NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
July 31, 2016
,
2015
and
2014
(In thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
Nature of Operations —
Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The ability to provide customers with a broad range of proprietary, customized, and diverse products for use in various applications, along with a commitment to quality and service, a global footprint, and multiple sales channels, have made Brady a world leader in many of its markets.
Principles of Consolidation —
The accompanying consolidated financial statements include the accounts of Brady Corporation and its subsidiaries (“Brady” or the “Company”), all of which are wholly-owned. All intercompany accounts and transactions have been eliminated in consolidation.
Discontinued Operations —
The results of operations of the Die-Cut businesses have been reported as discontinued operations for the years ended July 31, 2015 and 2014. There were no assets held for sale at July 31, 2016 or July 31, 2015 as the second and final phase of the Die-Cut sale closed in the first quarter of fiscal 2015. In accordance with the authoritative literature, the Company has elected to not separately disclose the cash flows related to discontinued operations. See Note 13 for additional information about the Company's discontinued operations.
Use of Estimates —
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events —
On
September 8, 2016
, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from
$0.81
to
$0.82
per share. A quarterly dividend of
$0.2050
will be paid on
October 31, 2016
, to shareholders of record at the close of business on
October 10, 2016
. This dividend represents an increase of
1.2%
and is the
31st
consecutive annual increase in dividends.
Fair Value of Financial Instruments —
The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable and accounts payable) is a reasonable estimate of the fair value of these instruments due to their short-term nature. See Note 6 for more information regarding the fair value of long-term debt and Note 11 for fair value measurements.
Cash Equivalents —
The Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents, which are recorded at cost.
Accounts Receivables —
Accounts receivables are stated net of allowances for doubtful accounts of
$5,144
and
$3,585
as of
July 31, 2016
and
2015
, respectively. No single customer comprised more than
10%
of the Company’s consolidated net sales in fiscal
2016
,
2015
or
2014
, or
10%
of the Company’s consolidated accounts receivable as of
July 31, 2016
or
2015
. Specific customer provisions are made during review of significant outstanding amounts, in which customer creditworthiness and current economic trends may indicate that collection is doubtful. In addition, provisions are made for the remainder of accounts receivable based upon the age of the receivable and the Company’s historical collection experience.
Inventories —
Inventories are stated at the lower of cost or market. Cost has been determined using the last-in, first-out (“LIFO”) method for certain domestic inventories (
14.0%
of total inventories at
July 31, 2016
, and
12.7%
of total inventories at
July 31, 2015
) and the first-in, first-out (“FIFO”) or average cost methods for other inventories. Had all domestic inventories been accounted for on a FIFO basis instead of on a LIFO basis, the carrying value of inventories would have increased by
$6,929
and
$7,346
as of
July 31, 2016
and
2015
, respectively.
Goodwill —
Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company completes impairment reviews for its reporting units using a fair-value method based on management's judgments and assumptions. The fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between market participants on an arms-length basis. In estimating the fair value, the Company utilizes a discounted cash flow model and market multiples approach. The estimated fair value is compared with the carrying amount of the reporting unit, including goodwill. The annual impairment testing performed on May 1,
2016
, in accordance with ASC 350, "Intangibles - Goodwill and Other" ("Step One") indicated that all reporting units with remaining goodwill had a fair
value substantially in excess of its carrying value. No goodwill impairment charges were recorded during the year ended July 31, 2016.
Long-Lived and Other Intangible Assets —
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed on a straight-line basis, over the estimated periods benefited. Intangible assets with indefinite useful lives as well as goodwill are not subject to amortization. These assets are assessed for impairment annually or more frequently as deemed necessary.
The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived and other finite-lived intangible assets may warrant revision or that the remaining balance of an asset may not be recoverable. If impairment is determined to exist, any related impairment loss is calculated by comparing the fair value of the asset to its carrying value. In fiscal 2016, long-lived and other intangible assets were analyzed for potential impairment. As a result of the analysis, no impairment charges were recorded. Refer to Note 2, "Goodwill and Other Intangible Assets" for further information.
Property, Plant, and Equipment —
Property, plant, and equipment are recorded at cost. The cost of buildings and improvements and machinery and equipment is being depreciated over their estimated useful lives using primarily the straight-line method for financial reporting purposes. The estimated useful lives range from 3 to 33 years as shown below.
|
|
|
|
Asset Category
|
|
Range of Useful Lives
|
Buildings & Improvements
|
|
10 to 33 Years
|
Computer Systems
|
|
5 Years
|
Machinery & Equipment
|
|
3 to 10 Years
|
Fully depreciated assets are retained in property and accumulated depreciation accounts until disposal. Upon disposal, assets and related accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to operations. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the respective asset. Depreciation expense was
$23,375
,
$27,355
, and
$26,727
for the years ended
July 31, 2016
,
2015
and
2014
, respectively.
Catalog Costs and Related Amortization —
The Company accumulates all direct costs incurred, net of vendor cooperative advertising payments, in the development, production, and circulation of its catalogs on its balance sheet until such time as the related catalog is mailed. The catalog costs are subsequently amortized into selling, general, and administrative expense over the expected sales realization cycle, which is one year or less. Consequently, any difference between the estimated and actual revenue stream for a particular catalog and the related impact on amortization expense is realized within a period of one year or less. The estimate of the expected sales realization cycle for a particular catalog is based on the Company’s historical sales experience with identical or similar catalogs, and an assessment of prevailing economic conditions and various competitive factors. The Company tracks subsequent sales realization, reassesses the marketplace, and compares its findings to the previous estimate, and adjusts the amortization of future catalogs, if necessary. At
July 31, 2016
and
2015
,
$8,290
and
$9,547
, respectively, of prepaid catalog costs were included in prepaid expenses and other current assets.
Revenue Recognition —
Revenue is recognized when it is both earned and realized or realizable. The Company’s policy is to recognize revenue when title to the product and risk of loss have transferred to the customer, persuasive evidence of an arrangement exists, and collection of the sales proceeds is reasonably assured, all of which generally occur upon shipment of goods to customers. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when title and the risks and rewards of ownership pass to the customer. Given the nature of the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially affect the results of operations, with the exception of estimated returns and credit memos. The Company provides for an allowance for estimated product returns and credit memos which is recognized as a deduction from sales at the time of the sale. As of
July 31, 2016
and
2015
, the Company had a reserve for estimated product returns and credit memos of
$3,713
and
$3,619
, respectively.
Sales Incentives —
The Company accounts for cash consideration (such as sales incentives and cash discounts) given to its customers or resellers as a reduction of revenue rather than an operating expense. Sales incentives for the years ended
July 31, 2016
,
2015
, and
2014
were
$36,084
,
$36,591
, and
$36,175
, respectively.
Shipping and Handling Fees and Costs —
Amounts billed to a customer in a sale transaction related to shipping and handling fees are reported as net sales and the related costs incurred for shipping and handling are reported as cost of goods sold.
Advertising Costs —
Advertising costs are expensed as incurred, except catalog and mailing costs as outlined previously. Advertising expense for the years ended
July 31, 2016
,
2015
, and
2014
was
$74,204
,
$86,090
, and
$82,561
, respectively.
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 and unrestricted shares of Class A Nonvoting Common Stock to employees and non-employee directors.
The options issued under the plan have an exercise price equal to the fair market value of the underlying stock at the date of grant. Restricted shares and RSUs issued under the plan have an issuance price equal to the fair market value of the underlying stock at the date of grant. The Company also grants restricted shares and RSUs to certain executives and key management employees that vest upon meeting certain financial performance conditions.
In accordance with ASC 718 "Compensation - Stock Compensation," the Company measures and recognizes the compensation expense for all share-based awards made to employees and directors based on estimated grant-date fair values. The Black-Scholes option valuation model is used to determine the fair value of stock option awards on the date of grant. The Company recognizes the compensation cost of all share-based awards at the time it is deemed probable the award will vest. This cost is recognized on a straight-line basis over the vesting period of the award. If it is determined that it is unlikely the award will vest, the expense recognized to date for the award is reversed in the period in which this is evident and the remaining expense is not recorded.
The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards. 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 includes as part of cash flows from financing activities the benefits of tax deductions in excess of the tax-effected compensation of the related stock-based awards for options exercised and restricted shares and RSUs vested during the period. See Note 7 “Stockholder’s Investment” for more information regarding the Company’s incentive stock plans.
Research and Development —
Amounts expended for research and development are expensed as incurred.
Other Comprehensive Income
—
Other comprehensive income consists of foreign currency translation adjustments, net unrealized gains and losses from cash flow hedges and net investment hedges, and the unamortized gain on the post-retirement medical plans net of their related tax effects.
Foreign Currency Translation —
Foreign currency assets and liabilities are translated into United States dollars at end of period rates of exchange, and income and expense accounts are translated at the weighted average rates of exchange for the period. Resulting translation adjustments are included in other comprehensive income.
Risk Management Activities —
The Company does not hold or issue derivative financial instruments for trading purposes.
Income Taxes —
The Company accounts for income taxes in accordance with ASC 740 "Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The Company recognizes the effect of income tax positions only if sustaining those positions is more likely than not. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs.
Foreign Currency Hedging —
The objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions and minimize the foreign currency translation impact on the Company’s foreign operations. While the Company’s risk management objectives and strategies are driven from an economic perspective, the Company attempts, where possible and practical, to ensure that the hedging strategies it engages in qualify for hedge accounting and result in accounting treatment where the earnings effect of the hedging instrument provides substantial offset (in the same period) to the earnings effect of the hedged item. Generally, these risk management transactions will involve the use
of foreign currency derivatives to protect against exposure resulting from transactions in a currency differing from the respective functional currency.
The Company recognizes derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. Changes in the fair value (i.e., gains or losses) of the derivatives are recorded in the accompanying Consolidated Statements of Earnings as "Investment and other income (expense) - net" or as a component of Accumulated Other Comprehensive Income ("AOCI") in the accompanying Consolidated Balance Sheets and in the Consolidated Statements of Comprehensive Income (Loss), as discussed below.
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
. These instruments may or may not qualify as hedges under the accounting guidance for derivative instruments and hedging activities based upon the intended objective of the contract. Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not material for the fiscal years ended
July 31, 2016
,
2015
, and
2014
.
The Company has designated a portion of its foreign exchange contracts as cash flow hedges. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of AOCI and in the cash flow hedge section of the Consolidated Statements of Comprehensive Loss, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
The Company has designated a portion of its foreign exchange contracts as net investment hedges of the Company’s net investments in foreign operations. The Company also utilizes Euro-denominated debt and British Pound-denominated intercompany loans designated as hedge instruments to hedge portions of the Company’s net investments in Euro and British- Pound denominated foreign operations. For net investment hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded as cumulative translation within AOCI and are included in the net investment hedge section of the Consolidated Statements of Comprehensive Income (Loss). Any ineffective portions are to be recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation.
The Company also enters into foreign exchange contracts to create economic hedges to manage foreign exchange risk exposure. The Company has not designated these derivative contracts as hedge transactions, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings.
See Note 12 "Derivatives and Hedging Activities" for more information regarding the Company’s derivative instruments and hedging activities.
New Accounting Standards —
In March 2016, the FASB issued ASU 2016-09, "Stock Compensation: Improvements to Employee Share-Based Payment Accounting," which will simplify several aspects of accounting for share-based payment transactions. The update will require, among other items, that all excess tax deficiencies or benefits be recorded as income tax expense or benefit in the statement of earnings, and not in additional paid-in capital (APIC). This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption of the ASU is permitted and the prospective transition method should be applied. The Company is currently evaluating the impact of this update on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases," which replaces the current lease accounting standard. The update will require, among other items, lessees to recognize the assets and liabilities that arise from most leases on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The ASU must be adopted using a modified retrospective approach and early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principles-based approach for determining revenue recognition. The new guidance requires revenue recognition when control of the goods or services transfers to the customer, replacing the existing guidance which requires revenue recognition when the risks and rewards transfer to the customer. Under the new guidance, companies should recognize revenues in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services.
In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)", which amends the principal-versus-agent implementation guidance in ASU 2014-09. ASU 2016-08 clarifies the principal-versus-agent guidance in ASU 2014-09 and requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on that designation.
In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients", which amends the transition, collectability, and non-cash consideration guidance in ASU 2014-09. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, substantially all of the revenue must have been recognized under legacy GAAP. The amendments also clarify how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria.
ASU 2014-09 (and related updates) is effective for the Company beginning in fiscal 2019. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the standard. The Company is currently evaluating the impact of this update on its consolidated financial statements.
2. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill by reportable segment for the years ended
July 31, 2016
and
2015
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDS
|
|
WPS
|
|
Total
|
Balance as of July 31, 2014
|
$
|
412,289
|
|
|
$
|
102,715
|
|
|
$
|
515,004
|
|
Impairment charge
|
—
|
|
|
(37,112
|
)
|
|
(37,112
|
)
|
Translation adjustments
|
(29,503
|
)
|
|
(15,190
|
)
|
|
(44,693
|
)
|
Balance as of July 31, 2015
|
$
|
382,786
|
|
|
$
|
50,413
|
|
|
$
|
433,199
|
|
Translation adjustments
|
1,743
|
|
|
(5,071
|
)
|
|
(3,328
|
)
|
Balance as of July 31, 2016
|
$
|
384,529
|
|
|
$
|
45,342
|
|
|
$
|
429,871
|
|
Goodwill at
July 31, 2016
and
2015
included
$118,637
and
$209,392
of accumulated impairment losses within the IDS and WPS segments, respectively, for a total of
$328,029
. There were no impairment charges recorded during fiscal 2016. The decrease of
$3,328
in the carrying amount of goodwill as of
July 31, 2016
compared to
July 31, 2015
was due to the effect of currency fluctuations during the fiscal year.
The annual impairment testing performed on May 1,
2016
, in accordance with ASC 350, “Intangibles - Goodwill and Other” (“Step One”) indicated that all of the reporting units with remaining goodwill (IDS Americas & Europe, PeopleID, and WPS Europe) passed Step One of the goodwill impairment test as each had a fair value substantially in excess of its carrying value.
During fiscal 2015, goodwill with carrying amounts of
$26,246
and
$10,866
in the WPS APAC and WPS Americas reporting units, respectively, was written off entirely, resulting in impairment charges of
$37,112
.
Other Intangible Assets
Other intangible assets include patents, tradenames, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2016
|
|
July 31, 2015
|
|
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
|
|
$
|
12,252
|
|
|
$
|
(11,063
|
)
|
|
$
|
1,189
|
|
|
5
|
|
$
|
12,073
|
|
|
$
|
(10,641
|
)
|
|
$
|
1,432
|
|
Tradenames and other
|
5
|
|
14,359
|
|
|
(13,709
|
)
|
|
650
|
|
|
5
|
|
14,375
|
|
|
(12,471
|
)
|
|
1,904
|
|
Customer relationships
|
7
|
|
135,795
|
|
|
(100,830
|
)
|
|
34,965
|
|
|
7
|
|
136,693
|
|
|
(94,537
|
)
|
|
42,156
|
|
Non-compete agreements and other
|
4
|
|
9,153
|
|
|
(9,142
|
)
|
|
11
|
|
|
4
|
|
9,076
|
|
|
(9,032
|
)
|
|
44
|
|
Unamortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
N/A
|
|
22,991
|
|
|
—
|
|
|
22,991
|
|
|
N/A
|
|
23,352
|
|
|
—
|
|
|
23,352
|
|
Total
|
|
|
$
|
194,550
|
|
|
$
|
(134,744
|
)
|
|
$
|
59,806
|
|
|
|
|
$
|
195,569
|
|
|
$
|
(126,681
|
)
|
|
$
|
68,888
|
|
The decrease in the gross carrying amount of other intangible assets as of July 31, 2016 compared to July 31, 2015 was primarily due to the effect of currency fluctuations during the year.
In fiscal 2015, tradenames and customer relationships primarily associated with the WPS APAC and WPS Americas reporting units were written down to fair value. As a result, the Company recognized impairment charges of
$6,651
during fiscal 2015.
Amortization expense on intangible assets during fiscal
2016
,
2015
, and
2014
was $
9,056
, $
12,103
and $
17,871
, respectively. The amortization over each of the next five fiscal years is projected to be $
7,068
, $
6,379
, $
6,101
, $
5,581
and $
5,534
for the fiscal years ending July 31,
2017
,
2018
,
2019
,
2020
and
2021
, respectively.
3. Other Comprehensive (Loss) Income
Other comprehensive (loss) 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 loss, net of tax, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on cash flow hedges
|
|
Gain on postretirement plans
|
|
Foreign currency translation adjustments
|
|
Accumulated other comprehensive (loss) income
|
Ending balance, July 31, 2014
|
$
|
(12
|
)
|
|
$
|
4,854
|
|
|
$
|
59,314
|
|
|
$
|
64,156
|
|
Other comprehensive (loss) income before reclassification
|
829
|
|
|
2,236
|
|
|
(73,098
|
)
|
|
(70,033
|
)
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
(808
|
)
|
|
(3,652
|
)
|
|
(34,697
|
)
|
|
(39,157
|
)
|
Ending balance, July 31, 2015
|
$
|
9
|
|
|
$
|
3,438
|
|
|
$
|
(48,481
|
)
|
|
$
|
(45,034
|
)
|
Other comprehensive (loss) income before reclassification
|
(986
|
)
|
|
445
|
|
|
(7,643
|
)
|
|
(8,184
|
)
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
120
|
|
|
(1,647
|
)
|
|
—
|
|
|
(1,527
|
)
|
Ending balance, July 31, 2016
|
$
|
(857
|
)
|
|
$
|
2,236
|
|
|
$
|
(56,124
|
)
|
|
$
|
(54,745
|
)
|
The increase in accumulated other comprehensive loss as of
July 31, 2016
compared to
July 31, 2015
, was primarily due to the appreciation of the U.S. dollar against certain other currencies during the twelve-month period. The foreign currency translation adjustments column in the table above includes foreign currency translation, foreign currency translation on intercompany notes and the impact of settlements of net investment hedges, net of tax. Of the total
$1,527
in amounts reclassified from AOCI, the
$120
loss on cash flow hedges was reclassified into cost of products sold, and the
$1,647
net gain on post-retirement plans was reclassified into SG&A on the Consolidated Statement of Earnings in fiscal 2016.
The following table illustrates the income tax (expense) benefit on the components of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Income tax (expense) benefit related to items of other comprehensive (loss) income:
|
|
|
|
|
|
|
Net investment hedge translation adjustments
|
|
$
|
(1,804
|
)
|
|
$
|
(8,450
|
)
|
|
$
|
302
|
|
Long-term intercompany loan settlements
|
|
—
|
|
|
—
|
|
|
579
|
|
Cash flow hedges
|
|
192
|
|
|
(308
|
)
|
|
28
|
|
Pension and other post-retirement benefits
|
|
738
|
|
|
949
|
|
|
(1,898
|
)
|
Other income tax adjustments
|
|
(2,154
|
)
|
|
(415
|
)
|
|
(58
|
)
|
Income tax expense related to items of other comprehensive (loss) income
|
|
$
|
(3,028
|
)
|
|
$
|
(8,224
|
)
|
|
$
|
(1,047
|
)
|
4. Employee Benefit Plans
The Company provides postretirement medical benefits (the “Plan”) for eligible regular full and part-time domestic employees (including spouses) who retired prior to January 1, 2016, as outlined by the Plan. Employer contributions to the plan are based on the employee’s age and service at retirement. The Plan was amended effective March 16, 2015 to eliminate postretirement medical benefits for eligible domestic employees retiring on or after January 1, 2016. This amendment resulted in a decrease in the accumulated postretirement benefit obligation of
$4,490
and recognition of a curtailment gain of
$4,296
in fiscal 2015. The curtailment gain was recorded in SG&A on the Consolidated Statements of Earnings.
The accounting guidance on defined benefit pension and other postretirement plans requires full recognition of the funded status of defined benefit and other postretirement plans on the balance sheet as an asset or a liability. The guidance also requires that unrecognized prior service costs/credits, gains/losses, and transition obligations/assets be recorded in AOCI, thus not changing the income statement recognition rules for such plans.
The Plan is unfunded and recorded as a liability in the accompanying Consolidated Balance Sheets as of
July 31, 2016
and
2015
. The following table provides a reconciliation of the changes in the Plan’s accumulated benefit obligation during the years ended July 31:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Obligation at beginning of year
|
|
$
|
4,135
|
|
|
$
|
8,056
|
|
Service cost
|
|
9
|
|
|
210
|
|
Interest cost
|
|
114
|
|
|
222
|
|
Actuarial (gain) loss
|
|
(38
|
)
|
|
502
|
|
Benefit payments
|
|
(420
|
)
|
|
(365
|
)
|
Plan amendments
|
|
—
|
|
|
(1,935
|
)
|
Curtailment gain
|
|
—
|
|
|
(2,555
|
)
|
Obligation at end of fiscal year
|
|
$
|
3,800
|
|
|
$
|
4,135
|
|
As of
July 31, 2016
and
2015
, amounts recognized as liabilities in the accompanying Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Current liability
|
|
$
|
499
|
|
|
$
|
659
|
|
Non-current liability
|
|
3,301
|
|
|
3,476
|
|
|
|
$
|
3,800
|
|
|
$
|
4,135
|
|
As of
July 31, 2016
and
2015
, pre-tax amounts recognized in accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Net actuarial gain
|
|
$
|
6,048
|
|
|
$
|
6,655
|
|
Prior service credit
|
|
—
|
|
|
1,035
|
|
|
|
$
|
6,048
|
|
|
$
|
7,690
|
|
Net periodic benefit (gain) cost for the Plan for fiscal years
2016
,
2015
, and
2014
includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net periodic postretirement benefit (gain) cost included the following components:
|
|
|
|
|
|
|
Service cost
|
|
$
|
9
|
|
|
$
|
210
|
|
|
$
|
674
|
|
Interest cost
|
|
114
|
|
|
222
|
|
|
534
|
|
Amortization of prior service credit
|
|
(1,035
|
)
|
|
(1,169
|
)
|
|
(203
|
)
|
Amortization of net actuarial gain
|
|
(646
|
)
|
|
(804
|
)
|
|
(265
|
)
|
Curtailment gain
|
|
—
|
|
|
(4,296
|
)
|
|
—
|
|
Periodic postretirement benefit (gain) cost
|
|
$
|
(1,558
|
)
|
|
$
|
(5,837
|
)
|
|
$
|
740
|
|
The estimated net actuarial gain that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost over the next fiscal year is
$544
. No prior service credit remains due to the plan amendment to eliminate post-retirement benefits for employees retiring after January 1, 2016.
The following assumptions were used in accounting for the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average discount rate used in determining accumulated postretirement benefit obligation
|
|
2.50
|
%
|
|
3.00
|
%
|
|
3.50
|
%
|
Weighted average discount rate used in determining net periodic benefit cost
|
|
3.00
|
%
|
|
3.41
|
%
|
|
4.00
|
%
|
Assumed health care trend rate used to measure APBO at July 31
|
|
7.50
|
%
|
|
7.00
|
%
|
|
7.50
|
%
|
Rate to which cost trend rate is assumed to decline (the ultimate trend rate)
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
Fiscal year the ultimate trend rate is reached
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
The discount rate utilized in preparing the accumulated postretirement benefit obligation liability was decreased to
2.50%
in fiscal
2016
from
3.00%
in fiscal
2015
as a result of a decrease in the bond yield as of the Company’s measurement date of
July 31, 2016
.
A one-percentage point change in assumed health care cost trend rates would have the following effects on the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
One-Percentage
Point Increase
|
|
One-Percentage
Point Decrease
|
Effect on future service and interest cost
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
Effect on accumulated postretirement benefit obligation at July 31, 2016
|
|
17
|
|
|
(18
|
)
|
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the years ending July 31:
|
|
|
|
|
|
|
2017
|
$
|
499
|
|
2018
|
449
|
|
2019
|
377
|
|
2020
|
359
|
|
2021
|
339
|
|
2022 through 2026
|
1,342
|
|
The Company sponsors defined benefit pension plans that are primarily unfunded and provide an income benefit upon termination or retirement for certain of its international employees. As of
July 31, 2016
and
2015
, the accumulated pension
obligation related to these plans was
$7,120
and
$6,020
, respectively. As of
July 31, 2016
and
2015
, pre-tax amounts recognized in accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets were losses of
$1,161
and
$1,361
, respectively. The net periodic benefit cost for these plans was
$795
,
$724
, and
$286
during the years ended
July 31, 2016
,
2015
and
2014
, respectively.
The Company has retirement and profit-sharing plans covering substantially all full-time domestic employees and certain employees of its foreign subsidiaries. Contributions to the plans are determined annually or quarterly, according to the respective plans, based on earnings of the respective companies and employee contributions. Accrued retirement and profit-sharing contributions of
$3,380
and
$2,743
were included in other current liabilities on the accompanying Consolidated Balance Sheets as of
July 31, 2016
and
2015
, respectively. The amounts charged to expense for these retirement and profit sharing plans were
$10,407
,
$9,912
, and
$10,830
during the years ended
July 31, 2016
,
2015
and
2014
, respectively.
The Company also has deferred compensation plans for directors, officers and key executives which are discussed below. At
July 31, 2016
and
2015
,
$18,758
and
$18,321
, respectively, of deferred compensation was included in other long-term liabilities in the accompanying Consolidated Balance Sheets.
During fiscal 1998, the Company adopted a new deferred compensation plan that invests solely in shares of the Company’s Class A Nonvoting Common Stock. Participants in a predecessor phantom stock plan were allowed to convert their balances in the old plan to this new plan. The new plan was funded initially by the issuance of shares of Class A Nonvoting Common Stock to a Rabbi Trust. All deferrals into the new plan result in purchases of Class A Nonvoting Common Stock by the Rabbi Trust. No deferrals are allowed into a predecessor plan. Shares held by the Rabbi Trust are distributed to participants upon separation from the Company as defined in the plan agreement.
During fiscal 2002, the Company adopted a new deferred compensation plan for executives and non-employee directors that allows future contributions to be invested in shares of the Company’s Class A Nonvoting Common Stock or in certain other investment vehicles. Prior deferred compensation deferrals must remain in the Company’s Class A Nonvoting Common Stock. All participant deferrals into the new plan result in purchases of Class A Nonvoting Common Stock or certain other investment vehicles by the Rabbi Trust. Balances held by the Rabbi Trust are distributed to participants upon separation from the Company as defined in the plan agreement. On May 1, 2006, the plan was amended to require that deferrals into the Company’s Class A Nonvoting Common Stock must remain in the Company’s Class A Nonvoting Common Stock and be distributed in shares of the Company’s Class A Nonvoting Common Stock. On May 21, 2014, the Director Deferred Compensation Plan was amended to allow participants to transfer funds from other investment funds into the Company’s Class A Nonvoting Common Stock. Funds are not permitted to be transferred from the Company’s Class A Nonvoting Common Stock into other investment funds until six months after the Director resigns from the Board. No such amendment was made to the Executive Deferred Compensation Plan.
5. Income Taxes
Earnings (loss) from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
61,349
|
|
|
$
|
(582
|
)
|
|
$
|
(134,596
|
)
|
Other Nations
|
|
47,996
|
|
|
25,577
|
|
|
81,487
|
|
Total
|
|
$
|
109,345
|
|
|
$
|
24,995
|
|
|
$
|
(53,109
|
)
|
Income tax expense (benefit) from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Current income tax expense (benefit):
|
|
|
|
|
|
|
United States
|
|
$
|
5,048
|
|
|
$
|
9,075
|
|
|
$
|
(1,137
|
)
|
Other Nations
|
|
19,929
|
|
|
18,806
|
|
|
19,513
|
|
States (U.S.)
|
|
1,348
|
|
|
(352
|
)
|
|
1,090
|
|
|
|
$
|
26,325
|
|
|
$
|
27,529
|
|
|
$
|
19,466
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
|
United States
|
|
$
|
3,946
|
|
|
$
|
(5,906
|
)
|
|
$
|
(22,754
|
)
|
Other Nations
|
|
(1,387
|
)
|
|
(1,868
|
)
|
|
(1,803
|
)
|
States (U.S.)
|
|
351
|
|
|
338
|
|
|
128
|
|
|
|
$
|
2,910
|
|
|
$
|
(7,436
|
)
|
|
$
|
(24,429
|
)
|
Total income tax expense (benefit)
|
|
$
|
29,235
|
|
|
$
|
20,093
|
|
|
$
|
(4,963
|
)
|
Deferred income taxes result from temporary differences in the recognition of revenues and expenses for financial statement and income tax purposes.
The approximate tax effects of temporary differences are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2016
|
|
|
Assets
|
|
Liabilities
|
|
Total
|
Inventories
|
|
$
|
5,142
|
|
|
$
|
(153
|
)
|
|
$
|
4,989
|
|
Prepaid catalog costs
|
|
—
|
|
|
(1,577
|
)
|
|
(1,577
|
)
|
Employee benefits
|
|
6,347
|
|
|
—
|
|
|
6,347
|
|
Accounts receivable
|
|
1,619
|
|
|
(15
|
)
|
|
1,604
|
|
Fixed Assets
|
|
2,847
|
|
|
(2,695
|
)
|
|
152
|
|
Intangible Assets
|
|
1,144
|
|
|
(31,777
|
)
|
|
(30,633
|
)
|
Capitalized R&D expenditures
|
|
855
|
|
|
—
|
|
|
855
|
|
Deferred compensation
|
|
20,549
|
|
|
—
|
|
|
20,549
|
|
Postretirement benefits
|
|
4,152
|
|
|
—
|
|
|
4,152
|
|
Tax credit carry-forwards and net operating losses
|
|
56,790
|
|
|
—
|
|
|
56,790
|
|
Less valuation allowance
|
|
(37,992
|
)
|
|
—
|
|
|
(37,992
|
)
|
Other, net
|
|
10,918
|
|
|
(15,173
|
)
|
|
(4,255
|
)
|
Total
|
|
$
|
72,371
|
|
|
$
|
(51,390
|
)
|
|
$
|
20,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2015
|
|
|
Assets
|
|
Liabilities
|
|
Total
|
Inventories
|
|
$
|
4,387
|
|
|
$
|
(197
|
)
|
|
$
|
4,190
|
|
Prepaid catalog costs
|
|
—
|
|
|
(2,179
|
)
|
|
(2,179
|
)
|
Employee benefits
|
|
1,612
|
|
|
—
|
|
|
1,612
|
|
Accounts receivable
|
|
1,136
|
|
|
(14
|
)
|
|
1,122
|
|
Fixed Assets
|
|
3,344
|
|
|
(3,213
|
)
|
|
131
|
|
Intangible Assets
|
|
1,242
|
|
|
(26,570
|
)
|
|
(25,328
|
)
|
Capitalized R&D expenditures
|
|
1,140
|
|
|
—
|
|
|
1,140
|
|
Deferred compensation
|
|
19,549
|
|
|
—
|
|
|
19,549
|
|
Postretirement benefits
|
|
3,563
|
|
|
—
|
|
|
3,563
|
|
Tax credit carry-forwards and net operating losses
|
|
66,744
|
|
|
—
|
|
|
66,744
|
|
Less valuation allowance
|
|
(39,922
|
)
|
|
—
|
|
|
(39,922
|
)
|
Other, net
|
|
9,538
|
|
|
(12,475
|
)
|
|
(2,937
|
)
|
Total
|
|
$
|
72,333
|
|
|
$
|
(44,648
|
)
|
|
$
|
27,685
|
|
In November 2015, the FASB issued new accounting guidance on the balance sheet classification of deferred taxes. The new guidance requires that all deferred taxes be presented as non-current on the Consolidated Balance Sheets. In the fourth quarter of fiscal 2016, the Company adopted this guidance and reclassified current deferred tax assets and current deferred tax liabilities from prepaid expenses and other current assets and other current liabilities, respectively, to deferred income taxes and other liabilities, respectively, in prior-period Consolidated Balance Sheets to conform to the current period's presentation. The impact of this reclassification on the July 31, 2015 Consolidated Balance Sheet was a reclassification of
$12,442
from prepaid expenses and other current assets to deferred income taxes and
$254
from other current liabilities to other liabilities.
Tax loss carry-forwards at
July 31, 2016
are comprised of:
|
|
•
|
Foreign net operating loss carry-forwards of
$119,874
, of which
$89,637
have no expiration date and the remainder of which expire within the next
eight years
.
|
|
|
•
|
State net operating loss carry-forwards of
$42,095
, which expire from
2017 to 2034
.
|
|
|
•
|
Foreign tax credit carry-forwards of
$14,381
, which expire from
2021 to 2025
.
|
|
|
•
|
State research and development credit carry-forwards of
$11,526
, which expire from
2017 to 2031
.
|
The valuation allowance decreased by
$1,930
during the fiscal year ended
July 31, 2016
, primarily due to the appreciation of the U.S. Dollar against the Swedish Krona and the utilization of net operating loss carryforwards in China and India. These decreases were partially offset by the increase in valuation allowances in Brazil due to the generation of current year net operating losses. If realized or reversed in future periods, substantially all of the valuation allowance would impact the income tax rate.
The valuation allowance increased by
$2,513
during the fiscal year ended
July 31, 2015
, mainly due to increased valuation allowances against state tax credit carryforwards and increased valuation allowances in certain jurisdictions, including Brazil, China, Sweden, and the United Kingdom. These increases were partially offset by reductions in the tax rates applied to valuation allowances in the United Kingdom.
Rate Reconciliation
A reconciliation of the tax computed by applying the statutory U.S. federal income tax rate to earnings (loss) from continuing operations before income taxes to the total income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Tax at statutory rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Impairment charges (1)
|
|
—
|
%
|
|
55.8
|
%
|
|
(40.3
|
)%
|
State income taxes, net of federal tax benefit (2)
|
|
0.8
|
%
|
|
1.6
|
%
|
|
(1.1
|
)%
|
International rate differential
|
|
0.4
|
%
|
|
(2.2
|
)%
|
|
(1.3
|
)%
|
Rate variances arising from foreign subsidiary distributions
|
|
0.5
|
%
|
|
(0.3
|
)%
|
|
(7.5
|
)%
|
Adjustments to tax accruals and reserves (3)
|
|
(3.7
|
)%
|
|
17.8
|
%
|
|
25.5
|
%
|
Research and development tax credits and section 199 manufacturer’s deduction
|
|
(3.6
|
)%
|
|
(3.9
|
)%
|
|
3.6
|
%
|
Non-deductible divestiture fees and account write-offs
|
|
(0.4
|
)%
|
|
(4.8
|
)%
|
|
(5.2
|
)%
|
Deferred tax and other adjustments (4)
|
|
(1.4
|
)%
|
|
(21.1
|
)%
|
|
0.7
|
%
|
Other, net
|
|
(0.9
|
)%
|
|
2.5
|
%
|
|
(0.1
|
)%
|
Effective tax rate
|
|
26.7
|
%
|
|
80.4
|
%
|
|
9.3
|
%
|
|
|
(1)
|
For the year ended July 31, 2015,
$39.8 million
of the total impairment charge of
$46.9 million
recorded is nondeductible for income tax purposes. For the year ended July 31, 2014,
$61.1 million
of the total impairment charge of $
148.6 million
recorded is nondeductible for income tax purposes.
|
|
|
(2)
|
The year ended July 31, 2014 includes a
$3.1 million
increase in valuation allowances against certain state tax credit carryforwards.
|
|
|
(3)
|
The years ended July 31, 2014 and 2015 include increases in current year uncertain tax positions, while the year ended July 31, 2016 includes reductions of uncertain tax positions resulting from the closure of audits and lapses in statutes of limitations.
|
|
|
(4)
|
The year ended July 31, 2015 includes
$5.0 million
of foreign tax credit carryforward from the fiscal 2014 U.S. tax return.
|
Uncertain Tax Positions
The Company follows the guidance in ASC 740, "Income Taxes" regarding uncertain tax positions. The guidance requires application of a “more likely than not” threshold to the recognition and de-recognition of tax positions. A reconciliation of unrecognized tax benefits (excluding interest and penalties) is as follows:
|
|
|
|
|
Balance at July 31, 2013
|
$
|
37,575
|
|
Additions based on tax positions related to the current year
|
4,596
|
|
Additions for tax positions of prior years
|
—
|
|
Reductions for tax positions of prior years
|
(14,569
|
)
|
Lapse of statute of limitations
|
(3,711
|
)
|
Settlements with tax authorities
|
(5,832
|
)
|
Cumulative Translation Adjustments and other
|
(210
|
)
|
|
|
Balance as of July 31, 2014
|
$
|
17,849
|
|
Additions based on tax positions related to the current year
|
5,862
|
|
Additions for tax positions of prior years
|
—
|
|
Reductions for tax positions of prior years
|
(280
|
)
|
Lapse of statute of limitations
|
(805
|
)
|
Settlements with tax authorities
|
(221
|
)
|
Cumulative Translation Adjustments and other
|
(1,272
|
)
|
|
|
Balance as of July 31, 2015
|
$
|
21,133
|
|
Additions based on tax positions related to the current year
|
3,093
|
|
Additions for tax positions of prior years
|
1,290
|
|
Reductions for tax positions of prior years
|
(9,369
|
)
|
Lapse of statute of limitations
|
(344
|
)
|
Settlements with tax authorities
|
(456
|
)
|
Cumulative Translation Adjustments and other
|
(53
|
)
|
|
|
Balance as of July 31, 2016
|
$
|
15,294
|
|
The
$15,294
of unrecognized tax benefits, if recognized, would affect the Company's effective income tax rate. The Company has classified
$9,304
and
$15,402
, excluding interest and penalties, of the reserve for uncertain tax positions in Other Liabilities on the Consolidated Balance Sheets as of
July 31, 2016
and
2015
, respectively. The Company has classified
$5,990
and
$5,731
, excluding interest and penalties, as a reduction of long-term deferred income tax assets on the Consolidated Balance Sheets as of
July 31, 2016
and
2015
, respectively.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense (benefit) on the Consolidated Statements of Earnings.
Interest expense is recognized on the amount of potentially underpaid taxes associated with the Company's tax positions, beginning in the first period in which interest starts accruing under the respective tax law and continuing until the tax positions are settled. The Company recognized an increase of
$3
and decreases of
$157
and
$498
in interest expense during the years ended
July 31, 2016
,
2015
, and
2014
, respectively. There was a
$66
increase to the reserve for uncertain tax positions for penalties during the year ended
July 31, 2016
, no changes during the fiscal year ended July 31, 2015, and an increase of
$25
for the year ended July 31, 2014. These amounts are net of reversals due to reductions for tax positions of prior years, statute of limitations, and settlements. At
July 31, 2016
and
2015
, the Company had
$1,530
and
$1,531
, respectively, accrued for interest on unrecognized tax benefits. Penalties are accrued if the tax position does not meet the minimum statutory threshold to avoid the payment of a penalty.
At
July 31, 2016
and
2015
, the Company had
$2,730
and
$2,664
, respectively, accrued for penalties on unrecognized tax benefits.
The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by
$3,878
within twelve months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or statute
expirations. The maximum amount that would be recognized through the Consolidated Statements of Earnings as an income tax benefit is
$3,878
.
During the year ended
July 31, 2016
, the Company recognized
$428
of tax benefits (including interest and penalties) associated with the lapse of statutes of limitations. The Company also recognized
$10,728
of tax benefits (including interest and penalties) associated with the reduction of tax positions for prior years due to the closure of tax audits.
The Company and its subsidiaries file income tax returns in the U.S., various state, and foreign jurisdictions. The following table summarizes the open tax years for the Company's major jurisdictions:
|
|
|
|
Jurisdiction
|
|
Open Tax Years
|
United States — Federal
|
|
F’15 — F’16
|
France
|
|
F’12 — F’16
|
Germany
|
|
F’09 — F’16
|
United Kingdom
|
|
F’14 — F’16
|
Unremitted Earnings
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. These earnings relate to ongoing operations and at
July 31, 2016
, were approximately
$259,334
. These earnings have been reinvested in non-U.S. business operations, and the Company does not intend to repatriate these earnings to fund U.S. operations. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested. At
July 31, 2016
,
$139,747
of the total
$141,228
in cash and cash equivalents was held outside of the U.S.
6. Debt
On May 13, 2010, the Company completed a private placement of
€75.0 million
aggregate principal amount of senior unsecured notes to accredited institutional investors. The
€75.0 million
of senior notes consists of
€30.0 million
aggregate principal amount of
3.71%
Series 2010-A Senior Notes, due May 13, 2017 and
€45.0 million
aggregate principal amount of
4.24%
Series 2010-A Senior Notes, due May 13, 2020, with interest payable on the notes semiannually. This private placement was exempt from the registration requirements of the Securities Act of 1933. The notes have been fully and unconditionally guaranteed on an unsecured basis by the Company’s domestic subsidiaries.
During fiscal 2006 and 2007, the Company completed two private placement note issuances totaling
$350 million
in ten-year fixed rate notes with varying maturity dates to institutional investors at interest rates varying
from 5.30% to 5.33%
. The notes must be repaid equally over seven years, with interest payable on the notes due semiannually on various dates throughout the year. The private placements were exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale and may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. The notes have certain prepayment penalties for repaying them prior to the maturity date. Under the debt agreement, the Company made scheduled principal payments of
$42.5 million
in fiscal years 2016 and 2015, respectively. The final principal payment for the 2006 series of notes was made during fiscal 2016, while the final principal payment for the 2007 series of notes is due in fiscal 2017. The Company intends to utilize our revolving credit facility to fund private placement principal payments due during the fiscal year ended July 31, 2017, and therefore the maturities are included in "Long-term obligations, less current maturities" on the Consolidated Balance Sheets as of
July 31, 2016
.
On September 25, 2015, the Company and certain of its subsidiaries entered into an unsecured
$300,000
multi-currency revolving loan agreement with a group of six banks. Under the new revolving loan agreement, which has a final maturity date of September 25, 2020, the Company has the option to select either a base interest rate (based upon the higher of the federal funds rate plus one-half of 1%, the prime rate of Bank of America plus a margin based on the Company’s consolidated leverage ratio, or the one-month LIBOR rate plus 1%) or a Eurocurrency interest rate (at the LIBOR rate plus a margin based on the Company’s consolidated leverage ratio). At the Company’s option, and subject to certain conditions, the available amount under the revolving loan agreement may be increased from
$300,000
up to
$450,000
. During fiscal
2016
, the Company drew
$10,000
from its revolving loan agreement in order to fund general corporate needs and the maximum amount outstanding throughout the year was
$135,000
. As of
July 31, 2016
, the outstanding balance on the credit facility was
$112,000
and the Company had outstanding letters of credit under the revolving loan agreement of
$4,261
. There was
$183,739
available for future borrowing under the credit facility, which can be increased to
$333,739
at the Company's option, subject to certain conditions. The revolving loan agreement has a final maturity date of September 25, 2020. As such, the borrowing is included in "Long-term obligations, less current maturities" on the Consolidated Balance Sheets.
The Company has two multi-currency lines of credit in China with capacity of
$10,000
each. These lines of credit support USD-denominated or CNY-denominated borrowing to fund working capital and operations for the Company's Chinese entities and are due on demand. The borrowings under these facilities may be made for a period up to one year from the date of borrowing with interest on the USD-denominated borrowings incurred equal to U.S. dollar LIBOR on the date of borrowing plus a margin based upon duration and on the CNY-denominated borrowings incurred equal to the local China rate based upon duration. There is no ultimate maturity on the facilities and they are subject to periodic review and repricing. The Company is not required to comply with any financial covenants as part of the agreements. The maximum amount outstanding on these facilities was
$10,411
and the Company repaid
$5,483
during fiscal
2016
. As of
July 31, 2016
, the aggregate outstanding balance on these lines of credit in China was
$4,928
and there was
$15,072
available for future borrowings. Due to the short-term nature of these credit facilities, the borrowings are classified as "Notes payable" within current liabilities on the Consolidated Balance Sheets.
The Company’s debt agreements require it to maintain certain financial covenants, including a ratio of debt to the trailing twelve months EBITDA, as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio) and the trailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of
July 31, 2016
, the Company was in compliance with these financial covenants, with the ratio of debt to EBITDA, as defined by the agreements,
equal to 1.4 to 1.0
and the interest expense coverage ratio
equal to 19.9 to 1.0
.
Total debt consists of the following as of July 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Euro-denominated notes payable in 2017 at a fixed rate of 3.71%
|
|
$
|
33,459
|
|
|
$
|
32,960
|
|
Euro-denominated notes payable in 2020 at a fixed rate of 4.24%
|
|
50,188
|
|
|
49,442
|
|
USD-denominated notes payable through 2016 at a fixed rate of 5.30%
|
|
—
|
|
|
26,143
|
|
USD-denominated notes payable through 2017 at a fixed rate of 5.33%
|
|
16,335
|
|
|
32,743
|
|
USD-denominated borrowing on revolving loan agreement at a weighted average rate of 1.3136% and 1.2740% as of July 31, 2016 and 2015, respectively
|
|
112,000
|
|
|
102,000
|
|
USD-denominated borrowing on revolving loan agreement at a weighted average rate of 1.9501% as of July 31, 2015.
|
|
—
|
|
|
1,836
|
|
CNY-denominated borrowing on revolving loan agreement at a weighted average rate of 4.0042% and 4.6634% as of July 31, 2016 and 2015, respectively (USD equivalent)
|
|
4,928
|
|
|
8,575
|
|
|
|
$
|
216,910
|
|
|
$
|
253,699
|
|
Less notes payable
|
|
(4,928
|
)
|
|
(10,411
|
)
|
Total long-term debt
|
|
$
|
211,982
|
|
|
$
|
243,288
|
|
The Company had outstanding letters of credit of
$4,261
and
3,327
at
July 31, 2016
and
July 31, 2015
, respectively.
The estimated fair value of the Company’s long-term obligations was
$218,977
and
$252,254
at
July 31, 2016
and
July 31, 2015
, respectively, as compared to the carrying value of
$211,982
and
$243,288
at
July 31, 2016
and
July 31, 2015
, respectively. The fair value of the long-term obligations, which were determined using the market approach based upon the interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. Due to the short-term nature and variable interest rate pricing of the Company's revolving debt in China, it is determined that the carrying value of the debt equals the fair value of the debt.
Maturities on long-term debt are as follows:
|
|
|
|
|
Years Ending July 31,
|
|
2017
|
$
|
49,794
|
|
2018
|
—
|
|
2019
|
—
|
|
2020
|
50,188
|
|
2021
|
112,000
|
|
Total
|
$
|
211,982
|
|
7. Stockholders' Investment
Information as to the Company’s capital stock at
July 31, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2016
|
|
July 31, 2015
|
|
|
Shares
Authorized
|
|
Shares
Issued
|
|
(thousands)
Amount
|
|
Shares
Authorized
|
|
Shares
Issued
|
|
(thousands)
Amount
|
Preferred Stock, $.01 par value
|
|
5,000,000
|
|
|
|
|
|
|
5,000,000
|
|
|
|
|
|
Cumulative Preferred Stock:
6% Cumulative
|
|
5,000
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
1972 Series
|
|
10,000
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
1979 Series
|
|
30,000
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Common Stock, $.01 par value: Class A Nonvoting
|
|
100,000,000
|
|
|
51,261,487
|
|
|
$
|
513
|
|
|
100,000,000
|
|
|
51,261,487
|
|
|
$
|
513
|
|
Class B Voting
|
|
10,000,000
|
|
|
3,538,628
|
|
|
35
|
|
|
10,000,000
|
|
|
3,538,628
|
|
|
35
|
|
|
|
|
|
|
|
$
|
548
|
|
|
|
|
|
|
$
|
548
|
|
Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual, noncumulative cash dividend of
$.01665
per share. Thereafter, any further dividend in that fiscal year must be paid on each share of Class A Common Stock and Class B Common Stock on an equal basis.
Other than as required by law, holders of the Class A Common Stock are not entitled to any vote on corporate matters, unless, in each of the three preceding fiscal years, the
$.01665
preferential dividend described above has not been paid in full. Holders of the Class A Common Stock are entitled to one vote per share for the entire fiscal year immediately following the third consecutive fiscal year in which the preferential dividend is not paid in full. Holders of Class B Common Stock are entitled to one vote per share for the election of directors and for all other purposes.
Upon liquidation, dissolution or winding up of the Company, and after distribution of any amounts due to holders of Preferred Stock, if any, holders of the Class A Common Stock are entitled to receive the sum of
$0.835
per share before any payment or distribution to holders of the Class B Common Stock. Thereafter, holders of the Class B Common Stock are entitled to receive a payment or distribution of
$0.835
per share. Thereafter, holders of the Class A Common Stock and Class B Common Stock share equally in all payments or distributions upon liquidation, dissolution or winding up of the Company.
The preferences in dividends and liquidation rights of the Class A Common Stock over the Class B Common Stock will terminate at any time that the voting rights of Class A Common Stock and Class B Common Stock become equal.
The following is a summary of other activity in stockholders’ investment for the fiscal years ended
July 31, 2016
,
2015
, and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned Restricted Stock
|
|
Deferred Compensation
|
|
Shares Held in Rabbi Trust, at cost
|
|
Total
|
Balances at July 31, 2013
|
|
$
|
(1,137
|
)
|
|
$
|
11,040
|
|
|
$
|
(10,623
|
)
|
|
$
|
(720
|
)
|
Shares at July 31, 2013
|
|
|
|
469,797
|
|
|
469,797
|
|
|
|
Sale of shares at cost
|
|
—
|
|
|
(1,637
|
)
|
|
1,496
|
|
|
(141
|
)
|
Purchase of shares at cost
|
|
—
|
|
|
821
|
|
|
(821
|
)
|
|
—
|
|
Effect of plan amendment
|
|
—
|
|
|
(2,435
|
)
|
|
—
|
|
|
(2,435
|
)
|
Amortization of restricted stock
|
|
1,137
|
|
|
—
|
|
|
—
|
|
|
1,137
|
|
Balances at July 31, 2014
|
|
—
|
|
|
$
|
7,789
|
|
|
$
|
(9,948
|
)
|
|
(2,159
|
)
|
Shares at July 31, 2014
|
|
|
|
338,711
|
|
|
423,415
|
|
|
|
Sale of shares at cost
|
|
$
|
—
|
|
|
(2,325
|
)
|
|
2,235
|
|
|
$
|
(90
|
)
|
Purchase of shares at cost
|
|
—
|
|
|
220
|
|
|
(1,035
|
)
|
|
(815
|
)
|
Balances at July 31, 2015
|
|
$
|
—
|
|
|
$
|
5,684
|
|
|
$
|
(8,748
|
)
|
|
$
|
(3,064
|
)
|
Shares at July 31, 2015
|
|
|
|
252,261
|
|
|
362,025
|
|
|
|
Sale of shares at cost
|
|
—
|
|
|
(1,238
|
)
|
|
1,278
|
|
|
40
|
|
Purchase of shares at cost
|
|
—
|
|
|
178
|
|
|
(1,017
|
)
|
|
(839
|
)
|
Balances at July 31, 2016
|
|
$
|
—
|
|
|
$
|
4,624
|
|
|
$
|
(8,487
|
)
|
|
$
|
(3,863
|
)
|
Shares at July 31, 2016
|
|
|
|
201,418
|
|
|
347,081
|
|
|
|
Deferred Compensation Plans
The Company has two deferred compensation plans, the Executive Deferred Compensation Plan and the Director Deferred Compensation Plan. Both plans allow for compensation to be deferred into either the Company's Class A Nonvoting Common Stock or in other investment funds. The Executive Deferred Compensation Plan does not allow funds to be transferred between the Company's Class A Nonvoting Common Stock and the other investment funds. The Director Deferred Compensation Plan allows participants to transfer funds from other investment funds into the Company’s Class A Nonvoting Common Stock. Funds are not permitted to be transferred from the Company’s Class A Nonvoting Common Stock into other investment funds until six months after the Director resigns from the Board.
At
July 31, 2016
, the deferred compensation balance in stockholders’ investment represents the investment at the original cost of shares held in the Company’s Class A Nonvoting Common Stock for the deferred compensation plans. The balance of shares held in the Rabbi Trust represents the investment in the Company’s Class A Nonvoting Common Stock at the original cost of all the Company’s Class A Nonvoting Common Stock held in deferred compensation plans.
Incentive Stock Plans
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 units ("RSUs"), or restricted and unrestricted shares of Class A Nonvoting Common Stock to employees and non-employee directors.
As of
July 31, 2016
, the Company has reserved
4,387,087
shares of Class A Nonvoting Common Stock for outstanding stock options, RSUs and restricted shares and
2,391,385
shares of Class A Nonvoting Common Stock remain for future issuance of stock options, RSUs and restricted and unrestricted 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.
Total stock-based compensation expense recognized by the Company during the years ended
July 31, 2016
,
2015
, and
2014
was
$8,154
(
$5,056
net of taxes),
$4,471
(
$2,772
net of taxes), and
$5,214
(
$3,232
net of taxes), respectively. As of
July 31, 2016
, total unrecognized compensation cost related to share-based compensation awards that are expected to vest was
$15,318
pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of
2.4 years
.
Stock options
The stock options issued under the plan 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 has estimated the fair value of its service-based stock option awards granted during the years ended
July 31, 2016
,
2015
, and
2014
using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black-Scholes Option Valuation Assumptions
|
|
2016
|
|
2015
|
|
2014
|
Expected term (in years)
|
|
6.11
|
|
|
6.05
|
|
|
5.97
|
|
Expected volatility
|
|
29.95
|
%
|
|
34.01
|
%
|
|
37.32
|
%
|
Expected dividend yield
|
|
2.59
|
%
|
|
2.48
|
%
|
|
2.35
|
%
|
Risk-free interest rate
|
|
1.64
|
%
|
|
1.90
|
%
|
|
1.80
|
%
|
Weighted-average market value of underlying stock at grant date
|
|
$
|
20.02
|
|
|
$
|
22.76
|
|
|
$
|
30.98
|
|
Weighted-average exercise price
|
|
$
|
20.02
|
|
|
$
|
22.76
|
|
|
$
|
30.98
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
4.58
|
|
|
$
|
6.12
|
|
|
$
|
9.17
|
|
The following is a summary of stock option activity for the fiscal year ended
July 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Price
|
|
Options Outstanding
|
|
Weighted Average Exercise Price
|
Balance as of July 31, 2015
|
|
$
|
20.95
|
|
—
|
$38.31
|
|
3,500,951
|
|
|
$
|
29.64
|
|
Options granted
|
|
19.96
|
|
—
|
25.35
|
|
881,744
|
|
|
20.02
|
|
Options exercised
|
|
20.95
|
|
—
|
31.07
|
|
(194,419
|
)
|
|
26.98
|
|
Options cancelled
|
|
19.96
|
|
—
|
38.31
|
|
(479,570
|
)
|
|
30.89
|
|
Balance as of July 31, 2016
|
|
$
|
19.96
|
|
—
|
$38.31
|
|
3,708,706
|
|
|
$
|
27.33
|
|
The total fair value of options vested during the fiscal years ended
July 31, 2016
,
2015
, and
2014
, was
$3,203
,
$3,950
, and
$6,605
, respectively. The total intrinsic value of options exercised during the fiscal years ended
July 31, 2016
,
2015
, and
2014
was
$811
,
$208
, and
$2,452
, respectively.
There were
2,488,527
,
2,642,955
, and
3,004,348
options exercisable with a weighted average exercise price of
$30.18
,
$30.88
, and
$31.15
at
July 31, 2016
,
2015
, and
2014
, respectively. The cash received from the exercise of options during the fiscal years ended
July 31, 2016
,
2015
, and
2014
, was
$5,243
,
$1,644
, and
$12,113
, respectively. The tax benefit on options exercised during the fiscal years ended
July 31, 2016
,
2015
, and
2014
was
$308
,
$79
, and
$952
, respectively.
The following table summarizes information about stock options outstanding at
July 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Outstanding and Exercisable
|
Range of Exercise Prices
|
|
Number of Shares
Outstanding at
July 31, 2016
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Weighted
Average
Exercise
Price
|
|
Shares
Exercisable
at July 31,
2016
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Weighted
Average
Exercise
Price
|
$19.96 - $26.99
|
|
1,433,278
|
|
|
8.1
|
|
$
|
21.80
|
|
|
291,899
|
|
|
5.2
|
|
$
|
20.97
|
|
$27.00 - $32.99
|
|
1,696,428
|
|
|
4.9
|
|
29.05
|
|
|
1,617,628
|
|
|
4.7
|
|
29.12
|
|
$33.00 - $38.31
|
|
579,000
|
|
|
1.3
|
|
37.78
|
|
|
579,000
|
|
|
1.3
|
|
37.78
|
|
Total
|
|
3,708,706
|
|
|
5.6
|
|
27.61
|
|
|
2,488,527
|
|
|
4.0
|
|
$
|
30.18
|
|
As of
July 31, 2016
, the aggregate intrinsic value (defined as the amount by which the fair value of the underlying stock exceeds the exercise price of an option) of options outstanding and the options exercisable was
$21,358
and
$8,164
, respectively.
Restricted Shares and RSUs
Restricted shares and RSUs issued under the plan have an issuance price equal to the fair market value of the underlying stock at the date of grant.
Beginning in fiscal 2014, the Company awarded RSUs that vest solely upon meeting specified service conditions, referred to herein as “service-based RSUs.” The RSUs issued under the plan 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. In fiscal 2015, the Company also awarded
63,668
service-based RSUs that vest ratably at the end of years 3, 4, and 5 and
395,617
service-based RSUs that vest in increments of 10%, 20%, 30%, and 40% at the end of years 1, 2, 3, and 4, respectively.
The following tables summarize the RSU and restricted share activity for the fiscal year ended
July 31, 2016
:
|
|
|
|
|
|
|
|
|
Service-Based Restricted Shares and RSUs
|
|
Shares
|
|
Weighted Average Grant Date
Fair Value
|
Balance as of July 31, 2015
|
|
677,454
|
|
|
$
|
24.72
|
|
New grants
|
|
173,394
|
|
|
20.07
|
|
Vested
|
|
(113,640
|
)
|
|
24.97
|
|
Forfeited
|
|
(58,827
|
)
|
|
23.81
|
|
Balance as of July 31, 2016
|
|
678,381
|
|
|
$
|
23.57
|
|
The aggregate intrinsic value of unvested RSU's expected to vest at
July 31, 2016
, was
$21,803
. The total fair value of RSU's vested during the twelve months ended
July 31, 2016
and
2015
, was
$2,797
and
$805
, respectively. The service-based RSUs granted during the fiscal year ended
July 31, 2015
, had a weighted-average grant-date fair value of
$24.28
.
8. Segment Information
The Company is organized and managed on a global basis within three business platforms, ID Solutions, Workplace Safety, and PeopleID, which aggregate into two reportable segments: IDS and WPS. 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.
Each business platform has a President or Vice-President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each platform has its own distinct operations, which are managed locally by its own management team, maintains its own financial reports and is evaluated based on global segment profit. The Company has determined that these business platforms comprise its three operating segments, which aggregate into the two reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance.
Following is a summary of segment information for the years ended
July 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Sales to External Customers:
|
|
|
|
|
|
|
ID Solutions
|
|
$
|
776,877
|
|
|
$
|
806,484
|
|
|
$
|
825,123
|
|
WPS
|
|
343,748
|
|
|
365,247
|
|
|
399,911
|
|
Total Company
|
|
$
|
1,120,625
|
|
|
$
|
1,171,731
|
|
|
$
|
1,225,034
|
|
Depreciation & Amortization:
|
|
|
|
|
|
|
ID Solutions
|
|
$
|
21,838
|
|
|
$
|
25,658
|
|
|
$
|
28,955
|
|
WPS
|
|
4,555
|
|
|
6,772
|
|
|
7,919
|
|
Corporate
|
|
6,039
|
|
|
7,028
|
|
|
7,724
|
|
Total Company
|
|
$
|
32,432
|
|
|
$
|
39,458
|
|
|
$
|
44,598
|
|
Segment Profit:
|
|
|
|
|
|
|
ID Solutions
|
|
$
|
169,776
|
|
|
$
|
149,840
|
|
|
$
|
176,129
|
|
WPS
|
|
59,847
|
|
|
56,502
|
|
|
66,238
|
|
Total Company
|
|
$
|
229,623
|
|
|
$
|
206,342
|
|
|
$
|
242,367
|
|
Assets:
|
|
|
|
|
|
|
ID Solutions
|
|
$
|
742,557
|
|
|
$
|
780,524
|
|
|
$
|
882,440
|
|
WPS
|
|
160,172
|
|
|
167,797
|
|
|
239,848
|
|
Corporate
|
|
141,235
|
|
|
114,576
|
|
|
131,377
|
|
Total Company
|
|
$
|
1,043,964
|
|
|
$
|
1,062,897
|
|
|
$
|
1,253,665
|
|
Expenditures for property, plant & equipment:
|
|
|
|
|
|
|
ID Solutions
|
|
$
|
11,511
|
|
|
$
|
18,732
|
|
|
$
|
28,774
|
|
WPS
|
|
5,446
|
|
|
3,970
|
|
|
10,580
|
|
Corporate
|
|
183
|
|
|
3,971
|
|
|
4,044
|
|
Total Company
|
|
$
|
17,140
|
|
|
$
|
26,673
|
|
|
$
|
43,398
|
|
Following is a reconciliation of segment profit to net earnings (loss) for the years ended
July 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended July 31,
|
|
2016
|
|
2015
|
|
2014
|
Total profit from reportable segments
|
$
|
229,623
|
|
|
$
|
206,342
|
|
|
$
|
242,367
|
|
Unallocated costs:
|
|
|
|
|
|
Administrative costs
|
111,745
|
|
|
107,348
|
|
|
120,015
|
|
Restructuring charges
|
—
|
|
|
16,821
|
|
|
15,012
|
|
Impairment charges (1)
|
—
|
|
|
46,867
|
|
|
148,551
|
|
Investment and other expense (income)
|
709
|
|
|
(845
|
)
|
|
(2,402
|
)
|
Interest expense
|
7,824
|
|
|
11,156
|
|
|
14,300
|
|
Earnings (loss) from continuing operations before income taxes
|
$
|
109,345
|
|
|
$
|
24,995
|
|
|
$
|
(53,109
|
)
|
(1) Of the total
$46,867
impairment charges in fiscal 2015,
$39,367
was in the WPS segment and
$7,500
was in the IDS segment. The impairment charges in 2014 were in the IDS segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues*
Years Ended July 31,
|
|
Long-Lived Assets**
As of Years Ended July 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Geographic information:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
663,511
|
|
|
$
|
677,401
|
|
|
$
|
675,771
|
|
|
$
|
376,045
|
|
|
$
|
389,150
|
|
|
$
|
425,733
|
|
Other
|
|
519,579
|
|
|
559,649
|
|
|
615,974
|
|
|
216,076
|
|
|
224,151
|
|
|
314,456
|
|
Eliminations
|
|
(62,465
|
)
|
|
(65,319
|
)
|
|
(66,711
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Consolidated total
|
|
$
|
1,120,625
|
|
|
$
|
1,171,731
|
|
|
$
|
1,225,034
|
|
|
$
|
592,121
|
|
|
$
|
613,301
|
|
|
$
|
740,189
|
|
* Revenues are attributed based on country of origin.
|
** Long-lived assets consist of property, plant, and equipment, other intangible assets and goodwill.
|
9. Net Earnings (Loss) per Common Share
Net earnings (loss) per common share is computed by dividing net earnings (loss) (after deducting restricted stock dividends and the applicable preferential Class A Common Stock dividends) by the weighted average Common Shares outstanding of
50,541
for fiscal
2016
,
51,285
for fiscal
2015
, and
51,866
for fiscal
2014
. The Company utilizes the two-class method to calculate earnings per share. Dividends on the Company’s performance-based restricted shares are reconciling items in the basic and diluted earnings per share calculations for the respective periods presented.
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended July 31,
|
|
2016
|
|
2015
|
|
2014
|
Numerator: (in thousands)
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
$
|
80,110
|
|
|
$
|
4,902
|
|
|
$
|
(48,146
|
)
|
Less:
|
|
|
|
|
|
Restricted stock dividends
|
—
|
|
|
—
|
|
|
(92
|
)
|
Numerator for basic and diluted earnings (loss) from continuing operations per Class A Nonvoting Common Share
|
$
|
80,110
|
|
|
$
|
4,902
|
|
|
$
|
(48,238
|
)
|
Less:
|
|
|
|
|
|
Preferential dividends
|
(783
|
)
|
|
(794
|
)
|
|
(813
|
)
|
Preferential dividends on dilutive stock options
|
(1
|
)
|
|
(1
|
)
|
|
(6
|
)
|
Numerator for basic and diluted earnings (loss) from continuing operations per Class B Voting Common Share
|
$
|
79,326
|
|
|
$
|
4,107
|
|
|
$
|
(49,057
|
)
|
Denominator: (in thousands)
|
|
|
|
|
|
Denominator for basic earnings from continuing operations per share for both Class A and Class B
|
50,541
|
|
|
51,285
|
|
|
51,866
|
|
Plus: Effect of dilutive stock options
|
228
|
|
|
98
|
|
|
—
|
|
Denominator for diluted earnings from continuing operations per share for both Class A and Class B
|
50,769
|
|
|
51,383
|
|
|
51,866
|
|
Earnings (loss) from continuing operations per Class A Nonvoting Common Share:
|
|
|
|
|
|
Basic
|
$
|
1.59
|
|
|
$
|
0.10
|
|
|
$
|
(0.93
|
)
|
Diluted
|
$
|
1.58
|
|
|
$
|
0.10
|
|
|
$
|
(0.93
|
)
|
Earnings (loss) from continuing operations per Class B Voting Common Share:
|
|
|
|
|
|
Basic
|
$
|
1.57
|
|
|
$
|
0.08
|
|
|
$
|
(0.95
|
)
|
Diluted
|
$
|
1.56
|
|
|
$
|
0.08
|
|
|
$
|
(0.95
|
)
|
(Loss) earnings from discontinued operations per Class A Nonvoting Common Share:
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.04
|
|
Diluted
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.04
|
|
(Loss) earnings from discontinued operations per Class B Voting Common Share:
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.05
|
|
Diluted
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.05
|
|
Net earnings (loss) per Class A Nonvoting Common Share:
|
|
|
|
|
|
Basic
|
$
|
1.59
|
|
|
$
|
0.06
|
|
|
$
|
(0.89
|
)
|
Diluted
|
$
|
1.58
|
|
|
$
|
0.06
|
|
|
$
|
(0.89
|
)
|
Net earnings (loss) per Class B Voting Common Share:
|
|
|
|
|
|
Basic
|
$
|
1.57
|
|
|
$
|
0.04
|
|
|
$
|
(0.90
|
)
|
Diluted
|
$
|
1.56
|
|
|
$
|
0.04
|
|
|
$
|
(0.90
|
)
|
Options to purchase approximately
3,172,755
and
3,568,264
shares of Class A Nonvoting Common Stock for the fiscal years ended
July 31, 2016
and
2015
, 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. In accordance with ASC 260, “Earnings per Share,” all options to purchase Class A Nonvoting Common Stock were not included in the computation of diluted loss per share for fiscal 2014 since to do so would be anti-dilutive.
10. Commitments and Contingencies
The Company has entered into various non-cancellable operating lease agreements. Rental expense charged to continuing operations on a straight-line basis was
$17,253
,
$19,029
, and
$17,344
for the years ended
July 31, 2016
,
2015
, and
2014
, respectively. Future minimum lease payments required under such leases in effect at
July 31, 2016
were as follows:
|
|
|
|
|
Years ending July 31,
|
|
2017
|
$
|
16,243
|
|
2018
|
14,956
|
|
2019
|
12,169
|
|
2020
|
8,708
|
|
2021
|
7,195
|
|
Thereafter
|
15,497
|
|
|
$
|
74,768
|
|
In the normal course of business, the Company is named as a defendant in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may ultimately result from lawsuits are not expected to have a material effect on the consolidated financial statements of the Company.
11. Fair Value Measurements
The Company follows the guidance in ASC 820, "Fair Value Measurements and Disclosures" as it relates to its financial and non-financial assets and liabilities. The accounting guidance applies to other accounting pronouncements that require or permit fair value measurements, defines fair value based upon an exit price model, establishes a framework for measuring fair value, and expands the applicable disclosure requirements. The accounting guidance indicates, among other things, that a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
The accounting guidance on fair value measurements establishes a fair market value hierarchy for the pricing inputs used to measure fair market value. The 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 measurement 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, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at
July 31, 2016
and
July 31, 2015
, 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
|
July 31, 2016
|
|
|
|
|
|
|
|
Trading securities
|
$
|
13,834
|
|
|
$
|
—
|
|
|
$
|
13,834
|
|
|
Other assets
|
Foreign exchange contracts
|
—
|
|
|
2,138
|
|
|
2,138
|
|
|
Prepaid expenses and other current assets
|
Total Assets
|
$
|
13,834
|
|
|
$
|
2,138
|
|
|
$
|
15,972
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
738
|
|
|
$
|
738
|
|
|
Other current liabilities
|
Total Liabilities
|
$
|
—
|
|
|
$
|
738
|
|
|
$
|
738
|
|
|
|
July 31, 2015
|
|
|
|
|
|
|
|
Trading securities
|
$
|
15,356
|
|
|
$
|
—
|
|
|
$
|
15,356
|
|
|
Other assets
|
Foreign exchange contracts
|
—
|
|
|
685
|
|
|
685
|
|
|
Prepaid expenses and other current assets
|
Total Assets
|
$
|
15,356
|
|
|
$
|
685
|
|
|
$
|
16,041
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
1,280
|
|
|
$
|
1,280
|
|
|
Other current liabilities
|
Total Liabilities
|
$
|
—
|
|
|
$
|
1,280
|
|
|
$
|
1,280
|
|
|
|
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 12, “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 fiscal years ended
July 31, 2016
and
July 31, 2015
.
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. See Note 6 for information regarding the fair value of the Company's short-term and long-term debt.
The Company completes its annual goodwill impairment analysis on May 1st of each fiscal year and evaluates its reporting units for potential triggering events on a quarterly basis in accordance with ASC 350, "Intangibles - Goodwill and Other." The annual impairment testing performed on May 1, 2016, indicated that all of the reporting units passed Step One of the goodwill impairment test as each had a fair value substantially in excess of its carrying value.
The Company evaluates whether events and circumstances have occurred that indicate that the remaining estimated useful life of other intangible assets may warrant revision or that the remaining balance of an asset may not be recoverable. Management completed an assessment of other indefinite-lived and other finite-lived intangible assets in fiscal 2016 and concluded that no long-lived assets were impaired.
During fiscal 2015, goodwill with carrying amounts of
$26,246
and
$10,866
in the WPS APAC and WPS Americas reporting units, respectively, was written off entirely, resulting in impairment charges of
$37,112
. 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 it had been acquired in a business combination. After assigning fair value to the assets and liabilities of the reporting unit, it was determined there was no excess fair value of the reporting units over the implied fair value of goodwill and thus, the remaining goodwill balances were
impaired in fiscal 2015. The goodwill balances represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to its original recognition.
During fiscal 2015, management evaluated other indefinite-lived intangible assets for recoverability using the income approach. The valuation was based upon current sales projections and profitability for each asset group, and the relief from royalty method was applied. Management evaluated other finite-lived intangible assets for recoverability using an undiscounted cash flow analysis based upon current sales projections and profitability for each asset group. This analysis resulted in an amount that was less than the carrying value of certain finite-lived intangible assets. Management measured the impairment loss of both indefinite and finite-lived intangible assets as the amount by which the carrying amount of the assets exceeded their fair value. As a result, other intangible assets with a carrying amount of
$26,194
were written down to their estimated fair value of
$19,543
. These represented Level 3 assets measured at fair value on a nonrecurring basis subsequent to their original recognition. These items resulted in a total impairment charge of
$6,651
in fiscal 2015.
During fiscal 2014, goodwill with a carrying amount of
$193,689
in the People ID reporting unit was written down to its estimated implied fair value of
$93,277
, resulting in an impairment charge of
$100,412
. 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 it had been acquired in a business combination. After assigning fair value to the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of
$93,277
, which represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to its original recognition.
During fiscal 2014, management completed an assessment of other finite-lived intangible assets primarily associated with the PeopleID reporting unit and concluded that the assets were impaired. These assets were primarily associated with the acquisition of Precision Dynamics Corporation ("PDC"). Organic sales in the PDC business declined in the low single-digit percentages from fiscal 2013 to fiscal 2014. U.S. hospital admission rates are a primary driver of PDC's sales under its existing strategy, and there was a decline of approximately 2% in these rates during fiscal 2014. Therefore, management revisited its planned growth and profit for the PDC business and concluded that the growth may not materialize as expected given slower than anticipated industry growth and fewer sales synergies than originally planned.
Management evaluated other finite-lived intangible assets for recoverability using an undiscounted cash flow analysis based upon sales projections and concluded there was an indicator of impairment. Management measured the impairment loss as the amount by which the carrying amount of the customer relationships exceeded their fair value, which represented Level 3 assets measured at fair value on a nonrecurring basis subsequent to their original recognition. This resulted in an impairment charge of
$48,139
recognized in fiscal 2014, which was classified within the "Impairment charges" line item on the Consolidated Statements of Earnings and was part of the IDS reportable segment.
12. Derivatives and Hedging Activities
The Company utilizes forward foreign exchange 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 contracts. As of
July 31, 2016
and
July 31, 2015
, the notional amount of outstanding forward foreign exchange contracts was $
186,093
and $
139,300
, respectively.
The Company hedges a portion of known exposures using forward foreign exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian dollar, Australian dollar, Mexican Peso, 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 forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the 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
July 31, 2016
and
July 31, 2015
, unrealized losses of $
761
and unrealized gains of $
297
have been included in OCI, respectively. These balances are expected to be reclassified from OCI to earnings during the next
twelve months
when the hedged transactions impact earnings. For the years ended July 31,
2016
,
2015
, and
2014
, the Company reclassified losses of
$199
, and gains of
$1,325
and
$147
from OCI into cost of goods sold, respectively.
As of
July 31, 2016
and
2015
, the notional amount of outstanding forward foreign exchange contracts designated as cash flow hedges was
$34,540
and
$33,223
, respectively.
Net Investment Hedges
The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. At
July 31, 2016
, the Company designated
£25,000
of intercompany loans as net investment hedges to hedge portions of its net investment in British foreign operations. As of
July 31, 2016
and
2015
, the Company recognized in OCI gains of
$6,887
and
$889
, respectively, on its intercompany loans designated as net investment hedges. 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. As of
July 31, 2016
and
2015
, the cumulative balance recognized in accumulated other comprehensive income were gains of
$11,140
and
$12,512
, respectively, on the Euro-denominated debt obligation. The changes recognized in other comprehensive income during the years ended
July 31, 2016
,
2015
and
2014
were losses of
$1,372
, gains of
$18,008
and losses of
$660
, respectively, on the Euro-denominated debt obligation. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.
Non-Designated Hedges
During the fiscal years ended
July 31, 2016
and
2015
, the Company recognized gains of
$2,162
and losses of
$1,705
, respectively, in “Investment and other income” on the Consolidated Statements of Earnings related to non-designated hedges.
Fair values of derivative and hedging instruments in the Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
July 31, 2016
|
|
July 31, 2015
|
|
July 31, 2016
|
|
July 31, 2015
|
|
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
|
|
$
|
265
|
|
|
Prepaid expenses and other current assets
|
|
$
|
518
|
|
|
Other current liabilities
|
|
$
|
670
|
|
|
Other current liabilities
|
|
$
|
737
|
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
—
|
|
|
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
|
|
$
|
116,888
|
|
|
Long term obligations, less current maturities
|
|
$
|
121,514
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
265
|
|
|
|
|
$
|
518
|
|
|
|
|
$
|
117,558
|
|
|
|
|
$
|
122,251
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
1,873
|
|
|
Prepaid expenses and other current assets
|
|
$
|
168
|
|
|
Other current liabilities
|
|
$
|
68
|
|
|
Other current liabilities
|
|
$
|
543
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
1,873
|
|
|
|
|
$
|
168
|
|
|
|
|
$
|
68
|
|
|
|
|
$
|
543
|
|
13. Discontinued Operations
The Company entered into an agreement with LTI Flexible Products, Inc. (d/b/a Boyd Corporation) on February 24, 2014, for the sale of the Die-Cut business. The first phase of this divestiture closed on May 1, 2014 and included the Die-Cut businesses in Korea, Thailand and Malaysia, and the Balkhausen business in Europe. The remainder of the Die-Cut business was located in China and it was divested on August 1, 2014. The operating results have been reported as discontinued operations for the fiscal years ending July 31, 2015 and 2014.
The following table summarizes the operating results of discontinued operations for the fiscal years ending July 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
Net sales (1)
|
$
|
—
|
|
|
$
|
179,050
|
|
(Loss) earnings from discontinued operations (2)
|
(1,201
|
)
|
|
6,715
|
|
Income tax expense
|
(288
|
)
|
|
(3,299
|
)
|
Loss on sale of discontinued operations (3)
|
(487
|
)
|
|
(1,602
|
)
|
Income tax benefit on sale of discontinued operations (4)
|
61
|
|
|
364
|
|
(Loss) earnings from discontinued operations, net of tax
|
$
|
(1,915
|
)
|
|
$
|
2,178
|
|
|
|
(1)
|
The second and final phase of the Die-Cut divestiture closed on August 1, 2014. Thus, there were no sales from discontinued operations in fiscal 2015.
|
|
|
(2)
|
The loss from discontinued operations in fiscal 2015 primarily related to professional fees and restructuring charges associated with the divestiture.
|
|
|
(3)
|
The first phase of the Die-Cut divestiture was completed in the fourth quarter of fiscal 2014. A loss on the sale was recorded in the three months ended July 31, 2014 and includes $3.9 million in liabilities retained as part of the divestiture agreement. The second and final closing of the Die-Cut divestiture was completed in the first quarter of fiscal 2015 and an additional loss on the sale was recorded in the three months ended October 31, 2014.
|
|
|
(4)
|
The income tax benefit on the sale of discontinued operations in fiscal 2014 was significantly impacted by the release of a reserve for uncertain tax positions of $4.0 million, which was triggered as a result of the Thailand stock sale during the three months ended July 31, 2014. This was offset by $3.6 million in tax expense related to the gain on the sale of the Balkhausen assets. The Thailand stock sale and the Balkhausen asset sale were included in the first phase of the Die-Cut divestiture.
|
There were no assets or liabilities held for sale as of July 31, 2015. In accordance with authoritative literature, accumulated other comprehensive income of
$34,697
was reclassified to the statement of earnings upon the closing of the second phase of the Die-Cut divestiture during the three months ended October 31, 2014.
14. Unaudited Quarterly Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
283,073
|
|
|
$
|
268,630
|
|
|
$
|
286,816
|
|
|
$
|
282,106
|
|
|
$
|
1,120,625
|
|
Gross margin
|
|
139,349
|
|
|
132,892
|
|
|
145,443
|
|
|
141,089
|
|
|
558,773
|
|
Operating income
|
|
30,102
|
|
|
23,589
|
|
|
30,784
|
|
|
33,403
|
|
|
117,878
|
|
Earnings from continuing operations
|
|
18,703
|
|
|
15,290
|
|
|
20,981
|
|
|
25,136
|
|
|
80,110
|
|
Net earnings from continuing operations per
|
|
|
|
|
|
|
|
|
|
|
Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.30
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
$
|
1.59
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.30
|
|
|
$
|
0.42
|
|
|
$
|
0.49
|
|
|
$
|
1.58
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
310,240
|
|
|
$
|
282,628
|
|
|
$
|
290,227
|
|
|
$
|
288,636
|
|
|
$
|
1,171,731
|
|
Gross margin
|
|
150,161
|
|
|
138,203
|
|
|
140,999
|
|
|
129,069
|
|
|
558,432
|
|
Operating income *
|
|
26,973
|
|
|
16,811
|
|
|
24,285
|
|
|
(32,763
|
)
|
|
35,306
|
|
Earnings from continuing operations
|
|
15,499
|
|
|
11,584
|
|
|
17,213
|
|
|
(39,394
|
)
|
|
4,902
|
|
Earnings (loss) from discontinued operations, net of income taxes **
|
|
(1,915
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,915
|
)
|
Net earnings from continuing operations per
|
|
|
|
|
|
|
|
|
|
|
Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
Basic***
|
|
$
|
0.30
|
|
|
$
|
0.23
|
|
|
$
|
0.34
|
|
|
$
|
(0.77
|
)
|
|
$
|
0.10
|
|
Diluted***
|
|
$
|
0.30
|
|
|
$
|
0.23
|
|
|
$
|
0.33
|
|
|
$
|
(0.77
|
)
|
|
$
|
0.10
|
|
Net earnings (loss) from discontinued operations per
|
|
|
|
|
|
|
|
|
|
|
Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
Basic***
|
|
$
|
(0.03
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
Diluted***
|
|
$
|
(0.04
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
* In fiscal 2015, the Company recorded before tax impairment charges of $46,867 in the fourth quarter ended July 31, 2015 and before tax restructuring charges of $4,278, $4,879, $4,834 and $2,830 in the first, second, third, and fourth quarters of fiscal 2015, respectively, for a total of $16,821.
|
|
**
|
In fiscal 2015, the loss from discontinued operations included a net loss on operations of $1,489 primarily related to professional fees associated with the divestiture and a $426 net loss on the sale of Die-Cut, recorded in the first quarter ended October 31, 2014.
|
*** The sum of the quarters does not equal the year-to-date total for fiscal 2015 due to the quarterly changes in
weighted-average shares outstanding.