
|
30, 2011
|
|
|
2010
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts
|
|
$
|
(2,210
|
)
|
|
$
|
(120
|
)
|
|
Cost of Goods Sold
|
|
|
$
|
(887
|
)
|
|
$
|
|
|
|
Cost of Goods Sold
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2,210
|
)
|
|
$
|
(120
|
)
|
|
|
|
|
|
$
|
(887
|
)
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The pre-tax effects of derivative instruments designated as net investment hedges on the
Condensed Consolidated Balance Sheet consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or (Loss)
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
|
Reclassified From
|
|
|
|
|
|
|
or (Loss)
|
|
|
|
Recognized in OCI on
|
|
|
Location of Gain
|
|
|
Accumulated OCI
|
|
|
|
|
|
|
Recognized in
|
|
|
|
Derivative
|
|
|
or (Loss)
|
|
|
Into Income
|
|
|
Location of
|
|
|
Income on Derivative
|
|
Derivatives in
|
|
(Effective Portion)
|
|
|
Reclassified From
|
|
|
(Effective Portion)
|
|
|
Gain or (Loss)
|
|
|
(Ineffective Portion)
|
|
Net Investment
|
|
Nine months ended
|
|
|
Accumulated
|
|
|
Nine months ended
|
|
|
Recognized in
|
|
|
Nine months ended
|
|
Hedging
|
|
April 30,
|
|
|
OCI into Income
|
|
|
April 30,
|
|
|
Income on Derivative
|
|
|
April 30,
|
|
Relationships
|
|
2011
|
|
|
2010
|
|
|
(Effective Portion)
|
|
|
2011
|
|
|
2010
|
|
|
(Ineffective Portion)
|
|
|
2011
|
|
|
2010
|
|
Foreign currency denominated debt
|
|
$
|
(11,362
|
)
|
|
$
|
|
|
|
Investment and other income net
|
|
$
|
|
|
|
$
|
|
|
|
Investment and other income net
|
|
$
|
|
|
|
$
|
|
|
Foreign exchange contracts
|
|
$
|
(14,069
|
)
|
|
$
|
(1,326
|
)
|
|
Investment and other income net
|
|
$
|
|
|
|
$
|
|
|
|
Investment and other income net
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(25,431
|
)
|
|
$
|
(1,326
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax effects of derivative instruments not designated as hedge instruments
on the Condensed Consolidated Statements of Income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
|
|
Recognized in Income on Derivative
|
|
|
|
Location of Gain or
|
|
|
Nine months
|
|
|
Nine months
|
|
|
|
(Loss) Recognized in
|
|
|
ended April 30,
|
|
|
ended April 30,
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Income on Derivative
|
|
|
2011
|
|
|
2010
|
|
Foreign exchange contracts
|
|
Other income (expense)
|
|
|
$
|
(953
|
)
|
|
$
|
(402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
(953
|
)
|
|
$
|
(402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NOTE L Acquisitions and Divestitures
On November 1, 2010, the Company acquired ID Warehouse, based in New South Wales, Australia
for $7,970. ID Warehouse offers security identification and visitor management products including
identification card printers, access control cards, wristbands, tamper-evident security seals and
identification accessories. The business is included in the Companys Asia-Pacific segment. The
purchase price allocation resulted in $4,792 assigned to goodwill, $1,846 assigned to customer
relationships, and $487 assigned to non-compete agreements. The amounts assigned to the customer
relationships and non-compete agreements are being amortized over 10 and 5 years, respectively.
The Company expects the acquisition to further strengthen its position in the people identification
business in Australia and the segment.
The results of the operations of the acquired business have been included since the date of
acquisition in the accompanying condensed consolidated financial statements. The Company is
continuing to evaluate the initial purchase price allocations for the acquisition included above
and will adjust the allocations as additional information relative to the fair value of assets and
liabilities of the acquired business becomes known. Pro forma information related to the
acquisition of ID Warehouse was not included because the impact on the Companys consolidated
results of operations is considered to be immaterial.
On December 16, 2010, the Company sold its Teklynx business, a barcode software company. The
Teklynx business had operations primarily in the Companys Americas and Europe segments. The
Company received proceeds of $12,979, net of cash retained in the business. The transaction
resulted in a pre-tax gain of $4,394, which was accounted for in Selling, general, and
administrative expenses (SG&A) on the Condensed Consolidated Statement of Income for the nine
month periods ended April 30, 2011. The divestiture of the Teklynx business was part of the
Companys continued long-term growth strategy to focus the Companys energies and resources on
growth of the Companys core business.
16
NOTE M Updated Accounting Policies
In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses, requiring more robust
and disaggregated disclosures about the credit quality of an entitys financing receivables and its
allowance for credit losses. The Company adopted the new guidance in the second quarter of fiscal
2011. The new guidance provides for additional disclosure included herein.
Accounts receivables are stated net of allowances for doubtful accounts of $5,523 and $7,137
as of April 30, 2011 and July 31, 2010, respectively. No single customer comprised more than 10%
of the Companys consolidated net sales as of April 30, 2011 or July 31, 2010, or 10% of the
Companys consolidated accounts receivable as of April 30, 2011 and July 31, 2010. Specific
customer provisions are made when a review of significant outstanding amounts, utilizing
information about customer creditworthiness and current economic trends, indicates that collection
is doubtful. In addition, provisions are made at different rates, based upon the age of the
receivable and the Companys historical collection experience.
In addition, the Company provides for an allowance for estimated product returns and credit
memos which is recognized as a deduction from sales at the time of the sale. As of April 30, 2011
and July 31, 2010, the Company had a reserve of $4,414 and $3,963, respectively.
NOTE N Subsequent Events
On May 17, 2011, the Board of Directors declared a quarterly cash dividend to shareholders of
the Companys Class A and Class B Common Stock of $0.18 per share payable on July 29, 2011 to
shareholders of record at the close of business on July 8, 2011.
17
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
Brady, a Wisconsin corporation founded in 1914, is an international manufacturer and marketer
of identification solutions and specialty materials that identify and protect premises, products,
and people. Its products include facility identification products; safety and complementary
products; wire and cable identification products; sorbent materials; people identification
products; regulatory publishing products; high-performance identification products for product
identification and work-in-process identification; and bar-code labels and precision die-cut
components for mobile telecommunications devices, hard disk drives, medical devices and supplies,
and automotive and other electronics. The Company serves customers in general manufacturing,
maintenance and safety, process industries, construction, electrical, telecommunications,
electronics, laboratory/healthcare, airline/transportation, brand protection, education,
governmental, public utility, and a variety of other industries. The Company manufactures and sells
products domestically and internationally through multiple channels including distributors,
resellers, business-to-business direct marketing and a direct sales force. The Company believes
that its reputation for innovation, commitment to quality and service, and dedicated employees have
made it a world leader in the markets it serves. The Company operates in Australia, Belgium,
Brazil, Canada, the Cayman Islands, China, Denmark, France, Germany, Hong Kong, India, Italy,
Japan, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, the Philippines, Poland, Singapore,
South Korea, Spain, Sweden, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the
United States. Brady sells through subsidiaries or sales offices in these countries, with
additional sales through a dedicated team of international sales representatives in New Zealand,
Russia, Taiwan, Turkey, Vietnam, and the United Arab Emirates. The Company further markets its
products to parts of Eastern Europe, the Middle East, Africa and Russia.
Sales for the quarter ended April 30, 2011, increased 4.9% to $337.9 million, compared to
$321.9 million in the same period of fiscal 2010. Of the increase in sales, organic sales increased
1.0%, acquisitions net of divestitures added 0.4% and the effects of fluctuations in the exchange
rates used to translate financial results into the United States dollar increased sales by 3.5%.
Net income for the quarter ended April 30, 2011, was $28.6 million or $0.54 per diluted Class A
Nonvoting Common Share, up 20.7% and 20.0%, respectively, from $23.7 million or $0.45 per diluted
Class A Nonvoting Common Share reported in the third quarter of last fiscal year. Net income
before restructuring-related expenses for the quarter ended April 30, 2011 was $29.5 million, or
$0.55 per diluted Class A Nonvoting Common Share, an increase of 16.1% from $25.4 million, or $0.48
per diluted Class A Nonvoting Common Share for the quarter ended April 30, 2010.
Sales for the nine months ended April 30, 2011, increased 6.4% to $996.5 million, compared to
$936.2 million in the same period of fiscal 2010. Of the increase in sales, organic sales
increased 4.1%, acquisitions net of divestitures added 1.4% and the effects of fluctuations in the
exchange rates used to translate financial results into the United States dollar increased sales
0.9%. Net income for the nine months ended April 30, 2011, was $79.1 million or $1.49 per diluted
Class A Nonvoting Common Share, up 31.0% and 30.7%, respectively, from $60.4 million or $1.14 per
diluted Class A Nonvoting Common Share reported in the same period of the prior fiscal year. Net
income before restructuring-related expenses for the nine months ended April 30, 2011 was $84.1
million or $1.58 per diluted Class A Nonvoting Common Share, an increase of 25.0% from $67.3
million or $1.27 per diluted Class A Nonvoting Common Share, for the nine months ended April 30,
2010.
Results of Operations
The comparability of the operating results for the three and nine months ended April 30, 2011,
to the prior year has been impacted by the following acquisitions and divestiture completed in
fiscal 2011 and fiscal 2010.
Fiscal 2011
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Date Completed
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
ID Warehouse
|
|
Asia Pacific
|
|
November 2010
|
|
|
|
|
|
|
|
|
|
Divestiture
|
|
|
|
|
|
|
|
|
Teklynx
|
|
Americas Europe
|
|
December 2010
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Date Completed
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
Welconstruct Group Limited (Welco)
|
|
Europe
|
|
October 2009
|
Stickolor Industria e Comerciao de Auto Adesivos Ltda. (Stickolor)
|
|
Americas
|
|
December 2009
|
Securimed SAS (Securimed)
|
|
Europe
|
|
March 2010
|
18
Sales for the three months ended April 30, 2011, increased 4.9% compared to the same period in
fiscal 2010. The increase was comprised of an increase in organic sales of 1.0%, an increase of
0.4% due to the acquisitions net of divestitures listed in the above table, and an increase of 3.5%
due to the effect of currencies on sales. Organic sales grew during the third quarter of fiscal
2011 in the Americas and Europe segments by 2.7% and 3.6%, respectively, partially offset by a
decline in organic sales of 5.1% in the Asia-Pacific segment. The organic sales increase
experienced in the Americas was due primarily to the strong Brady brand sales growth and new
products positively received by endusers and distributors. The increase in Europes organic sales
was mainly a result of the Brady business in Germany and in Southern Europe. The decline in
organic sales for the Asia-Pacific segment was due to the reduced demand from one of our largest
mobile handset customers and Japan-related supply chain issues experienced by the Companys
customers.
Sales for the nine months ended April 30, 2011, increased 6.4% compared to the same period in
fiscal 2010. The increase was comprised of a 4.1% increase in organic sales and an increase of
1.4% resulting from sales related to the acquisitions of ID Warehouse in fiscal 2011 and the
acquisitions of Welco, Stickolor and Securimed in fiscal 2010, net of divestiture. The positive
impact of the fluctuations in exchange rates also increased sales in the quarter by 0.9%. The
increase in organic sales was comprised of increases of 5.3% in the Americas segment, 5.6% in the
Europe segment, and 0.4% in the Asia-Pacific segment.
Gross margin as a percentage of sales decreased to 49.6% from 49.8% for the quarter and to
49.3% from 49.6% for the nine months ended April 30, 2011, compared to the same periods of the
previous year. This decrease in gross margin as a percentage of sales for the three and nine
months ended April 30, 2011 was primarily due to the increased costs of raw materials which the
Company was not able to offset through continued cost reduction activities or price increases.
Research and development (R&D) expenses decreased 1.5% to $10.6 million for the quarter and
increased 4.1% to $32.2 million for the nine months ended April 30, 2011, compared to $10.7 million
and $31.0 million for the same periods in the prior year, respectively. The decrease for the
quarter ended April 30, 2011 was due to the elimination of the R&D expenses incurred by the
Companys previously owned Teklynx business in the second quarter of fiscal 2011. As a percentage
of sales, R&D expenses represented a lower percentage of sales, declining to 3.1% in the third
quarter of fiscal 2011 from 3.3% in the third quarter of fiscal 2010, and declining to 3.2% in the
first nine months of fiscal 2011 compared to 3.3% in the first nine months of fiscal 2010. The
Company continues its commitment to innovation and new product development and expects R&D expense
to continue to increase through fiscal 2011.
Selling, general and administrative (SG&A) expenses increased 3.4% to $115.0 million for the
three months ended April 30, 2011, compared to $111.2 million for the same period in the prior
year, and increased 1.1% to $332.4 million for the nine months ended April 30, 2011, compared to
$328.6 million for the same period in the prior year. SG&A increased during the quarter ended
April 30, 2011 mainly due to the fluctuations in exchange rates, in addition to the increase in
annual merit increases and the increase in advertising campaign expenses. During the nine months
ended April 30, 2011, the Company divested of its Teklynx business resulting in a pre-tax gain of
$4.4 million, which is included in SG&A. This gain was offset by an increase in the Companys
transaction-related costs in addition to the merit increase during the nine months ended April 30,
2011. As a percentage of sales, SG&A expenses declined to 34.0% from 34.6% for the quarter and to
33.4% from 35.1% for the nine months ended April 30, 2011, compared to the same periods in the
prior year.
Restructuring expenses decreased to $1.2 million from $2.3 million for the three months ended
April 30, 2011, as compared to the same period in the prior year, and decreased to $7.0 million
from $9.6 million for the nine months ended April 30, 2011 as compared to the same period in the
prior year. In fiscal 2009, in response to the global recession, the Company took several measures
to address its cost structure. The Company continued to incur costs related to the reduction of
its workforce and facilities consolidations during the nine months ended April 30, 2011. The
Company expects to incur $8 to $10 million of restructuring charges in fiscal 2011.
Other income and expense increased to $1.4 million from $0.1 million for the three months
ended April 30, 2011, as compared to the same period in the prior year, and increased to $2.9
million from $1.3 million for the nine months ended April 30, 2011 as compared to the same period
in the prior year. The increase was primarily due to the gains on securities held in executive
deferred compensation plans and interest income.
Interest expense remained constant at $5.1 million for the quarter and increased to $16.6
million from $15.5 million for the nine months ended April 30, 2011, compared to the same periods
in the prior year. The increase was due to the incremental interest on the Companys May 2010
private placement entered into in the fourth quarter of fiscal 2010, partially offset by scheduled
debt payments made during the three and nine months ended April 30, 2011.
19
The Companys income tax rate was 23.1% for the three months ended April 30, 2011 and 25.3%
for the nine months ended April 30, 2011, compared to 23.3% and 25.6% for the three and nine months
ended April 30, 2010, respectively. During the quarter ended April 30, 2011, the Company
recognized tax benefits associated with certain international tax positions being settled and the
lapses of statutes of limitation. The benefits were partially offset by an increase in the
Companys effective tax rate due to the mix of profits in low and high tax countries. The Company
expects the full year effective tax rate for fiscal 2011 to be approximately 25%.
Net income for the three months ended April 30, 2011, increased 20.7% to $28.6 million,
compared to $23.7 million for the same quarter of the previous year. Net income as a percentage of
sales increased to 8.5% from 7.4% for the quarter ended April 30, 2011, compared to the same period
in the prior year. Net income before restructuring-related expenses for the quarter ended April
30, 2011 was $29.5 million, an increase of 16.1% from $25.4 million, for the same period in the
previous year. For the nine months ended April 30, 2011, net income increased 31.0% to $79.1
million, compared to $60.4 million for the same period in the previous year. As a percentage of
sales, net income increased to 7.9% from 6.4% for the nine months ended April 30, 2011, compared to
the same period in the previous year. Net income before restructuring-related expenses for the
nine months ended April 30, 2011 was $84.1 million, an increase of 25.0% from $67.3 million, for
the nine months ended April 30, 2010. The improved earnings for the nine months ended April 30,
2011, was primarily driven by the organic growth, which included organic growth in all three
segments along with the impacts of the Companys on-going process improvement activities.
Business Segment Operating Results
The Company is organized and managed on a geographic basis by region. Each of these regions,
Americas, Europe and Asia-Pacific, has a President that reports directly to the Companys chief
operating decision maker, its Chief Executive Officer. Each region has its own distinct operations,
is managed locally by its own management team, maintains its own financial reports and is evaluated
based on regional segment profit. The Company has determined that these regions comprise its
operating and reportable segments based on the information used by the Chief Executive Officer to
allocate resources and assess performance.
Following is a summary of segment information for the three and nine months ended April 30,
2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-
|
|
|
Total
|
|
|
and
|
|
|
|
|
(Dollars in thousands)
|
|
Americas
|
|
|
Europe
|
|
|
Pacific
|
|
|
Regions
|
|
|
Eliminations
|
|
|
Total
|
|
SALES TO EXTERNAL CUSTOMERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
$
|
149,217
|
|
|
$
|
105,894
|
|
|
$
|
82,785
|
|
|
$
|
337,896
|
|
|
$
|
|
|
|
$
|
337,896
|
|
April 30, 2010
|
|
$
|
144,413
|
|
|
$
|
98,152
|
|
|
$
|
79,322
|
|
|
$
|
321,887
|
|
|
$
|
|
|
|
$
|
321,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
$
|
431,216
|
|
|
$
|
301,985
|
|
|
$
|
263,292
|
|
|
$
|
996,493
|
|
|
$
|
|
|
|
$
|
996,493
|
|
April 30, 2010
|
|
$
|
402,255
|
|
|
$
|
289,101
|
|
|
$
|
244,846
|
|
|
$
|
936,202
|
|
|
$
|
|
|
|
$
|
936,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES GROWTH INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic
|
|
|
2.7
|
%
|
|
|
3.6
|
%
|
|
|
(5.1
|
%)
|
|
|
1.0
|
%
|
|
|
|
|
|
|
1.0
|
%
|
Currency
|
|
|
1.3
|
%
|
|
|
4.0
|
%
|
|
|
7.0
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
3.5
|
%
|
Acquisitions/Divestitures
|
|
|
(0.7
|
%)
|
|
|
0.3
|
%
|
|
|
2.5
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.3
|
%
|
|
|
7.9
|
%
|
|
|
4.4
|
%
|
|
|
4.9
|
%
|
|
|
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended April 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic
|
|
|
5.3
|
%
|
|
|
5.6
|
%
|
|
|
0.4
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
4.1
|
%
|
Currency
|
|
|
0.9
|
%
|
|
|
(3.2
|
%)
|
|
|
5.6
|
%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
0.9
|
%
|
Acquisitions/Divestitures
|
|
|
1.0
|
%
|
|
|
2.1
|
%
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7.2
|
%
|
|
|
4.5
|
%
|
|
|
7.5
|
%
|
|
|
6.4
|
%
|
|
|
|
|
|
|
6.4
|
%
|
SEGMENT PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
$
|
38,292
|
|
|
$
|
28,938
|
|
|
$
|
9,976
|
|
|
$
|
77,206
|
|
|
$
|
(3,561
|
)
|
|
$
|
73,645
|
|
April 30, 2010
|
|
$
|
33,858
|
|
|
$
|
27,472
|
|
|
$
|
12,775
|
|
|
$
|
74,105
|
|
|
$
|
(3,558
|
)
|
|
$
|
70,547
|
|
Percentage increase
|
|
|
13.1
|
%
|
|
|
5.3
|
%
|
|
|
(21.9
|
%)
|
|
|
4.2
|
%
|
|
|
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
$
|
108,666
|
|
|
$
|
82,165
|
|
|
$
|
38,330
|
|
|
$
|
229,161
|
|
|
$
|
(12,087
|
)
|
|
$
|
217,074
|
|
April 30, 2010
|
|
$
|
90,205
|
|
|
$
|
78,281
|
|
|
$
|
38,589
|
|
|
$
|
207,075
|
|
|
$
|
(10,161
|
)
|
|
$
|
196,914
|
|
Percentage increase
|
|
|
20.5
|
%
|
|
|
5.0
|
%
|
|
|
(0.7
|
%)
|
|
|
10.7
|
%
|
|
|
|
|
|
|
10.2
|
%
|
20
NET INCOME RECONCILIATION
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
Nine months ended:
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Total profit from reportable segments
|
|
$
|
77,206
|
|
|
$
|
74,105
|
|
|
$
|
229,161
|
|
|
$
|
207,075
|
|
Corporate and eliminations
|
|
|
(3,561
|
)
|
|
|
(3,558
|
)
|
|
|
(12,087
|
)
|
|
|
(10,161
|
)
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative costs
|
|
|
(31,563
|
)
|
|
|
(32,286
|
)
|
|
|
(90,534
|
)
|
|
|
(91,944
|
)
|
Restructuring costs
|
|
|
(1,211
|
)
|
|
|
(2,347
|
)
|
|
|
(6,986
|
)
|
|
|
(9,597
|
)
|
Investment and other income
|
|
|
1,428
|
|
|
|
121
|
|
|
|
2,892
|
|
|
|
1,273
|
|
Interest expense
|
|
|
(5,103
|
)
|
|
|
(5,147
|
)
|
|
|
(16,640
|
)
|
|
|
(15,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
37,196
|
|
|
|
30,888
|
|
|
|
105,806
|
|
|
|
81,174
|
|
Income taxes
|
|
|
(8,607
|
)
|
|
|
(7,193
|
)
|
|
|
(26,737
|
)
|
|
|
(20,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,589
|
|
|
$
|
23,695
|
|
|
$
|
79,069
|
|
|
$
|
60,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company evaluates short-term segment performance based on segment profit or loss and
customer sales. Corporate long-term performance is evaluated based on shareholder value
enhancement (SVE), which incorporates the cost of capital as a hurdle rate for capital
expenditures, new product development, and acquisitions. Segment profit or loss does not include
certain administrative costs, such as the cost of finance, information technology and human
resources, which are managed as global functions. Restructuring charges, stock options, interest,
investment and other income and income taxes are also excluded when evaluating performance.
Americas:
Americas sales increased 3.3% to $149.2 million for the quarter and 7.2% to $431.2 million for
the nine months ended April 30, 2011, compared to $144.4 million and $402.3 million for the same
three and nine-month periods in the prior year. Organic sales increased 2.7% and 5.3% during the
quarter and year-to-date, respectively, as compared to the same periods in the previous year
across. Fluctuations in the exchange rates used to translate financial results into the United
States dollar resulted in a positive impact on sales of 1.3% and 0.9% in the quarter and in the
nine-month period, respectively, as compared to the same periods in the previous year. Sales
resulting from acquisitions net of divestiture declined 0.7% for the quarter and increased 1.0% for
the nine-month period as a result of the sales of Stickolor, acquired in the second quarter of
fiscal 2010, offset by the reduction in sales due to the divestiture of the Teklynx business. The
increases in organic sales of 2.7% for the three-month period and 5.3% for the nine-month period
was driven by the broad-based improvement in the Companys core markets, in addition to the
positive results from new products.
Segment profit for the region increased 13.1% to $38.3 million from $33.9 million for the
quarter and 20.5% to $108.7 million from $90.2 million for the nine months ended April 30, 2011,
compared to the same periods in the prior year. Segment profit for the quarter was positively
impacted by increased sales volumes, while the segment continued to drive productivity improvements
through consolidating facilities, and implementing other operational improvement initiatives to
further reduce costs and improve productivity. As a percentage of sales, segment profit increased
to 25.7% from 23.4% in the third quarter of fiscal 2011 and increased to 25.2% from 22.4% in the
nine months ended April 30, 2011, compared to the same periods in the prior year. The increase in
segment profit as a percentage of sales was due to the cost reduction efforts and productivity
improvements described above.
Europe:
Europe sales increased 7.9% to $105.9 million for the quarter and 4.5% to $302.0 million for
the nine months ended April 30, 2011, compared to $98.2 million and $289.1 million for the same
three and nine-month periods in the prior year. Organic sales increased 3.6% and 5.6% for the
quarter and year-to-date, respectively, compared to the same periods in the previous year. Sales
were also affected by fluctuations in the exchange rates used to translate financial results into
the United States dollar, which increased sales within the segment by 4.0% in the quarter and
reduced sales by 3.2% during the nine-month period. Segment sales increased 0.3% during the quarter
and 2.1% during the nine-month period as result of the fiscal 2010 acquisitions of Welco and
Securimed, net of the fiscal 2011 divestiture of the Teklynx business. The segments organic sales
were positively impacted during the three and nine months ended April 30, 2011 as a result of
growth in the Brady business in Germany and Southern Europe due to a combination of improving
economies and positive results of sales initiatives, partially offset by the continued depressed
conditions in the United Kingdom.
Segment profit for the region increased 5.3% to $28.9 million from $27.5 million for the
quarter and 5.0% to $82.2 million from $78.3 million for the nine months ended April 30, 2011,
compared to the same periods in the prior year. The increase in segment profit for the quarter was
attributable to the increased sales volumes in addition to productivity initiatives. As a
percentage of sales, segment profit declined to 27.3% from 28.0% in the third quarter of fiscal
2011 and increased slightly to 27.2% from 27.1% in the nine months ended April 30, 2011, compared
to the same periods in the prior year. The increase in segment profit as a percentage of sales in
the nine months ended April 30, 2011 was partially due to the increased sales volumes and the
continued efforts to streamline selling expenses through strategic initiatives.
21
Asia-Pacific:
Asia-Pacific sales increased 4.4% to $82.8 million for the quarter and 7.5% to $263.3 million
for the nine months ended April 30, 2011, compared to $79.3 million and $244.8 million for the same
three and nine-month periods in the prior year. Organic sales declined 5.1% in the quarter and
increased 0.4% for the nine-month periods, compared to the same periods in the previous year. Sales
were positively impacted by fluctuations in the exchange rates used to translate financial results
into the United States dollar, which increased sales within the region by 7.0% in the quarter and
5.6% for the nine-month period. Segment sales increased 2.5% during the quarter and 1.5% during
the nine-month period as result of the fiscal 2011 acquisition of ID Warehouse. The significant
decline in organic sales for the quarter was primarily due to the reduced demand from one of our
largest mobile handset customers and the supply chain disruptions at several of the segments
electronic customers resulting from the earthquake in Japan. The modest increase in organic sales
for the nine months ended April 30, 2011 was driven by increased sales in the consumer electronic
market in addition to the expanded focus on MRO applications throughout the segment, partially
offset by the decline of mobile handset sales. The segment continues to focus on the development
of new value-added solutions, while continuing growth in adjacent markets.
Segment profit for the region declined 21.9% to 10.0 million from $12.8 million for the
quarter and declined 0.7% to $38.3 million from $38.6 million for the nine months ended April 30,
2011, compared to the same periods in the prior year. The decline in segment profit during the
three and nine months ended April 30, 2011 was primarily due to the decline in organic sales as
discussed above in addition to the inflationary pressures on raw materials resulting in cost
increases. The segment continues to focus on driving operational excellence through its strategic
sourcing initiatives. As a percentage of sales, segment profit declined to 12.1% from 16.1% in
the third quarter of fiscal 2011 and to 14.5% from 15.8% in the nine months ended April 30, 2011,
compared to the same periods in the prior year.
Financial Condition
Cash and cash equivalents were $374.0 million at April 30, 2011, compared to $314.8 million at
July 31, 2010. The increase in cash of $59.2 million was the result of cash provided by operations
of $110.4 million and the $21.5 million effect of exchange rates, partially offset by cash used for
acquisitions, capital expenditures, dividends, and debt payments during the nine months ended April
30, 2011.
The Companys working capital, excluding cash and cash equivalents, increased to $66.8 million
at April 30, 2011 from $60.3 million at July 31, 2010. Accounts receivable and inventories
increased $14.0 million and $7.8 million for the nine months ended April 30, 2011, respectively,
due the impact of foreign currency translation on the Companys foreign balances. The net increase
in current liabilities was $17.2 million from July 31, 2010 to April 30, 2011. The increase in the
current liabilities was primarily due to the Companys forward foreign exchange currency contracts
designated as net investment hedges.
Cash flow from operating activities totaled $110.4 million for the nine months ended April 30,
2011, compared to $118.2 million for the same period last year. The decrease was primarily due to
the payment of the Companys fiscal 2010 annual incentive compensation during the nine months ended
April 30, 2011, whereas no incentive compensation was paid in same period in the prior year due to
the elimination of the annual incentive compensation in fiscal 2009.
Cash used for acquisitions totaled $8.0 million for the nine months ended April 30, 2011 due
to the acquisition of ID Warehouse. The Company used $30.4 million for acquisitions of Welco,
Stickolor, and Securimed during the nine months ended April 30, 2010; the net cash paid for Welco,
Stickolor, and Securimed was $1.8 million, $18.5 million, and $10.1 million, respectively. Cash
received from divestiture was $13.0 million during the nine months ended April 30, 2011 as a result
of the sale of the Teklynx business.
Capital expenditures were $13.7 million for the nine months ended April 30, 2011, compared to
$20.9 million in the same period last year. The decrease was mainly due to the expenditures
related to the new coater in the Americas segment and the increased tooling required for new
products in fiscal 2010. Capital expenditures were $26.3 million during the twelve months ended
July 31, 2010. The Company expects the capital expenditures to be between $18.0 million and $20.0
million for the twelve months ending July 31, 2011. Net cash used in financing activities was
$62.8 million for the nine months ended April 30, 2011, due primarily to the payment of dividends
of $28.5 million and the principal debt payments of $42.5 million, partially offset by the proceeds
from the issuance of the common stock related to stock option exercises.
On November 24, 2008, the Company filed a shelf registration statement on Form S-3 with the
Securities and Exchange Commission (SEC), which will allow the Company to issue and sell, from
time to time in one or more offerings, an indeterminate amount of Class A Non-Voting Common Stock
and debt securities as it deems prudent or necessary to raise capital at a later date. The shelf
registration statement became effective upon filing with the SEC. The Company plans to use the
proceeds from any future offerings under the shelf registration for general corporate purposes,
including, but not limited to, acquisitions, capital expenditures, and refinancing of debt.
22
On May 13, 2010, the Company completed a private placement of 75.0 million aggregate
principal amount of senior unsecured notes to accredited institutional investors. The 75.0 million
of senior notes consists of 30.0 million aggregate principal amount of 3.71% Series 2010-A Senior
Notes, due May 13, 2017 and 45.0 million aggregate principal amount of 4.24% Series 2010-A Senior
Notes, due May 13, 2020, with interest payable on the notes semiannually. This private placement
was exempt from the registration requirements of the Securities Act of 1933. The notes were not
registered for resale and may not be resold absent such registration or an applicable exemption
from the registration requirements of the Securities Act of 1933 and applicable state securities
laws. The notes have certain prepayment penalties for prepaying them prior to maturity. The notes
have been fully and unconditionally guaranteed on an unsecured basis by the Companys domestic
subsidiaries. These unsecured notes were issued pursuant to a note purchase agreement, dated May
13, 2010.
During fiscal 2004 through fiscal 2007, the Company completed three private placement note
issuances totaling $500 million in ten-year fixed rate notes with varying maturity dates to
institutional investors at interest rates varying from 5.14% to 5.33%. The notes must be repaid
equally over seven years, with initial payment due dates ranging from 2008 to 2011, with interest
payable on the notes due semiannually on various dates throughout the year, which began in December
2004. The private placements were exempt from the registration requirements of the Securities Act
of 1933. The notes were not registered for resale and may not be resold absent such registration or
an applicable exemption from the registration requirements of the Securities Act of 1933 and
applicable state securities laws. The notes have certain prepayment penalties for repaying them
prior to the maturity date.
On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan
agreement with a group of five banks that replaced the Companys previous credit agreement. At the
Companys option, and subject to certain conditions, the available amount under the credit facility
may be increased from $200 million up to $300 million. Under the credit agreement, the Company has
the option to select either a base interest rate (based upon the higher of the federal funds rate
plus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency interest rate (at the
LIBOR rate plus a margin based on the Companys consolidated leverage ratio). A commitment fee is
payable on the unused amount of the facility. The agreement restricts the amount of certain types
of payments, including dividends, which can be made annually to $50 million plus an amount equal to
75% of consolidated net income for the prior fiscal year of the Company. The Company believes that
based on historic dividend practice, this restriction would not impede the Company in following a
similar dividend practice in the future. On March 18, 2008, the Company entered into an amendment
to the revolving loan agreement which extended the maturity date from October 5, 2011 to March 18,
2013. All other terms of the revolving loan agreement remained the same. As of April 30, 2011,
there were no outstanding borrowings under the credit facility.
The Companys debt and revolving loan agreements require it to maintain certain financial
covenants. The Companys June 2004, February 2006, March 2007, and May 2010 private placement debt
agreements require the Company to maintain a ratio of debt to the trailing twelve months EBITDA, as
defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio). As of April
30, 2011, the Company was in compliance with the financial covenant of the June 2004, February
2006, and March 2007 private placement debt agreements, with the ratio of debt to EBITDA, as
defined by the agreements, equal to 1.9 to 1.0. As of April 30, 2011, the Company was in
compliance with the financial covenant of the May 2010 private placement debt agreement, with the
ratio of debt to EBITDA, as defined by the agreement, equal to 1.8 to 1.0. Additionally, the
Companys October 2006 revolving loan agreement requires the Company to maintain a ratio of debt to
trailing twelve months EBITDA, as defined by the debt agreement, of not more than a 3.0 to 1.0
ratio. The revolving loan agreement requires the Companys trailing twelve months earnings before
interest and taxes (EBIT) to interest expense of not less than a 3.0 to 1.0 ratio (interest
expense coverage). As of April 30, 2011 the Company was in compliance with the financial covenants
of the revolving loan agreement, with the ratio of debt to EBITDA, as defined by the agreement,
equal to 1.9 to 1.0 and the interest expense coverage ratio equal to 7.4 to 1.0.
Long-term obligations, less current obligations, as a percentage of long-term obligations,
less current obligations, plus stockholders investment were 23.7% at April 30, 2011 and 27.6% at
July 31, 2010. Long-term obligations increased by $11.3 million from July 31, 2010 to April 30,
2011 due to the negative impact of foreign currency translation on the Companys Euro-denominated
debt. The increase was offset by the $42.5 million debt payments made during the nine months ended
April 30, 2011.
Stockholders investment increased $127.1 million during the nine months ended April 30, 2011
as a result of the Companys net income of $79.1 million as well as the increase in the accumulated
other comprehensive income of $60.3 million due to the impact of foreign currency translation. The
increase was offset by the dividends paid on Class A and Class B Common Stock of $26.6 million and
$1.9 million, respectively.
The Companys growth has historically been funded by a combination of cash provided by
operating activities and debt financing. The Company believes that its cash from operations, in
addition to its borrowing capacity, are sufficient to fund its anticipated requirements for working
capital, capital expenditures, restructuring activities, acquisitions, common stock repurchases,
scheduled debt repayments, and dividend payments. The Company believes that its current credit
arrangements are sound and that the strength of its balance sheet will allow the Company the
financial flexibility to respond to both internal growth opportunities and those available through
acquisition.
23
Off-Balance Sheet Arrangements 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 this and
other Company filings. However, the following additional information is provided to assist those
reviewing the Companys financial statements.
Operating Leases These leases generally are entered into for investments in facilities such
as manufacturing facilities, warehouses and office space, computer equipment and Company vehicles.
Purchase Commitments The Company has purchase commitments for materials, supplies,
services, and property, plant and equipment as part of the ordinary conduct of its business. In the
aggregate, such commitments are not in excess of current market prices and are not material to the
financial position of the Company. Due to the proprietary nature of many of the Companys materials
and processes, certain supply contracts contain penalty provisions for early termination. The
Company does not believe a material amount of penalties will 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 evaluated its affiliated party transactions for the
period ended April 30, 2011. Based on the evaluation the Company does not have material related
party transactions that affect the results of operations, cash flow or financial condition.
Subsequent Events Affecting Financial Condition
On May 17, 2011, the Board of Directors declared a quarterly cash dividend to shareholders of
the Companys Class A and Class B Common Stock of $0.18 per share payable on July 29, 2011 to
shareholders of record at the close of business on July 8, 2011.
24
Forward-Looking Statements
Brady believes that certain statements in this Form 10-Q are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. All statements related
to future, not past, events included in this Form 10-Q, including, without limitation, statements
regarding Bradys future financial position, business strategy, targets, projected sales, costs,
earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management
for future operations are forward-looking statements. When used in this Form 10-Q, words such as
may, will, expect, intend, estimate, anticipate, believe, should, project or
plan or similar terminology are generally intended to identify forward-looking statements. These
forward-looking statements by their nature address matters that are, to different degrees,
uncertain and are subject to risks, assumptions and other factors, some of which are beyond Bradys
control, that could cause actual results to differ materially from those expressed or implied by
such forward-looking statements. For Brady, uncertainties arise from the length or severity of the
current worldwide economic downturn or timing or strength of a subsequent recovery; future
financial performance of major markets Brady serves, which include, without limitation,
telecommunications, manufacturing, electrical, construction, laboratory, education, governmental,
public utility, computer, transportation; difficulties in making and integrating acquisitions;
risks associated with newly acquired businesses; Bradys ability to develop and successfully market
new products; changes in the supply of, or price for, parts and components; increased price
pressure from suppliers and customers; fluctuations in currency rates versus the US dollar;
unforeseen tax consequences; potential write-offs of Bradys substantial intangible assets; Bradys
ability to retain significant contracts and customers; risks associated with international
operations; Bradys ability to maintain compliance with its debt covenants; technology changes;
business interruptions due to implementing business systems; environmental, health and safety
compliance costs and liabilities; future competition; interruptions to sources of supply; Bradys
ability to realize cost savings from operating initiatives; difficulties associated with exports;
risks associated with restructuring plans; risks associated with obtaining governmental approvals
and maintaining regulatory compliance; and numerous other matters of national, regional and global
scale, including those of a political, economic, business, competitive and regulatory nature
contained from time to time in Bradys U.S. Securities and Exchange Commission filings, including,
but not limited to, those factors listed in the Risk Factors section located in Item 1A of Part I
of the Companys most recently filed Form 10-K for the year ended July 31, 2010. These
uncertainties may cause Bradys actual future results to be materially different than those
expressed in its forward-looking statements. Brady does not undertake to update its forward-looking
statements.
25
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Companys 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 Companys 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 Companys foreign currency 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, Australian Dollar, Singapore Dollar, Swedish Krona, Japanese Yen, and the Korean
Won. As of April 30, 2011, the amount of outstanding foreign exchange contracts was $120,475
million. In fiscal 2010 and continuing in fiscal 2011, the Company also hedged portions of its net
investments in its European foreign operations using forward foreign exchange currency contracts
and Euro-denominated debt of 75.0 million designated as a hedge instrument.
The Company could be exposed to interest rate risk through its corporate borrowing activities.
The objective of the Companys interest rate risk management activities is to manage the levels of
the Companys fixed and floating interest rate exposure to be consistent with the Companys
preferred mix. The interest rate risk management program allows the Company to enter into approved
interest rate derivatives, with the approval of the Board of Directors, if there is a desire to
modify the Companys exposure to interest rates. As of April 30, 2011, the Company had no interest
rate derivatives.
The Company is subject to the risk of changes in foreign currency exchange rates due to its
operations in foreign countries. The Company has manufacturing facilities and sells and distributes
its products throughout the world. As a result, the Companys financial results could be
significantly affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company manufactures, distributes and sells
its products. The Companys operating results are principally exposed to changes in exchange rates
between the U.S. Dollar and the European currencies, primarily the Euro, changes between the U.S.
Dollar and the Australian Dollar, changes between the U.S. Dollar and the Canadian Dollar, and
changes between the U.S. Dollar and the Chinese Yuan. Changes in foreign currency exchange rates
for the Companys foreign subsidiaries reporting in local currencies are generally reported as a
component of shareholders equity. The Companys currency translation adjustments recorded for the
three and nine months ended April 30, 2011 were $30.5 million favorable and $60.3 million
favorable, respectively. The Companys currency translation adjustments recorded for the three and
nine months ended April 30, 2010 were $1.8 million unfavorable and $4.0 million favorable,
respectively. As of April 30, 2011 and 2010, the Companys foreign subsidiaries had net current
assets (defined as current assets less current liabilities) subject to foreign currency translation
risk of $411.2 million and $221.7 million, respectively. The potential increase in the net current
assets as of April 30, 2011 from a hypothetical 10 percent adverse change in quoted foreign
currency exchange rates would be $41.1 million. This sensitivity analysis assumes a parallel shift
in foreign currency exchange rates. Exchange rates rarely move in the same direction relative to
the U.S. Dollar. This assumption may overstate the impact of changing exchange rates on individual
assets and liabilities denominated in a foreign currency.
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ITEM 4.
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CONTROLS AND PROCEDURES
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Brady Corporation maintains a set of disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the Company in the reports filed by the Company
under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports the Company files under the
Exchange Act is accumulated and communicated to the Companys management, including the Companys
principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. The Company carried out an
evaluation, under the supervision and with the participation of its management, including its
President and Chief Executive Officer and its Senior Executive Vice President and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys disclosure controls and
procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Companys
President and Chief Executive Officer and Senior Executive Vice President and Chief Financial
Officer concluded that the Companys disclosure controls and procedures are effective as of the end
of the period covered by this report.
There were no changes in the Companys internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Companys most recently
completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
26
PART II. OTHER INFORMATION
(a) Exhibits
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10.1
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Brady Corporation Executive Deferred Compensation Plan, as amended
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10.2
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Brady Corporation Directors Deferred Compensation Plan, as amended
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Thomas J. Felmer
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32.1
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Section 1350 Certification of Frank M. Jaehnert
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32.2
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Section 1350 Certification of Thomas J. Felmer
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101
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Interactive Data File
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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
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BRADY CORPORATION
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Date: June 7, 2011
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/s/ Frank M. Jaehnert
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Frank M. Jaehnert
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President & Chief Executive Officer
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Date: June 7, 2011
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/s/ Thomas J. Felmer
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Thomas J. Felmer
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Senior Vice President & Chief Financial Officer
(Principal Financial Officer)
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27
EXHIBIT 10.1
BRADY CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 17, 2011
ARTICLE I
INTRODUCTION
For periods prior to calendar year 2005, Brady Corporation has maintained the Brady
Corporation Executive Deferred Compensation Plan by means of a series of individual deferred
compensation agreements with covered executives. Amounts deferred prior to January 1, 2005 (which
were all fully vested under Plan terms), including past and future earnings credited thereon, shall
remain subject to the terms of those individual agreements as previously in effect (the Frozen
Agreements) but no further amounts shall be deferred under the Frozen Agreements. All deferrals
to the Plan for periods on or after January 1, 2005 shall be governed by the terms and provisions
of this document. Except as provided in Sections 4.2(b)(x) and 6.1(a)(iii)(C) below, nothing in
this document shall apply to amounts deferred prior to 2005 and past and future earnings credited
thereon. This document is intended to comply with the provisions of Section 409A of the Internal
Revenue Code and shall be interpreted accordingly. If any provision or term of this document would
be prohibited by or inconsistent with the requirements of Section 409A of the Code, then such
provision or term shall be deemed to be reformed to comply with Section 409A of the Code. This
Plan is further amended and restated, effective as of February 17, 2011, to revise and clarify
certain Plan terms regarding the investment of amounts in the Brady Stock Fund.
ARTICLE II
DEFINITIONS
The following definitions shall be applicable throughout the Plan:
2.1
Account
means the account credited from time to time with bookkeeping amounts
equal to the portions of a Participants compensation deferred pursuant to Section 3.2 and
earnings credited on such amounts in accordance with Article IV.
2.2
Administrator
means the Compensation Committee of the Board of Directors of
Brady Corporation.
2.3
Beneficiary
means the person, persons, or entity designated by the Participant
to receive any benefits payable under the Plan on or after the Participants death. Each
Participant shall be permitted to name, change or revoke the Participants designation of a
Beneficiary in writing on a form and in the manner prescribed by the Corporation; provided,
however, that the designation on file with the Corporation at the time of the Participants death
shall be controlling. Should a Participant fail to make a valid Beneficiary designation or leave
no named Beneficiary surviving, any benefits due shall be
paid to such Participants spouse, if living; or if not living, then any benefits due shall
be paid to such Participants estate. A Participant may designate a primary beneficiary and a
contingent beneficiary; provided, however, that the Corporation may reject any such instrument
tendered for filing if it contains successive beneficiaries or contingencies unacceptable to it.
If all Beneficiaries who survive the Participant shall die before receiving the full amounts
payable hereunder, then the payments shall be paid to the estate of the Beneficiary last to die.
2.4
Code
means the Internal Revenue Code of 1986, including any subsequent
amendments.
2.5
Corporation
means Brady Corporation, and each of its affiliates which has
adopted the Plan or may adopt the Plan. Currently, the additional sponsoring affiliates are
Tricor Direct, Inc. and Brady Worldwide, Inc. The term Corporation as used throughout this Plan
shall include references to those affiliates of Brady Corporation which have also adopted the
Plan; provided, however, that for purposes of the power to amend or terminate the Plan or take any
other action under or with respect to the Plan, except for the payment of benefits, the term
Corporation shall refer only to Brady Corporation.
2.6
Effective Date
means February 17, 2011. This document describes how this Plan
has been administered for periods after 2004 and prior to February 17, 2011 and how it shall be
administered for periods on and after February 17, 2011.
2.7
ERISA
means the Employee Retirement Income Security Act of 1974, including any
subsequent amendments.
2.8
Fiscal Year
means the period beginning August 1 and ending July 31.
2.9
Participant
means a key management or highly compensated employee designated as
eligible to participate in the Plan for a Plan Year under Section 3.1 (such persons shall be known
as Active Participants for such Plan Year) and any person who previously participated in the
Plan and is entitled to benefits.
2.10
Performance Based Bonus
means bonus compensation, the amount of which or
entitlement to, is based on services performed over a period of at least 12 consecutive months
which is contingent on the satisfaction of pre-established organizational or individual
performance criteria, which performance criteria are not substantially certain to be met at the
time a deferral election is permitted. Performance Based Bonus compensation may include payments
based upon subjective performance criteria, but (i) any subjective performance criteria must
relate to the performance of the Participant service provider, a group of service providers that
includes the Participant service provider, or a business unit for which the Participant provides
services (which may include the entire organization) and (ii) the determination that any
subjective performance criteria have been met must not be made by the Participant or a family
member of the Participant (as defined in Code Section 267(c)(4) applied as if the family of an
individual includes the spouse of any family member). Organizational or individual performance
criteria are considered pre-established if established in writing by not later than 90 days after
the commencement of the period of service to which the criteria relate, provided that the outcome
is substantially uncertain at the time the criteria are established. A Performance Based Bonus
may include payments based on performance criteria that are not approved by the Administrator or
by the stockholders of the Corporation. A Performance Based Bonus shall not include any amount or
portion of any amount that will be paid either regardless of performance, or based upon a level of
performance that is substantially certain to be met at the time the criteria are established.
Whether a bonus is
performance based shall be determined in accordance with the requirements of IRS Reg. Section
1.409A-1 (e) which are summarized in part in this Section 2.10.
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2.11
Plan
means the Brady Corporation Executive Deferred Compensation Plan, as set
forth herein, as applicable to amounts deferred after calendar year 2004, and as it may be amended
from time to time.
2.12
Plan Year
means the calendar year.
2.13
Separation from Service
shall have the meaning set forth in IRS Regulation
Section 1.409A-1 the requirements of which are summarized in part as follows:
(a)
In General.
The Participant shall have a Separation from Service with the
Corporation if the Participant dies, retires, or otherwise has a termination of employment
with the Corporation. However, for purposes of this Section 2.13, the employment
relationship is treated as continuing intact while the individual is on military leave, sick
leave, or other bona fide leave of absence if the period of such leave does not exceed six
months, or if longer, so long as the individual retains a right to reemployment with the
Corporation under an applicable statute or by contract. For purposes of this paragraph (a)
of this Section 2.13, a leave of absence constitutes a bona fide leave of absence only if
there is a reasonable expectation that the Participant will return to perform services for
the Corporation. If the period of leave exceeds six months and the individual does not
retain a right to reemployment under an applicable statute or by contract, the employment
relationship is deemed to terminate on the first date immediately following such six-month
period. Notwithstanding the foregoing, where a leave of absence is due to any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than six months, where such impairment
causes the Participant to be unable to perform the duties of his or her position of
employment or any substantially similar position of employment, a 29-month period of absence
may be substituted for such six-month period.
(b)
Termination of Employment
. Whether a termination of employment has
occurred is determined based on whether the facts and circumstances indicate that the
Corporation and Participant reasonably anticipated that no further services would be
performed after a certain date or that the level of bona fide services the Participant would
perform after such date (whether as an employee or as an independent contractor) would
permanently decrease to no more than 20 percent of the average level of bona fide services
performed (whether as an employee or an independent contractor) over the immediately
preceding 36-month period (or, the full period of services to the Corporation if the
Participant has been providing services to the Corporation less than 36 months). Facts and
circumstances to be considered in making this determination include, but are not limited
to, whether the Participant continues to be treated as an employee for other purposes (such
as continuation of salary and participation in employee benefit programs), whether similarly
situated service providers have been treated consistently, and whether the Participant is
permitted, and realistically available, to perform services for other service recipients in
the same line of business. The Participant is presumed to have Separated from Service where
the level of bona fide services performed decreases to a level equal to 20 percent or less
of the average level of services performed by the employee during the immediately preceding
36-month period. The Participant will be presumed not to have Separated from Service where
the level of bona fide services performed continues at a level that is 50 percent or more of
the average level of service performed by the Participant during the
-3-
immediately preceding
36-month period. No presumption applies to a decrease in the level of bona fide services performed to a level that is more than 20 percent and less than 50
percent of the average level of bona fide services performed during the immediately
preceding 36-month period. The presumption is rebuttable by demonstrating that the
Corporation and the Participant reasonably anticipated that as of a certain date the level
of bona fide services would be reduced permanently to a level less than or equal to 20
percent of the average level of bona fide services provided during the immediately preceding
36-month period or the full period of services to the Corporation if the Participant has
been providing services to the Corporation less than 36 months (or that the level of bona
fide services would not be so reduced). For example, the Participant may demonstrate that
the Corporation and the Participant reasonably anticipated that the Participant would cease
providing services, but that, after the original cessation of services, business
circumstances such as termination of the Participants replacement caused the Participant to
return to employment. Although the Participants return to employment may cause the
Participant to be presumed to have continued in employment because the Participant is
providing services at a rate equal to the rate at which the Participant was providing
services before the termination of employment, the facts and circumstances in this case
would demonstrate that at the time the Participant originally ceased to provide services,
the Corporation reasonably anticipated that the Participant would not provide services in
the future. For purposes of this paragraph (b), for periods during which the Participant is
on a paid bona fide leave of absence (as defined in paragraph (a) of this Section 2.13) and
has not otherwise terminated employment pursuant to paragraph (a) of this Section 2.13, the
Participant is treated as providing bona fide services at a level equal to the level of
services that the Participant would have been required to perform to receive the
compensation paid with respect to such leave of absence. Periods during which the
Participant is on an unpaid bona fide leave of absence (as defined in paragraph (a) of this
Section 2.13) and has not otherwise terminated employment pursuant to paragraph (a) of this
Section 2.13, are disregarded for purposes of this paragraph (b) of this Section 2.13
(including for purposes of determining the applicable 36-month (or shorter) period).
(c)
Asset Purchase Transactions
. Where as part of a sale or other disposition
of assets by the Corporation as seller to an unrelated service recipient (buyer), a
Participant of the Corporation would otherwise experience a Separation from Service with the
Corporation, the Corporation and the buyer may retain the discretion to specify, and may
specify, whether a Participant providing services to the Corporation immediately before the
asset purchase transaction and providing services to the buyer after and in connection with
the asset purchase transaction has experienced a Separation from Service, provided that the
asset purchase transaction results from bona fide, arms length negotiations, all service
providers providing services to the Corporation immediately before the asset purchase
transaction and providing services to the buyer after and in connection with the asset
purchase transaction are treated consistently (regardless of position at the Corporation)
for purposes of applying the provisions of any nonqualified deferred compensation plan, and
such treatment is specified in writing no later than the closing date of the asset purchase
transaction. For purposes of this paragraph (c), references to a sale or other disposition
of assets, or an asset purchase transaction, refer only to a transfer of substantial assets,
such as a plant or division or substantially all the assets of a trade or business.
(d)
Dual Status
. If a Participant provides services both as an employee of the
Corporation and as an independent contractor of the Corporation, the Participant must
separate from service both as an employee and as an independent contractor to be treated as
having Separated from Service. If a Participant ceases providing services as an independent
contractor and begins providing services as an employee, or ceases providing services as an
employee and begins providing services as an independent contractor, the Participant will
not be considered to
have a Separation from Service until the Participant has ceased providing services in
both capacities. Notwithstanding the foregoing, if a Participant provides services both as
an employee of the Corporation and a member of the board of directors of the Corporation,
the services provided as a director are not taken into account in determining whether the
Participant has a Separation from Service as an employee for purposes of this Plan unless
this Plan is aggregated with any plan in which the Participant participates as a director
under IRS Regulation Section 1.409A-1(c)(2)(ii).
-4-
2.14
Specified Employee
shall have the meaning set forth in IRS Regulation Section
1.409A-1 the requirements of which are summarized in part as follows:
(a)
In General
. Specified Employee means a Participant who as of the date of
his Separation from Service is a key employee as defined in Code Section 416(i)
(disregarding Section 416(i)(5)), i.e., an employee who at any time during the 12 month
period ending on an identification date is an officer of the Corporation or one of its
affiliates having an annual compensation as defined in IRS Regulation Section 1.409A-1(i)(2)
greater than $130,000, a 5% owner of the Corporation or one of its affiliates or a 1% owner
of the Corporation or one of its affiliates having compensation of more than $150,000. The
$130,000 amount described in the preceding sentence shall be adjusted for cost of living
increases in such amounts and at such times as specified by the Internal Revenue Service.
Further, no more than 50 employees (or, if lesser, the greater of 3 or 10% of the employees)
shall be treated as officers. The foregoing definition shall be interpreted at all times in
a manner consistent with such regulations as may be adopted from time to time by the
Internal Revenue Service for purposes of applying the key employee definition of Section
416(i) to the requirements of Code Section 409A. If a person is a key employee as of an
identification date, the person is treated as a Specified Employee for the 12-month period
beginning on the first day of the fourth month following the identification date. The
identification date is December 31.
(b) In the event of a public offering, merger, acquisition, spin-off, reorganization or
other corporate transaction, Specified Employees shall be determined as provided in IRS
Reg. Section 1.409A-(1)(i)(6).
2.15
Unforeseeable Emergency
means a severe financial hardship to a Participant
resulting from an illness or accident of the Participant or the Participants spouse or dependent
(as defined in Section 152(a) of the Code), loss of the Participants property due to casualty
(including the need to rebuild a home following damage to a home not otherwise covered by
insurance, for example, as a result of a natural disaster), or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of the Participant.
For example, the imminent foreclosure of or eviction from the Participants primary residence may
constitute an Unforeseeable Emergency. In addition, the need to pay for medical expenses,
including non-refundable deductibles, as well as for the costs of prescription drug medication,
may constitute an Unforeseeable Emergency. Finally, the need to pay for funeral expenses of a
spouse or a dependent (as defined in Code section 152(a)) may also constitute an Unforeseeable
Emergency. Except as otherwise provided above, the purchase of a home and the payment of college
tuition are not Unforeseeable Emergencies. Whether a Participant is faced with an Unforeseeable
Emergency is to be determined based on the relevant facts and circumstances of each case.
-5-
ARTICLE III
PARTICIPATION AND DEFERRALS
3.1
Determination of Participants
. Within a reasonable period of time prior to the
beginning of a Plan Year or at any time during a Plan Year, the Administrator will designate
employees who will be eligible to become Active Participants in the Plan for that Plan Year (or
the remainder of such Plan Year). An employee designated as an Active Participant for a Plan Year
shall remain an Active Participant until the employees Separation from Service or the
Administrator or the Board of Directors of the Corporation takes action to terminate such
employees participation effective on the first day of any Plan Year subsequent to the date of
such action by the Administrator or the Board.
3.2
Deferral Elections
.
(a)
Salary Payments
. An Active Participant may elect to defer a specified
percentage of his salary for services performed during a Plan Year by completing and filing
such forms as required by the Corporation prior to the first day of the Plan Year. A
Participants deferrals shall be taken at a uniform percentage rate from each of his salary
payments during the year. Compensation deferred shall be retained by the Corporation,
credited to the Participants Account pursuant to Section 4.1 and paid in accordance with
the terms and conditions of the Plan. An employee who is not already eligible to
participate in any other deferred compensation plan of the account balance type who becomes
an Active Participant for the first time during a Plan Year (for example, an employee
designated to be a Participant by the Administrator upon hire or promotion) may within 30
days after the effective date of participation make an election to defer a specified
percentage of salary to be paid to him for services to be performed subsequent to the
deferral election.
(b)
Bonus Payments
. An Active Participant may elect to defer a portion of any
and all bonus payments made to him during a Plan Year by completing and filing such forms as
required by the Corporation. To the extent a bonus payment represents a payment of a
Performance Based Bonus, to be effective the deferral election with respect to such bonus
must be filed with the Corporation at least seven months prior to the end of the period in
which the bonus payment is earned. If a bonus payment is not a Performance Based Bonus but
is calculated on a Fiscal Year basis, then to be effective the deferral election must be
filed prior to the beginning of the Fiscal Year during which the Participant first renders
any services giving rise to the payment of the bonus. If a bonus is not a Performance Based
Bonus and is not calculated on a Fiscal Year basis, to be effective, the deferral election
must be filed prior to the beginning of the first Plan Year in which are performed any
services for which such bonus is payable. An employee who is not already eligible to
participate in any other deferred compensation plan sponsored by the Corporation of the
account balance type who becomes an Active Participant for the first time during a Plan Year
(for example, an employee designated to be a Participant by the Administrator upon hire or
promotion) may within 30 days after the effective date of participation make an election to
defer a specified percentage of any bonus payment for which the service period has already
begun and, in such event, the election shall apply to the portion of bonus compensation
equal to the total bonus compensation to be paid to the Participant with respect to that
service period multiplied by a fraction of which the numerator is the number of days
remaining in the performance period and the denominator is the total number of days in the
performance period.
-6-
3.3
Continued Effect of Elections
.
(a)
Salary Payments
. An Active Participants deferral election with respect to
a Plan Year under Section 3.2(a) shall be irrevocable after the last date upon which it may
be filed pursuant to Section 3.2(a) and shall continue in effect each subsequent Plan Year
until prospectively revoked or amended in writing. For a revocation or amendment to be
effective with respect to salary payments during a Plan Year, it must be filed by the last
date for which an effective deferral election is permitted to be filed with respect to those
salary payments under Section 3.2(a).
(b)
Bonus Payments
. An Active Participants deferral election under Section
3.2(b) with respect to a bonus shall be irrevocable after the last date upon which it may be
filed pursuant to Section 3.2(b) and shall continue in effect with respect to bonuses earned
in subsequent performance periods until prospectively revoked or amended in writing. For a
revocation or amendment to be effective for any bonus payment, it must be filed by the last
date for which an effective deferral election is permitted to be filed with respect to that
bonus payment under Section 3.2(b).
3.4
Prior Deferral Elections
. Any deferral election made prior to calendar year 2005
under a Frozen Agreement shall be treated as a deferral election described in Section 3.2(a)
and/or Section 3.2(b), as the case may be, and shall continue in effect until modified as
described in Section 3.3 above unless modified earlier pursuant to Section 8.14(a) below.
3.5
Unforeseeable Emergency
. In the event that a Participant makes application for a
hardship distribution under Section 6.3 and the Administrator determines that an Unforeseeable
Emergency exists, all deferral elections otherwise in effect under this Article III and any other
nonqualified deferred compensation plan of the account balance type sponsored by the Corporation
shall immediately terminate upon such determination. To resume deferrals thereafter, a
Participant must make an election satisfying the provisions of Section 3.2(a) and/or (b), as the
case may be, as those provisions apply to someone who is already an Active Participant in the
Plan.
3.6
401(k) Hardship
. Any deferral elections in effect under this Article III shall
be cancelled as required due to a hardship distribution described in IRS Regulation Section
1.401(k)-1(d)(3) or any successor thereto. To resume deferrals after the required suspension
period, a Participant must make an election satisfying the provisions of Section 3.2(a) and/or
(b), as the case may be, as those provisions apply to someone who is already an Active Participant
in the Plan.
ARTICLE IV
ACCOUNTS
4.1
Credits to Account
. Bookkeeping amounts equal to the amounts deferred by a
Participant pursuant to Section 3.2 shall be credited to such Participants Deferral Account as
soon as practicable after the deferred compensation would otherwise have been paid to such
Participant in the absence of deferral.
-7-
4.2
Valuation of Account
.
(a) The Participants Account shall be credited or charged with deemed earnings or
losses as if it were invested in accordance with paragraph (b) below.
(b) (i) The investment funds available hereunder for the deemed investment of the
Account shall be the Brady Stock Fund and such other funds as the Administrator shall from
time to time determine. However, in no event shall the Corporation be required to make any
such investment in the Brady Stock Fund or any other investment fund and, to the extent such
investments are made, such investments shall remain an asset of the Corporation subject to
the claims of its general creditors.
(ii) On the date credited to the Participants Account, deferrals shall be
deemed to be invested in one or more of the investment funds designated by the
Participant for such deemed investment; provided that any deferrals designated for
investment in the Brady Stock Fund shall initially be credited to the General
Investment Sub-account and transferred to the Brady Stock Sub-account on a quarterly
basis. Once made, the Participants investment designation shall continue in effect
for all future deferrals until changed by the Participant. Any such change may be
prospectively elected by the Participant at the times established by the
Administrator, which shall be no less frequently than quarterly, and shall be
effective only for deferrals, credited from and after its effective date. Until
such time as the Administrator takes action to the contrary, such changes may be
elected at the same times as changes may be elected with respect to the Brady
Matched 401(k) Plan.
(iii) A Participants balance in the Brady Stock Fund shall be determined as
though the Participants deferrals allocated to that Fund are invested in shares of
Class A non-voting common stock of Brady Corporation by purchase at the fair market
value price of such stock on the date the deferrals are credited to the
Participants Brady stock account.
(iv) The portion of a Participants Account invested in the Brady Stock Fund
shall be called the Brady Stock Sub-account. The remaining portion of the
Participants Account shall be referred to as the General Investment Sub-account.
(v) The value of the Brady Stock Sub-account on any particular date will be
based upon the value of the shares of Class A non-voting common stock of Brady
Corporation which the sub-account is deemed to hold on that date. The shares of
such stock deemed to be held in such sub-account shall be credited with dividends at
the time they are credited with respect to actual shares of Class A non-voting
common stock of Brady Corporation and such dividends shall be deemed to be used to
purchase additional shares of Class A non-voting common stock of Brady Corporation
on the day following the crediting of such dividends at the then fair market value
price of such stock. The sub-account shall also be credited from time to time with
additional shares of Class A non-voting common stock of Brady Corporation equal in
number to the number of shares granted in any stock dividend or split to which the
holder of a like number of shares of Class A non-voting common stock would be
entitled. All other distributions with respect to shares of Class A non-voting
common stock of Brady Corporation shall be similarly applied. In the event of a
distribution of preferred stock, such preferred stock shall be valued at its par
value (or its voluntary liquidating price, if it does not have a par value).
-8-
(vi) The valuation of the funds held in the General Investment Sub-account
shall be accomplished in the same manner as though the deemed investment in such
funds had actually been made and are valued at their fair market value price on
valuation dates hereunder.
(vii) A Participants Account shall be valued as of December 31 each year and
at such other times established by the Administrator, which shall be no less
frequently than quarterly. Until such time as the Administrator takes action to the
contrary, such valuation shall be at the same time as valuations made of Brady
matched 401(k) plan assets.
(viii) All elections and designations under this section shall be made in
accordance with procedures prescribed by the Administrator. The Administrator may
prescribe uniform percentages for such elections and designations.
(ix) A Participant may prospectively elect to reallocate his Account balance
among the investment funds at the times established by the Administrator, which
shall be no less frequently than quarterly. Until such time as the Administrator
takes action to the contrary, such changes may be elected at the same times as
changes may be elected with respect to the Brady Matched 401(k) Plan.
Notwithstanding any other provision of this Plan to the contrary, a Participant may
not make (i) any election or transaction in the Brady Stock Fund at a time when the
Participant is in possession of any material non-public information or at a time not
permitted under the Corporations policy on insider trading or (ii) an opposite way
election with respect to the Brady Stock Fund within six months of a prior election
regarding the Brady Stock Fund.
(x) Notwithstanding subparagraph (ix) above, from and after May 1, 2006, a
Participant may not shift any amounts from his Brady Stock Sub-account to his
General Investment Sub-account or vice-versa. Notwithstanding Article I and Section
2.11 of this Plan to the contrary, the rule of this subparagraph (x) shall apply to
all amounts held for a Participant under a Frozen Agreement as well, meaning that
from and after May 1, 2006, a Participant shall not be entitled to transfer any
amount to or from the portion of his account held in the Brady Stock Fund under the
Frozen Agreement. The preceding sentence shall not apply to a Participant who has
had a Separation from Service prior to May 1, 2006.
(c) The Corporation shall provide annual reports to each Participant showing (a) the
value of the Account as of the most recent December 31
st
, (b) the amount of
deferral made by the Participant for the Plan Year ending on such date and (c) the amount of
any investment gain or loss and the costs of administration credited or debited to the
Participants Account.
(d) Notwithstanding any other provision of this Agreement that may be interpreted to
the contrary, the deemed investments are to be used for measurement purposes only and
shall
not
be considered or construed in any manner as an actual investment
of the Participants Account balance in any such fund. In the event that Brady Corporation
or the trustee of any grantor trust which Brady Corporation may choose to establish to
finance some or all of its obligations hereunder, in its own discretion, decides to invest
funds in any or all of the funds, the Participant shall have no rights in or to such
investments themselves. Without limiting the foregoing, the Participants Account balance
shall at all times be a bookkeeping entry only and shall not
represent any investment made on the Participants behalf by the Corporation or any
trust; the Participant shall at all times remain an unsecured creditor of the Corporation.
-9-
ARTICLE V
VESTING
5.1
Full Vesting
. A Participant shall be fully vested and nonforfeitable at all
times in his or her Account hereunder.
ARTICLE VI
MANNER AND TIMING OF DISTRIBUTION
6.1
Payment of Benefits
.
(a) After a Participants Separation from Service the Participants Account shall be
paid to the Participant (or in the event of the Participants death, to the Participants
Beneficiary). Payment shall be made in one of the following forms as specified in the
Participants payment election pursuant to Section 6.2:
(i)
Single Sum
. A single sum distribution of the value of the balance
of the Account on the first day of October following the Participants Separation
from Service; or
(ii)
Installments
. The value of the balance of the Account shall be
paid in annual installments on the first day of October each year with the first of
such installments to be paid on the first day of October following the Participants
Separation from Service. Annual installments shall be paid in one of the
alternative methods specified below over the number of years selected by the
Participant in the payment election made pursuant to Section 6.2, but not to exceed
10. The earnings (or losses) provided for in Section 4.2 shall continue to accrue
on the balance remaining in the Account during the period of installment payments.
The alternative methods available are as follows:
(A)
Fractional Method
. The annual installment shall be
calculated by multiplying the most recent July 31 value of the Account by a
fraction, the numerator of which is one, and the denominator of which is the
remaining number of annual payments due the Participant. By way of example,
if the Participant elects a 10 year annual installment method, the first
payment shall be one-tenth (1/10) of the Account balance. The following
year, the payment shall be one-ninth (1/9) of the Account balance.
(B)
Percentage or Fixed Dollar Method
. The annual installment
shall be calculated by multiplying the most recent July 31 value of the
Account, in the case of the percentage method, by the percentage selected by
the Participant and paying out the resulting amount or, in the case of the
fixed dollar
method, by paying out the fixed dollar amount selected by the
Participant for the number of years selected by the Participant. However,
in the event the dollar amount selected is more than the value of the
Account in any given year, the entire value of the Account will be
distributed. Further, regardless of the method selected by the Executive,
the final installment payment will include 100% of the then remaining July
31 Account value.
-10-
(iii)
In Cash or In Stock
. Prior to May 1, 2006 all payments shall be
made in cash. From and after May 1, 2006, payments shall be made in cash and/or
Class A non-voting common stock of Brady Corporation pursuant to the following:
(A) If distribution is made in a single sum, the value of the portion
of the Participants Account which consists of the General Investment
Sub-account shall be paid in cash while the value of the portion of the
Account which consists of the Brady Stock Sub-account shall be paid by
distributing the number of shares of Class A non-voting stock of Brady
Corporation which represent the number of deemed shares held in the Brady
Stock Sub-Account, except, however, that any fractional shares shall be
valued and distributed in cash.
(B) If distribution is made in installments, a portion of each
installment shall be distributed in cash and a portion in Class A non-voting
shares of common stock of Brady Corporation. The portion to be distributed
in cash shall be that portion of the total installment payment which is the
same percentage as derived by dividing the value of the Balance in the
General Investment Sub-account by the value of the total Account balance and
the portion to be distributed in stock shall be the same percentage as
determined by dividing the value of the balance of the Brady Stock
Sub-account by the value of the total Account balance. The number of shares
of Class A non-voting shares of common stock of Brady Corporation to be
distributed shall be the number having the same value as the portion of the
installment to be paid in such stock, except, however, that any fractional
shares shall be distributed in cash.
(C) Notwithstanding Article I and Section 2.11 of this Plan to the
contrary, the rule of this sub-paragraph (iv) shall apply to amounts held
for a Participant under a Frozen Agreement from and after May 1, 2006. The
preceding sentence shall not apply to a Participant who has had a Separation
from Service prior to May 1, 2006.
(b) In the case of a Participant who is a Specified Employee, payment pursuant to
paragraph (a) above shall commence no earlier than the first day of the seventh month
following the Participants Separation from Service. This delay in distribution rule does
not apply if the payment is being made as a result of the Participants death or disability.
For this purpose, disability means that the Participant:
(i) is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result
in death or can be expected to last for a continuous period of not less than 12
months, or
(ii) is, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a
continued period of not less than 12 months, receiving income replacement
benefits for a period of not less than three months under an accident and health
plan covering the employees of the Corporation or one of its affiliates in which the
Participant is covered.
-11-
6.2
Payment Election
. An individual who first becomes an Active Participant at the
beginning of a Plan Year who is provided with prior written notice of the effective date of
participation shall complete a payment election form specifying the form of payment applicable to
such Participants Account under the Plan. Absent an actual election by such Participant by the
effective date of participation, the Participant shall be deemed to have elected payment in the
five (5) annual installment payment form. An individual who first becomes an Active Participant
other than on the first day of a Plan Year shall complete a payment election form specifying the
form of payment applicable to such Participants Account no later than 30 days after the effective
date of participation. In the event such a Participant does not make an actual election within
such 30 day period, the Participant shall be deemed to have elected the five (5) annual
installment payment form; provided, however, that if such Participant is already a participant in
any other nonqualified plan or plans sponsored by the Corporation of the account balance type, the
most recent payment election with respect to any one of those plans shall be the payment election
form deemed elected under this Plan regardless of whether the individual elects a different
payment election form during that initial 30 day period. A Participant may change the form of
payment by completing and filing a new payment election form with the Corporation, and the payment
election form on file with the Corporation as of the date of the Participants Separation from
Service shall be controlling. Notwithstanding the foregoing, a payment election form changing the
Participants form of payment shall not be effective if the Participant has a Separation from
Service within twelve months after the date on which the election change is filed with the
Corporation. Any change in payment method must have the effect of delaying the commencement of
payments to a date which is at least five (5) years following the initially scheduled commencement
date of payment previously in effect. For purposes of compliance with Section 409A of the
Internal Revenue Code, a series of five year installment payments, ten year installment payments
and twenty year installment payments are each designated as a single payment rather than a right
to a series of separate payments; therefore, a Participant who has elected (or is deemed to have
elected) any option under Section 6.1 may substitute any of the other options for the option
originally elected as long as the foregoing one-year and five year rules are satisfied. A switch
from the percentage method to the fixed dollar method or vice versa and a switch from either of
those methods to the fractional method or vice versa is considered a substitution of a new option
for the original option for purposes of this rule even if the number of yearly installments is not
changed. The five year delay rule does not apply if the revised payment method applies only upon
the Participants death or disability. For this purpose, disability has the same meaning as in
Section 6.1(b). In the event that the Participants new payment election would not be effective
under the foregoing rules, the payment election from previously in effect shall be controlling.
6.3
Financial Hardship
. A partial or total distribution of the Participants Account
shall be made prior to Separation from Service upon the Participants request and a demonstration
by the Participant of severe financial hardship as a result of an Unforeseeable Emergency. Such
distribution shall be made in a single sum as soon as administratively practicable following the
Administrators determination that the foregoing requirements have been met. In any case, a
distribution due to Unforeseeable Emergency may not be made to the extent that such emergency is
or may be relieved through reimbursement or compensation from insurance or otherwise, by
liquidation of the Participants assets, to the extent the liquidation of such assets would not
cause severe financial hardship, or by cessation of deferrals under Section 3.2 and any other
nonqualified deferred compensation plan of the account balance type sponsored by the Corporation.
Distributions because of an Unforeseeable Emergency must be limited to the amount reasonably
necessary to satisfy the emergency need (which may include amounts necessary to pay any Federal,
state, or local income taxes or penalties reasonably
anticipated to result from the distribution). Determinations of amounts reasonably necessary
to satisfy the emergency need must take into account any additional compensation that is available
because of cancellation of a deferral election under Section 3.2 and any other nonqualified
deferred compensation plan of the account balance type sponsored by the Corporation upon a payment
due to an Unforeseeable Emergency. The payment may be made from any arrangement in which the
Participant participates that provides for payment upon an Unforeseeable Emergency, provided that
the arrangement under which the payment was made must be designated at the time of payment.
-12-
6.4
Delayed Distribution
.
(a) A payment otherwise required to be made pursuant to the provisions of this Article
VI shall be delayed if the Corporation reasonably anticipates that the Corporations
deduction with respect to such payment would be limited or eliminated by application of Code
Section 162(m); provided, however that such payment shall be made on the earliest date on
which the Corporation anticipates that the deduction of the payment of the amount will not
be limited or eliminated by application of Code Section 162(m). In any event, such payment
shall be made no later than the last day of the calendar year in which the Participant has a
Separation from Service or, in the case of a Specified Employee, the last day of the
calendar year in which occurs the six (6) month anniversary of such Separation from Service.
(b) A payment otherwise required under this Article VI shall be delayed if the
Corporation reasonably determines that the making of the payment will jeopardize the ability
of the Corporation to continue as a going concern; provided, however, that payments shall be
made on the earliest date on which the Corporation reasonably determines that the making of
the payment will not jeopardize the ability of the Corporation to continue as a going
concern.
(c) A payment otherwise required under this Article VI shall be delayed if the
Corporation reasonably anticipates that the making of the payment will violate federal
securities laws or other applicable law; provided, however, that payments shall nevertheless
be made on the earliest date on which the Corporation reasonably anticipates that the making
of the payment will not cause such violation. (The making of a payment that would cause
inclusion in gross income or the applicability of any penalty provision or other provision
of the Code is not treated as a violation of applicable law.)
(d) A payment otherwise required under this Article VI shall be delayed upon such other
events and conditions as the Internal Revenue Service may prescribe in generally applicable
guidance published in the Internal Revenue Bulletin.
6.5
Inclusion in Income Under Section 409A
. Notwithstanding any other provision of
this Article VI, in the event this Plan fails to satisfy the requirements of Code Section 409A and
regulations thereunder with respect to any Participant, there shall be distributed to such
Participant as promptly as possible after the Administrator becomes aware of such fact of
noncompliance such portion of the Participants Account balance hereunder as is included in income
as a result of the failure to comply, but no more. Any such distribution shall be taken on a pro
rata basis from the Participants General Investment Sub-account and Brady Stock Sub-account in
the manner described in Section 6.1(a)(iv)(B).
6.6
Domestic Relations Order
. Notwithstanding any other provision of this Article
VI, payments shall be made from an account of a Participant in this Plan to such individual or
individuals (other than the Participant) and at such times as are necessary to comply with a
domestic relations order (as defined in Code Section 414(p)(1)(B)). Any such distribution shall
be taken on a pro rata basis from
the Participants General Investment Sub-account and Brady Stock Sub-account in the manner
described in Section 6.1(a)(iv)(B).
-13-
6.7
De Minimis Amounts
. Notwithstanding any other provision this Article VI, a
Participants Account balance under this Plan and all other nonqualified deferred compensation
plans of the account balance type shall automatically be distributed to the Participant on or
before the later of December 31 of the calendar year in which occurs the Participants Separation
from Service or the 15
th
day of the third month following the Participants Separation
from Service if the total amount in such Account balance at the time of distribution, when
aggregated with all other amounts payable to the Participant under all arrangements benefiting the
Participant described in Section 1.409A-1(c) or any successor thereto, do not exceed the amount
described in Code Section 402(g)(1)(B). The foregoing lump sum payment shall be made
automatically and any other distribution elections otherwise applicable with respect to the
individual in the absence of this provision shall not apply.
ARTICLE VII
ADMINISTRATION
7.1
Compensation Committee as Administrator
. The Plan shall be administered by the
Administrator, which shall be the Compensation Committee of the Corporations Board of Directors.
The Administrator shall have all authority that may be appropriate for administering the Plan,
including the authority to adopt rules and regulations for the conduct of its affairs and for
implementing, amending and carrying out the Plan, interpreting the provisions of the Plan and
determining a Participants entitlement to benefits hereunder. The Administrator shall be
entitled to rely upon the Corporations records as to information pertinent to calculations or
determinations made pursuant to the Plan.
The Administrator may also delegate any of its clerical or other administrative duties to one
or more officers or employees of the Corporation, who may assist the Administrator in the
performance of any of its functions hereunder. In the event of such delegation, a reference to the
Administrator shall be deemed to refer to such officer(s) or employee(s).
7.2
Authority of Administrator
. The Administrator shall have full and complete
discretionary authority to determine eligibility for benefits under the Plan, to construe the
terms of the Plan and to decide any matter presented through the claims procedure. Any final
determination by the Administrator shall be binding on all parties and afforded the maximum
deference allowed by law. If challenged in court, such determination shall not be subject to
de novo
review and shall not be overturned unless proven to be arbitrary and capricious
based upon the evidence considered by the Administrator at the time of such determination.
7.3
Administrator Actions
. The Administrator may authorize one or more of its
members to execute on its behalf instructions or directions to any interested party, and any such
interested party may rely upon the information contained therein. The members may also act at a
meeting or by unanimous written consent. A majority of the members shall constitute a quorum for
the transaction of business and shall have full power to act hereunder. All decisions shall be
made by vote of the majority present at any meeting at which a quorum is present, except for
actions in writing without a meeting, which must be unanimous.
7.4
Minor or Incompetent Payees
. If a person to whom a benefit is payable is a minor
or is otherwise incompetent by reason of a physical or mental disability, the Corporation may
cause the
payments due to such person to be made to another person for the first persons benefit
without any responsibility to see to the application of such payment. Such payments shall operate
as a complete discharge of the obligations to such person under the Plan.
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7.5
No Liability
. Except as otherwise provided by law, neither the Administrator,
nor any member thereof, nor any director, officer or employee of the Corporation involved in the
administration of the Plan shall be liable for any error of judgment, action or failure to act
hereunder or for any good faith exercise of discretion, excepting only liability for gross
negligence or willful misconduct. The Corporation shall hold harmless and defend any individual
in the employment of the Corporation and any director of the Corporation against any claim, action
or liability asserted against him in connection with any action or failure to act regarding the
Plan, except as and to the extent that any such liability may be based upon the individuals own
gross negligence or willful misconduct. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.
7.6
Claims Procedure
.
(a) If the Participant or the Participants Beneficiary (hereinafter referred to as a
Claimant) is denied all or a portion of an expected benefit under the Plan for any reason,
he or she may file a claim with the Administrator or its designee. The Administrator or its
designee shall notify the Claimant within 60 days of allowance or denial of the claim,
unless the Claimant receives written notice prior to the end of the sixty (60) day period
stating that special circumstances require an extension of the time for decision and
specifying the expected date of decision. The notice of the such decision shall be in
writing, sent by mail to the Claimants last known address, and if a denial of the claim,
must contain the following information:
(i) the specific reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan on which the denial
is based;
(iii) if applicable, a description of any additional information or material
necessary to perfect the claim, an explanation of why such information or material
is necessary, and an explanation of the claims review procedure; and
(iv) a description of the Plans claims review procedure, including a statement
of the Claimants right to bring a civil action under Section 502 of ERISA if the
Claimants claim is denied upon review.
(b) A Claimant is entitled to request a review of any denial of his claim. The request
for review must be submitted in writing to the Administrator within 60 days after receipt of
the notice of the denial. The timely filing of such a request is necessary to preserve any
legal recourse which may be available to the Claimant and, absent the submission of request
for review within the 60-day period, the claim will be deemed to be conclusively denied.
Upon submission of a written request for review, the Claimant or his representative shall be
entitled to review all pertinent documents, and to submit issues and comments in writing for
consideration by the Administrator. The Administrator shall fully and fairly review the
matter and shall consider all information submitted in the review request, without regard to
whether or not such information was submitted or considered in the initial claim
determination. The Administrator shall promptly respond to the Claimant, in writing, of its
decision within 60 days after receipt of the review request. However, due to special
circumstances, if no response has been provided within the first
60 days, and notice of the need for additional time has been furnished within such
period, the review and response may be made within the following 60 days. The
Administrators decision shall include specific reasons for the decision, including
references to the particular Plan provisions upon which the decision is based, notification
that the Claimant can receive or review copies of all documents, records and information
relevant to the claim, and information as to the Claimants right to file suit under Section
502(a) of ERISA.
-15-
(c) If a determination of disability for purposes of Section 6.1(b) or 6.2 becomes
necessary and if such determination is considered to be with respect to a claim for benefits
based on disability for purposes of 29 CFR Section 2560.503-1, then the Administrator shall
adopt and administer a special procedure for considering such disability claims meeting the
requirements of 29 CFR Section 2560.503-1 for disability benefit claims.
ARTICLE VIII
MISCELLANEOUS
8.1
Amendment or Termination
. The Corporation (through its Board of Directors or
authorized officers or employees and/or the Compensation Committee) reserves the right to alter or
amend the Plan, or any part thereof, in such manner as it may determine, at any time and for any
reason. Further, the Board of Directors of the Corporation reserves the right to terminate the
Plan, at any time and for any reason. Notwithstanding the foregoing, in no event shall any
amendment or termination deprive any Participant or Beneficiary of any amounts credited to him
under this Plan as of the date of such amendment or termination; provided, however, that the
Corporation may prospectively change the manner in which earnings are credited or discontinue the
crediting of earnings and, further, the Corporation may make any amendment it deems necessary or
desirable for purposes of compliance with the requirements of Code Section 409A and regulations
thereunder.
If the Plan is amended to freeze benefit accruals, no additional deferrals or contributions
shall be credited to any Participant Account hereunder. Following such a freeze of benefit
accruals, Participants Accounts shall be paid at such time and in such form as provided under
Article VI of the Plan. If the Corporation terminates the Plan and if the termination is of the
type described in regulations issued by the Internal Revenue Service pursuant to Code Section 409A,
then the Corporation shall distribute the then existing Account balances of Participants and
beneficiaries in a lump sum within the time period specified in such regulations and, following
such distribution, there shall be no further obligation to any Participant or beneficiary under
this Plan. However, if the termination is not of the type described in such regulations, then
following Plan termination Participants Accounts shall be paid at such time and in such form as
provided under Article VI of the plan.
8.2
Applicable Law
. This Plan shall be governed by the laws of the State of
Wisconsin, except to the extent preempted by the provisions of ERISA or other applicable federal
law.
8.3
Relationship to Other Programs
. Participation in the Plan shall not affect a
Participants rights to participate in and receive benefits under any other plans of the
Corporation, nor shall it affect the Participants rights under any other agreement entered into
with the Corporation, unless expressly provided otherwise by such plan or agreement. Any amount
credited under or paid pursuant to this Plan shall not be treated as wages, salary or any other
type of compensation or otherwise taken into account
in the determination of the Participants benefits under any other plans of the Corporation,
unless expressly provided otherwise by such plan.
-16-
8.4
Non-Assignability by Participant
. No Participant or Beneficiary shall have any
right to commute, sell, assign, pledge, convey, or otherwise transfer any rights or claims to
receive benefits hereunder, nor shall such rights or claims be subject to garnishment, attachment,
execution or levy of any kind except to the extent otherwise required by law.
8.5
Status of Plan Under ERISA
. The Plan is intended to be an unfunded plan
maintained by the Corporation primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees, as described in Section 201(2),
Section 301(a)(3), Section 401(a)(1) and Section 4021(b)(6) of ERISA.
8.6
Withholding
. The Corporation shall comply with all applicable tax and
governmental withholding requirements. To the extent required by law, the Corporation shall
withhold any taxes required to be withheld by the federal or any state or local government from
payments made hereunder or from any other amounts paid to a Participant by the Corporation. If
FICA taxes must be withheld in connection with amounts credited hereunder before payments are
otherwise due hereunder and if there are no other wages from which to withhold them, the
Corporation shall pay such FICA taxes generated by such payment (and taxes under Code Section 3401
triggered thereby and additional taxes under Section 3401 attributable to pyramiding of Section
3401 wages and taxes) but no more and the Participants Account hereunder shall be reduced by an
amount equal to the payments made by the Corporation. Any such distribution shall be taken on a
pro rata basis from the Participants General Investment Sub-account and Brady Stock Sub-account
in the manner described in Section 6.1(a)(iv)(B).
8.7
No Right to Continued Employment
. Neither participation in this Plan, nor the
payment of any benefit hereunder, shall be construed as giving to a Participant any right to be
retained in the service of the Corporation, or limiting in any way the right of the Corporation to
terminate the Participants service at any time. Nor does participation in this Plan guarantee
the Participant the right to be continued in service in any particular position or at any
particular rate of compensation.
8.8
Assignability by Corporation
. The Corporation shall have the right to assign all
of its right, title and obligation in and under this Plan upon a merger or consolidation in which
the Corporation is not the surviving entity or to the purchaser of substantially its entire
business or assets or the business or assets pertaining to a major product line, provided such
assignee or purchaser assumes and agrees to perform after the effective date of such assignment
all of the terms, conditions and provisions imposed by this Plan upon the Corporation. Upon such
assignment, all of the rights, as well as all obligations, of the Corporation under this Plan
shall thereupon cease and terminate.
8.9
Unsecured Claim; Grantor Trust
. The right of a Participant to receive payment
hereunder shall be an unsecured claim against the general assets of the Corporation, and no
provisions contained herein, nor any action taken hereunder shall be construed to give any
individual at any time a security interest in any asset of the Corporation, of any affiliated
corporation, or of the stockholders of the Corporation. The liabilities of the Corporation to a
Participant hereunder shall be those of a debtor pursuant to such contractual obligations as are
created hereunder and to the extent any person acquires a right to receive payment from the
Corporation hereunder, such right shall be no greater than the right of any unsecured general
creditor of the Corporation.
The Corporation may establish a grantor trust (but shall not be required to do so) to which
the Corporation may in its discretion contribute (subject to the claims of the general creditors of
the
Corporation) the amounts credited to the Account. If a grantor trust is so established,
payment by the trust of the amounts due the Participant or his Beneficiary hereunder shall be
considered a payment by the Corporation for purposes of this Plan.
-17-
8.10
Notices or Filings
. Any notice or filing required or permitted to be given to
the Administrator hereunder shall be sufficient if in writing and hand-delivered, or sent by
registered or certified mail, to the address below:
Corporate Treasurer
Brady Corporation
P.O. Box 571
Milwaukee, WI 53201-0571
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail,
as of the date shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant hereunder shall be
sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the
Participant.
8.11
Special rules for 2005-2007
. Notwithstanding the usual rules required regarding
the deferral elections and distribution elections:
(a) A Participant may on or before March 15, 2005 make a new deferral election to apply
to amounts which would otherwise be paid in calendar year 2005; provided that such amounts
have not been paid or become payable at the time of the election. Such election shall
remain in effect for future years until modified pursuant to Section 3.3(a) and/or (b), as
the case may be.
(b) On or before December 31, 2007, a Participant may make an election as to
distribution of his Account from among the choices described at Section 6.1 hereof without
complying with the rules described in Section 6.2 hereof as long as the effect of the
election is not to accelerate payments into 2006 or to defer payments which would otherwise
have been made in 2006, and as long as the effect of the election is not to accelerate the
payments into 2007 or to defer payments which would otherwise have been made in 2007. Such
election shall become effective after the last day upon which it is permitted to be made.
However, in order to subsequently change such special election after December 31, 2007, the
requirements of Section 6.2 hereof must be satisfied. (This election will not apply to
distribution of the Participants accounts holding amounts earned and vested prior to
January 1, 2005, if any, (and earnings credited thereon) since such accounts are not
governed by this document but are governed by the Frozen Plan.)
IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this
Plan document on its behalf as of the 17th day of February, 2011.
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BRADY CORPORATION
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By:
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/s/ Frank M. Jaehnert
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Attest:
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/s/ Thomas J. Felmer
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-18-
EXHIBIT 10.2
BRADY CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 17, 2011
ARTICLE I
INTRODUCTION
1.1 For periods prior to calendar year 2005, Brady Corporation has maintained the Brady
Corporation Directors Deferred Compensation Plan by means of a series of individual deferred
compensation agreements with covered directors. This amended and restated document shall apply to
those prior agreements with respect to both investment and distribution of amounts deferred before
2005 and after 2004 and with respect to rules for making deferrals after 2004. This document is
intended to comply with the provisions of Section 409A of the Internal Revenue Code and shall be
interpreted accordingly. If any provision or term of this document would be prohibited by or
inconsistent with the requirements of Section 409A of the Code, then such provision or term shall
be deemed to be reformed to comply with Section 409A of the Code. This Plan is amended and
restated, effective as of February 17, 2011.
ARTICLE II
DEFINITIONS
The following definitions shall be applicable throughout the Plan:
2.1
Account
means the account credited from time to time with bookkeeping amounts
equal to the portions of a Participants compensation deferred pursuant to Section 3.1 and earnings
credited on such amounts in accordance with Article IV.
2.2
Administrator
means the Board of Directors of Brady Corporation.
2.3
Beneficiary
means the person, persons, or entity designated by the Participant
to receive any benefits payable under the Plan on or after the Participants death. Each
Participant shall be permitted to name, change or revoke the Participants designation of a
Beneficiary in writing on a form and in the manner prescribed by the Corporation; provided,
however, that the designation on file with the Corporation at the time of the Participants death
shall be controlling. Should a Participant fail to make a valid Beneficiary designation or leave
no named Beneficiary surviving, any benefits due shall be paid to such Participants spouse, if
living; or if not living, then any benefits due shall be paid to such Participants estate. A
Participant may designate a primary beneficiary and a contingent beneficiary; provided, however,
that the Corporation may reject any such instrument tendered for filing if it contains successive
beneficiaries or contingencies unacceptable to it. If all Beneficiaries who survive Participant
shall die before receiving the full amounts payable hereunder, then the payments shall be paid to
the estate of the Beneficiary last to die.
2.4
Code
means the Internal Revenue Code of 1986, including any subsequent
amendments.
2.5
Corporation
means Brady Corporation.
2.6
Distribution Date
means the October 1 following the Payment Event. For
distribution elections prior to the Effective Date, the Distribution Date was the quarterly date
specified by the Participant upon which distribution would be made or commenced following the
Participants Separation from Service or the In-Service Payment Event Date, as the case may be.
All distribution elections in effect on the Effective Date shall remain in effect unless the
Participant consents to a Distribution Date that is the October 1 following the Participants
Payment Event; provided that no change in Distribution Date may change the calendar year of the
distribution. If the distribution is payable other than in a single installment, subsequent
installments shall be paid on anniversaries of the Distribution Date.
2.7
Effective Date
means February 17, 2011. This document describes how this Plan
has been administered for periods after 2004 and prior to February 17, 2011 and how it shall be
administered for periods on and after February 17, 2011.
2.8
In-Service Payment Event Date
means the date, if any, specified by the
Participant as the reference date following which distribution of his Account shall begin. An
In-Service Payment Event Date may be no earlier than January 1, 2007. For distribution elections
following the Effective Date, a Participant may not elect an In-Service Payment Event Date.
2.9
Participant
means a director of Brady Corporation currently eligible to make
deferrals (an Active Participant) and any former director who previously participated in the Plan
and is entitled to benefits.
2.10
Payment Event
means the date of a Participants Separation From Service. For
distribution elections prior to February 17, 2011, a Participant could elect a Payment event that
was the earlier of the date of a Participants Separation From Service or the date the Participant
specified as his In-Service Payment Event Date.
2.11
Plan
means the Brady Corporation Directors Deferred Compensation Plan, as set
forth herein and as it may be amended from time to time.
2.12
Plan Year
means the calendar year.
2.13
Separation from Service
means expiration or termination of the arrangement with
the Corporation pursuant to which the Participant performed services as a director of the
Corporation if such expiration or termination constitutes a good faith and complete termination of
the relationship and all other independent contractor relationships the Participant has with the
Corporation. A good faith and complete termination of a relationship shall not be deemed to have
occurred if the Corporation anticipates a renewal of a contractual relationship or anticipates that
the Participant shall become an employee of the Corporation. For this purpose, the Corporation is
considered to anticipate the renewal of a contractual relationship with the Participant if it
intends to contract again for the services provided under the expired arrangement, and neither the
Corporation nor the Participant has eliminated the Participant as a possible provider of services
under any such new arrangement. Further, the Corporation is considered to intend to contract again
for the services provided under an expired arrangement if the Corporations doing so is conditioned
only upon incurring a need for the services, the availability of funds or both. The foregoing
requirements are deemed satisfied if no amount will be paid to the Participant before a date at
least 12 months after the day on which the arrangement expires pursuant to which the Participant
performed services for the Corporation (or, in the case of more than one arrangement, all such
arrangements expire)
and no amount payable to the Participant on that date will be paid to the Participant if,
after the expiration of the arrangement (or arrangements) and before that date, the Participant
performs services for the Corporation as a director or other independent contractor or an
employee). If a Participant provides services both as an employee of the Corporation and as a
member of the board of directors of the Corporation, the services provided as an employee are not
taken into account in determining whether the Participant has a Separation from Service as a
director for purposes of this Plan because this Plan is not aggregated with any plan in which the
Participant participates as an employee pursuant to IRS Regulation Section 1.409A-1(c)(2)(ii).
-2-
2.14
Unforeseeable Emergency
means a severe financial hardship to a Participant
resulting from an illness or accident of the Participant or the Participants spouse or dependent
(as defined in Section 152(a) of the Code), loss of the Participants property due to casualty
(including the need to rebuild a home following damage to a home not otherwise covered by
insurance, for example, as a result of a natural disaster), or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of the Participant.
For example, the imminent foreclosure of or eviction from the Participants primary residence may
constitute an Unforeseeable Emergency. In addition, the need to pay for medical expenses,
including non-refundable deductibles, as well as for the costs of prescription drug medication, may
constitute an Unforeseeable Emergency. Finally, the need to pay for funeral expenses of a spouse
or a dependent (as defined in Code section 152(a)) may also constitute an Unforeseeable Emergency.
Except as otherwise provided above, the purchase of a home and the payment of college tuition are
not Unforeseeable Emergencies. Whether a Participant is faced with an Unforeseeable Emergency is
to be determined based on the relevant facts and circumstances of each case.
ARTICLE III
DEFERRALS
3.1
Deferral Elections
. An Active Participant may elect to defer a specified
percentage of his fees for services performed as a director of the Corporation during a Plan Year
by completing and filing such forms as required by the Corporation prior to the first day of the
Plan Year. A Participants deferrals shall be taken at a uniform percentage rate from each of the
payments made to him by the Corporation during the Plan Year. Compensation deferred shall be
retained by the Corporation, credited to the Participants Account pursuant to Section 4.1 and paid
in accordance with the terms and conditions of the Plan. A director who is not already eligible to
participate in any other deferred compensation plan of the account balance type sponsored by the
Corporation who becomes an Active Participant for the first time during a Plan Year (i.e., first
becomes a director) may within 30 days after the effective date of participation make an election
to defer a specified percentage of compensation to be paid to him for services to be performed
subsequent to the deferral election.
3.2
Continued Effect of Elections
. An Active Participants deferral election with
respect to a Plan Year under Section 3.1 shall be irrevocable after the last date upon which it may
be filed pursuant to Section 3.1 and shall continue in effect each subsequent Plan Year until
prospectively revoked or amended in writing. For a revocation or amendment to be effective with
respect to payments during a Plan Year, it must be filed by the last date for which an effective
deferral election is permitted to be filed with respect to those payments under Section 3.1.
3.3
Prior Deferral Elections
. Any deferral election made prior to calendar year 2005
under an individual agreement shall be treated as a deferral election described in Section 3.1 and
shall continue in effect until modified as described in Section 3.2 above unless modified earlier
pursuant to Section 8.12(a) below.
-3-
3.4
Unforeseeable Emergency
. In the event that a Participant makes application for a
hardship distribution under Section 6.3 and the Administrator determines that an Unforeseeable
Emergency exists, all deferral elections otherwise in effect under this Article III and any other
nonqualified deferred compensation plan of the account balance type sponsored by the Corporation
shall immediately terminate upon such determination. To resume deferrals thereafter, a Participant
must make an election satisfying the provisions of Section 3.1, as the case may be, as those
provisions apply to someone who is already an Active Participant in the Plan.
ARTICLE IV
ACCOUNTS
4.1
Credits to Account
. Bookkeeping amounts equal to the amounts deferred by a
Participant pursuant to Section 3.1 shall be credited to such Participants Deferral Account as
soon as practicable after the deferred compensation would otherwise have been paid to such
Participant in the absence of deferral.
4.2
Valuation of Account
.
(a) The Participants Account shall be credited or charged with deemed earnings or
losses as if it were invested in accordance with paragraph (b) below.
(b) (i) The investment funds available hereunder for the deemed investment of the
Account shall be the Brady Stock Fund and such other funds as the Administrator shall from
time to time determine. However, in no event shall the Corporation be required to make any
such investment in the Brady Stock Fund or any other investment fund and, to the extent such
investments are made, such investments shall remain an asset of the Corporation subject to
the claims of its general creditors.
(ii) On the date credited to the Participants Account, deferrals shall be
deemed to be invested in one or more of the investment funds designated by the
Participant for such deemed investment; provided that any deferrals designated for
investment in the Brady Stock Fund shall initially be credited to the General
Investment Sub-account and transferred to the Brady Stock Sub-account on a quarterly
basis. Once made, the Participants investment designation shall continue in effect
for all future deferrals until changed by the Participant. Any such change may be
prospectively elected by the Participant at the times established by the
Administrator, which shall be no less frequently than quarterly, and shall be
effective only for deferrals, credited from and after its effective date. Until
such time as the Administrator takes action to the contrary, such changes may be
elected at the same times as changes may be elected with respect to the Brady
Matched 401(k) Plan.
(iii) The portion of a Participants Account invested in the Brady Stock Fund
shall be called the Brady Stock Sub-account. The remaining portion of the
Participants Account shall be referred to as the General Investment Sub-account.
(iv) A Participants balance in the Brady Stock Fund shall be determined as
though the Participants deferrals allocated to that Fund are invested in shares of
Class A non-voting common stock of Brady Corporation by purchase at the fair market
value price of such stock on the date the deferrals are credited to the
Participants Brady Stock Fund Sub-account.
-4-
(v) The value of the Brady Stock Sub-account on any particular date will be
based upon the value of the shares of Class A non-voting common stock of Brady
Corporation which the sub-account is deemed to hold on that date. The shares of
such stock deemed to be held in such sub-account shall be credited with dividends at
the time they are credited with respect to actual shares of Class A non-voting
common stock of Brady Corporation and such dividends shall be deemed to be used to
purchase additional shares of Class A non-voting common stock of Brady Corporation
on the day following the crediting of such dividends at the then fair market value
price of such stock. The sub-account shall also be credited from time to time with
additional shares of Class A non-voting common stock of Brady Corporation equal in
number to the number of shares granted in any stock dividend or split to which the
holder of a like number of shares of Class A non-voting common stock would be
entitled. All other distributions with respect to shares of Class A non-voting
common stock of Brady Corporation shall be similarly applied. In the event of a
distribution of preferred stock, such preferred stock shall be valued at its par
value (or its voluntary liquidating price, if it does not have a par value).
(vi) The valuation of the funds held in the General Investment Sub-account
shall be accomplished in the same manner as though the deemed investment in such
funds had actually been made and are valued at their fair market value price on
valuation dates hereunder.
(vii) A Participants Account shall be valued as of December 31 each year and
at such other times established by the Administrator, which shall be no less
frequently than quarterly. Until such time as the Administrator takes action to the
contrary, such valuation shall be at the same time as valuations made of Brady
matched 401(k) plan assets.
(viii) All elections and designations under this section shall be made in
accordance with procedures prescribed by the Administrator. The Administrator may
prescribe uniform percentages for such elections and designations.
(ix) A Participant may prospectively elect to reallocate his Account balance
among the investment funds at the times established by the Administrator, which
shall be no less frequently than quarterly. Until such time as the Administrator
takes action to the contrary, such changes may be elected at the same times as
changes may be elected with respect to the Brady Matched 401(k) Plan.
Notwithstanding any other provision of this Plan to the contrary, a Participant may
not make (i) any election or transaction in the Brady Stock Fund at a time when the
Participant is in possession of any material non-public information or at a time not
permitted under the Corporations policy on insider trading or (ii) an opposite way
election with respect to the Brady Stock Fund within six months of a prior election
regarding the Brady Stock Fund.
(x) Notwithstanding subparagraph (ix) above, from and after May 1, 2006, a
Participant may not shift any amounts from his Brady Stock Sub-account to his
General Investment Sub-account or vice-versa. The preceding sentence shall not
apply to a Participant who has had a Separation from Service prior to May 1, 2006.
A Participant shall, on or after February 16, 2006 and prior to May 1, 2006, be
entitled to reallocate up to 50% of the balance of the portion of his Account
attributable to pre-2004 deferrals from investments in the Brady Stock Fund to the
other investment funds available hereunder; and, thereafter, the portion of such
account attributable to pre-2004 deferrals held in the Brady Stock Fund must remain
in the Brady Stock Fund but the director may continue to make new investment choices
from among available investment funds with
respect to remaining portions of that account. The preceding sentence shall
not apply to a Participant who has a Separation from Service before reallocation
under such sentence has taken place.
-5-
(c) The Corporation shall provide annual reports to each Participant showing (a) the
value of the Account as of the most recent December 31
st
, (b) the amount of
deferral made by the Participant for the Plan Year ending on such date and (c) the amount of
any investment gain or loss and the costs of administration credited or debited to the
Participants Account.
(d) Notwithstanding any other provision of this Agreement that may be interpreted to
the contrary, the deemed investments are to be used for measurement purposes only and
shall
not
be considered or construed in any manner as an actual investment
of the Participants Account balance in any such fund. In the event that Brady Corporation
or the trustee of any grantor trust which Brady Corporation may choose to establish to
finance some or all of its obligations hereunder, in its own discretion, decides to invest
funds in any or all of the funds, the Participant shall have no rights in or to such
investments themselves. Without limiting the foregoing, the Participants Account balance
shall at all times be a bookkeeping entry only and shall not represent any investment made
on the Participants behalf by the Corporation or any trust; the Participant shall at all
times remain an unsecured creditor of the Corporation.
ARTICLE V
VESTING
5.1
Full Vesting
. A Participant shall be fully vested and nonforfeitable at all times
in his or her Account hereunder.
ARTICLE VI
MANNER AND TIMING OF DISTRIBUTION
6.1
Payment of Benefits
. After a Participants Payment Event the Participants
Account shall be paid to the Participant (or in the event of the Participants death, to the
Participants Beneficiary). Payment shall be made in a Single Sum or Installments as specified in
the Participants payment election pursuant to Section 6.2:
(i)
Single Sum
. A single sum distribution of the value of the balance
of the Account on the Distribution Date following the Participants Payment Event.
If the Participant receives a single sum distribution before Separation from Service
with the result that additional amounts are subsequently deposited in the
Participants Account, a distribution shall be made on each succeeding Distribution
Date of the entire value of the then balance of the Account.
-6-
(ii)
Installments
. The value of the balance of the Account shall be
paid in annual installments on the Distribution Date each year with the first of
such installments to be paid on the Distribution Date following the Participants
Payment Event. Annual installments shall be paid in one of the alternative methods
specified below over the number of years selected by the Participant in the payment
election made pursuant to Section 6.2, but not to exceed 10. The earnings (or
losses) provided for in Section 4.2
shall continue to accrue on the balance remaining in the Account during the
period of installment payments. The alternative methods available are as follows:
(A)
Fractional Method
. The annual installment shall be
calculated by multiplying the most recent July 31 value of the Account by a
fraction, the numerator of which is one, and the denominator of which is the
remaining number of annual payments due the Participant. By way of example,
if the Participant elects a 10 year annual installment method, the first
payment shall be one-tenth (1/10) of the Account balance. The following
year, the payment shall be one-ninth (1/9) of the Account balance. Further,
regardless of the method selected by the Participant, the final installment
payment will include 100% of the then remaining Account value.
(B)
Percentage or Fixed Dollar Method
. The annual installment
shall be calculated by multiplying the most recent July 31 value of the
Account, in the case of the percentage method, by the percentage selected by
the Participant and paying out the resulting amount or, in the case of the
fixed dollar method, by paying out the fixed dollar amount selected by the
Participant for the number of years selected by the Participant. However,
in the event the dollar amount selected is more than the value of the
Account in any given year, the entire value of the Account will be
distributed. Further, regardless of the method selected by the Participant,
the final installment payment will include 100% of the then remaining
Account value.
(iii)
In Cash or In Stock
. Prior to May 1, 2006 all payments shall be
made in cash, except that amounts held in the Brady Stock Sub-account attributable
to pre-2004 deferrals shall be distributed by means of Class A non-voting common
stock of Brady Corporation. From and after May 1, 2006, payments shall be made in
cash and/or Class A non-voting common stock of Brady Corporation pursuant to the
following:
(A) If distribution is made in a single sum, the value of the portion
of the Participants Account which consists of the General Investment
Sub-account shall be paid in cash while the value of the portion of the
Account which consists of the Brady Stock Sub-account shall be paid by
distributing the number of shares of Class A non-voting stock of Brady
Corporation which represent the number of deemed shares held in the Brady
Stock Sub-Account, except, however, that any fractional shares shall be
valued and distributed in cash.
(B) If distribution is made in installments, a portion of each
installment shall be distributed in cash and a portion in Class A non-voting
shares of common stock of Brady Corporation. The portion to be distributed
in cash shall be that portion of the total installment payment which is the
same percentage as derived by dividing the value of the Balance in the
General Investment Sub-account by the value of the total Account balance and
the portion to be distributed in stock shall be the same percentage as
determined by dividing the value of the balance of the Brady Stock
Sub-account by the value of the total Account balance. The number of shares
of Class A non-voting shares of common stock of Brady Corporation to be
distributed shall be the number having the same value as the portion of the
installment to be paid in such stock, except, however, that any fractional
shares shall be distributed in cash.
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6.2
Payment Election
. An individual who first becomes a Participant at the beginning
of a Plan Year shall, prior to his date of participation, complete a payment election form
specifying the form of payment applicable to such Participants Account under the Plan. An
individual who first becomes a Participant other than on the first day of a Plan Year shall, no
later than 30 days after the effective date of participation, complete a payment election form
specifying the form of payment applicable to such Participants Account; provided, however, that if
such Participant is already a participant in any other nonqualified plan or plans sponsored by the
Corporation of the account balance type, the most recent payment election with respect to any one
of those plans shall be the form of payment election deemed elected under this Plan regardless of
whether the individual elects a different form of payment during that initial 30 day period. A
payment election form shall mean the form established from time to time by the Administrator
which a Participant completes, signs and returns to the Administrator to make an election under the
Plan. To the extent authorized by the Administrator, such form may be provided electronically and,
in such case, need not be signed by the Participant. A Participant may change the form of payment
by completing and filing a new payment election form with the Corporation, and the payment election
form on file with the Corporation as of the date of the Participants Payment Event shall be
controlling. Notwithstanding the foregoing, a payment election form changing the Participants
form of payment shall not be effective if the Participant has a Payment Event within twelve months
after the date on which the election change is filed with the Corporation. Any change in payment
method must have the effect of delaying the commencement of payments to a date which is at least
five (5) years after the initially scheduled commencement date of payment previously in effect.
Any change in the Distribution Date must have the effect of delaying the commencement of payments
to a date which is at least five (5) years after the initially scheduled Distribution Date. For
purposes of compliance with Code Section 409A, a series of installment payments is designated as a
single payment rather than a right to a series of separate payments; therefore, a Participant who
has elected (or is deemed to have elected) any option under Section 6.1(a)(i) or (ii) may
substitute any of the other options for the option originally selected as long as the foregoing
one-year and five year rules are satisfied. A switch from the percentage method to the fixed
dollar method or vice versa and a switch from either of those methods to the fractional method or
vice versa is considered a substitution of a new option for the original option for purposes of
this rule even if the number of yearly installments is not changed. The five year delay rule does
not apply if the revised payment method applies only upon the Participants death or disability.
For this purpose, disability means that the Participant is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months.
6.3
Financial Hardship
. A partial or total distribution of the Participants Account
shall be made prior to a Payment Event upon the Participants request and a demonstration by the
Participant of severe financial hardship as a result of an Unforeseeable Emergency. Such
distribution shall be made in a single sum as soon as administratively practicable following the
Administrators determination that the foregoing requirements have been met. In any case, a
distribution due to Unforeseeable Emergency may not be made to the extent that such emergency is or
may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation
of the Participants assets, to the extent the liquidation of such assets would not cause severe
financial hardship, or by cessation of deferrals under Section 3.1 and any other nonqualified
deferred compensation plan of the account balance type sponsored by the Corporation. Distributions
because of an Unforeseeable Emergency must be limited to the amount reasonably necessary to satisfy
the emergency need (which may include amounts necessary to pay any Federal, state, or local income
taxes or penalties reasonably anticipated to result from the distribution). Determinations of
amounts reasonably necessary to satisfy the emergency need must take into account any additional
compensation that is available because of cancellation of a deferral election under Section 3.1 and
any other nonqualified deferred compensation plan of the account balance type sponsored by the
Corporation upon a payment due to an Unforeseeable Emergency. The payment may be made from any
arrangement in which the Participant participates that provides for payment upon an Unforeseeable
Emergency, provided that the arrangement under which the payment was made must be designated
at the time of payment.
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6.4
Delayed Distribution
.
(a) A payment otherwise required under this Article VI shall be delayed if the
Corporation reasonably anticipates that the making of the payment will violate a term of a
loan agreement to which the Corporation is a party, or other similar contract to which the
Corporation is a party, and such violation will cause material harm to the Corporation;
provided, however, that payments shall be made on the earliest date on which the Corporation
reasonably anticipates that the making of the payment will not cause such violation, or such
violation will not cause material harm to the Corporation, and provided that the facts and
circumstances indicate that the Corporation entered into the loan agreement (including such
covenant) or other similar contract for legitimate reasons, and not to avoid the
restrictions on deferral elections and subsequent deferral elections under Code Section
409A.
(b) A payment otherwise required under this Article VI shall be delayed if the
Corporation reasonably determines that the making of the payment will jeopardize the ability
of the Corporation to continue as a going concern; provided, however, that payments shall be
made on the earliest date on which the Corporation reasonably determines that the making of
the payment will not jeopardize the ability of the Corporation to continue as a going
concern.
(c) A payment otherwise required under this Article VI shall be delayed upon such other
events and conditions as the Internal Revenue Service may prescribe in generally applicable
guidance published in the Internal Revenue Bulletin.
6.5
Inclusion in Income Under Section 409A
. Notwithstanding any other provision of
this Article VI, in the event this Plan fails to satisfy the requirements of Code Section 409A and
regulations thereunder with respect to any Participant, there shall be distributed to such
Participant as promptly as possible after the Administrator becomes aware of such fact of
noncompliance such portion of the Participants Account balance hereunder as is included in income
as a result of the failure to comply, but no more. Any such distribution shall be taken on a pro
rata basis from the Participants General Investment Sub-account and Brady Stock Sub-account in the
manner described in Section 6.1(a)(iv)(B).
6.6
Domestic Relations Order
. Notwithstanding any other provision of this Article VI,
payments shall be made from an account of a Participant in this Plan to such individual or
individuals (other than the Participant) and at such times as are necessary to comply with a
domestic relations order (as defined in Code Section 414(p)(1)(B)). Any such distribution shall be
taken on a pro rata basis from the Participants General Investment Sub-account and Brady Stock
Sub-account in the manner described in Section 6.1(a)(iv)(B).
6.7
De Minimis Amounts
. Notwithstanding any other provision of this Article VI, a
Participants entire Account balance under this Plan and all other nonqualified deferred
compensation plans of the account balance type shall automatically be distributed to the
Participant on or before the later of December 31 of the calendar year in which occurs the
Participants Separation from Service or the 15
th
day of the third month following the
Participants Separation from Service if the total amount in such Account balance at the time of
distribution, when aggregated with all other amounts payable to the Participant under all
arrangements benefiting the Participant described in Section 1.409A-1(c) or any successor thereto,
do not exceed the amount described in Code Section 402(g)(1)(B). The foregoing lump sum payment
shall be made automatically and any other distribution elections otherwise applicable with respect
to the individual in the absence of this provision shall not apply.
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ARTICLE VII
ADMINISTRATION
7.1
Administrator
. The Plan shall be administered by the Administrator, which shall
be the Corporations Board of Directors. The Administrator shall have all authority that may be
appropriate for administering the Plan, including the authority to adopt rules and regulations for
the conduct of its affairs and for implementing, amending and carrying out the Plan, interpreting
the provisions of the Plan and determining a Participants entitlement to benefits hereunder. The
Administrator shall be entitled to rely upon the Corporations records as to information pertinent
to calculations or determinations made pursuant to the Plan.
The Administrator may also delegate any of its clerical or other administrative duties to one
or more officers or employees of the Corporation, who may assist the Administrator in the
performance of any of its functions hereunder. In the event of such delegation, a reference to the
Administrator shall be deemed to refer to such officer(s) or employee(s).
7.2
Authority of Administrator
. The Administrator shall have full and complete
discretionary authority to determine eligibility for benefits under the Plan, to construe the terms
of the Plan and to decide any matter presented through the claims procedure. Any final
determination by the Administrator shall be binding on all parties and afforded the maximum
deference allowed by law. If challenged in court, such determination shall not be subject to
de novo
review and shall not be overturned unless proven to be arbitrary and capricious
based upon the evidence considered by the Administrator at the time of such determination.
7.3
Administrator Actions
. The Administrator may authorize one or more of its members
to execute on its behalf instructions or directions to any interested party, and any such
interested party may rely upon the information contained therein. The members may also act at a
meeting or by unanimous written consent. A majority of the members shall constitute a quorum for
the transaction of business and shall have full power to act hereunder. All decisions shall be
made by vote of the majority present at any meeting at which a quorum is present, except for
actions in writing without a meeting, which must be unanimous.
7.4
Minor or Incompetent Payees
. If a person to whom a benefit is payable is a minor
or is otherwise incompetent by reason of a physical or mental disability, the Corporation may cause
the payments due to such person to be made to another person for the first persons benefit without
any responsibility to see to the application of such payment. Such payments shall operate as a
complete discharge of the obligations to such person under the Plan.
7.5
No Liability
. Except as otherwise provided by law, neither the Administrator, nor
any member thereof, nor any director, officer or employee of the Corporation involved in the
administration of the Plan shall be liable for any error of judgment, action or failure to act
hereunder or for any good faith exercise of discretion, excepting only liability for gross
negligence or willful misconduct. The Corporation shall hold harmless and defend any individual in
the employment of the Corporation and any director of the Corporation against any claim, action or
liability asserted against him in connection with any action or failure to act regarding the Plan,
except as and to the extent that any such liability may be based upon the individuals own gross
negligence or willful misconduct. This indemnification shall not duplicate but may supplement any
coverage available under any applicable insurance.
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7.6
Claims Procedure
.
(a) If the Participant or the Participants Beneficiary (hereinafter referred to as a
Claimant) is denied all or a portion of an expected benefit under the Plan for any reason,
he or she may file a claim with the Administrator or its designee. The Administrator or its
designee shall notify the Claimant within 60 days of allowance or denial of the claim,
unless the Claimant receives written notice prior to the end of the sixty (60) day period
stating that special circumstances require an extension of the time for decision and
specifying the expected date of decision. The notice of the such decision shall be in
writing, sent by mail to the Claimants last known address, and if a denial of the claim,
must contain the following information:
(i) the specific reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan on which the denial
is based;
(iii) if applicable, a description of any additional information or material
necessary to perfect the claim, an explanation of why such information or material
is necessary, and an explanation of the claims review procedure; and
(iv) a description of the Plans claims review procedure, including a statement
of the Claimants right to bring a civil action under Section 502 of ERISA if the
Claimants claim is denied upon review.
(b) A Claimant is entitled to request a review of any denial of his claim. The request
for review must be submitted in writing to the Administrator within 60 days after receipt of
the notice of the denial. The timely filing of such a request is necessary to preserve any
legal recourse which may be available to the Claimant and, absent the submission of request
for review within the 60-day period, the claim will be deemed to be conclusively denied.
Upon submission of a written request for review, the Claimant or his representative shall be
entitled to review all pertinent documents, and to submit issues and comments in writing for
consideration by the Administrator. The Administrator shall fully and fairly review the
matter and shall consider all information submitted in the review request, without regard to
whether or not such information was submitted or considered in the initial claim
determination. The Administrator shall promptly respond to the Claimant, in writing, of its
decision within 60 days after receipt of the review request. However, due to special
circumstances, if no response has been provided within the first 60 days, and notice of the
need for additional time has been furnished within such period, the review and response may
be made within the following 60 days. The Administrators decision shall include specific
reasons for the decision, including references to the particular Plan provisions upon which
the decision is based, notification that the Claimant can receive or review copies of all
documents, records and information relevant to the claim, and information as to the
Claimants right to file suit under Section 502(a) of ERISA.
(c) If a determination of disability for purposes of Section 6.1(b) or 6.2 becomes
necessary and if such determination is considered to be with respect to a claim for benefits
based on disability for purposes of 29 CFR Section 2560.503-1, then the Administrator shall
adopt and administer a special procedure for considering such disability claims meeting the
requirements of 29 CFR Section 2560.503-1 for disability benefit claims.
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7.7
Conflict of Interest
. No person who is covered under the Plan may vote or decide
upon any matter relating solely to himself or vote in any case in which his individual right to any
benefit under
the Plan is particularly involved. Decisions shall be made by remaining members of the
Corporations Board of Directors.
ARTICLE VIII
MISCELLANEOUS
8.1
Amendment or Termination
. The Corporation (through its Board of Directors or
authorized officers or employees) reserves the right to alter or amend the Plan, or any part
thereof, in such manner as it may determine, at any time and for any reason. Further, the Board of
Directors of the Corporation reserves the right to terminate the Plan, at any time and for any
reason. Notwithstanding the foregoing, in no event shall any amendment or termination deprive any
Participant or Beneficiary of any amounts credited to him under this Plan as of the date of such
amendment or termination; provided, however, that the Corporation may prospectively change the
manner in which earnings are credited or discontinue the crediting of earnings and, further, the
Corporation may make any amendment it deems necessary or desirable for purposes of compliance with
the requirements of Code Section 409A and regulations thereunder.
If the Plan is amended to freeze benefit accruals, no additional contributions shall be
credited to any Participant Account hereunder. Following such a freeze of benefit accruals,
Participants Accounts shall be paid at such time and in such form as provided under Article VI of
the Plan. If the Corporation terminates the Plan and if the termination is of the type described
in regulations issued by the Internal Revenue Service pursuant to Code Section 409A, then the
Corporation shall distribute the then existing Account balances of Participants and beneficiaries
in a lump sum within the time period specified in such regulations and, following such
distribution, there shall be no further obligation to any Participant or beneficiary under this
Plan. However, if the termination is not of the type described in such regulations, then following
Plan termination Participants Accounts shall be paid at such time and in such form as provided
under Article VI of the plan.
8.2
Applicable Law
. This Plan shall be governed by the laws of the State of
Wisconsin, except to the extent preempted by the provisions of ERISA or other applicable federal
law.
8.3
Relationship to Other Programs
. Participation in the Plan shall not affect a
Participants rights to participate in and receive benefits under any other plans of the
Corporation, nor shall it affect the Participants rights under any other agreement entered into
with the Corporation, unless expressly provided otherwise by such plan or agreement. Any amount
credited under or paid pursuant to this Plan shall not be treated as any type of compensation or
otherwise taken into account in the determination of the Participants benefits under any other
plans of the Corporation, unless expressly provided otherwise by such plan.
8.4
Non-Assignability by Participant
. No Participant or Beneficiary shall have any
right to commute, sell, assign, pledge, convey, or otherwise transfer any rights or claims to
receive benefits hereunder, nor shall such rights or claims be subject to garnishment, attachment,
execution or levy of any kind except to the extent otherwise required by law.
8.5
No Right to Continued Service
. Neither participation in this Plan, nor the
payment of any benefit hereunder, shall be construed as giving to a Participant any right to be
retained in the service of the Corporation, or limiting in any way the right of the Corporation to
terminate the Participants service at any time.
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8.6
Assignability by Corporation
. The Corporation shall have the right to assign all
of its right, title and obligation in and under this Plan upon a merger or consolidation in which
the Corporation is not the surviving entity or to the purchaser of substantially its entire
business or assets or the business or assets pertaining to a major product line, provided such
assignee or purchaser assumes and agrees to perform after the effective date of such assignment all
of the terms, conditions and provisions imposed by this Plan upon the Corporation. Upon such
assignment, all of the rights, as well as all obligations, of the Corporation under this Plan shall
thereupon cease and terminate.
8.7
Unsecured Claim; Grantor Trust
. The right of a Participant to receive payment
hereunder shall be an unsecured claim against the general assets of the Corporation, and no
provisions contained herein, nor any action taken hereunder shall be construed to give any
individual at any time a security interest in any asset of the Corporation, of any affiliated
corporation, or of the stockholders of the Corporation. The liabilities of the Corporation to a
Participant hereunder shall be those of a debtor pursuant to such contractual obligations as are
created hereunder and to the extent any person acquires a right to receive payment from the
Corporation hereunder, such right shall be no greater than the right of any unsecured general
creditor of the Corporation. The Corporation may establish a grantor trust (but shall not be
required to do so) to which the Corporation may in its discretion contribute (subject to the claims
of the general creditors of the Corporation) the amounts credited to the Account. If a grantor
trust is so established, payment by the trust of the amounts due the Participant or his Beneficiary
hereunder shall be considered a payment by the Corporation for purposes of this Plan.
8.8
Notices or Filings
. Any notice or filing required or permitted to be given to the
Administrator hereunder shall be sufficient if in writing and hand-delivered, or sent by registered
or certified mail, to the address below:
Corporate Treasurer
Brady Corporation
P.O. Box 571
Milwaukee, WI 53201-0571
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail,
as of the date shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant hereunder shall be
sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the
Participant.
8.9
Special rules for 2005-2007
. Notwithstanding the usual rules required regarding
the deferral elections and distribution elections:
(a) A Participant may on or before March 15, 2005 make a new deferral election to apply
to amounts which would otherwise be paid in calendar year 2005; provided that such amounts
have not been paid or became payable at the time of the election. Such election shall
remain in effect for future years until modified pursuant to Section 3.2.
(b) On or before December 31, 2007, a Participant may elect an In-Service Payment Event
Date and/or make an election as to distribution of his Account from among the choices
described at Section 6.1 hereof without complying with the rules described in Section 6.2
hereof as long as the effect of the election is not to accelerate payments into 2006 or to
defer payments which would otherwise have been made in 2006 and not to accelerate payments
into 2007 or to defer payments which would otherwise have been made in 2007. Such election
shall become effective after the last day upon which it is permitted to be made or, if
earlier, the first day of the calendar year in which payments under the election are
scheduled to commence. In order to change any such election after December 31, 2007, the
requirements of Section 6.2 hereof must
be satisfied. Any individual who has on or before December 31, 2006 elected an
In-Service Payment Event Date of January 1, 2007 and a Distribution Date of April 1, may on
or before December 31, 2007 elect to change the Distribution Date to be applicable in
calendar year 2008 and subsequent years from April 1 to January 1.
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IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this
Plan document on its behalf as of the 17th day of February, 2011, to replace any prior version of
this Plan previously adopted by the Corporation.
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BRADY CORPORATION
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By:
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/s/ Frank M. Jaehnert
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Attest:
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/s/ Thomas J. Felmer
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