NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
April 30, 2013
(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," "Brady," "we," or "our") 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, 2013
and
July 31, 2012
, and its results of operations, comprehensive income, and cash flows for the three and
nine months ended April 30, 2013
and
2012
. The condensed consolidated balance sheet as of
July 31, 2012
, 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 condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by 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 Company’s latest annual report on Form 10-K for the year ended
July 31, 2012
.
During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. As a result, the assets and liabilities of the business were presented in accordance with the authoritative literature on assets held for sale in the condensed consolidated balance sheet as of April 30, 2013. The results of operations of the Company's Die-Cut Asia business have been reported as discontinued operations within the condensed consolidated statements of earnings for all periods presented. In accordance with the authoritative literature, the Company has elected to not separately disclose the cash flows related to the Die-Cut Asia discontinued operations. Refer to Note N, "Discontinued Operations" for further discussion regarding the business.
NOTE B — Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the
nine months ended April 30, 2013
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
EMEA
|
|
Asia-Pacific
|
|
Total
|
Balance as of July 31, 2012
|
$
|
417,886
|
|
|
$
|
174,868
|
|
|
$
|
84,037
|
|
|
$
|
676,791
|
|
Current year acquisitions
|
189,187
|
|
|
—
|
|
|
—
|
|
|
189,187
|
|
Current year divestitures
|
(2,882
|
)
|
|
—
|
|
|
—
|
|
|
(2,882
|
)
|
Reclassification to assets held for sale
|
—
|
|
|
—
|
|
|
(29,673
|
)
|
|
(29,673
|
)
|
Translation adjustments
|
408
|
|
|
6,848
|
|
|
770
|
|
|
8,026
|
|
Balance as of April 30, 2013
|
$
|
604,599
|
|
|
$
|
181,716
|
|
|
$
|
55,134
|
|
|
$
|
841,449
|
|
Goodwill increased $
164,658
during the
nine months ended April 30, 2013
. Of the $
164,658
increase, $
189,187
was due to the acquisition of Precision Dynamics Corporation ("PDC"), and
$8,026
was due to the positive effects of foreign currency translation. These increases were partially offset by the divestitures of the Precision Converting, LLC (“Brady Medical”) and the Varitronics businesses during the first quarter of fiscal 2013, which decreased goodwill by
$863
and
$2,019
, respectively. In addition, the assets and liabilities of the Die-Cut Asia business are classified as held for sale as of April 30, 2013, which resulted in a decrease of $
29,673
for the goodwill balance associated with the disposal group. Refer to Note K, “Acquisitions and Divestitures” and Note N, "Discontinued Operations" for further discussion.
Other intangible assets include patents, trademarks, customer relationships, non-compete agreements and other intangible assets with finite lives being amortized in accordance with the accounting guidance for other intangible assets. The net book value of these assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
July 31, 2012
|
|
Weighted
Average
Amortization
Period
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Weighted
Average
Amortization
Period
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Amortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
5
|
|
$
|
10,818
|
|
|
$
|
(9,481
|
)
|
|
$
|
1,337
|
|
|
5
|
|
$
|
10,418
|
|
|
$
|
(9,058
|
)
|
|
$
|
1,360
|
|
Trademarks and other
|
5
|
|
15,283
|
|
|
(7,765
|
)
|
|
7,518
|
|
|
7
|
|
8,945
|
|
|
(7,094
|
)
|
|
1,851
|
|
Customer relationships
|
8
|
|
264,501
|
|
|
(141,102
|
)
|
|
123,399
|
|
|
7
|
|
164,392
|
|
|
(128,805
|
)
|
|
35,587
|
|
Non-compete agreements and other
|
4
|
|
15,681
|
|
|
(15,285
|
)
|
|
396
|
|
|
4
|
|
15,988
|
|
|
(15,417
|
)
|
|
571
|
|
Unamortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
N/A
|
|
41,933
|
|
|
—
|
|
|
41,933
|
|
|
N/A
|
|
44,750
|
|
|
—
|
|
|
44,750
|
|
Total
|
|
|
$
|
348,216
|
|
|
$
|
(173,633
|
)
|
|
$
|
174,583
|
|
|
|
|
$
|
244,493
|
|
|
$
|
(160,374
|
)
|
|
$
|
84,119
|
|
The value of goodwill and other intangible assets in the condensed consolidated balance sheets at
April 30, 2013
, differs from the value assigned to them in the original allocation of purchase price due to the effect of fluctuations in the exchange rates used to translate the financial statements into the United States Dollar between the date of acquisition and
April 30, 2013
. The acquisition of PDC increased customer relationships and amortized trademarks by
$102,500
and
$6,800
, respectively.
Amortization expense on intangible assets was $
6,597
and $
3,944
for the three months ended
April 30, 2013
and
2012
, respectively, and $
15,759
and $
12,102
for the nine months ended
April 30, 2013
and
2012
, respectively. The amortization over each of the next five fiscal years is projected to be $
19,934
, $
19,134
, $
16,934
, $
13,608
and
12,241
for the fiscal years ending July 31,
2014
,
2015
,
2016
,
2017
and
2018
, respectively.
NOTE C — Net Earnings per Common Share
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine months ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Numerator: (in thousands)
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
$
|
21,838
|
|
|
$
|
28,039
|
|
|
$
|
37,669
|
|
|
$
|
84,328
|
|
Less:
|
|
|
|
|
|
|
|
Restricted stock dividends
|
(60
|
)
|
|
(57
|
)
|
|
(179
|
)
|
|
(172
|
)
|
Numerator for basic and diluted earnings from continuing operations per Class A Nonvoting Common Share
|
$
|
21,778
|
|
|
$
|
27,982
|
|
|
$
|
37,490
|
|
|
$
|
84,156
|
|
Less:
|
|
|
|
|
|
|
|
Preferential dividends
|
—
|
|
|
—
|
|
|
(797
|
)
|
|
(818
|
)
|
Preferential dividends on dilutive stock options
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Numerator for basic and diluted earnings from continuing operations per Class B Voting Common Share
|
$
|
21,778
|
|
|
$
|
27,982
|
|
|
$
|
36,688
|
|
|
$
|
83,333
|
|
Denominator: (in thousands)
|
|
|
|
|
|
|
|
Denominator for basic earnings from continuing operations per share for both Class A and Class B
|
51,415
|
|
|
52,513
|
|
|
51,210
|
|
|
52,539
|
|
Plus: Effect of dilutive stock options
|
626
|
|
|
490
|
|
|
475
|
|
|
407
|
|
Denominator for diluted earnings from continuing operations per share for both Class A and Class B
|
52,041
|
|
|
53,003
|
|
|
51,685
|
|
|
52,946
|
|
Earnings from continuing operations per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.42
|
|
|
$
|
0.53
|
|
|
$
|
0.73
|
|
|
$
|
1.60
|
|
Diluted
|
$
|
0.42
|
|
|
$
|
0.53
|
|
|
$
|
0.73
|
|
|
$
|
1.59
|
|
Earnings from continuing operations per Class B Voting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.42
|
|
|
$
|
0.53
|
|
|
$
|
0.72
|
|
|
$
|
1.59
|
|
Diluted
|
$
|
0.42
|
|
|
$
|
0.53
|
|
|
$
|
0.71
|
|
|
$
|
1.57
|
|
(Loss) from discontinued operations per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.34
|
)
|
|
$
|
—
|
|
|
$
|
(0.29
|
)
|
|
$
|
(2.17
|
)
|
Diluted
|
$
|
(0.34
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(2.16
|
)
|
(Loss) from discontinued operations per Class B Voting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.34
|
)
|
|
$
|
—
|
|
|
$
|
(0.30
|
)
|
|
$
|
(2.17
|
)
|
Diluted
|
$
|
(0.34
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(2.15
|
)
|
Net earnings (loss) per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.08
|
|
|
$
|
0.53
|
|
|
$
|
0.44
|
|
|
$
|
(0.57
|
)
|
Diluted
|
$
|
0.08
|
|
|
$
|
0.52
|
|
|
$
|
0.44
|
|
|
$
|
(0.57
|
)
|
Net earnings (loss) per Class B Voting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.08
|
|
|
$
|
0.53
|
|
|
$
|
0.42
|
|
|
$
|
(0.58
|
)
|
Diluted
|
$
|
0.08
|
|
|
$
|
0.52
|
|
|
$
|
0.42
|
|
|
$
|
(0.58
|
)
|
Options to purchase approximately
2,591,000
and
3,182,000
shares of Class A Nonvoting Common Stock for the three months ended
April 30, 2013
and
2012
, respectively, were not included in the computation of diluted net earnings per share because the impact of the inclusion of the options would have been anti-dilutive. Options to purchase approximately
3,560,000
and
4,013,000
shares of Class A Nonvoting Common Stock for the
nine months ended April 30, 2013
and
2012
, respectively, were not included in the computation of diluted net earnings (loss) per share as the impact of the inclusion of the options would have been anti-dilutive.
NOTE D — Segment Information
The Company evaluates short-term segment performance based on segment profit or loss and customer sales. Segment profit or loss does not include certain administrative costs, such as the cost of finance, information technology, human resources, and
executive leadership, which are managed as global functions. Restructuring charges, impairment charges, equity compensation costs, interest expense, investment and other income (expense) and income taxes are also excluded when evaluating segment performance. Intersegment sales and transfers are recorded at cost plus a standard percentage markup.
Through April 30, 2013, the Company is organized and managed on a geographic basis by region. Each of these regions, Americas, EMEA and Asia-Pacific, has a President that reports directly to the Company’s 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. Effective May 1, 2013, the Company will reorganize into two global product-based business platforms: Identification Solutions and Workplace Safety, which is known as Direct Marketing through the quarter ended April 30, 2013.
Following is a summary of segment information for the three and
nine months ended April 30, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
EMEA
|
|
Asia-Pacific
|
|
Total Region
|
|
Corporate
and
Eliminations
|
|
Totals
|
Three months ended April 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
178,559
|
|
|
$
|
94,044
|
|
|
$
|
33,134
|
|
|
$
|
305,737
|
|
|
$
|
—
|
|
|
$
|
305,737
|
|
Segment profit
|
42,942
|
|
|
22,993
|
|
|
5,485
|
|
|
71,420
|
|
|
(1,282
|
)
|
|
70,138
|
|
Three months ended April 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
143,083
|
|
|
$
|
94,136
|
|
|
$
|
38,169
|
|
|
$
|
275,388
|
|
|
$
|
—
|
|
|
$
|
275,388
|
|
Segment profit
|
39,181
|
|
|
25,566
|
|
|
6,080
|
|
|
70,827
|
|
|
(388
|
)
|
|
70,439
|
|
Nine months ended April 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
470,418
|
|
|
$
|
279,420
|
|
|
$
|
106,570
|
|
|
$
|
856,408
|
|
|
$
|
—
|
|
|
$
|
856,408
|
|
Segment profit
|
119,179
|
|
|
70,568
|
|
|
15,793
|
|
|
205,540
|
|
|
(5,049
|
)
|
|
200,491
|
|
Nine months ended April 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
419,862
|
|
|
$
|
279,506
|
|
|
$
|
114,205
|
|
|
$
|
813,573
|
|
|
$
|
—
|
|
|
$
|
813,573
|
|
Segment profit
|
118,871
|
|
|
78,432
|
|
|
18,411
|
|
|
215,714
|
|
|
(6,010
|
)
|
|
209,704
|
|
Following is a reconciliation of segment profit to net earnings (loss) for the three and
nine months ended April 30, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine Months Ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Total profit from reportable segments
|
$
|
71,420
|
|
|
$
|
70,827
|
|
|
$
|
205,540
|
|
|
$
|
215,714
|
|
Corporate and eliminations
|
(1,282
|
)
|
|
(388
|
)
|
|
(5,049
|
)
|
|
(6,010
|
)
|
Unallocated amounts:
|
|
|
|
|
|
|
|
Administrative costs
|
(30,642
|
)
|
|
(25,506
|
)
|
|
(94,042
|
)
|
|
(82,636
|
)
|
Restructuring charges
|
(8,540
|
)
|
|
(1,977
|
)
|
|
(10,487
|
)
|
|
(1,977
|
)
|
Investment and other income
|
1,131
|
|
|
1,108
|
|
|
2,427
|
|
|
1,719
|
|
Interest expense
|
(4,185
|
)
|
|
(4,735
|
)
|
|
(12,755
|
)
|
|
(14,715
|
)
|
Earnings from continuing operations before income taxes
|
27,902
|
|
|
39,329
|
|
|
85,634
|
|
|
112,095
|
|
Income taxes
|
(6,064
|
)
|
|
(11,290
|
)
|
|
(47,965
|
)
|
|
(27,767
|
)
|
Earnings from continuing operations
|
21,838
|
|
|
28,039
|
|
|
37,669
|
|
|
84,328
|
|
(Loss) from discontinued operations, net of income taxes
|
(17,605
|
)
|
|
(387
|
)
|
|
(14,933
|
)
|
|
(113,898
|
)
|
Net earnings (loss)
|
$
|
4,233
|
|
|
$
|
27,652
|
|
|
$
|
22,736
|
|
|
$
|
(29,570
|
)
|
Following is a summary of sales by business platform for the three and
nine months ended April 30, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine Months Ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Identification Solutions
|
$
|
212,799
|
|
|
$
|
180,414
|
|
|
$
|
576,233
|
|
|
$
|
531,188
|
|
Direct Marketing
|
88,004
|
|
|
90,528
|
|
|
266,109
|
|
|
267,785
|
|
Die-Cut
|
4,934
|
|
|
4,446
|
|
|
14,066
|
|
|
14,600
|
|
Total
|
$
|
305,737
|
|
|
$
|
275,388
|
|
|
$
|
856,408
|
|
|
$
|
813,573
|
|
NOTE E – 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 and non-employee directors. The 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. Options issued under the plan, referred to herein as “service-based” 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” options. Performance-based stock options expire
10 years
from the date of grant.
Restricted shares issued under the plan have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 were amended in fiscal 2011 to allow for vesting after either a
five
-year period or a
seven
-year period based upon both performance and service conditions. The restricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. These shares are referred to herein as “performance-based restricted shares.” Restricted shares granted in fiscal 2013 vest at the end of a
three
-year period based upon service conditions. These shares are referred to herein as “cliff-vested restricted shares.”
The Company also grants restricted stock units to certain executives and key management employees that vest upon meeting certain financial performance conditions over a specified vesting period, referred to herein as “performance-based restricted stock units.” The performance-based restricted stock units granted in fiscal 2013 vest over a
two
-year period upon meeting both performance and service conditions.
As of
April 30, 2013
, the Company has reserved
6,205,350
shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and
4,198,516
shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the active 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-based compensation expense recognized by the Company during the
three months ended April 30, 2013
and
2012
, was
$155
(
$94
net of taxes) and
$2,102
(
$1,282
net of taxes), respectively, and expense recognized during the
nine months ended April 30, 2013
and
2012
was
$6,964
(
$4,248
net of taxes), and
$7,592
(
$4,631
net of taxes), respectively. The decrease in stock-based compensation expense in the quarter ended April 30, 2013 was due to a reversal of
$2,186
. The reversal consisted of
$1,286
of stock-based compensation expense on performance-based stock options that will not meet the financial performance conditions, and
$900
of stock compensation expense on performance-based restricted shares for which the original service conditions will not be met.
As of
April 30, 2013
, total unrecognized compensation cost related to share-based compensation awards was
$11,484
pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of
1.7 years
.
The Company has estimated the fair value of its service-based and performance-based stock option awards granted during the
nine months ended April 30, 2013
and
2012
, 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 April 30, 2013
|
|
Nine months ended April 30, 2012
|
|
|
Service-Based
|
|
Performance-
Based
|
|
Service-Based
|
|
Performance-
Based
|
Black-Scholes Option Valuation Assumptions
|
|
Option Awards
|
|
Option Awards
|
|
Option Awards
|
|
Option Awards
|
Expected term (in years)
|
|
5.94
|
|
|
—
|
|
|
5.89
|
|
|
6.57
|
|
Expected volatility
|
|
38.68
|
%
|
|
—
|
|
|
39.41
|
%
|
|
39.21
|
%
|
Expected dividend yield
|
|
2.21
|
%
|
|
—
|
|
|
2.07
|
%
|
|
1.99
|
%
|
Risk-free interest rate
|
|
0.90
|
%
|
|
—
|
|
|
1.16
|
%
|
|
2.05
|
%
|
Weighted-average market value of underlying stock at grant date
|
|
$
|
30.54
|
|
|
$
|
—
|
|
|
$
|
27.05
|
|
|
$
|
29.55
|
|
Weighted-average exercise price
|
|
$
|
30.54
|
|
|
$
|
—
|
|
|
$
|
27.05
|
|
|
$
|
29.55
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
9.05
|
|
|
$
|
—
|
|
|
$
|
8.42
|
|
|
$
|
10.01
|
|
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 Company’s stock. The expected dividend yield is based on the Company’s 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 calculated as the average of the high and the low stock price on the date of the grant.
The Company granted
5,000
cliff-vested restricted shares in December 2012, with a grant price and fair value of
$32.99
. The Company granted
10,000
shares of performance-based restricted stock units in September 2012, with a grant price and fair value of
$30.21
. The Company granted
100,000
shares of performance-based restricted stock in August of 2010, with a grant price and fair value of
$28.35
, and
210,000
shares in fiscal 2008, with a grant price and fair value of
$32.83
. As of
April 30, 2013
,
5,000
cliff-vested restricted shares were outstanding,
10,000
performance-based restricted stock units were outstanding and
310,000
performance-based restricted shares were outstanding.
The Company granted
815,450
service-based stock options during the
nine months ended April 30, 2013
, with a weighted average exercise price of
$30.54
and a weighted average fair value of
$9.05
. There were no performance-based stock options granted during the
nine months ended April 30, 2013
.
A summary of stock option activity under the Company’s share-based compensation plans for the
nine months ended April 30, 2013
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding at July 31, 2012
|
|
6,253,751
|
|
$
|
29.24
|
|
|
|
|
|
New grants
|
|
815,450
|
|
$
|
30.54
|
|
|
|
|
|
Exercised
|
|
(642,579)
|
|
$
|
21.22
|
|
|
|
|
|
Forfeited or expired
|
|
(519,272)
|
|
$
|
30.52
|
|
|
|
|
|
Outstanding at April 30, 2013
|
|
5,907,350
|
|
$
|
30.18
|
|
|
6.5
|
|
$
|
25,094
|
|
Exercisable at April 30, 2013
|
|
3,736,320
|
|
$
|
30.70
|
|
|
4.9
|
|
$
|
15,728
|
|
There were
3,736,320
and
3,848,048
options exercisable with a weighted average exercise price of
$30.70
and
$29.67
at
April 30, 2013
and
2012
, respectively. The cash received from the exercise of options during the
three months ended April 30, 2013
and
2012
, was
$5,837
and
$1,441
, respectively. The cash received from the exercise of options during the
nine months ended April 30, 2013
and
2012
, was
$10,246
and
$3,624
, respectively. The tax benefit on stock options exercised during the
three months ended April 30, 2013
and
2012
, was
$495
and
$166
, respectively. The tax benefit on stock options exercised during the
nine months ended April 30, 2013
and
2012
, was
$1,760
and
$761
, respectively.
The total intrinsic value of options exercised during the
nine months ended April 30, 2013
and
2012
, based upon the average market price at the time of exercise during the period, was
$7,360
and
$2,987
, respectively. The total fair value of stock options vested during the
nine months ended April 30, 2013
and
2012
, was
$10,860
and
$8,035
, respectively.
NOTE F — Stockholders’ Equity
On September 9, 2011, the Company’s Board of Directors authorized a share repurchase program for up to
two million
shares of the Company’s Class A Nonvoting Common Stock. The plan may be implemented by purchasing shares in the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company’s stock-based plans and for other corporate purposes. As of July 31, 2012, there remained
334,940
shares to purchase in connection with this share repurchase plan.
On September 6, 2012, the Company’s Board of Directors authorized an additional share repurchase program for up to
two million
additional shares of the Company’s Class A Nonvoting Common Stock. During the nine months ended April 30, 2013, the Company purchased
188,167
shares of its Class A Nonvoting Common Stock for $
5,121
. As of April 30, 2013, there remained 2,146,773 shares to purchase in connection with these plans.
NOTE G — Employee Benefit Plans
The Company provides postretirement medical 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 employee’s 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 2013 from those reported in Note 3 to the consolidated financial statements included in the Company’s latest annual report on Form 10-K for the year ended
July 31, 2012
.
NOTE H — Fair Value Measurements
In accordance with fair value accounting guidance, the Company’s 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, our financial assets and liabilities that were accounted for at fair value on a recurring basis at
April 30, 2013
, and
July 31, 2012
, according to the valuation techniques the Company used to determine their fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inputs
Considered As
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical
Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Fair Values
|
|
Balance Sheet Classifications
|
April 30, 2013
|
|
|
|
|
|
|
|
Trading securities
|
$
|
14,614
|
|
|
$
|
—
|
|
|
$
|
14,614
|
|
|
Other assets
|
Foreign exchange contracts
|
—
|
|
|
1,242
|
|
|
1,242
|
|
|
Prepaid expenses and other current assets
|
Total Assets
|
$
|
14,614
|
|
|
$
|
1,242
|
|
|
$
|
15,856
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
438
|
|
|
$
|
438
|
|
|
Other current liabilities
|
Foreign currency denominated debt
|
—
|
|
|
108,001
|
|
|
108,001
|
|
|
Long term obligations, less current maturities
|
Total Liabilities
|
$
|
—
|
|
|
$
|
108,439
|
|
|
$
|
108,439
|
|
|
|
July 31, 2012
|
|
|
|
|
|
|
|
Trading securities
|
$
|
12,676
|
|
|
$
|
—
|
|
|
$
|
12,676
|
|
|
Other assets
|
Foreign exchange contracts
|
—
|
|
|
1,234
|
|
|
1,234
|
|
|
Prepaid expenses and other current assets
|
Total Assets
|
$
|
12,676
|
|
|
$
|
1,234
|
|
|
$
|
13,910
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
281
|
|
|
$
|
281
|
|
|
Other current liabilities
|
Foreign currency denominated debt
|
—
|
|
|
99,081
|
|
|
99,081
|
|
|
Long term obligations, less current maturities
|
Total Liabilities
|
$
|
—
|
|
|
$
|
99,362
|
|
|
$
|
99,362
|
|
|
|
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Trading securities:
The Company’s 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 us to obtain pricing information on an ongoing basis.
Foreign exchange contracts:
The Company’s foreign 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 exchange rates. See Note J, “Derivatives and Hedging Activities” for additional information.
Foreign currency denominated debt:
The Company’s 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 J, “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 three or
nine months ended April 30, 2013
and
2012
. In addition, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the three and
nine months ended April 30, 2013
.
During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. As such, the assets and liabilities of the Die-Cut Asia disposal group were recorded at approximate fair value less cost to sell and classified as "Assets held for sale" and "Liabilities held for sale." This resulted in a loss on the write-down of the disposal group of $15,658 recorded within discontinued operations for the three and nine months ended April 30, 2013. Fair value was determined utilizing a combination of external market factors, internal projections, and other relevant Level 3 measurements.
During the three months ended January 31, 2012, goodwill with a carrying amount of
$163,702
in the former North/South Asia reporting unit was written down to its estimated implied fair value of
$48,014
, resulting in a non-cash impairment charge of
$115,688
. In order to arrive at the implied fair value of goodwill, the Company assigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Intangible assets consisted of customer lists, and were valued using the income approach based upon customers in existence at the valuation date. After assigning fair value to the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of
$48,014
, which represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to its original recognition.
The Company’s financial instruments, other than those presented in the disclosures above, include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term and long-term debt. The fair values of cash and cash equivalents, accounts receivable, notes payable, accounts payable, and accrued liabilities approximated carrying values because of the short-term nature of these instruments.
The estimated fair value of the Company’s short-term and long-term debt obligations, including notes payable, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities, was $
359,427
and $
338,668
at
April 30, 2013
and
July 31, 2012
, respectively, as compared to the carrying value of $
338,301
and $
316,208
at
April 30, 2013
and
July 31, 2012
, respectively.
The Company drew down on its revolving loan agreement during the
nine months ended April 30, 2013
, in order to fund the acquisition of PDC. There was
$47,000
outstanding on the revolving loan agreement at
April 30, 2013
. In addition, the Company entered into a USD-denominated line of credit facility with Bank of America in China in the amount of $
26,200
, of which
$11,658
was drawn during the three months ended April 30, 2013, in order to fund working capital and operations for the Company's Chinese entities. These outstanding balances are classified as "Notes Payable" in the amount of
$58,658
on the condensed consolidated balance sheets, and the fair value approximates carrying value due to the short-term nature of the instruments.
NOTE I — Restructuring
During the three months ended April 30, 2013, the Company announced a restructuring action to reduce approximately
5-7%
of its global workforce in order to address its cost structure. In connection with this restructuring action, the Company incurred restructuring charges of $
8,540
and $
10,487
in continuing operations during the three and nine months ended April 30, 2013, respectively. Of the $
10,487
recognized in continuing operations during the nine months ended April 30, 2013, $
1,947
was incurred during the second quarter ended January 31, 2013, and related primarily to restructuring costs incurred as part of the acquisition of PDC.
The three months restructuring charges of $
8,540
consisted of $
2,863
of employee separation costs, $
3,423
of long-lived asset write-offs, and $
2,254
of other facility closure related costs. Of the $
8,540
of restructuring charges recorded during the quarter, $
5,067
was incurred in the Americas and $
3,473
was incurred in EMEA.
The year-to-date restructuring charges of $
10,487
consisted of $
4,829
of employee separation costs, $
3,423
of long-lived asset write-offs, and
$2,235
of other facility closure related costs. Of the $
10,487
of restructuring charges recorded during fiscal 2013,
$6,534
was incurred in the Americas, $
3,816
was incurred in EMEA, and $
137
was incurred in Asia-Pacific. The Company expects to incur approximately an additional
$13-$16 million
in restructuring in the fourth quarter of fiscal 2013 associated with this plan, which includes tradename write-offs in conjunction with brand consolidation. The charges for employee separation costs consisted of severance pay, outplacement services, medical and other benefits. The costs related to these restructuring activities were recorded on the condensed consolidated statements of earnings as restructuring charges. The Company expects the majority of the remaining cash payments to be made during the next twelve months.
During the three months ended April 30, 2012, the Company took various measures to address its cost structure in response to weaker sales forecasts across the Company. As a result of these actions, the Company recorded restructuring charges of $
1,977
, which consisted of $
1,006
of employee separation costs, $
458
of fixed asset write-offs, and $
513
of other facility closure related costs. Of the $
1,977
of restructuring charges recorded during the three months ended April 30, 2012, $
1,709
was incurred in the Americas, $
258
was incurred in EMEA, and $
10
was incurred in Asia-Pacific.
A reconciliation of the Company’s restructuring liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Related
|
|
Asset Write-offs
|
|
Other
|
|
Total
|
Beginning balance, July 31, 2012
|
$
|
8,809
|
|
|
$
|
—
|
|
|
$
|
265
|
|
|
$
|
9,074
|
|
Restructuring charges in continuing operations
|
4,829
|
|
|
3,423
|
|
|
2,235
|
|
|
10,487
|
|
Restructuring charges in discontinued operations
|
1,337
|
|
|
283
|
|
|
1,344
|
|
|
2,964
|
|
Non-cash write-offs
|
—
|
|
|
(3,706
|
)
|
|
—
|
|
|
(3,706
|
)
|
Cash payments
|
(10,239
|
)
|
|
—
|
|
|
(1,946
|
)
|
|
(12,185
|
)
|
Ending balance, April 30, 2013
|
$
|
4,736
|
|
|
$
|
—
|
|
|
$
|
1,898
|
|
|
$
|
6,634
|
|
NOTE J — Derivatives and Hedging Activities
The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. 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 less than
18 months
, which qualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency movements due to transactions in other than the respective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s 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, 2013
and
July 31, 2012
, the notional amount of outstanding forward exchange contracts was $
170,641
and $
61,169
, respectively.
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, Malaysian Ringgit and Singapore Dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.
Hedge effectiveness is determined by how closely the changes in 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.
Cash Flow Hedges
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, 2013
, unrealized gains of
$132
have been included in OCI. As of
April 30, 2012
, unrealized gains of
$46
were included in OCI. These balances are expected to be reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings. For the three months ended
April 30, 2013
and
2012
, the Company reclassified losses of $
9
and gains
$382
from OCI into earnings, respectively. For the
nine months ended April 30, 2013
and
2012
, the Company reclassified gains of
$548
and losses of
$252
from OCI into earnings, respectively. At
April 30, 2013
and
July 31, 2012
, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $
11,632
and $
39,458
, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds and U.S. Dollars.
Net Investment Hedges
The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. At
April 30, 2013
, the Company designated £
25,036
of intercompany loans as net investment hedges to hedge portions of its net investment in British foreign operations. At
July 31, 2012
, the Company designated €
4,581
of intercompany loans as net investment hedges to hedge portions of its net investment in European foreign operations. 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 selectively hedge portions of its net investment in European foreign operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.
Additionally, the Company utilizes forward foreign exchange currency contracts designated as hedge instruments to hedge portions of the Company’s net investments in foreign operations. The net gains or losses attributable to changes in spot exchange rates are recorded in other comprehensive income. 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, 2013
and
July 31, 2012
, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $
7,399
and $
10,650
, respectively. As of
April 30, 2013
and
2012
, the Company recognized in OCI gains of $
24
and $
3,228
, respectively, on its net investment hedges.
Non-Designated Hedges
For the three and
nine months ended April 30, 2013
, the Company recognized losses of $
520
and
$478
, respectively, in “Investment and other income” on the condensed consolidated statements of earnings related to non-designated hedges. For the three and
nine months ended April 30, 2012
, the Company recognized a loss of
$227
and a gain of
$188
, respectively.
Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
April 30, 2013
|
|
July 31, 2012
|
|
April 30, 2013
|
|
July 31, 2012
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
149
|
|
|
Prepaid expenses and other current assets
|
|
$
|
1,156
|
|
|
Other current liabilities
|
|
$
|
57
|
|
|
Other current liabilities
|
|
$
|
210
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
26
|
|
|
Other current liabilities
|
|
$
|
71
|
|
Foreign currency denominated debt
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Long term obligations, less current maturities
|
|
$
|
98,228
|
|
|
Long term obligations, less current maturities
|
|
$
|
99,081
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
149
|
|
|
|
|
$
|
1,156
|
|
|
|
|
$
|
98,311
|
|
|
|
|
$
|
99,362
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
1,093
|
|
|
Prepaid expenses and other current assets
|
|
$
|
78
|
|
|
Other current liabilities
|
|
$
|
355
|
|
|
Other current liabilities
|
|
$
|
—
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
1,093
|
|
|
|
|
$
|
78
|
|
|
|
|
$
|
355
|
|
|
|
|
$
|
—
|
|
NOTE K — Acquisitions and Divestitures
In August 2012, the Company sold all of its assets of Precision Converting, LLC, doing business as Brady Medical, in Mesquite, Texas. Brady Medical specialized in manufacturing and converting die-cut products for the medical and diagnostic industry. Brady Medical had operations in the Company’s Americas segment. The Company received proceeds of
$3,378
for this business, of which
$3,018
was in cash and
$360
was in non-cash consideration. The non-cash consideration consisted of an escrow account to be released upon the terms of the agreement, which is classified within “Other Long Term Assets” on the Condensed Consolidated Balance Sheets. The transaction resulted in a pre-tax loss of
($3,675)
, which was accounted for during the three month period ended October 31, 2012.
In October 2012, the Company sold certain assets of its Varitronics business, an education technology solutions business. Varitronics had operations in the Company’s Americas segment. The Company received proceeds of
$8,410
for this business, of which
$7,160
was in cash and
$1,250
was in the form of a promissory note, which is classified as a long-term asset. The transaction resulted in a pre-tax gain of
$237
, which was accounted for during the three month period ended October 31, 2012.
The Brady Medical and Varitronics divestitures are part of the Company’s continued long-term strategy to focus resources on businesses with a clear path to sustainable organic growth and profitability.
On December 28, 2012, the Company acquired all of the outstanding shares of Precision Dynamics Corporation ("PDC"), a manufacturer of identification products primarily for the healthcare sector headquartered in Valencia, California. PDC is reported within the Company's Americas segment. Net sales and net earnings attributable to PDC for the
three months ended April 30, 2013
were $
40,682
and $
1,865
, respectively. Net sales and net earnings attributable to PDC from the acquisition date through
April 30, 2013
were approximately $
56,750
and $
626
, respectively. Financing for this acquisition consisted of
$220,000
from the Company's revolving loan agreement with a group of six banks, and the balance from cash on hand. As of April 30, 2013, the Company repaid $
173,000
of the borrowing on the credit facility with cash on hand. The Company incurred
$3,600
in acquisition-related expenses during the nine months ended April 30, 2013.
The Company acquired PDC to create an anchor position in the healthcare sector, consistent with the Company's mission to identify and protect premises, products and people. PDC's large customer base, strong channels to market, and broad product offering provide a strong foundation to build upon PDC's market position.
The table below details a preliminary allocation of the PDC purchase price:
|
|
|
|
|
|
Fair values:
|
April 30, 2013
|
|
Cash and cash equivalents
|
$
|
12,904
|
|
|
Accounts receivable — net
|
21,178
|
|
|
Total inventories
|
16,788
|
|
|
Prepaid expenses and other current assets
|
3,915
|
|
|
Goodwill
|
189,187
|
|
|
Other intangible assets
|
109,300
|
|
|
Other assets
|
483
|
|
|
Property, plant and equipment
|
18,165
|
|
|
Accounts payable
|
(10,386
|
)
|
|
Wages and amounts withheld from employees
|
(4,234
|
)
|
|
Taxes, other than income taxes
|
(600
|
)
|
|
Accrued income taxes
|
(57
|
)
|
|
Other current liabilities
|
(4,704
|
)
|
|
Other long-term liabilities
|
(37,878
|
)
|
|
|
314,061
|
|
|
Less: cash acquired
|
(12,904
|
)
|
Fair value of total consideration
|
$
|
301,157
|
|
The final purchase price allocation is subject to completion of final valuation of the assets acquired and liabilities assumed. The final valuation is expected to be completed as soon as is practicable but no later than
12
months after the closing date of the acquisition. The intangible assets consist of a customer relationship of
$102,500
, which is being amortized over a life of
10 years
, and a definite-lived trademark of
$6,800
, which is being amortized over a life of
3 years
. The goodwill acquired of
$189,187
is not tax deductible.
The following table reflects the unaudited pro forma operating results of the Company for the three and
nine months ended April 30, 2013
and
2012
, which give effect to the acquisition of PDC as if it had occurred at the beginning of fiscal 2012, after giving effect to certain adjustments, including amortization of intangible assets, interest expense on acquisition debt, and income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations which may occur in the future or that would have occurred had the acquisitions been effected on the date indicated, nor are they necessarily indicative of the Company's future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine Months Ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net sales, as reported
|
$
|
305,737
|
|
|
$
|
275,388
|
|
|
$
|
856,408
|
|
|
$
|
813,573
|
|
Net sales, pro forma
|
305,737
|
|
|
319,077
|
|
|
924,832
|
|
|
938,774
|
|
Earnings from continuing operations, as reported
|
21,838
|
|
|
28,039
|
|
|
37,669
|
|
|
84,328
|
|
Earnings from continuing operations, pro forma
|
21,838
|
|
|
29,893
|
|
|
42,553
|
|
|
83,271
|
|
Basic earnings from continuing operations per Class A Common Share, as reported
|
0.42
|
|
|
0.53
|
|
|
0.73
|
|
|
1.60
|
|
Basic earnings from continuing operations per Class A Common Share, pro forma
|
0.42
|
|
|
0.57
|
|
|
0.83
|
|
|
1.58
|
|
Diluted earnings from continuing operations per Class A Common Share, as reported
|
0.42
|
|
|
0.53
|
|
|
0.73
|
|
|
1.59
|
|
Diluted earnings from continuing operations per Class A Common Share, pro forma
|
0.42
|
|
|
0.56
|
|
|
0.82
|
|
|
1.57
|
|
Pro forma results for the nine months ended April 30, 2012, were adjusted to include
$3,600
of acquisition-related expenses,
$1,530
of nonrecurring expense related to the fair value adjustment to acquisition-date inventory,
$720
in interest expense on acquisition debt, and
($827)
in income tax benefit.
Pro forma results for the nine months ended April 30, 2013, were adjusted to exclude
$3,600
of acquisition-related expenses and
$1,530
of nonrecurring expense related to the fair value adjustment to acquisition-date inventory, and were adjusted to include
$529
in interest expense on acquisition debt and
($135)
in income tax benefit.
Pro forma results for the nine months ended April 30, 2013 and 2012 includes $5,141 and
$9,313
of pretax amortization expense related to intangible assets, respectively.
NOTE L - Notes Payable
In December 2012, the Company drew down
$220,000
from its revolving loan agreement with a group of six banks to fund a portion of the purchase price of the acquisition of PDC. Prior to
April 30, 2013
, the Company repaid
$173,000
of the borrowing with cash on hand. The Company intends to repay the remainder of the borrowing within
12
months of the current period end, as such, the borrowing is classified as "Notes Payable" within current liabilities on the Condensed Consolidated Balance Sheets. During the nine months ended
April 30, 2013
, the maximum amount outstanding on the revolving loan agreement was
$220,000
. As of
April 30, 2013
, the outstanding balance on the credit facility was
$47,000
and there was
$253,000
available for future borrowing under the credit facility, which can be increased to
$403,000
at the Company's option, subject to certain conditions.
In February 2013, the Company entered into a USD-denominated line of credit facility with in China. The facility supports USD-denominated borrowing to fund working capital and operations for the Company's Chinese entities. During the nine months ended
April 30, 2013
, the maximum amount outstanding was
$11,658
which was the balance outstanding at
April 30, 2013
. As of
April 30, 2013
, there was
$14,542
available for future borrowing under this credit facility.
As of
April 30, 2013
, borrowings on the revolving loan agreement and China line of credit are as follows:
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
April 30, 2013
|
USD-denominated borrowing on revolving loan agreement
|
|
1.3000
|
%
|
|
$
|
47,000
|
|
USD-denominated borrowing on China line of credit
|
|
1.1332
|
%
|
|
11,658
|
|
Notes payable
|
|
1.2000
|
%
|
|
58,658
|
|
NOTE M - Income Taxes
During the
nine months ended April 30, 2013
, the Company recorded a
$25,630
non-cash tax charge for the repatriation of approximately
$208,000
of cash associated with the funding of the acquisition of PDC. The Company does not provide for U.S.
deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. The remaining earnings continue to be reinvested indefinitely as of
April 30, 2013
, and it is impracticable to estimate the amount of such remaining earnings on an interim basis.
NOTE N — Discontinued Operations
During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. As a result, the business has been classified as assets and liabilities held for sale in accordance with the authoritative literature as of April 30, 2013. The disposal group has been recorded based on the estimated fair value less cost to sell, which resulted in a write down of $
15,658
. The operating results have been reported as discontinued operations for the comparative periods ended April 30, 2013 and 2012, including the operating results of the following three previously divested businesses:
|
|
|
|
|
|
Divestitures
|
|
Segment
|
|
Date Completed
|
Etimark
|
|
EMEA
|
|
July 2012
|
Precision Converting, LLC (“Brady Medical”)
|
|
Americas
|
|
August 2012
|
Varitronics
|
|
Americas
|
|
October 2012
|
The following table summarizes the operating results of discontinued operations for the three and
nine months ended April 30, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net sales
|
$
|
44,653
|
|
|
$
|
56,241
|
|
|
$
|
155,811
|
|
|
$
|
188,148
|
|
(Loss) on write-down of disposal group
|
(15,658
|
)
|
|
—
|
|
|
(15,658
|
)
|
|
—
|
|
(Loss) earnings from operations of discontinued businesses
|
(417
|
)
|
|
(2,002
|
)
|
|
4,463
|
|
|
(112,246
|
)
|
Income tax (expense) benefit
|
(1,530
|
)
|
|
1,615
|
|
|
(3,738
|
)
|
|
(1,652
|
)
|
(Loss) from discontinued operations, net of income tax
|
$
|
(17,605
|
)
|
|
$
|
(387
|
)
|
|
$
|
(14,933
|
)
|
|
$
|
(113,898
|
)
|
The following table details assets and liabilities of the Die-Cut Asia disposal group classified as held for sale as of April 30, 2013:
|
|
|
|
|
|
April 30, 2013
|
Accounts receivable—net
|
$
|
50,564
|
|
Total inventories
|
19,889
|
|
Prepaid expenses and other current assets
|
2,119
|
|
Total current assets
|
72,572
|
|
|
|
Other assets:
|
|
Goodwill
|
29,673
|
|
Other intangible assets
|
491
|
|
Other
|
1,985
|
|
Property, plant and equipment—net
|
19,560
|
|
Total assets
|
$
|
124,281
|
|
|
|
Current liabilities:
|
|
Accounts payable
|
$
|
30,403
|
|
Wages and amounts withheld from employees
|
3,119
|
|
Other current liabilities
|
1,162
|
|
Total current liabilities
|
34,684
|
|
|
|
Net assets of disposal group
|
89,597
|
|
Less: write-down on disposal group
|
(15,658
|
)
|
Net assets of disposal group at fair value
|
$
|
73,939
|
|
In accordance with authoritative literature, accumulated other comprehensive income will be reclassified to the statement of earnings upon liquidation or substantial liquidation of the disposal group.
NOTE O — New Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Presentation of Comprehensive Income,” which eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently, in December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income,” which indefinitely defers the requirements in ASU 2011-05 to present on the face of the financial statements adjustments for items that are reclassified from OCI to net earnings in the statement where the components of net earnings and the components of OCI are presented. The ASU does not change the items that must be reported in OCI. The Company has provided the required statements of comprehensive income beginning with the first quarter of fiscal 2013.
In January 2013, the FASB issued ASU 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarified that the scope of the disclosures under U.S. GAAP is limited to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are offset either in accordance with ASC 210 or ASC 815. Entities with other types of financial assets and financial liabilities subject to a master netting arrangement or similar agreement are no longer subject to the disclosure requirements in ASU 2011-11. The guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. Disclosures are to be provided retrospectively for all periods presented. The adoption of this update will not have a material impact on the financial statements of the Company.
In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to disclose additional information for items reclassified out of accumulated other comprehensive income (AOCI). For items reclassified out of AOCI and into net earnings in their entirety, entities are required to disclose the effect of the reclassification in each affected line in the statement of earnings. For AOCI reclassification items that are not reclassified in their entirety into net earnings, a cross reference to other required U.S. GAAP disclosures is required. This information may be provided either in the notes or parenthetically on the face of the statement that reports net earnings as long as all the information is disclosed in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement that reports net earnings if it has items that are not reclassified in their entirety into net earnings. The guidance is effective for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update will not have a material impact on the financial statements of the Company.
In March 2013, the FASB issued ASU 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," which applies to the release of the cumulative translation adjustment into net earnings when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The guidance requires that a parent deconsolidate a subsidiary or derecognize a group of assets that is a business if the parent ceases to have a controlling financial interest in that group of assets, and resolves the diversity in practice for the treatment of business combinations achieved in stages involving a foreign entity. The guidance is effective for annual and interim reporting periods beginning after December 15, 2013. The adoption of this update will not have a material impact on the financial statements of the Company.
NOTE P — Subsequent Events
On May 15, 2013, the Board of Directors declared a quarterly cash dividend to shareholders of the Company’s Class A and Class B Common Stock of
$0.19
per share payable on July 31, 2013 to shareholders of record at the close of business on July 10, 2013.