NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
April 30, 2014
(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, 2014
and
July 31, 2013
, its results of operations and comprehensive income for the three and
nine months ended April 30, 2014
and
2013
, and cash flows for the
nine months ended April 30, 2014
and
2013
. The consolidated balance sheet as of
July 31, 2013
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 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, 2013
.
The Company announced its plan to divest its Asia Die-Cut business in the third quarter of fiscal 2013, and incorporated its Balkhausen Die-Cut business into that plan during the fourth quarter of fiscal 2013 (collectively referred to as "Die-Cut"). As a result, the assets and liabilities have been reclassified in accordance with the authoritative literature on assets held for sale in the condensed consolidated balance sheets as of
April 30, 2014
and
July 31, 2013
. The results of operations of the Company's Die-Cut business have been reported as discontinued operations within the condensed consolidated statements of earnings for all periods presented. In addition, the Brady Medical and Varitronics businesses that were divested in fiscal 2013 are included within discontinued operations. In accordance with the authoritative literature, the Company has elected to not separately disclose the cash flows or other comprehensive income related to the Die-Cut business' discontinued operations. Refer to Note K, "Discontinued Operations" for further discussion regarding the business.
NOTE B — Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the
nine months ended April 30, 2014
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDS
|
|
WPS
|
|
Total
|
Balance as of July 31, 2013
|
$
|
517,029
|
|
|
$
|
100,207
|
|
|
$
|
617,236
|
|
Purchase accounting adjustments
|
(2,168
|
)
|
|
—
|
|
|
$
|
(2,168
|
)
|
Translation adjustments
|
2,202
|
|
|
3,728
|
|
|
$
|
5,930
|
|
Balance as of April 30, 2014
|
$
|
517,063
|
|
|
$
|
103,935
|
|
|
$
|
620,998
|
|
Goodwill increased by $
3,762
during the
nine months ended April 30, 2014
. The increase was due to the positive effects of foreign translation of
$5,930
, partially offset by a decrease due to purchase accounting adjustments of
$2,168
for the deferred tax impact related to the release of escrow from the fiscal 2013 acquisition of Precision Dynamics Corporation ("PDC").
Goodwill at
April 30, 2014
included
$18,225
and
$172,280
of accumulated impairment losses within the IDS and WPS segments, respectively, for a total of
$190,505
. There were no impairment charges recorded during the three and nine months ended April 30, 2014.
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 Company also has unamortized indefinite-lived trademarks that are classified as other intangible assets. The net book value of these assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2014
|
|
July 31, 2013
|
|
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
|
|
$
|
11,428
|
|
|
$
|
(10,025
|
)
|
|
$
|
1,403
|
|
|
5
|
|
$
|
11,053
|
|
|
$
|
(9,597
|
)
|
|
$
|
1,456
|
|
Trademarks and other
|
5
|
|
15,833
|
|
|
(10,489
|
)
|
|
5,344
|
|
|
5
|
|
15,289
|
|
|
(8,398
|
)
|
|
6,891
|
|
Customer relationships
|
8
|
|
259,383
|
|
|
(155,093
|
)
|
|
104,290
|
|
|
8
|
|
261,076
|
|
|
(144,620
|
)
|
|
116,456
|
|
Non-compete agreements and other
|
4
|
|
13,490
|
|
|
(12,863
|
)
|
|
627
|
|
|
4
|
|
14,942
|
|
|
(14,215
|
)
|
|
727
|
|
Unamortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
N/A
|
|
31,182
|
|
|
—
|
|
|
31,182
|
|
|
N/A
|
|
31,321
|
|
|
—
|
|
|
31,321
|
|
Total
|
|
|
$
|
331,316
|
|
|
$
|
(188,470
|
)
|
|
$
|
142,846
|
|
|
|
|
$
|
333,681
|
|
|
$
|
(176,830
|
)
|
|
$
|
156,851
|
|
The gross carrying amount of goodwill and other intangible assets in the condensed consolidated balance sheets at
April 30, 2014
differs from the value assigned to them in the original allocation of purchase price due to the effect of currency fluctuations between the date of acquisition and
April 30, 2014
.
Amortization expense on intangible assets was $
4,713
and $
5,007
for the
three months ended April 30, 2014
and
2013
, respectively, and
$14,837
and
$11,020
for the
nine months ended April 30, 2014
and
2013
, respectively. The amortization over each of the next five fiscal years is projected to be $
19,579
, $
18,746
, $
16,531
, $
13,318
and $
11,981
for the fiscal years ending July 31,
2014
,
2015
,
2016
,
2017
and
2018
, respectively.
NOTE C — Comprehensive Income
Comprehensive income consists of foreign currency translation adjustments, unrealized gains and losses from cash flow hedges and net investment hedges, and the unamortized gain on post-retirement plans, net of their related tax effects.
The following table illustrates the changes in the balances of each component of accumulated other comprehensive income for the periods presented. The unrealized gain on cash flow hedges and the unamortized gain on postretirement plans are presented net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on cash flow hedges
|
|
Unamortized gain on postretirement plans
|
|
Foreign currency translation adjustments
|
|
Accumulated other comprehensive income
|
Beginning balance, July 31, 2013
|
$
|
99
|
|
|
$
|
1,853
|
|
|
$
|
54,111
|
|
|
$
|
56,063
|
|
Other comprehensive (loss) income before reclassification
|
(18
|
)
|
|
(41
|
)
|
|
8,116
|
|
|
8,057
|
|
Amounts reclassified from accumulated other comprehensive income
|
(82
|
)
|
|
(351
|
)
|
|
—
|
|
|
(433
|
)
|
Ending balance, April 30, 2014
|
$
|
(1
|
)
|
|
$
|
1,461
|
|
|
$
|
62,227
|
|
|
$
|
63,687
|
|
The increase in accumulated other comprehensive income ("OCI") over the
nine months ended April 30, 2014
was primarily due to the depreciation of the U.S. dollar against other currencies. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation on intercompany notes and net investment hedges, net of tax. Of the total
$433
in amounts reclassified from accumulated other comprehensive income, the
$82
gain on cash flow hedges was reclassified into cost of products sold and the
$351
gain on postretirement plans was reclassified into SG&A on the condensed consolidated statement of earnings for the
nine months ended April 30, 2014
.
The following table illustrates the income tax (expense) benefit on the components of other comprehensive income for the three and
nine months ended April 30, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine months ended April 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Income tax (expense) benefit related to items of other comprehensive income:
|
|
|
|
|
|
|
|
Net investment hedge translation adjustments
|
$
|
787
|
|
|
$
|
(1,360
|
)
|
|
$
|
1,525
|
|
|
$
|
2,383
|
|
Long-term intercompany loan settlements
|
(1,176
|
)
|
|
430
|
|
|
667
|
|
|
(162
|
)
|
Cash flow hedges
|
84
|
|
|
(131
|
)
|
|
24
|
|
|
467
|
|
Other income tax adjustments
|
56
|
|
|
118
|
|
|
6
|
|
|
185
|
|
Income tax (expense) benefit related to items of other comprehensive income
|
$
|
(249
|
)
|
|
$
|
(943
|
)
|
|
$
|
2,222
|
|
|
$
|
2,873
|
|
NOTE D — 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,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Numerator: (in thousands)
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
$
|
20,184
|
|
|
$
|
21,680
|
|
|
$
|
48,835
|
|
|
$
|
37,300
|
|
Less:
|
|
|
|
|
|
|
|
Restricted stock dividends
|
(16
|
)
|
|
(60
|
)
|
|
(76
|
)
|
|
(179
|
)
|
Numerator for basic and diluted earnings from continuing operations per Class A Nonvoting Common Share
|
$
|
20,168
|
|
|
$
|
21,620
|
|
|
$
|
48,759
|
|
|
$
|
37,121
|
|
Less:
|
|
|
|
|
|
|
|
Preferential dividends
|
—
|
|
|
—
|
|
|
(813
|
)
|
|
(797
|
)
|
Preferential dividends on dilutive stock options
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(5
|
)
|
Numerator for basic and diluted earnings from continuing operations per Class B Voting Common Share
|
$
|
20,168
|
|
|
$
|
21,620
|
|
|
$
|
47,940
|
|
|
$
|
36,319
|
|
Denominator: (in thousands)
|
|
|
|
|
|
|
|
Denominator for basic earnings from continuing operations per share for both Class A and Class B
|
51,933
|
|
|
51,415
|
|
|
52,071
|
|
|
51,210
|
|
Plus: Effect of dilutive stock options
|
67
|
|
|
626
|
|
|
233
|
|
|
475
|
|
Denominator for diluted earnings from continuing operations per share for both Class A and Class B
|
52,000
|
|
|
52,041
|
|
|
52,304
|
|
|
51,685
|
|
Earnings from continuing operations per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.94
|
|
|
$
|
0.72
|
|
Diluted
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.93
|
|
|
$
|
0.72
|
|
Earnings from continuing operations per Class B Voting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.92
|
|
|
$
|
0.71
|
|
Diluted
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.92
|
|
|
$
|
0.70
|
|
Earnings (loss) from discontinued operations per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.07
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.30
|
|
|
$
|
(0.28
|
)
|
Diluted
|
$
|
0.07
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.30
|
|
|
$
|
(0.28
|
)
|
Earnings (loss) from discontinued operations per Class B Voting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.07
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.30
|
|
|
$
|
(0.29
|
)
|
Diluted
|
$
|
0.07
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.29
|
|
|
$
|
(0.28
|
)
|
Net earnings per Class A Nonvoting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.46
|
|
|
$
|
0.08
|
|
|
$
|
1.24
|
|
|
$
|
0.44
|
|
Diluted
|
$
|
0.46
|
|
|
$
|
0.08
|
|
|
$
|
1.23
|
|
|
$
|
0.44
|
|
Net earnings per Class B Voting Common Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.46
|
|
|
$
|
0.08
|
|
|
$
|
1.22
|
|
|
$
|
0.42
|
|
Diluted
|
$
|
0.46
|
|
|
$
|
0.08
|
|
|
$
|
1.21
|
|
|
$
|
0.42
|
|
Options to purchase approximately
4,213,000
and
2,591,000
shares of Class A Nonvoting Common Stock for the
three months ended April 30, 2014
and
2013
, respectively, were not included in the computation of diluted net earnings or loss per share because the option exercise price was greater than the average market price of the common shares and, therefore, the effect would have been anti-dilutive. Options to purchase approximately
3,085,000
and
3,560,000
shares of Class A Nonvoting Common Stock for the
nine months ended April 30, 2014
and
2013
, respectively, were not included in the computation of diluted net earnings per share because the option exercise price was greater than the average market price of the common shares and, therefore, the effect would have been anti-dilutive.
NOTE E — Segment Information
Effective May 1, 2013, the Company is organized and managed on a global basis within two business platforms: Identification Solutions and Workplace Safety, which are the reportable segments.
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, legal, 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 markup that reasonably approximates fair value.
Each business platform has a President (or acting President) that reports directly to the Company's chief operating decision maker, its Interim Chief Executive Officer and Chief Financial Officer. Each platform has its own distinct operations, maintains its own financial reports and is evaluated based on global segment profit. The Company has determined that these business platforms comprise its operating and reportable segments based on the information used by the Interim Chief Executive Officer and Chief Financial Officer to allocate resources and assess performance.
The segment results have been adjusted to reflect continuing operations in all periods presented. The following is a summary of segment information for the three and
nine months ended April 30, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine months ended April 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Sales to External Customers
|
|
|
|
|
|
|
|
ID Solutions
|
$
|
206,448
|
|
|
$
|
197,417
|
|
|
$
|
610,726
|
|
|
$
|
528,044
|
|
Workplace Safety
|
103,129
|
|
|
105,066
|
|
|
297,575
|
|
|
319,156
|
|
Total Company
|
$
|
309,577
|
|
|
$
|
302,483
|
|
|
$
|
908,301
|
|
|
$
|
847,200
|
|
Segment Profit
|
|
|
|
|
|
|
|
ID Solutions
|
$
|
44,302
|
|
|
$
|
46,787
|
|
|
$
|
132,795
|
|
|
$
|
126,011
|
|
Workplace Safety
|
14,771
|
|
|
23,453
|
|
|
47,813
|
|
|
74,881
|
|
Total Company
|
$
|
59,073
|
|
|
$
|
70,240
|
|
|
$
|
180,608
|
|
|
$
|
200,892
|
|
The following is a reconciliation of segment profit to earnings from continuing operations before income taxes for the three and
nine months ended April 30, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine months ended April 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Total profit from reportable segments
|
$
|
59,073
|
|
|
$
|
70,240
|
|
|
$
|
180,608
|
|
|
$
|
200,892
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
Administrative costs
|
(29,267
|
)
|
|
(30,765
|
)
|
|
(91,604
|
)
|
|
(94,451
|
)
|
Restructuring charges
|
(3,039
|
)
|
|
(8,540
|
)
|
|
(14,202
|
)
|
|
(10,473
|
)
|
Investment and other income
|
872
|
|
|
1,133
|
|
|
1,887
|
|
|
2,427
|
|
Interest expense
|
(3,381
|
)
|
|
(4,186
|
)
|
|
(10,777
|
)
|
|
(12,755
|
)
|
Earnings from continuing operations before income taxes
|
$
|
24,258
|
|
|
$
|
27,882
|
|
|
$
|
65,912
|
|
|
$
|
85,640
|
|
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, restricted stock unit awards ("RSUs"), or restricted or unrestricted shares of Class A Nonvoting Common Stock to employees and non-employee directors.
As of
April 30, 2014
, the Company has reserved
4,564,718
shares of Class A Nonvoting Common Stock for outstanding stock options, RSUs, and restricted shares. A total of
3,958,986
shares of Class A Nonvoting Common Stock remain for future issuance of stock options, RSUs, and restricted or unrestricted shares under the active plan. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under the plan.
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, 2014
and
2013
, was
$656
(
$407
net of taxes) and
$155
(
$94
net of taxes), respectively. Stock-based compensation expense recognized during the
nine months ended April 30, 2014
and
2013
, was
$5,033
(
$3,121
net of taxes) and
$6,964
(
$4,248
net of taxes), respectively.
As of
April 30, 2014
, total unrecognized compensation cost related to stock-based compensation awards was
$7,037
pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of
1.6
years.
The Company has estimated the fair value of its service-based option awards granted during the
nine months ended April 30, 2014
and
2013
, 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,
|
Black-Scholes Option Valuation Assumptions
|
|
2014
|
|
2013
|
Expected term (in years)
|
|
5.97
|
|
|
5.94
|
|
Expected volatility
|
|
37.32
|
%
|
|
38.68
|
%
|
Expected dividend yield
|
|
2.35
|
%
|
|
2.21
|
%
|
Risk-free interest rate
|
|
1.80
|
%
|
|
0.90
|
%
|
Weighted-average market value of underlying stock at grant date
|
|
$
|
30.98
|
|
|
$
|
30.54
|
|
Weighted-average exercise price
|
|
$
|
30.98
|
|
|
$
|
30.54
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
9.17
|
|
|
$
|
9.05
|
|
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.
A summary of stock option activity under the Company’s share-based compensation plans for the
nine months ended April 30, 2014
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding at July 31, 2013
|
|
5,106,585
|
|
$
|
30.68
|
|
|
|
|
|
New grants
|
|
375,272
|
|
30.98
|
|
|
|
|
|
Exercised
|
|
(407,507)
|
|
26.99
|
|
|
|
|
|
Forfeited or expired
|
|
(698,805)
|
|
32.90
|
|
|
|
|
|
Outstanding at April 30, 2014
|
|
4,375,545
|
|
$
|
30.70
|
|
|
5.7
|
|
$
|
1,253
|
|
Exercisable at April 30, 2014
|
|
3,131,418
|
|
$
|
30.97
|
|
|
4.7
|
|
$
|
1,253
|
|
There were
3,131,418
and
3,736,320
options exercisable with a weighted average exercise price of
$30.97
and
$30.70
at
April 30, 2014
and
2013
, respectively. No options were exercised during the
three months ended April 30, 2014
. The cash received from the exercise of options during the three months ended
April 30, 2013
, was
$5,837
. The cash received from the exercise of options during the
nine months ended April 30, 2014
and
2013
, was
$10,894
and
$10,246
, respectively. The tax benefit on options exercised during the three months ended
April 30, 2013
was
$1,226
. The tax benefit on options exercised during the
nine months ended April 30, 2014
and
2013
, was
$788
and
$2,870
, respectively.
The total intrinsic value of options exercised during the
nine months ended April 30, 2014
and
2013
, based upon the average market price at the time of exercise during the period, was
$2,020
and
$7,360
, respectively. The total fair value of stock options vested during the
nine months ended April 30, 2014
and
2013
, was
$6,565
and
$10,860
, respectively.
The following table summarizes the RSU and restricted share activity under the Company's share-based compensation plans for the
nine months ended April 30, 2014
:
|
|
|
|
|
|
|
|
|
Service-Based RSUs and Restricted Shares
|
|
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
Outstanding at July 31, 2013
|
|
5,000
|
|
|
$
|
32.99
|
|
New grants
|
|
108,055
|
|
|
30.93
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(3,882
|
)
|
|
31.03
|
|
Outstanding at April 30, 2014
|
|
109,173
|
|
|
$
|
31.02
|
|
|
|
|
|
|
Performance-Based RSUs and Restricted Shares
|
|
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
Outstanding at July 31, 2013
|
|
231,667
|
|
|
$
|
31.43
|
|
New grants
|
|
—
|
|
|
—
|
|
Vested
|
|
(35,001
|
)
|
|
28.35
|
|
Forfeited
|
|
(116,666
|
)
|
|
31.61
|
|
Outstanding at April 30, 2014
|
|
80,000
|
|
|
$
|
32.50
|
|
NOTE G — 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 (unadjusted) quoted prices in active markets for identical instruments that are accessible as of the reporting date.
Level 2
— Assets or liabilities for which fair value is based on other significant pricing inputs that are either directly or indirectly observable.
Level 3
— Assets or liabilities for which fair value is based on significant unobservable pricing inputs to the extent little or no market data is available, which result in the use of management's own assumptions.
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, 2014
and
July 31, 2013
, 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, 2014
|
|
|
|
|
|
|
|
Trading securities
|
$
|
15,811
|
|
|
$
|
—
|
|
|
$
|
15,811
|
|
|
Other assets
|
Foreign exchange contracts
|
—
|
|
|
247
|
|
|
247
|
|
|
Prepaid expenses and other current assets
|
Total Assets
|
$
|
15,811
|
|
|
$
|
247
|
|
|
$
|
16,058
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
127
|
|
|
$
|
127
|
|
|
Other current liabilities
|
Total Liabilities
|
$
|
—
|
|
|
$
|
127
|
|
|
$
|
127
|
|
|
|
July 31, 2013
|
|
|
|
|
|
|
|
Trading securities
|
$
|
14,975
|
|
|
$
|
—
|
|
|
$
|
14,975
|
|
|
Other assets
|
Foreign exchange contracts
|
—
|
|
|
294
|
|
|
294
|
|
|
Prepaid expenses and other current assets
|
Total Assets
|
$
|
14,975
|
|
|
$
|
294
|
|
|
$
|
15,269
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
890
|
|
|
$
|
890
|
|
|
Other current liabilities
|
Total Liabilities
|
$
|
—
|
|
|
$
|
890
|
|
|
$
|
890
|
|
|
|
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 I, “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, 2014
and
2013
. 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, 2014
, except for the fair value measurement performed on the Die-Cut disposal group. The assets and liabilities of the disposal group were recorded at approximate fair value less costs to sell and classified as "Assets held for sale" and "Liabilities held for sale" on the condensed consolidated balance sheets as of
April 30, 2014
and
July 31, 2013
. Fair value was determined utilizing a combination of external market factors and internal projections. A loss on the write-down of the disposal group of
$15,658
was recorded within discontinued operations in the third quarter of fiscal 2013. There were no additional fair value adjustments recorded during the three or
nine months ended April 30, 2014
.
During fiscal 2013, goodwill with a carrying amount of
$183,146
in the WPS Americas reporting unit was written down to its estimated implied fair value of
$10,866
and represented a Level 3 asset measured at fair value on a nonrecurring basis at
July 31, 2013
, which was subsequent to its original recognition. In order to arrive at the implied fair value of goodwill, the Company calculated the fair value of 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 relationships and tradenames, which were valued using the income approach. As a result of the analysis, indefinite-lived tradenames with a carrying amount of
$25,449
were written down to the estimated fair value of
$14,881
and represented a Level 3 asset measured at fair value on a nonrecurring basis at
July 31, 2013
, which was subsequent to its original recognition.
During fiscal 2013, goodwill with a carrying amount of
$18,225
in the IDS APAC reporting unit was written off in its entirety and represented a Level 3 asset measured at fair value on a nonrecurring basis at
July 31, 2013
, which was subsequent to its original recognition. In order to arrive at the implied fair value of goodwill, the Company completed a qualitative assessment because the amount by which the carrying value exceeded fair value was more than the balance of goodwill remaining.
The Company’s financial instruments, other than those presented in the disclosures above, include cash and cash equivalents, accounts receivable, notes payable, 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, excluding notes payable, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities was
$238,907
and
$288,055
at
April 30, 2014
and
July 31, 2013
, respectively, as compared to the carrying value of
$223,732
and
$262,414
at
April 30, 2014
and
July 31, 2013
, respectively.
There was
$63,000
and
$39,000
outstanding on the Company's revolving loan agreement at April 30, 2014 and July 31, 2013, respectively, and
$12,552
and
$11,613
outstanding on the Company's USD-denominated line of credit facility with Bank of America in China at
April 30, 2014
and July 31, 2013, respectively. These outstanding balances are classified as "Notes Payable" in the amount of
$75,552
and
$50,613
on the condensed consolidated balance sheets at April 30, 2014 and July 31, 2013, respectively. The fair value approximates carrying value due to the short-term nature of the instruments. See Note L, "Notes Payable," for additional information.
NOTE H — Restructuring
In fiscal 2014, the Company’s Board of Directors approved a restructuring plan to consolidate facilities in North America, Europe and Asia. The Company implemented this restructuring plan to enhance customer service, improve efficiency of operations and reduce operating expenses. The Company expects to incur pre-tax charges of approximately $22 million in fiscal 2014 due primarily to facility consolidation activities. Facility consolidation activities will extend into fiscal 2015.
As a result of these restructuring plans, the Company incurred restructuring charges of
$3,039
and
$14,202
in continuing operations during the three and
nine months ended April 30, 2014
, respectively. The three month restructuring charges of
$3,039
consisted of
$1,782
of employee separation costs,
$170
of fixed asset write-offs,
$771
of facility closure related costs, and
$316
of contract termination costs. Of the
$3,039
of restructuring charges recorded during the quarter,
$1,161
was incurred within IDS and
$1,878
within WPS.
The restructuring charges of
$14,202
for the nine months ended April 30, 2014 consisted of
$9,547
of employee separation costs,
$267
of fixed asset write-offs,
$3,454
of facility closure related costs, and
$934
of contract termination costs. Of the
$14,202
of restructuring charges,
$7,595
was incurred within IDS and
$6,607
within WPS.
In fiscal 2013, the Company implemented a restructuring plan to reorganize into global product-based business platforms and reduce its global workforce to address its cost structure. During the three and nine months ended April 30, 2013, the Company recorded restructuring charges in continuing operations of
$8,540
and
$10,473
, respectively. The three month restructuring charges of
$8,540
consisted of
$2,863
employee separation costs,
$3,423
of fixed asset write-offs and
$2,254
of facility closure related costs. Of the
$8,540
of restructuring charges recorded during the quarter,
$2,995
was incurred within IDS and
$5,545
within WPS.
The restructuring charges of
$10,473
for the nine months ended April 30, 2013 consisted of
$4,796
of employee separation costs,
$3,423
of fixed asset write-offs and
$2,254
of facility closure related costs. Of the
$10,473
of restructuring charges,
$4,720
was incurred within IDS and
$5,753
within WPS.
The charges for employee separation costs in fiscal 2014 and 2013 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.
A reconciliation of the Company’s restructuring liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Related
|
|
Asset Write-offs
|
|
Other
|
|
Total
|
Beginning balance, July 31, 2013
|
$
|
11,475
|
|
|
$
|
—
|
|
|
$
|
2,731
|
|
|
$
|
14,206
|
|
Restructuring charges in continuing operations
|
9,547
|
|
|
267
|
|
|
4,388
|
|
|
14,202
|
|
Restructuring charges in discontinued operations
|
250
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Non-cash write-offs
|
—
|
|
|
(267
|
)
|
|
—
|
|
|
(267
|
)
|
Cash payments
|
(16,178
|
)
|
|
—
|
|
|
(5,136
|
)
|
|
(21,314
|
)
|
Ending balance, April 30, 2014
|
$
|
5,094
|
|
|
$
|
—
|
|
|
$
|
1,983
|
|
|
$
|
7,077
|
|
NOTE I — 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 program 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, 2014
and
July 31, 2013
, the notional amount of outstanding forward exchange contracts was $
122,899
and
$157,500
, 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 OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of
April 30, 2014
, unrealized losses of
$5
have been included in OCI. As of
April 30, 2013
, unrealized losses of
$132
were included in OCI. Balances are reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings. For the
three months ended April 30, 2014
and
2013
, the Company reclassified gains of
$43
and losses of
$9
from OCI into earnings, respectively. For the
nine months ended April 30, 2014
and
2013
, the Company reclassified gains of
$135
and
$548
from OCI into earnings. At
April 30, 2014
, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $
7,132
, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds and U.S. Dollars. There were no outstanding forward foreign exchange contracts designated as cash flow hedges as of
July 31, 2013
.
Net Investment Hedges
The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. At
April 30, 2014
, the Company designated £
25,036
of intercompany loans as net investment hedges to hedge portions of its net investment in British operations. On May 13, 2010, the Company completed the private placement of
€75
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 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 OCI. 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, 2014
and
July 31, 2013
, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $
6,300
. As of
April 30, 2014
and
2013
, the Company recognized OCI losses of $
370
and gains of
$24
, respectively, on its outstanding net investment hedges.
Non-Designated Hedges
For the three and
nine months ended April 30, 2014
, the Company recognized gains of $
403
and
$2,268
, 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, 2013
, the Company recognized losses of
$520
and
$478
, respectively.
Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
April 30, 2014
|
|
July 31, 2013
|
|
April 30, 2014
|
|
July 31, 2013
|
|
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
|
|
$
|
34
|
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
63
|
|
|
Other current liabilities
|
|
$
|
—
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Prepaid expenses and other current assets
|
|
7
|
|
|
Other current liabilities
|
|
17
|
|
|
Other current liabilities
|
|
—
|
|
Foreign currency denominated debt
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Long term obligations, less current maturities
|
|
103,582
|
|
|
Long term obligations, less current maturities
|
|
99,750
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
34
|
|
|
|
|
$
|
7
|
|
|
|
|
$
|
103,662
|
|
|
|
|
$
|
99,750
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
213
|
|
|
Prepaid expenses and other current assets
|
|
$
|
287
|
|
|
Other current liabilities
|
|
$
|
47
|
|
|
Other current liabilities
|
|
$
|
890
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
213
|
|
|
|
|
$
|
287
|
|
|
|
|
$
|
47
|
|
|
|
|
$
|
890
|
|
NOTE J — Acquisitions
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 ID Solutions segment. 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. The Company has repaid the total amount of the borrowing, of which
$39,000
was repaid during the
nine months ended April 30, 2014
.
The Company acquired PDC to create an anchor position in the healthcare sector. 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 the final allocation of the PDC purchase price:
|
|
|
|
|
|
Fair values:
|
|
|
Cash and cash equivalents
|
$
|
12,904
|
|
|
Accounts receivable — net
|
21,178
|
|
|
Total inventories
|
16,788
|
|
|
Prepaid expenses and other current assets
|
4,233
|
|
|
Goodwill
|
168,150
|
|
|
Other intangible assets
|
109,300
|
|
|
Other assets
|
483
|
|
|
Property, plant and equipment
|
18,015
|
|
|
Accounts payable
|
(10,060
|
)
|
|
Wages and amounts withheld from employees
|
(4,234
|
)
|
|
Taxes, other than income taxes
|
(600
|
)
|
|
Accrued income taxes
|
(57
|
)
|
|
Other current liabilities
|
(5,181
|
)
|
|
Other long-term liabilities
|
(16,858
|
)
|
|
|
314,061
|
|
|
Less: cash acquired
|
(12,904
|
)
|
Fair value of total consideration
|
$
|
301,157
|
|
The final valuation was completed in the second quarter of fiscal 2014 . 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
. Of the total $
168,150
in acquired goodwill,
$57,374
is tax deductible, and $
51,672
of the total $
109,300
in intangible assets is tax deductible.
The following table reflects the unaudited pro-forma operating results of the Company for the three and
nine months ended April 30, 2014
and
2013
, which give effect to the acquisition of PDC as if it had occurred at the beginning of fiscal 2012, after adjusting for the 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 acquisition 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,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net sales, as reported
|
$
|
309,577
|
|
|
$
|
302,483
|
|
|
$
|
908,301
|
|
|
$
|
847,200
|
|
Net sales, pro forma
|
309,577
|
|
|
302,483
|
|
|
908,301
|
|
|
915,625
|
|
Earnings from continuing operations, as reported
|
20,184
|
|
|
21,680
|
|
|
48,835
|
|
|
37,300
|
|
Earnings from continuing operations, pro forma
|
20,184
|
|
|
21,680
|
|
|
48,835
|
|
|
41,600
|
|
Basic earnings from continuing operations per Class A Common Share, as reported
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.94
|
|
|
$
|
0.72
|
|
Basic earnings from continuing operations per Class A Common Share, pro forma
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.94
|
|
|
$
|
0.81
|
|
Diluted earnings from continuing operations per Class A Common Share, as reported
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.93
|
|
|
$
|
0.72
|
|
Diluted earnings from continuing operations per Class A Common Share, pro forma
|
$
|
0.39
|
|
|
$
|
0.42
|
|
|
$
|
0.93
|
|
|
$
|
0.80
|
|
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,
$135
in income tax benefit, and
$6,208
of pretax amortization expense related to intangible assets.
NOTE K — Discontinued Operations
The Company announced its plan to divest its Die-Cut business in fiscal 2013. 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, 2014
and July 31, 2013. The disposal group has been recorded based on the estimated fair value less costs to sell, which resulted in a write down of $
15,658
, recorded in the third quarter of fiscal 2013. The operating results have been reported as discontinued operations for the three and nine month comparative periods ended
April 30, 2014
and
2013
, including the operating results of the following two previously divested businesses:
|
|
|
|
|
|
Divestitures
|
|
Segment
|
|
Date Completed
|
Precision Converting, LLC (“Brady Medical”)
|
|
ID Solutions
|
|
August 2012
|
Varitronics
|
|
ID Solutions
|
|
October 2012
|
The following table summarizes the operating results of discontinued operations for the three and
nine months ended April 30, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30,
|
|
Nine months ended April 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net sales
|
$
|
46,246
|
|
|
$
|
48,849
|
|
|
$
|
161,862
|
|
|
$
|
168,688
|
|
Earnings (loss) from operations of discontinued businesses
|
3,629
|
|
|
(16,054
|
)
|
|
16,390
|
|
|
(11,201
|
)
|
Income tax benefit (expense)
|
275
|
|
|
(1,393
|
)
|
|
(784
|
)
|
|
(3,363
|
)
|
Earnings (loss) from discontinued operations, net of income tax
|
$
|
3,904
|
|
|
$
|
(17,447
|
)
|
|
$
|
15,606
|
|
|
$
|
(14,564
|
)
|
The following table details the assets and liabilities of the Die-Cut disposal group classified as held for sale as of
April 30, 2014
:
|
|
|
|
|
|
April 30, 2014
|
Accounts receivable—net
|
$
|
39,667
|
|
Total inventories
|
16,451
|
|
Prepaid expenses and other current assets
|
922
|
|
Total current assets
|
57,040
|
|
|
|
Other assets:
|
|
Goodwill
|
37,032
|
|
Other intangible assets
|
914
|
|
Other
|
1,541
|
|
Property, plant and equipment—net
|
28,671
|
|
Total assets
|
$
|
125,198
|
|
|
|
Current liabilities:
|
|
Accounts payable
|
$
|
21,252
|
|
Wages and amounts withheld from employees
|
1,725
|
|
Other current liabilities
|
417
|
|
Total current liabilities
|
23,394
|
|
|
|
Other liabilities
|
1,142
|
|
Total liabilities
|
$
|
24,536
|
|
|
|
Net assets of disposal group
|
100,662
|
|
Less: write-down on disposal group
|
(15,658
|
)
|
Net assets of disposal group at fair value
|
$
|
85,004
|
|
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. As of
April 30, 2014
, the accumulated other comprehensive income attributable to the disposal group was approximately
$31,000
.
On February 24, 2014, Brady Corporation and LTI Flexible Products, Inc. (d/b/a Boyd Corporation) entered into a Share and Asset Purchase Agreement for the sale of the Company's Die-Cut Business. The first phase of the sale closed on May 1, 2014. Refer to Note N, "Subsequent Events," for additional information.
NOTE L - Notes Payable
In December 2012, the Company drew down
$220,000
from its revolving loan agreement to fund a portion of the purchase price of the acquisition of PDC. As of
July 31, 2013
, there was
$39,000
outstanding on this revolving loan agreement, which was repaid during the
nine months ended April 30, 2014
. During the three months ended April 30, 2014, the Company drew down an additional
$63,000
in order to fund principal payments on the private placement note issuances, dividends, share repurchases, and other corporate needs During the
nine months ended April 30, 2014
, the maximum amount outstanding on the revolving loan agreement was
$72,000
. As of
April 30, 2014
, the outstanding balance on the credit facility was
$63,000
and there was
$237,000
available for future borrowing, which can be increased to
$387,000
at the Company's option, subject to certain conditions. 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.
In February 2013, the Company entered into a USD-denominated line of credit facility in the People's Republic of 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, 2014
, the maximum amount outstanding was
$14,946
, comprised entirely of USD-denominated borrowings. During the nine months ended April 30, 2014, the Company repaid
$2,401
of this borrowing. As of April 30, 2014, the outstanding balance was
$12,552
and there was
$13,648
available for future borrowing under this credit facility.
As of
April 30, 2014
, borrowings on the revolving loan agreement and China credit facility were as follows:
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
April 30, 2014
|
USD-denominated borrowing on revolving loan agreement
|
|
1.2465
|
%
|
|
$
|
63,000
|
|
USD-denominated borrowing on China line of credit
|
|
1.5518
|
%
|
|
12,552
|
|
Notes payable
|
|
1.3992
|
%
|
|
$
|
75,552
|
|
NOTE M — New Accounting Pronouncements
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 adoption of this update did not have a material impact on the Company's condensed consolidated financial statements; however, the Company provided additional disclosures as required by ASU 2013-02 in Note C, "Comprehensive Income," in the notes to the condensed consolidated financial statements.
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 did not have a material impact on the condensed consolidated financial statements of the Company.
In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (“NOL”) or tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This accounting standard update requires entities to assess whether to net the unrecognized tax benefit with a deferred tax asset as of
the reporting date. This guidance is effective for fiscal years beginning after December 15, 2013. The Company is not anticipating adoption of this update to have a material impact on the Company's condensed consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity", which includes amendments that change the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, expenses and cash flows of discontinued operations. The guidance is effective for fiscal and interim periods beginning after December 15, 2014. The adoption of this update is not expected to have a material impact on the financial statements of the Company.
NOTE N — Subsequent Events
On May 1, 2014, the Company closed the first phase of the sale of the Die-Cut business to LTI Flexible Products, Inc. (d/b/a Boyd Corporation) for cash proceeds of approximately
$53,000
. This phase included the die-cut businesses in Korea, Thailand and Malaysia, and the Balkhausen business in Europe. The remainder of the Asia Die-Cut business is located in China, and its divestiture is expected to close in the fourth quarter ending July 31, 2014.
On May 21, 2014, the Board of Directors declared a quarterly cash dividend to shareholders of the Company’s Class A and Class B Common Stock of
$0.195
per share payable on July 31, 2014, to shareholders of record at the close of business on July 10, 2014.