Form 10-Q

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION\n

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Washington, DC 20549\n

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FORM 10-Q\n

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þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the Quarterly Period Ended April 30, 2010

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o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the Transition Period from to

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\nCommission File Number 1-14959\n

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BRADY CORPORATION\n

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\n(Exact name of registrant as specified in its charter)

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Wisconsin\n		39-0178960
\n
(State or other jurisdiction of \nincorporation or organization)\n		(I.R.S. Employer \nIdentification No.)

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6555 West Good Hope Road, Milwaukee, Wisconsin 53223
\n(Address of principal executive offices)
\n(Zip Code)

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(414) 358-6600
\n(Registrant’s telephone number, including area code)

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by\nSection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for\nsuch shorter period that the registrant was required to file such reports), and (2) has been\nsubject to such filing requirements for the past 90 days. Yes þ No o\n

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Indicate by check mark whether the registrant has submitted electronically and posted on its\ncorporate Web site, if any, every Interactive Data File required to be submitted and posted\npursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months\n(or for such shorter period that the registrant was required to submit and post such files). Yes o No o\n

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,\na non-accelerated filer or a smaller reporting company. See definition of “large accelerated\nfiler”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.\n

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Large accelerated filer þ\n		Accelerated filer o\n		Non-accelerated filer o\n		Smaller Reporting Company o

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the\nExchange Act). Yes o No þ\n

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APPLICABLE ONLY TO CORPORATE ISSUERS\n

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of\nthe latest practicable date.\n

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As of May 31, 2010, there were outstanding 48,965,216 shares of Class A Nonvoting Common Stock and\n3,538,628 shares of Class B Voting Common Stock. The Class B Common Stock, all of which is held by\naffiliates of the Registrant, is the only voting stock.\n

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PART I. FINANCIAL INFORMATION\n

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ITEM 1.		FINANCIAL STATEMENTS

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED BALANCE SHEETS\n\n

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(DOLLARS IN THOUSANDS)\n

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	April 30, 2010			July 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	207,106			$	188,156
Accounts receivable, less allowance for losses ($7,649 and $7,931, respectively)		210,778				191,189
Inventories:
Finished products		52,325				53,244
Work-in-process		14,131				13,159
Raw materials and supplies		25,582				27,405

Total inventories		92,038				93,808
Prepaid expenses and other current assets		41,171				36,274

Total current assets		551,093				509,427
Other assets:
Goodwill		771,926				751,173
Other intangible assets		108,992				115,754
Deferred income taxes		37,259				36,374
Other		20,853				18,551
Property, plant and equipment:
Cost:
Land		6,287				6,335
Buildings and improvements		98,983				96,968
Machinery and equipment		288,961				283,301
Construction in progress		11,715				7,869

		405,946				394,473
Less accumulated depreciation		256,371				242,485

Net property, plant and equipment		149,575				151,988

Total	$	1,639,698			$	1,583,267

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable	$	83,218			$	83,793
Wages and amounts withheld from employees		63,539				36,313
Taxes, other than income taxes		8,643				6,262
Accrued income taxes		5,615				5,964
Other current liabilities		47,321				45,247
Current maturities on long-term obligations		61,264				44,893

Total current liabilities		269,600				222,472
Long-term obligations, less current maturities		303,943				346,457
Other liabilities		67,061				63,246

Total liabilities		640,604				632,175
Stockholders’ investment:
Class A nonvoting common stock — Issued 51,261,487 and 51,261,487 shares,\nrespectively and outstanding 48,943,143 and 48,780,560 shares, respectively		513				513
Class B voting common stock — Issued and outstanding 3,538,628 shares		35				35
Additional paid-in capital		303,422				298,466
Earnings retained in the business		706,146				673,342
Treasury stock — 2,108,339 and 2,270,927 shares, of Class A nonvoting common\nstock, at cost		(64,844	)			(69,823	)
Accumulated other comprehensive income		56,998				53,051
Other		(3,176	)			(4,492	)

Total stockholders’ investment		999,094				951,092

Total	$	1,639,698			$	1,583,267

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See Notes to Condensed Consolidated Financial Statements.\n

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3\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME\n

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(Dollars in Thousands, Except Per Share Amounts)\n

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\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n


	Three Months Ended April 30,			Nine Months Ended April 30,
	(Unaudited)			(Unaudited)
								Percentage										Percentage
	2010			2009			Change		2010		2009			Change
Net sales	$	321,887			$	276,733			16.3	%	$	936,202			$	921,499			1.6	%
Cost of products sold		161,690				142,560			13.4	%		471,644				480,038			(1.7	)%

Gross margin		160,197				134,173			19.4	%		464,558				441,461			5.2	%

Operating expenses:
Research and development		10,709				7,766			37.9	%		30,950				25,325			22.2	%
Selling, general and administrative		111,227				94,906			17.2	%		328,638				302,776			8.5	%
Restructuring charge — (See Note L)		2,347				2,229			5.3	%		9,597				23,276			(58.8	)%

Total operating expenses		124,283				104,901			18.5	%		369,185				351,377			5.1	%

Operating income		35,914				29,272			22.7	%		95,373				90,084			5.9	%

Other income (expense):
Investment and other income — net		121				989			(87.8	)%		1,273				1,143			11.4	%
Interest expense		(5,147	)			(6,307	)		(18.4	)%		(15,472	)			(18,982	)		(18.5	)%


Income before income taxes		30,888				23,954			28.9	%		81,174				72,245			12.4	%

Income taxes		7,193				5,994			20.0	%		20,810				21,325			(2.4	)%


Net income	$	23,695			$	17,960			31.9	%	$	60,364			$	50,920			18.5	%


Per Class A Nonvoting Common Share:
Basic net income	$	0.45			$	0.34			32.4	%	$	1.15			$	0.97			18.6	%
Diluted net income	$	0.45			$	0.34			32.4	%	$	1.14			$	0.96			18.8	%
Dividends	$	0.175			$	0.17			2.9	%	$	0.525			$	0.51			2.9	%

Per Class B Voting Common Share:
Basic net income	$	0.45			$	0.34			32.4	%	$	1.13			$	0.95			18.9	%
Diluted net income	$	0.45			$	0.34			32.4	%	$	1.12			$	0.95			17.9	%
Dividends	$	0.175			$	0.17			2.9	%	$	0.508			$	0.49			3.7	%

Weighted average common shares\noutstanding (in thousands):
Basic		52,427				52,286						52,378				52,642
Diluted		52,873				52,594						52,971				52,961

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See Notes to Condensed Consolidated Financial Statements.\n

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4\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS\n

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(Dollars in Thousands)\n

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	Nine Months Ended
	April 30,
	(Unaudited)
	2010			2009
Operating activities:
Net income	$	60,364			$	50,920
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,276				40,672
Non-cash portion of restructuring charges		1,455				2,229
Non-cash portion of stock-based compensation expense		7,574				6,281
Deferred income taxes		(4,582	)			881
Other		(35	)			614
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable		(17,192	)			52,276
Inventories		3,887				16,793
Prepaid expenses and other assets		(5,273	)			(3,593	)
Accounts payable and accrued liabilities		30,730				(73,381	)
Income taxes		152				(17,571	)
Other liabilities		798				908

Net cash provided by operating activities		118,154				77,029

Investing activities:
Acquisition of businesses, net of cash acquired		(30,431	)			—
Purchase price adjustment		—				3,514
Payments of contingent consideration		—				(1,405	)
Purchases of property, plant and equipment		(20,927	)			(16,035	)
Other		1,197				2,893

Net cash used in investing activities		(50,161	)			(11,033	)

Financing activities:
Payment of dividends		(27,560	)			(26,910	)
Proceeds from issuance of common stock		3,494				1,321
Principal payments on debt		(26,143	)			(3	)
Purchase of treasury stock		—				(40,267	)
Income tax benefit from the exercise of stock options and deferred compensation distribution		182				860

Net cash used in financing activities		(50,027	)			(64,999	)

Effect of exchange rate changes on cash		984				(26,451	)

Net increase (decrease) in cash and cash equivalents		18,950				(25,454	)
Cash and cash equivalents, beginning of period		188,156				258,355

Cash and cash equivalents, end of period	$	207,106			$	232,901


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	18,217			$	21,899
Income taxes, net of refunds		18,296				32,995
Acquisitions:
Fair value of assets acquired, net of cash and goodwill	$	15,366			$	—
Liabilities assumed		(5,201	)			—
Goodwill		20,266				—

Net cash paid for acquisitions	$	30,431			$	—

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See Notes to Condensed Consolidated Financial Statements.\n

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5\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Nine Months Ended April 30, 2010

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(Unaudited)

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(In thousands, except share and per share amounts)

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NOTE A — Basis of Presentation\n

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The condensed consolidated financial statements included herein have been prepared by Brady\nCorporation and subsidiaries (the “Company” or “Brady”) without audit, pursuant to the rules and\nregulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing\nstatements contain all adjustments, consisting only of normal recurring adjustments necessary to\npresent fairly the financial position of the Company as of April 30, 2010 and July 3l, 2009, its\nresults of operations for the three and nine months ended April 30, 2010 and 2009, and its cash\nflows for the nine months ended April 30, 2010 and 2009. The condensed consolidated balance sheet\nas of July 31, 2009, has been derived from the audited consolidated financial statements of that\ndate. The preparation of financial statements in conformity with accounting principles generally\naccepted in the United States of America (“GAAP”) requires management to make estimates and\nassumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in\nmaking estimates, actual results in future periods may differ from the estimates.\n

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Certain information and footnote disclosures normally included in financial statements\nprepared in accordance with GAAP have been omitted pursuant to rules and regulations of the\nSecurities and Exchange Commission. Accordingly, the condensed consolidated financial statements\ndo not include all of the information and footnotes required by GAAP for complete financial\nstatement presentation. It is suggested that these condensed consolidated financial statements be\nread in conjunction with the consolidated financial statements and the notes thereto included in\nthe Company’s latest annual report on Form 10-K for the year ended July 31, 2009.\n

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The Company has reclassified certain prior year financial statement amounts to conform to\ntheir current year presentation. The Company reclassified the “Deferred income taxes” as a\nseparate line item, previously included in the “Other” Operating activities line item on the\nCondensed Consolidated Statements of Cash Flows for the nine months ended April 30, 2009. This\nreclassification had no effect on net cash provided by operating activities, total assets, net\nincome, or earnings per share.\n

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NOTE B — Summary of Significant Accounting Policies\n

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Cash Equivalents — The Company considers all highly liquid investments with original maturities of\nthree months or less when acquired to be cash equivalents, which are recorded at cost. The\nCompany’s cash equivalents include variable rate demand note (“VRDN”) securities issued by various\nagencies that include a put feature to the original issuer or the issuer’s agent. The Company’s\nVRDN investments are generally federal tax-exempt instruments of high credit quality, secured by\ndirect-pay letters of credit from major financial institutions. These investments have variables\nrates tied to short-term interest rates. Interest rates are reset weekly and these VRDN\ninvestments can be tendered for sale upon notice (generally no longer than seven days). Although\nthe Company’s VRDN securities are issued and rated as long-term securities (with maturities through\n2029), they are priced and traded as short-term investments.\n

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The Company classifies the variable rate demand note securities with put features, where the\nissuer holds the obligation, as cash equivalents. The investments are carried at cost or par\nvalue, which approximates the fair value. As of April 30, 2010, the recorded value of the VRDNs\nheld by the Company was $36.4 million and there were no realized or unrealized gains or losses\nrelated to the Company’s securities. As of April 30, 2010, all VRDNs held by the Company were\nclassified as “cash and cash equivalents” on the Condensed Consolidated Balance Sheets.\n

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NOTE C — Goodwill and Intangible Assets\n

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Changes in the carrying amount of goodwill for the nine months ended April 30, 2010, are as\nfollows:\n


	Americas		Europe			Asia-Pacific		Total
Balance as of July 31, 2009	$	410,135		$	166,251		$	174,787	$	751,173
Current year additions		13,370			6,896			—		20,266
Translation adjustments		1,901			(7,844	)		6,430		487

Balance as of April 30, 2010	$	425,406		$	165,303		$	181,217	$	771,926

\n\n\n

Goodwill increased $20,753 during the nine months ended April 30, 2010 due to the\nrecent acquisition activity and the net effects of foreign currency translation. Of the $20,753\nincrease in goodwill, $778 resulted from the acquisition of certain assets of Welco, a division of\nWelconstruct Group Limited (“Welco”) in the first quarter of fiscal 2010, $13,370 resulted from the\nacquisition of Stickolor Industria e Comerciao de Auto Adesivos Ltda. (“Stickolor”) in the second\nquarter of fiscal 2010, and $6,118 resulted from the acquisition of Securimed SAS (“Securimed”) in\nthe third quarter of fiscal 2010. Goodwill also increased $487 during the nine months ended\nApril 30, 2010 due to the net effect of foreign currency translation.\n

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6\n

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Other intangible assets include patents, trademarks, customer relationships, non-compete\nagreements and other intangible assets with finite lives being amortized in accordance with\naccounting guidance for goodwill and other intangible assets. The net book value of these assets\nwas as follows:\n


	April 30, 2010		July 31, 2009
	Weighted												Weighted
	Average												Average
	Amortization		Gross									Amortization		Gross
	Period		Carrying			Accumulated		Net Book		Period			Carrying		Accumulated		Net Book
	(Years)		Amount			Amortization		Value		(Years)			Amount		Amortization		Value
Amortized\nother intangible\nassets:
Patents		5		$	9,151		$	(7,658	)	$	1,493			5		$	8,976	$	(7,165	)	$	1,811
Trademarks and\nother		7			8,880			(5,552	)		3,328			7			7,703		(5,121	)		2,582
Customer\nrelationships		7			153,478			(91,775	)		61,703			7			144,625		(76,912	)		67,713
Non-compete\nagreements		4			11,981			(10,829	)		1,152			4			11,502		(9,656	)		1,846
Other		4			3,310			(3,298	)		12			4			3,311		(3,296	)		15
Unamortized other\nintangible assets:
Trademarks		N/A			41,304			—			41,304			N/A			41,787		—			41,787

Total				$	228,104		$	(119,112	)	$	108,992					$	217,904	$	(102,150	)	$	115,754

\n\n\n

The value of goodwill and other intangible assets in the Condensed Consolidated\nBalance Sheet at April 30, 2010, differs from the value assigned to them in the allocation of\npurchase price due to the effect of fluctuations in the exchange rates used to translate financial\nstatements into the United States Dollar between the date of acquisition and April 30, 2010. The\nacquisitions completed during the nine months ended April 30, 2010 contributed $7,970 and $1,340 to\nthe increase in the customer relationships and amortizable trademarks, respectively. See Note N,\n“Acquisitions” for further discussion.\n

\n\n

Amortization expense on intangible assets was $5,160 and $5,559 for the three-month periods\nended April 30, 2010 and 2009, respectively and $16,395 and $17,089 for the nine-month periods\nended April 30, 2010 and 2009, respectively. Annual amortization is projected to be $23,329,\n$20,290, $13,243, $9,989 and $5,197 for the years ending July 31, 2010, 2011, 2012, 2013 and 2014,\nrespectively.\n

\n\n

7\n

\n\n\n

NOTE D — Comprehensive Income (Loss)\n

\n\n\n

Total comprehensive income (loss), which was comprised of net income, foreign currency\nadjustments, net unrealized gains and losses from cash flow hedges and net investment hedges, the\nunrealized gain on the post-retirement medical, dental, and vision plans, and their related tax\neffects amounted to $21,984 and $32,867 for the three months ended April 30, 2010 and 2009,\nrespectively and $64,311 and ($71,761) for the nine months ended April 30, 2010 and 2009,\nrespectively. The fluctuation in total comprehensive income for the three and nine months ended\nApril 30, 2010 as compared to the same period in the previous year was primarily the result of\nchange in the U.S. dollar against other currencies and the change in net income.\n

\n\n\n

NOTE E — Net Income Per Common Share\n

\n\n\n

In June 2008, the Financial Accounting Standards Board (“FASB”) issued accounting guidance\naddressing whether instruments granted in share-based payment transactions are participating\nsecurities prior to vesting, and therefore need to be included in the earnings allocation in\ncomputing earnings per share. This guidance requires that all outstanding unvested share-based\npayment awards that contain rights to non-forfeitable dividends be considered participating\nsecurities in undistributed earnings with common shareholders. The Company adopted the guidance\nduring the first quarter of fiscal 2010. As a result of the adoption, the dividends on the\nCompany’s performance-based restricted shares, granted in fiscal 2008, are included in the basic\nEPS calculations for all periods presented. The inclusion has not materially impacted the\nearnings per share for the three and nine months ended April 30, 2010 and 2009.\n

\n\n

Reconciliations of the numerator and denominator of the basic and diluted per share\ncomputations for the Company’s Class A and Class B common stock are summarized as follows:\n


	Three Months Ended April 30,			Nine Months Ended April 30,
	2010			2009			2010		2009
Numerator:
Net income (numerator for basic and diluted Class A\nnet income per share)	$	23,695			$	17,960		$	60,364		$	50,920
Less:
Restricted stock dividends		(37	)			(36	)		(111	)		(108	)

Numerator for basic and diluted Class A net income\nper share	$	23,658			$	17,924		$	60,253		$	50,812

Less:
Preferential dividends		—				—			(816	)		(823	)
Preferential dividends on dilutive stock options		—				—			(11	)		(11	)

Numerator for basic and diluted Class B net income\nper share	$	23,658			$	17,924		$	59,426		$	49,978


Denominator:
Denominator for basic net income per share for both\nClass A and Class B		52,427				52,286			52,378			52,642
Plus: Effect of dilutive stock options		446				308			593			319

Denominator for diluted net income per share for both\nClass A and Class B		52,873				52,594			52,971			52,961


Class A Nonvoting Common Stock net income per share:
Basic	$	0.45			$	0.34		$	1.15		$	0.97
Diluted	$	0.45			$	0.34		$	1.14		$	0.96

Class B Voting Common Stock net income per share:
Basic	$	0.45			$	0.34		$	1.13		$	0.95
Diluted	$	0.45			$	0.34		$	1.12		$	0.95

\n\n\n

Options to purchase approximately 2,800,000 and 2,700,000 shares of Class A Nonvoting Common\nStock for the three and nine months ended April 30, 2010, respectively, and 2,920,000 and\n2,058,000 shares of Class A Nonvoting Common Stock for the three and nine months ended April 30,\n2009, respectively, were not included in the computations of diluted net income per share because\nthe option exercise price was greater than the average market price of the common shares and,\ntherefore, the effect would be anti-dilutive.\n

\n\n

8\n

\n\n\n

NOTE F — Segment Information\n

\n\n\n

The Company evaluates short-term segment performance based on segment profit or loss and\ncustomer sales. Corporate long-term performance is evaluated based on shareholder value enhancement\n(“SVE”), which incorporates the cost of capital as a hurdle rate for capital expenditures, new\nproduct development, and acquisitions. Segment profit or loss does not include certain\nadministrative costs, such as the cost of finance, information technology, human resources and\nother administration, which are managed as global functions. Restructuring charges, stock options,\ninterest, investment and other income and income taxes are also excluded when evaluating\nperformance.\n

\n\n

The Company is organized and managed on a geographic basis by region. Each of these regions,\nAmericas, Europe and Asia-Pacific, has a President that reports directly to the Company’s chief\noperating decision maker, its Chief Executive Officer. Each region has its own distinct operations,\nis managed locally by its own management team, maintains its own financial reports and is evaluated\nbased on regional segment profit. The Company has determined that these regions comprise its\noperating and reportable segments based on the information used by the Chief Executive Officer to\nallocate resources and assess performance.\n

\n\n

Intersegment sales and transfers are recorded at cost plus a standard percentage markup.\nIntercompany profit is eliminated in consolidation. It is not practicable to disclose\nenterprise-wide revenue from external customers on the basis of product or service.\n

\n\n

Following is a summary of segment information for the three and nine months ended April 30,\n2010 and 2009:\n


												Corporate
									Total		And
	Americas		Europe			Asia-Pacific		Regions	Eliminations		Totals
Three months ended April 30, 2010:
Revenues from external customers	$	144,413		$	98,152		$	79,322	$	321,887		$	—		$	321,887
Intersegment revenues		11,624			791			4,443		16,858			(16,858	)		—
Segment profit		33,858			27,472			12,775		74,105			(3,558	)		70,547

Three months ended April 30, 2009:
Revenues from external customers	$	125,688		$	85,172		$	65,873	$	276,733		$	—		$	276,733
Intersegment revenues		9,842			541			2,430		12,813			(12,813	)		—
Segment profit		28,540			23,773			6,979		59,292			(1,717	)		57,575

Nine months ended April 30, 2010:
Revenues from external customers	$	402,255		$	289,101		$	244,846	$	936,202		$	—		$	936,202
Intersegment revenues		32,657			3,367			13,344		49,368			(49,368	)		—
Segment profit		90,205			78,281			38,589		207,075			(10,161	)		196,914

Nine months ended April 30, 2009:
Revenues from external customers	$	409,573		$	280,589		$	231,337	$	921,499		$	—		$	921,499
Intersegment revenues		33,759			3,338			15,488		52,585			(52,585	)		—
Segment profit		86,104			77,857			33,502		197,463			(6,631	)		190,832

\n\n\n

Following is a reconciliation of segment profit to net income for the three months and nine months\nended April 30, 2010 and 2009.\n

\n\n


	Three months ended:			Nine months ended:
	April 30,			April 30,
	2010			2009			2010		2009
Total profit from reportable segments	$	74,105			$	59,292		$	207,075		$	197,463
Corporate and eliminations		(3,558	)			(1,717	)		(10,161	)		(6,631	)
Unallocated amounts:
Administrative costs		(32,286	)			(26,074	)		(91,944	)		(77,472	)
Restructuring charges		(2,347	)			(2,229	)		(9,597	)		(23,276	)
Investment and other income		121				989			1,273			1,143
Interest expense		(5,147	)			(6,307	)		(15,472	)		(18,982	)

Income before income taxes		30,888				23,954			81,174			72,245
Income taxes		(7,193	)			(5,994	)		(20,810	)		(21,325	)

Net income	$	23,695			$	17,960		$	60,364		$	50,920

\n\n

9\n

\n\n\n

NOTE G\n— Stock-Based Compensation\n

\n\n\n

The Company has an incentive stock plan under which the Board of Directors may grant\nnonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted\nshares of Class A Nonvoting Common Stock to employees. Additionally, the Company has a nonqualified\nstock option plan for non-employee directors under which stock options to purchase shares of Class\nA Nonvoting Common Stock are available for grant. The options have an exercise price equal to the\nfair market value of the underlying stock at the date of grant and generally vest ratably over a\nthree-year period, with one-third becoming exercisable one year after the grant date and one-third\nadditional in each of the succeeding two years. Options issued under these plans, referred to\nherein as “service-based” options, generally expire 10 years from the date of grant. The Company\nalso grants stock options to certain executives that vest upon meeting certain financial\nperformance conditions over the vesting schedule described above; these options are referred to\nherein as “performance-based” options. Performance-based options expire 10 years from the date of\ngrant. The Company also granted restricted shares that have an issuance price equal to the fair\nmarket value of the underlying stock at the date of grant. The restricted shares vest at the end of\na five-year period and upon meeting certain financial performance conditions; these shares are\nreferred to herein as “performance-based restricted shares.”\n

\n\n

As of April 30, 2010, the Company has remaining 5,108,870 shares of Class A Nonvoting Common\nStock for outstanding stock options and restricted shares and 2,228,500 shares of Class A Nonvoting\nCommon Stock for future issuance of stock options and restricted shares under the various plans.\nThe Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares\nunder these plans.\n

\n\n

The Company recognizes the compensation cost of all share-based awards on a straight-line\nbasis over the vesting period of the award. Total stock compensation expense recognized by the\nCompany during the three months ended April 30, 2010 and 2009 was $2,418 ($1,475 net of taxes) and\n$1,972 ($1,203 net of taxes), respectively, and expense recognized during the nine months ended\nApril 30, 2010 and 2009 was $7,574 ($4,620 net of taxes) and $6,281 ($3,831 net of taxes),\nrespectively. As of April 30, 2010, total unrecognized compensation cost related to share-based\ncompensation awards was $15,024 pre-tax, net of estimated forfeitures, which the Company expects to\nrecognize over a weighted-average period of 2.2 years.\n

\n\n

The Company has estimated the fair value of its service-based and performance-based option\nawards granted during the nine months ended April 30, 2010 and 2009 using the Black-Scholes option\nvaluation model. The weighted-average assumptions used in the Black-Scholes valuation model are\nreflected in the following table:\n


	Nine Months Ended			Nine Months Ended
	April 30, 2010			April 30, 2009
					Performance-						Performance-
	Service-Based			Based Option			Service-Based		Based Option
Black-Scholes Option Valuation Assumptions	Option Awards			Awards			Option Awards		Awards
Expected term (in years)		5.95				6.57			5.96			N/A
Expected volatility		39.85	%			38.72	%		36.07	%		N/A
Expected dividend yield		3.02	%			3.02	%		2.03	%		N/A
Risk-free interest rate		2.65	%			3.03	%		1.75	%		N/A
Weighted-average market value of\nunderlying stock at grant date	$	28.73				28.73		$	21.26			N/A
Weighted-average exercise price	$	28.73				28.73		$	21.26			N/A
Weighted-average fair value of options\ngranted during the period	$	8.78				8.96		$	6.30			N/A

\n\n\n

The Company uses historical data regarding stock option exercise behaviors to estimate the\nexpected term of options granted based on the period of time that options granted are expected to\nbe outstanding. Expected volatilities are based on the historical volatility of the Company’s\nstock. The expected dividend yield is based on the Company’s historical dividend payments and\nhistorical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect\non the grant date for the length of time corresponding to the expected term of the option. The\nmarket value is obtained by taking the average of the high and the low stock price on the date of\nthe grant.\n

\n\n

Effective February 17, 2010, the Compensation Committee of the Board of Directors of the\nCompany approved an amendment to the performance-based stock options issued on August 1, 2005.\nPursuant to the amendment, the term of the performance-based stock options has been extended to ten\nyears from five years resulting in an incremental expense of $354 ($216 net of taxes), which was\nrecorded in the quarter ended April 30, 2010. Also, the amendment provides that during the\nextension period, executives may exercise the performance-based stock options following a\ntermination only if the termination is as a result of the executive’s death or disability or\nqualifies as a retirement.\n

\n\n

The Company granted 210,000 performance-based restricted shares during fiscal 2008, with a\ngrant price and fair value of $32.83. The Company did not grant any performance-based restricted\nshares during the nine months ended April 30, 2010. As of April 30, 2010, all of the\nperformance-based restricted shares granted in fiscal 2008 remain outstanding.\n

\n\n

10\n

\n\n

The Company granted 525,000 performance-based options during the nine months ended April 30,\n2010, with a weighted average exercise price of $28.73 and a weighted average fair value of $8.96.\nThe Company also granted 901,000 service-based options during the nine months ended April 30, 2010,\nwith a weighted average exercise price of $28.73 and a weighted average fair value of $8.78.\n

\n\n

A summary of stock option activity under the Company’s share-based compensation plans for the\nnine months ended April 30, 2010 is presented below:\n


									Weighted
									Average
					Weighted			Remaining			Aggregate
					Average			Contractual			Intrinsic
Options	Shares			Exercise Price			Term			Value
Outstanding at July 31, 2009		3,980,606			$	27.96
New grants		1,426,000			$	28.73
Exercised		(214,436	)		$	18.49
Forfeited or expired		(83,300	)		$	32.60

Outstanding at April 30, 2010		5,108,870			$	28.29				6.6		$	38,014

Exercisable at April 30, 2010		3,104,089			$	28.34				4.9		$	24,088

\n\n\n

There were 3,104,089 and 2,862,146 options exercisable with a weighted average exercise price\nof $28.34 and $27.24 at April 30, 2010 and 2009, respectively. The cash received from the exercise\nof options during the quarters ended April 30, 2010 and 2009 was $1,822 and $45, respectively. The\ncash received from the exercise of options during the nine months ended April 30, 2010 and 2009 was\n$3,494 and $1,479, respectively. The tax benefit on stock options exercised during the quarter\nended April 30, 2010 was $462. The tax benefit on stock options exercised during the quarter ended\nApril 30, 2009 was not significant. The tax benefit on options exercised during the nine months\nended April 30, 2010 and 2009 was $845 and $533, respectively.\n

\n\n

The total intrinsic value of options exercised during the nine months ended April 30, 2010 and\n2009, based upon the average market price during the period, was $2,660 and $1,730, respectively.\nThe total fair value of stock options vested during the nine months ended April 30, 2010 and 2009\nwas $5,294 and $6,419, respectively.\n

\n\n\n

NOTE H — Stockholders’ Investment\n

\n\n\n

In March 2008, the Company announced that the Board of Directors of the Company authorized a\nshare repurchase plan for up to 1 million shares of the Company’s Class A Nonvoting Common Stock.\nThe share repurchase plan was implemented by purchasing shares on the open market or in privately\nnegotiated transactions, with repurchased shares available for use in connection with the Company’s\nstock-based plans and for other corporate purposes. During the nine months ended April 30, 2009,\nthe Company acquired 650,864 shares of its Class A Nonvoting Common Stock authorized for repurchase\nunder this plan for $21,539. Share repurchases under this plan were completed in the quarter ended\nOctober 31, 2008.\n

\n\n

In September 2008, the Company announced that the Board of Directors of the Company authorized\na share repurchase plan for up to 1 million shares of the Company’s Class A Nonvoting Common Stock.\nThe share repurchase plan may be implemented by purchasing shares on the open market or in\nprivately negotiated transactions, with repurchased shares available for use in connection with the\nCompany’s stock-based plans and for other corporate purposes. During the nine months ended April\n30, 2009, the Company acquired 693,800 shares of its Class A Nonvoting Common Stock under this plan\nfor $18,728. No shares were purchased under the Company’s share repurchase plan during the three\nmonths ended April 30, 2009. No shares were repurchased during the quarter ended April 30, 2010 or\nduring the nine months ended April 30, 2010. As of April 30, 2010, there remained 306,200 shares\navailable to purchase in connection with this share repurchase plan.\n

\n\n\n

NOTE I — Employee Benefit Plans\n

\n\n\n

The Company provides postretirement medical, dental and vision benefits for eligible regular\nfull and part-time domestic employees (including spouses) outlined by the plan. Postretirement\nbenefits are provided only if the employee was hired prior to April 1, 2008, and retires on or\nafter attainment of age 55 with 15 years of credited service. Credited service begins accruing at\nthe later of age 40 or date of hire. All active employees first eligible to retire after July 31,\n1992, are covered by an unfunded, contributory postretirement healthcare plan where employer\ncontributions will not exceed a defined dollar benefit amount, regardless of the cost of the\nprogram. Employer contributions to the plan are based on the employee’s age and service at\nretirement.\n

\n\n

The Company funds benefit costs on a pay-as-you-go basis. There have been no changes to the\ncomponents of net periodic benefit cost or the amount that the Company expects to fund in fiscal\n2010 from those reported in Note 3 to the consolidated financial statements included in the\nCompany’s latest annual report on Form 10-K for the year ended July 31, 2009.\n

\n\n

11\n

\n\n\n

NOTE J — Fair Value Measurements\n

\n\n\n

The Company adopted new accounting guidance on fair value measurements on August 1, 2008 as it\nrelates to financial assets and liabilities. The Company adopted the new accounting guidance on\nfair value measurements for its nonfinancial assets and liabilities on August 1, 2009. The\naccounting guidance applies to other accounting pronouncements that require or permit fair value\nmeasurements, defines fair value based upon an exit price model, establishes a framework for\nmeasuring fair value, and expands the applicable disclosure requirements. The accounting guidance\nindicates, among other things, that a fair value measurement assumes that a transaction to sell an\nasset or transfer a liability occurs in the principal market for the asset or liability or, in the\nabsence of a principal market, the most advantageous market for the asset or liability.\n

\n\n

The Company also adopted new guidance on disclosure requirements for fair value measurements\non February 1, 2010. The guidance requires previous fair value hierarchy disclosures to be further\ndisaggregated by class of assets and liabilities. A class is often a subset of assets or\nliabilities within a line item in the statement of financial position. In addition, significant\ntransfers between Levels 1 and 2 of the fair value hierarchy are required to be disclosed. The\nadoption did not have an impact on the Condensed Consolidated Financial Statements of the Company.\nIn addition, the fair value disclosure amendments also require more detailed disclosures of the\nchanges in Level 3 instruments. These changes will not become effective until interim and annual\nperiods beginning after December 15, 2010 and are not expected to have an impact on the Condensed\nConsolidated Financial Statements of the Company.\n

\n\n

The accounting guidance on fair value measurements establishes a fair market value hierarchy\nfor the pricing inputs used to measure fair market value. The Company’s assets and liabilities\nmeasured at fair market value are classified in one of the following categories:\n

\n\n\n

Level 1 — Assets or liabilities for which fair value is based on quoted market\nprices in active markets for identical instruments as of the reporting date. At April 30,\n2010 and July 31, 2009, $9,061 and $8,239 of the mutual funds held for the Company’s deferred\ncompensation plans were valued using Level 1 pricing inputs. The Company’s deferred\ncompensation investments are included in “Other assets” on the accompanying Condensed\nConsolidated Balance Sheets.\n

\n\n\n

Level 2 — Assets or liabilities for which fair value is based on valuation models\nfor which pricing inputs were either directly or indirectly observable. At April 30, 2010\nand July 31, 2009, $276 and $248, respectively, of the Company’s forward exchange contracts\ndesignated as cash flow hedges were valued using Level 2 pricing inputs and are included in\n“Other current liabilities,” on the accompanying Condensed Consolidated Balance Sheets. At\nApril 30, 2010, $165 of the Company’s forward exchange contracts designated as cash flow\nhedges were valued using Level 2 pricing inputs and are included in “Prepaid expenses and\nother current assets,” on the accompanying Condensed Consolidated Balance Sheets. At April\n30, 2010, $1,362 of the Company’s forward exchange contracts designated as net investment\nhedges were valued using Level 2 pricing inputs and are included in “Prepaid expenses and\nother current assets,” on the accompanying Condensed Consolidated Balance Sheet. At July 31,\n2009, $130 of the Company’s forward contracts not designated as hedging instruments were\nvalued using Level 2 pricing inputs and are included in “Prepaid expenses and other current\nassets,” on the accompanying Condensed Consolidated Balance Sheet.\n

\n\n\n

The fair values of Level 2 derivatives, which consist of cash flow hedges and net investment\nhedges, are primarily determined based on the present value of future cash flows using\nexternal models that use observable inputs, such as interest rates, yield curves and foreign\ncurrency exchange rates. See Note M, “Derivatives and Hedging Activities” for additional\ninformation regarding the Company’s hedging and derivatives activities.\n

\n\n\n

Level 3 — Assets or liabilities for which fair value is based on valuation models\nwith significant unobservable pricing inputs and which result in the use of management\nestimates. As of April 30, 2010 and July 30, 2010, none of the Company’s assets or\nliabilities were valued using Level 3 pricing inputs.\n

\n\n

There have been no transfers of assets or liabilities between the fair value hierarchy levels,\noutlined above, during the nine months ended April 30, 2010 and 2009.\n

\n\n

The Company’s financial instruments, other than those presented in the disclosures above,\ninclude cash, accounts receivable, accounts payable, accrued liabilities and short-term and\nlong-term debt. The fair values of cash, accounts receivable, accounts payable, accrued liabilities\nand short-term debt approximated carrying values because of the short-term nature of these\ninstruments.\n

\n\n

The estimated fair value of the Company’s long-term obligations, based on the quoted market\nprices for similar issues and on the current rates offered for debt of similar maturities, was\n$378,045 and $412,678 at April 30, 2010 and July 31, 2009, respectively, as compared to the\ncarrying value of $365,207 and $391,350 at April 30, 2010 and July 31, 2009, respectively.\n

\n\n

Disclosures for nonfinancial assets and liabilities that are measured at fair value, but are\nrecognized and disclosed at fair value on a nonrecurring basis, were required prospectively\nbeginning August 1, 2009. During the three and nine months ended April 30, 2010, the Company had no\nsignificant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent\nto their initial recognition other than the acquisitions of Welco, Stickolor, and Securimed. See\nNote N, “Acquisitions” for further information.\n

\n\n

12\n

\n\n\n

NOTE K: New Accounting Pronouncements\n

\n\n\n

In October 2009, the FASB issued new accounting guidance that provides amendments to the\ncriteria for separating consideration in multiple-deliverable revenue arrangements. As a result of\nthese amendments, multiple-deliverable revenue arrangements will be separated in more circumstances\nthan under existing GAAP. Expanded disclosures of qualitative and quantitative information\nregarding application of the multiple-deliverable revenue arrangement guidance are also required\nunder the guidance. The guidance is effective for the Company on August 1, 2010. The Company may\nelect to adopt the provisions prospectively to new or materially modified arrangements beginning on\nthe effective date or retrospectively for all periods presented. Based on the Company’s evaluation,\nthe new guidance does not have a material impact on the Company’s consolidated results of\noperations and financial condition.\n

\n\n

In March 2010, the FASB ratified a consensus of the FASB Emerging Issues Task Force that\nrecognizes the milestone method as an acceptable revenue recognition method for substantive\nmilestones in research or development arrangements. This consensus would require its provisions be\nmet in order for an entity to recognize consideration that is contingent upon achievement of a\nsubstantive milestone as revenue in its entirety in the period in which the milestone is achieved.\nIn addition, this consensus would require disclosure of certain information with respect to\narrangements that contain milestones. The guidance is effective on a prospective basis for\nmilestones achieved in fiscal years, and interim periods within those years, beginning on or after\nJune 15, 2010. Based on the Company’s evaluation, the new guidance does not have a material impact\non the Company’s consolidated results of operations and financial condition.\n

\n\n\n\n

NOTE L: Restructuring\n

\n\n\n

In fiscal 2009, in response to the global economic downturn, the Company took several measures\nto address its cost structure. In addition to a company-wide salary freeze and decreased\ndiscretionary spending, the Company reduced its workforce by 25%. The Company reduced its\nworkforce through voluntary and involuntary separation programs, voluntary retirement programs, and\nfacility consolidations. As a result of these actions, the Company recorded restructuring charges\nof $25,849 in fiscal 2009. The restructuring charges included $20,911 of employee separation costs,\n$2,101 of non-cash fixed asset write-offs, $1,194 of other facility closure related costs, $1,275\nof contract termination costs, and $368 of non-cash stock option expense.\n

\n\n

The Company continued executing its restructuring actions that were announced in fiscal 2009\nduring the nine months ended April 30, 2010. As a result of these actions, the Company recorded\nrestructuring charges of $2,347 and $9,597 during the three and nine months ended April 30, 2010,\nrespectively. The year-to-date restructuring charges consisted of $6,566 of employee separation\ncosts, $1,455 of non-cash fixed asset write-offs, $1,432 of other facility closure related costs,\nand $144 of contract termination costs. Of the $9,597 of restructuring charges recorded during the\nnine months ended April 30, 2010, $3,253 was incurred in the Americas, $3,964 was incurred in\nEurope, and $2,380 was incurred in Asia-Pacific. The charges for employee separation costs\nconsisted of severance pay, outplacement services, medical and other related benefits. The costs\nrelated to these restructuring activities have been recorded on the condensed consolidated\nstatements of income as restructuring charges. The Company expects the majority of the remaining\ncash payments to be made within the next twelve months.\n

\n\n\n

A reconciliation of the Company’s restructuring activity for fiscal 2010 is as follows:\n


	Employee Related			Asset Write-offs			Other		Total
Beginning balance, July 31, 2009	$	4,445			$	—		$	877		$	5,322
Restructuring charge		2,581				391			629			3,601
Non-cash write-offs		—				(288	)		—			(288	)
Cash payments		(2,930	)			—			(545	)		(3,475	)

Ending balance, October 31, 2009	$	4,096			$	103		$	961		$	5,160
Restructuring charge		2,235				1,029			385			3,649
Non-cash write-offs						(1,132	)		—			(1,132	)
Cash payments		(2,985	)			—			(594	)		(3,579	)

Ending balance, January 31, 2010	$	3,346			$	—		$	752		$	4,098

Restructuring charge		1,751				35			561			2,347
Non-cash write-offs		—				(35	)		—			(35	)
Cash payments		(1,856	)			—			(942	)		(2,798	)

Ending balance, April 30, 2010	$	3,241			$	—		$	371		$	3,612

\n\n

13\n

\n\n\n

NOTE M: Derivatives and Hedging Activities\n

\n\n\n\n

The Company primarily utilizes forward foreign exchange currency contracts to reduce the\nexchange rate risk of specific foreign currency denominated transactions. These contracts\ntypically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future\ndate, with maturities of less than 12 months, which qualify as cash flow hedges under the\naccounting guidance for derivative instruments and hedging activities. The primary objective of\nthe Company’s foreign currency exchange risk management is to minimize the impact of currency\nmovements due to products purchased in other than the respective subsidiaries’ functional\ncurrency. To achieve this objective, the Company hedges a portion of known exposures using\nforward foreign exchange currency contracts. As of April 30, 2010, the notional amount of\noutstanding forward contacts designated as cash flow hedges was $7,097.\n

\n\n

Hedge effectiveness is determined by how closely the changes in the fair value of the hedging\ninstrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting\nis permitted only if the hedging relationship is expected to be highly effective at the inception\nof the hedge and on an on-going basis. Gains or losses on the derivative related to hedge\nineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not\nsignificant for the nine months ended April 30, 2010 and 2009.\n

\n\n

The Company hedges a portion of known exposure using forward exchange contracts. Main\nexposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar,\nAustralian Dollar, Singapore Dollar, Swedish Krona, Danish Krone, Japanese Yen, and the Korean\nWon. Generally, these risk management transactions will involve the use of foreign currency\nderivatives to protect against exposure resulting from sales and identified inventory or other\nasset purchases.\n

\n\n

The Company has designated a portion of its foreign exchange contracts as cash flow hedges and\nrecorded these contracts at fair value on the Condensed Consolidated Balance Sheets. For these\ninstruments, the effective portion of the gain or loss on the derivative is reported as a component\nof other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods\nduring which the hedged transaction affects earnings. At April 30, 2010 and July 31, 2009,\nunrealized losses of $155 and $35 have been included in OCI, respectively. All balances are\nexpected to be reclassified from OCI to earnings during the next twelve months when the hedged\ntransactions impact earnings.\n

\n\n

At April 30, 2010, the Company had $165 of forward exchange contracts designated as cash flow\nhedges included in “Prepaid expenses and other current assets” on the accompanying Condensed\nConsolidated Balance Sheet. At July 31, 2009, $130 of the Company’s forward exchange contracts not\ndesignated as hedging instruments were included in “Prepaid expenses and other current assets,” on\nthe accompanying Condensed Consolidated Balance Sheet. At April 30, 2010 and July 31, 2009, the\nCompany had $276 and $248, of forward exchange contracts designated as hedge instruments included\nin “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheet,\nrespectively. At April 30, 2010 and July 31, 2009, the U.S. dollar equivalent of these outstanding\nforward foreign exchange contracts totaled $7,097 and $21,793, respectively, including contracts to\nsell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and Danish Krone.\n

\n\n

During fiscal 2010, the Company also used forward foreign exchange currency contracts\ndesignated as hedge instruments to hedge portions of the Company’s net investments in European\nforeign operations. For hedges that meet the effectiveness requirements, the net gains or losses\nattributable to changes in spot exchange rates are recorded in cumulative translation within other\ncomprehensive income. Any ineffective portions are to be recognized in earnings. Recognition in\nearnings of amounts previously recorded in cumulative translation is limited to circumstances such\nas complete or substantially complete liquidation of the net investment in the hedged foreign\noperation. At April 30, 2010, the Company had $1,362 of forward foreign exchange currency\ncontracts designated as net investment hedges included in “Prepaid expenses and other current\nassets” on the accompanying Condensed Consolidated Balance Sheet. The forward foreign exchange\ncurrency contacts settled on May 13, 2010 and the balance of the hedge will remain in OCI. As of\nApril 30, 2010, the notional amount of forward foreign exchange currency contracts designated as\nnet investment hedges was $101,162.\n

\n\n\n\n\n

\n\n

14\n

\n\n\n\n

Fair values of derivative instruments in the Condensed Consolidated Balance Sheets were as follows:\n


	Asset Derivatives		Liability Derivatives
	30-Apr-10		31-Jul-09			30-Apr-10			31-Jul-09
	Balance						Balance					Balance				Balance
	Sheet		Fair			Sheet			Fair	Sheet			Fair	Sheet		Fair
Derivatives designated as hedging instruments	Location		Value			Location			Value	Location			Value	Location		Value

Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	165			Prepaid expenses and other current assets			—	Other current liabilities		$	276	Other current liabilities	$	248

Net investment hedges
Foreign exchange contracts	Prepaid expenses and other current assets		1,362			Prepaid expenses and other current assets			—	Other current liabilities			—	Other current liabilities		—

Total derivatives designated as hedging instruments				$	1,527					$	—				$	276	$	248


Derivatives not designated as hedging instruments

Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	—			Prepaid expenses and other current assets		$	130	Other current liabilities		$	—	Other current liabilities	$	—


Total derivatives not designated as hedging instruments				$	—					$	130				$	—	$	—

\n\n\n

The pre-tax effects of derivative instruments designated as cash flow hedges and net investment\nhedges on the Condensed Consolidated Statements of Income consisted of the following:\n

Amount of Gain or (Loss)

Recognized in OCI on

Reclassified From

Recognized in Income on

Derivative (Effective

Accumulated OCI Into

Derivative (Ineffective

Portion)

Income (Effective Portion)

Portion)

Location of

Gain or (Loss)

Reclassified

Location of

Derivatives

Nine

From

Nine

Gain or (Loss)

Nine

in Cash Flow

months

Accumulated

months

Nine

Recognized in

months

& Net

ended

OCI into

ended

months

Income on

ended

Investment

April

Income

April

ended

Derivative

April

Hedging

30,

(Effective

30,

April 30,

(Ineffective

30,

Relationships

2010

2009

Portion)

2010

2009

Portion)

2010

2009

Cash Flow Hedges

Foreign exchange contracts

(120

)

1,716

Cost of Goods Sold

—

(1,027

)

Cost of Goods Sold

—

Net Investment Hedges

Foreign exchange contracts

1,326

—

Total

1,206

1,716

—

(1,027

)

—

\n\n\n\n

\n\n

15\n

\n\n\n\n

The pre-tax effects of derivative instruments not designated as hedge instruments on the\nCondensed Consolidated Statements of Income consisted of the following:\n


		Amount of Gain or (Loss) Recognized in
	Location of Gain or (Loss)	Income on Derivative
	Recognized in Income	Nine months ended		Nine months ended
Derivatives Not Designated as Hedging Instruments	on Derivative	April 30, 2010		April 30, 2009
Foreign exchange contracts	Other income (expense)	$	—		$	(402	)

Total		$	—		$	(402	)

\n\n\n\n

NOTE N — Acquisitions\n

\n\n\n\n

On March 31, 2010, the Company acquired Securimed SAS (“Securimed”), based in Coudekerque,\nFrance for $10,132. Securimed is a leading French supplier and distributor of customized first-aid\nkits and supplies, and related healthcare products including personal protection, disinfection and\nhygiene products, diagnosis materials, and products for emergency response. The Securimed business\nis included in the Company’s Europe segment. The purchase price allocation resulted in $6,118\nassigned to goodwill, $2,480 assigned to customer relationships, and $705 assigned to trademark.\nThe amounts assigned to the trademark and customer relationships are being amortized over 10 and 5\nyears, respectively. The Company expects the acquisition to facilitate growth of the direct\nmarketing business through multi-channel sales resulting in added value to the Company’s customers.\n

\n\n

On December 23, 2009, the Company acquired Stickolor Industria e Comercio de Auto Adesivos\nLtda. (“Stickolor”), based in Saõ Paulo, Brazil for $18,459. Stickolor manufactures screen-printed\ncustom labels, overlays and nameplates for automobiles, tractors, motorcycles, electronics, white\ngoods and general industrial markets. The Stickolor business is included in the Company’s Americas\nsegment. The purchase price allocation resulted in $13,370 assigned to goodwill, $4,989 assigned\nto customer relationships, and $55 assigned to trademark. The amounts assigned to the trademark\nand customer relationships are being amortized over 3 and 7 years, respectively. The Company\nexpects the acquisition to further strengthen its position in the industrial identification market\nin Brazil and enhance its screen printing capabilities, as well as facilitate its growth into\ncomplementary markets in the region including automotive, agricultural equipment, and major\nappliances.\n

\n\n

On October 9, 2009, the Company acquired certain assets of the Welco division of Welconstruct\nGroup Limited, based in the United Kingdom for $1,840. The Welco division conducts a direct\nmarketing business consisting of sales of storage, handling, office and workplace products, and\nequipment via catalog and the internet to industrial and commercial markets under the name and\ntitle “Welco.” The purchase price allocation resulted in $778 assigned to goodwill, $501 assigned\nto customer relationships, and $580 assigned to trademark. The amounts assigned to the trademark\nand customer relationships are being amortized over 10 and 6 years, respectively. The Company\nexpects the acquisition to facilitate growth of the direct marketing business through multi-channel\nsales.\n

\n\n

The results of the operations of the acquired business have been included since the respective\ndates of acquisition in the accompanying condensed consolidated financial statements. The Company\nis continuing to evaluate the initial purchase price allocations for the acquisitions completed\nwithin the past 12 months and will adjust the allocations as additional information relative to the\nfair value of assets and liabilities of the acquired businesses becomes known. Pro forma\ninformation related to the acquisitions during the nine months ended April 30, 2010 is not included\nbecause the impact on the Company’s consolidated results of operations is considered to be\nimmaterial.\n

\n\n\n

NOTE O — Subsequent Events\n

\n\n\n\n

On May 18, 2010, the Board of Directors declared a quarterly cash dividend to shareholders of\nthe Company’s Class A Common Stock of $0.175 per share payable on July 30, 2010 to shareholders of\nrecord at the close of business on July 9, 2010.\n

\n\n

On May 13, 2010, the Company completed a private placement of €75,000 (approximately $95,000\nUSD) aggregate principal amount of senior unsecured notes to accredited institutional investors.\nThe €75,000 of senior notes consists of €30,000 aggregate principal amount of 3.71% Series 2010-A\nSenior Notes, due May 13, 2017 and €45,000 aggregate principal amount of 4.24% Series 2010-A\nSenior Notes, due May 13, 2020. These unsecured notes were issued pursuant to a Note Purchase\nAgreement, dated as of May 13, 2010. The Company intends to use the net proceeds of the private\nplacement to refinance existing debt, to fund future acquisitions, and for general corporate\npurposes. The foreign currency denominated debt will also hedge portions of the Company’s net\ninvestments in European foreign operations.\n

\n\n

\n\n\n\n

16\n

\n\n

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n

\n\n

Overview\n

\n\n\n

Brady is an international manufacturer and marketer of identification solutions and specialty\nmaterials that identify and protect premises, products, and people. Its products include\nhigh-performance labels and signs, printing systems and software, safety devices, precision die-cut\nmaterials, and label-application and data-collection systems. Founded in 1914, the Company serves\ncustomers in manufacturing, electrical, telecommunications, electronics, construction, laboratory,\neducation, governmental, public utility, computer, transportation and a variety of other\nindustries. The Company manufactures and sells products domestically and internationally through\nmultiple channels including distributor sales, direct sales, mail-order catalogs, telemarketing,\nretail and electronic access through the Internet. The Company believes that its reputation for\ninnovation, commitment to quality and service, and dedicated employees have made it a world leader\nin the markets it serves. The Company operates manufacturing or distribution facilities in\nAustralia, Belgium, Brazil, Canada, China, France, Germany, India, Italy, Japan, Malaysia, Mexico,\nthe Netherlands, Norway, Poland, Singapore, South Korea, Sweden, Thailand, the United Kingdom and\nthe United States. Brady sells through subsidiaries or sales offices in these countries, with\nadditional sales through a dedicated team of international sales representatives in Hong Kong, the\nPhilippines, Slovakia, Spain, Taiwan, Turkey, and the United Arab Emirates and further markets its\nproducts to parts of Eastern Europe, the Middle East, Africa, South America, and Russia.\n

\n\n

Sales for the quarter ended April 30, 2010, increased 16.3% to $321.9 million, compared to\n$276.7 million in the same period of fiscal 2009. Of the increase in sales, organic sales increased\n8.5%, acquisitions added 2.0% and the effects of fluctuations in the exchange rates used to\ntranslate financial results into the United States dollar increased sales 5.8%. Net income for the\nquarter ended April 30, 2010, was $23.7 million or $0.45 per diluted Class A Nonvoting Common\nShare, up 31.9% and 32.4%, respectively, from $18.0 million or $0.34 per diluted Class A Nonvoting\nCommon Share reported in the third quarter of last fiscal year. Net income before\nrestructuring-related expenses for the quarter ended April 30, 2010 was $25.4 million, or $0.48 per\ndiluted Class A Nonvoting Common Share, an increase of 29.6% from $19.6 million or $0.37 per\ndiluted Class A Nonvoting Common Share for the quarter ended April 30, 2009.\n

\n\n

Sales for the nine months ended April 30, 2010, increased 1.6% to $936.2 million, compared to\n$921.5 million in the same period of fiscal 2009. Of the increase in sales, organic sales declined\n3.1%, acquisitions added 0.9% and the effects of fluctuations in the exchange rates used to\ntranslate financial results into the United States dollar increased sales 3.8%. Net income for the\nnine months ended April 30, 2010, was $60.4 million or $1.14 per diluted Class A Nonvoting Common\nShare, up 18.5% and 18.8%, respectively, from $50.9 million or $0.96 per diluted Class A Nonvoting\nCommon Share reported in the same period of the prior fiscal year. Net income before\nrestructuring-related expenses for the nine months ended April 30, 2010 was $67.3 million or $1.27\nper diluted Class A Nonvoting Common Share, a decrease of 0.6% from $67.7 million, or $1.28 per\ndiluted Class A Nonvoting Common Share, for the nine months ended April 30, 2009.\n

\n\n

Results of Operations\n

\n\n\n

The comparability of the operating results for the three and nine months ended April 30, 2010,\nto the same periods of the prior year has been impacted by the following acquisitions completed in\nfiscal 2010.\n

\n\n\n \n \n \n \n \n\n\n \n \n \n \n \n\n\n\n\n\n\n \n \n \n \n \n\n\n \n \n \n \n \n\n\n \n \n \n \n \n\n\n \n \n \n \n \n\n\n \n \n \n \n \n\n


Acquisitions	Segment	Date Completed
Welconstruct Group Limited (“Welco”)	Europe	October 2009

Stickolor Industria e Comerciao de Auto Adesivos Ltda. (“Stickolor”)	Americas	December 2009

Securimed SAS (“Securimed”)	Europe	March 2010

\n\n\n

Sales for the three months ended April 30, 2010, increased 16.3% compared to the same period\nin fiscal 2009. The increase was comprised of an increase in organic sales of 8.5%, an increase of\n2.0% due to the acquisitions listed in the above table, and an increase of 5.8% due to the effect\nof currencies on sales. The increase in organic sales in the quarter was primarily the result of\nthe global economic improvement. Organic sales were positively impacted during the third quarter\nof fiscal 2010 across each of the Company’s three segments, with increases of 9.7%, 6.1%, and 9.4%\nfor the Americas, Europe, and Asia-Pacific segments, respectively. The organic sales increase\nexperienced in the Americas was due primarily to strong Brady brand sales growth and new products\npositively received with end—users and distributors. The increase in Europe’s organic sales was\npositively impacted during the quarter by the increases in the direct marketing businesses and the\nelectronics industries. The increase in organic sales for the Asia-Pacific segment was due to the\ncontinued focus on proprietary engineered solutions for high-end consumer electronics and the\ncontinued growth in the MRO business from a growing base of channel partners.\n

\n\n\n\n\n

\n\n

17\n

\n\n\n\n

Sales for the nine months ended April 30, 2010, increased 1.6% compared to the same period in\nfiscal 2009. The increase was comprised of an increase of 0.9% due to the acquisitions listed\nabove, an increase of 3.8% due to the effect of currencies on sales, partially offset by a decline\nin organic sales of 3.1%. The decrease in organic sales was due to declines of 4.3% in the\nAmericas, 3.4% in Europe, and 0.7% in Asia-Pacific. The decrease in the Company’s organic sales\nwas primarily driven by the global economic recession. The decline in organic sales in the\nAmericas segment was primarily driven by weakness in the manufacturing and construction sector.\nOrganic sales were adversely impacted in the Europe and Asia-Pacific segments due to the declines\nexperienced in the electronics industries, primarily during the first quarter of fiscal 2010.\n

\n\n

Gross margin as a percentage of sales increased to 49.8% from 48.5% for the quarter and to\n49.6% from 47.9% for the nine months ended April 30, 2010, compared to the same periods of the\nprevious year. The increase in gross margin as a percentage of sales for the three and nine\nmonths ended April 30, 2010 was primarily the result of increased sales volumes, as well as the\ncost savings generated from the reduction of contract labor, restructuring activities that took\nplace during fiscal 2009 and continued in fiscal 2010, and efficiencies gained from the\nimplementation of the Brady Business Performance System (“BBPS”) throughout the Company.\n

\n\n

Research and development (“R&D”) expenses increased 37.9% to $10.7 million for the quarter and\n22.2% to $31.0 million for the nine months ended April 30, 2010, compared to $7.8 million and $25.3\nmillion for the same periods in the prior year, respectively. The increase was due to the return\nof incentive compensation expenses during fiscal 2010, as well as the Company’s commitment to new\nproduct development. As a percentage of sales, R&D expenses represented a higher percentage of\nsales, increasing to 3.3% in the third quarter of fiscal 2010 from 2.8% in the third quarter of\nfiscal 2009, and increased to 3.3% in the first nine months of fiscal 2010 compared to 2.7% in the\nfirst nine months of fiscal 2009, reflective of the Company’s commitment to new product\ndevelopment.\n

\n\n

Selling, general and administrative (“SG&A”) expenses increased 17.2% to $111.2 million for\nthe three months ended April 30, 2010, compared to $94.9 million for the same period in the prior\nyear and 8.5% to $328.6 million for the nine months ended April 30, 2010, compared to $302.8\nmillion for the same period in the prior year. The increase in the SG&A was primarily due to the\nreturn of incentive compensation expenses during fiscal 2010, as well as the effects of the\nfluctuations in the exchange rates used to translate financial results into the United States\ndollar. Also, in the third quarter of fiscal 2009, the Company experienced a reduction in SG&A due\nto the reversal of previously accrued bonuses not paid in the prior year. As a percentage of sales,\nSG&A expenses increased to 34.6% from 34.3% for the quarter and to 35.1% from 32.9% for the nine\nmonths ended April 30, 2010, compared to the same periods in the prior year.\n

\n\n

Restructuring expenses were $2.3 million and $9.6 million for the three and nine months ended\nApril 30, 2010, respectively. In fiscal 2009, in response to the global recession, the Company\ntook several measures to address its cost structure. The Company continued to incur costs related\nto the reduction of its workforce and facilities consolidations during the nine months ended April\n30, 2010. The Company expects to incur $15.0 million of restructuring charges in fiscal 2010.\n

\n\n

Interest expense decreased to $5.1 million from $6.3 million for the quarter and to $15.5\nmillion from $19.0 million for the nine months ended April 30, 2010, compared to the same periods\nin the prior year. The decrease in interest expense was due to the lower debt principal balances\nin the current year as compared to the prior year.\n

\n\n

Other income and expense decreased to $0.1 million of income for the third quarter of fiscal\n2010 compared to $1.0 million of income for the third quarter of fiscal 2009. Other income and\nexpense increased to $1.3 million of income for the nine months ended April 30, 2010, compared to\n$1.1 million of income for the same period in the prior year. The decrease in the other income and\nexpense for the three months ended April 30, 2010 was primarily due to the foreign exchange losses\noffset by the increase in the value of the mutual funds held in deferred compensation plans. The\nincrease in other income and expense for the nine months ended April 30, 2010 was due to the\nincrease in the value of the mutual funds held in deferred compensation plans offset by the\nincrease in the foreign exchange losses.\n

\n\n\n\n\n

\n\n

18\n

\n\n\n\n

The Company’s income tax rate was 23.3% for the three months ended April 30, 2010 and 25.6%\nfor the nine months ended April 30, 2010, compared to 25.0% and 29.5% for the three and nine months\nended April 30, 2009, respectively. The decrease in the Company’s effective tax rate during the\ncurrent year was primarily due to the mix of profits in low and high tax countries as well as\npositive impacts from foreign and U.S. income tax audits. The Company is currently in the final\nstages of a U.S income tax audit for the fiscal years ended July 31, 2006, 2007 and 2008. Although\nthe timing of the final resolution or closure of this audit is uncertain, it is reasonably possible\nthat the balance of gross unrecognized tax benefits could significantly change in the next twelve\nmonths. The Company is unable to reasonably estimate the full range of possible adjustments to the\nbalance of gross unrecognized tax benefits. Pending the results of the audit, the Company currently\nestimates the full year income tax rate for fiscal 2010 to be approximately 26%.\n

\n\n

Net income for the three months ended April 30, 2010, increased 31.9% to $23.7 million,\ncompared to $18.0 million for the same quarter of the previous year. Net income as a percentage of\nsales increased to 7.4% from 6.5% for the quarter ended April 30, 2010, compared to the same period\nin the prior year. Net income before restructuring-related expenses for the quarter ended April\n30, 2010 was $25.4 million, or $0.48 per diluted Class A Nonvoting Common Share, an increase of\n29.6% from $19.6 million or $0.37 per diluted Class A Nonvoting Common Share, for the same period\nin the previous year. For the nine months ended April 30, 2010, net income increased 18.5% to\n$60.4 million, compared to $50.9 million for the same period in the previous year. As a percentage\nof sales, net income increased to 6.4% from 5.5% for the nine months ended April 30, 2010, compared\nto the same period in the previous year. Net income before restructuring-related expenses for the\nnine months ended April 30, 2010 was $67.3 million or $1.27 per diluted Class A Nonvoting Common\nShare, a decrease of 0.6% from $67.7 million, or $1.28 per diluted Class A Nonvoting Common Share,\nfor the nine months ended April 30, 2009.\n

\n\n

Business Segment Operating Results\n

\n\n\n

\n\n

Following is a summary of segment information for the three and nine months ended April 30,\n2010 and 2009:\n

\n\n\n

\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n\n \n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n


																Corporate
								Asia-			Total			and
(Dollars in thousands)	Americas			Europe			Pacific		Regions			Eliminations			Total
SALES TO EXTERNAL CUSTOMERS
Three months ended:
April 30, 2010	$	144,413			$	98,152		$	79,322			$	321,887			$	—		$	321,887
April 30, 2009	$	125,688			$	85,172		$	65,873			$	276,733			$	—		$	276,733

Nine months ended:
April 30, 2010	$	402,255			$	289,101		$	244,846			$	936,202			$	—		$	936,202
April 30, 2009	$	409,573			$	280,589		$	231,337			$	921,499			$	—		$	921,499

SALES GROWTH INFORMATION
Three months ended April 30, 2010
Organic		9.7	%			6.1	%		9.4	%			8.5	%			—			8.5	%
Currency		3.1	%			5.6	%		11.0	%			5.8	%			—			5.8	%
Acquisitions		2.1	%			3.5	%		0.0	%			2.0	%			—			2.0	%

Total		14.9	%			15.2	%		20.4	%			16.3	%			—			16.3	%

Nine months ended April 30, 2010
Organic		(4.3	)%			(3.4	)%		(0.7	)%			(3.1	)%			—			(3.1	)%
Currency		1.7	%			4.6	%		6.5	%			3.8	%			—			3.8	%
Acquisitions		0.8	%			1.8	%		0.0	%			0.9	%			—			0.9	%

Total		(1.8	)%			3.0	%		5.8	%			1.6	%			—			1.6	%

SEGMENT PROFIT
Three months ended:
April 30, 2010	$	33,858			$	27,472		$	12,775			$	74,105			$	(3,558	)	$	70,547
April 30, 2009	$	28,540			$	23,773		$	6,979			$	59,292			$	(1,717	)	$	57,575
Percentage increase\n		18.6	%			15.6	%		83.0	%			25.0	%			107.2	%		22.5	%

Nine months ended:
April 30, 2010	$	90,205			$	78,281		$	38,589			$	207,075			$	(10,161	)	$	196,914
April 30, 2009	$	86,104			$	77,857		$	33,502			$	197,463			$	(6,631	)	$	190,832
Percentage increase		4.8	%			0.5	%		15.2	%			4.9	%			53.2	%		3.2	%

\n\n

19\n

\n\n

NET INCOME RECONCILIATION (Dollars in thousands)\n

\n\n


	Three months ended:			Nine months ended:
	April 30,			April 30,			April 30,		April 30,
	2010			2009			2010		2009
Total profit from reportable segments	$	74,105			$	59,292		$	207,075		$	197,463
Corporate and eliminations		(3,558	)			(1,717	)		(10,161	)		(6,631	)
Unallocated amounts:
Administrative costs		(32,286	)			(26,074	)		(91,944	)		(77,472	)
Restructuring costs		(2,347	)			(2,229	)		(9,597	)		(23,276	)
Investment and other income		121				989			1,273			1,143
Interest expense		(5,147	)			(6,307	)		(15,472	)		(18,982	)

Income before income taxes		30,888				23,954			81,174			72,245
Income taxes		(7,193	)			(5,994	)		(20,810	)		(21,325	)

Net income	$	23,695			$	17,960		$	60,364		$	50,920

\n\n\n

The Company evaluates short-term segment performance based on segment profit or loss and\ncustomer sales. Corporate long-term performance is evaluated based on shareholder value enhancement\n(“SVE”), which incorporates the cost of capital as a hurdle rate for capital expenditures, new\nproduct development, and acquisitions. Segment profit or loss does not include certain\nadministrative costs, such as the cost of finance, information technology and human resources,\nwhich are managed as global functions. Restructuring charges, stock options, interest, investment\nand other income and income taxes are also excluded when evaluating performance.\n

\n\n

Americas:\n

\n\n\n

Sales in the Americas segment increased 14.9% to $144.4 million for the quarter and decreased\n1.8% to $402.3 million for the nine months ended April 30, 2010, compared to $125.7 million and\n$409.6 million for the same three and nine-month periods in the prior year. Organic sales\nincreased 9.7% for the quarter and decreased 4.3% for the year, as compared to the same periods in\nthe previous year. Fluctuations in the exchange rates used to translate financial results into the\nUnited States dollar increased sales by 3.1% in the quarter and 1.7% for the nine-month period.\nSales in the segment were increased by the fiscal year 2010 acquisition of Stickolor which\nincreased sales by 2.1% for the quarter and 0.8% for the nine-month period. The year-to-date sales\nin the region were negatively impacted by the economic downturn particularly in the manufacturing\nand construction sectors during the first and second quarters of fiscal 2010. The region returned\nto positive organic sales growth in the third quarter of fiscal 2010 due to strong growth in the\nBrady brand sales across the region and new products introduced that were positively received by\nthe end-users and distributors.\n

\n\n

Segment profit for the region increased 18.6% to $33.9 million from $28.5 million for the\nquarter and 4.8% to $90.2 million from $86.1 million for the nine months ended April 30, 2010,\ncompared to the same periods in the prior year. Segment profit for the quarter was positively\nimpacted by increased sales volume, while the segment continued to drive productivity improvements\nthrough consolidating facilities, and implementing other operational improvement initiatives to\nfurther reduce costs and improve productivity. As a percentage of sales, segment profit increased\nto 23.4% from 22.7% in the third quarter of fiscal 2010 and increased to 22.4% from 21.0% in the\nnine months ended April 30, 2010, compared to the same periods in the prior year.\n

\n\n

Europe:\n

\n\n\n

Europe sales increased 15.2% to $98.2 million for the quarter and 3.0% to $289.1 million for\nthe nine months ended April 30, 2010, compared to $85.2 million and $280.6 million for the same\nthree and nine-month periods in the prior year. Organic sales increased 6.1% for the quarter and\ndecreased 3.4% for the nine months ended April 30, 2010, compared to the same periods in the\nprevious year. Sales were positively affected by fluctuations in the exchange rates used to\ntranslate financial results into the United States dollar, which increased sales within the segment\nby 5.6% in the quarter and 4.6% for the nine-month period. The fiscal 2010 acquisitions of Welco\nand Securimed increased sales 3.5% for the quarter and 1.8% for the nine-month period. The\nsegment’s organic sales were positively impacted during the quarter by the increases in the direct\nmarketing businesses and the electronics industries. The organic sales for the nine months ended\nApril 30, 2010 were adversely impacted by the declines in the automotive and electronics industries\nduring the first quarter of fiscal 2010.\n

\n\n

The current economic climate in Europe remains volatile. Management is uncertain as to when\nthe challenging business conditions and fluctuating exchange rates will stabilize.\n

\n\n

Segment profit for the region increased 15.6% to $27.5 million from $23.8 million for the\nquarter and 0.5% to $78.3 million from $77.9 million for the nine months ended April 30, 2010,\ncompared to the same periods in the prior year. The increase in segment profit for the quarter was\nattributable to the increased sales volumes as discussed above. In response to the slowdown in\nbusiness in the prior year and the first quarter of 2010, the segment took actions to address its\ncost structure, including a reduction in its workforce, limited discretionary spending, and\nconsolidating facilities to offset the decline in sales. During the second and third quarters of\nfiscal 2010, the segment began to realize savings resulting from these actions. As a percentage of\nsales, segment profit increased to 28.0% from 27.9% in the third quarter of fiscal 2010 and\ndecreased to 27.1% from 27.7% in the nine months ended April 30, 2010, compared to the same periods\nin the prior year.\n

\n\n

20\n

\n\n

Asia-Pacific:\n

\n\n\n

Asia-Pacific sales increased 20.4% to $79.3 million for the quarter and 5.8% to $244.8 million\nfor the nine months ended April 30, 2010, compared to $65.9 million and $231.3 million for the same\nthree and nine-month periods in the prior year. Organic sales increased 9.4% in the quarter and\ndecreased 0.7% for the nine months ended April 30, 2010, compared to the same periods in the\nprevious year. Sales were positively impacted by fluctuations in the exchange rates used to\ntranslate financial results into the United States dollar, which increased sales within the region\nby 11.0% in the quarter and 6.5% for the nine-month period. The significant increase in organic\nsales for the quarter was primarily due to the heightened focus on proprietary engineered solutions\nand new product launches to high-end consumer electronics and an expanded focus on MRO applications\nthroughout the region. The slight decline in the organic sales for the nine months ended April\n30, 2010 was a result of the decrease in sales during the first quarter of fiscal 2010 due to the\nglobal economic recession, partially offset by the strong sales growth during the second and third\nquarter of fiscal 2010 as discussed above.\n

\n\n

Segment profit for the region increased 83.0% to $12.8 million from $7.0 million for the\nquarter and increased 15.2% to $38.6 million from $33.5 million for the nine months ended April\n30, 2010, compared to the same periods in the prior year. The increase in segment profit during\nthe three months ended April 30, 2010 was primarily due to Brady’s increased focused on\nhigher-end, value-added solutions, newly launched products and the cost savings generated from the\nrestructuring activities and facility rationalization. As a percentage of sales, segment profit\nincreased to 16.1% from 10.6% in the third quarter of fiscal 2010 and to 15.8% from 14.5% in the\nnine months ended April 30, 2010, compared to the same periods in the prior year.\n

\n\n

Financial Condition\n

\n\n\n

Cash and cash equivalents were $207.1 million at April 30, 2010, compared to $188.2 million at\nJuly 31, 2009. The increase in cash of $18.9 million was the result of cash provided by operations\nof $118.2 million, partially offset by cash used for acquisitions, dividends, and debt payments\nduring the nine months ended April 30, 2010.\n

\n\n

Accounts receivable increased $19.6 million for the nine months ended April 30, 2010 mainly\ndue to higher sales volumes. Inventories decreased $1.8 million for the nine months ended April\n30, 2010, to $92.0 from $93.8 million at July 31, 2009. The decline in inventory was due to the\nbenefits generated from working capital initiatives and the impact of foreign currency translation.\nThe net increase in current liabilities was $47.1 million from July 31, 2009 to April 30, 2010.\nThe increase was composed of a significant increase in accrued wages and amounts withheld from\nemployees due to the accrual of the fiscal 2010 incentive compensation plans during the nine months\nended April 30, 2010. Annual incentive compensation plans were cancelled for fiscal 2009 due to the\nCompany’s financial performance resulting from the economic downturn and as such, no payouts for\nincentive compensation were made during the first quarter of fiscal 2010. The current maturities\non long-term debt also increased during the third quarter of fiscal 2010 as principal payments on\noutstanding debt become due in the next twelve months.\n

\n\n

Cash flow from operating activities totaled $118.2 million for the nine months ended April 30,\n2010, compared to $77.0 million for the same period last year. The increases in the accounts\npayable and net income were offset by the increase in accounts receivable and accrued liabilities,\nresulting in an increase in the cash provided by operating activities as compared to the third\nquarter of fiscal 2009. The significant change in the accounts payable and accrued liabilities was\nprimarily due to the accrual of the fiscal 2010 incentive compensation plans during the nine months\nended April 30, 2010, as described above.\n

\n\n

Cash used for acquisitions totaled $30.4 million for the nine months ended April 30, 2010 due\nto the acquisitions of Welco, Stickolor, and Securimed. The net cash paid for Welco, Stickolor,\nand Securimed was $1.8 million, $18.5 million, and $10.1 million, respectively. The Company did\nnot complete any acquisitions during the nine months ended April 30, 2009. Capital expenditures\nwere $20.9 million for the nine months ended April 30, 2010, compared to $16.0 million in the same\nperiod last year. The Company expects the capital expenditures to be approximately $25.0 million\nfor fiscal 2010. Net cash used in financing activities was $50.0 million for the nine months ended\nApril 30, 2010, due primarily to the payment of dividends and the principal payment on debt,\npartially offset by the proceeds from the issuance of common stock. Net cash used in financing\nactivities for the same period last year was $65.0 million due primarily to the repurchase of the\nCompany’s Class A Non-Voting Common Stock and the payment of dividends.\n

\n\n

On November 24, 2008, the Company filed a shelf registration statement on Form S-3 with the\nSecurities and Exchange Commission (“SEC”), which will allow the Company to issue and sell, from\ntime to time in one or more offerings, an indeterminate amount of Class A Non-Voting Common Stock\nand debt securities as it deems prudent or necessary to raise capital at a later date. The shelf\nregistration statement became effective upon filing with the SEC. The Company plans to use the\nproceeds from any future offerings under the shelf registration for general corporate purposes,\nincluding, but not limited to, acquisitions, capital expenditures, and refinancing of debt.\n

\n\n\n\n\n

\n\n

21\n

\n\n\n\n

During fiscal 2004 through fiscal 2007, the Company completed three private placement note\nissuances totaling $500 million in ten-year fixed rate notes with varying maturity dates to\ninstitutional investors at interest rates varying from 5.14% to 5.33%. The notes must be repaid\nequally over seven years, with initial payment due dates ranging from 2008 to 2011, with interest\npayable on the notes due semiannually on various dates throughout the year, which began in December\n2004. The private placements were exempt from the registration requirements of the Securities Act\nof 1933. The notes were not registered for resale and may not be resold absent such registration or\nan applicable exemption from the registration requirements of the Securities Act of 1933 and\napplicable state securities laws. The notes have certain prepayment penalties for repaying them\nprior to the maturity date. Under the debt agreement, the Company paid equal installments of $21.4\nmillion in June 2008 and June 2009. In June 2009, the Company also completed a cash tender offer to\npurchase approximately $65.8 million of its outstanding notes at par without penalty. In February\n2010, the Company paid an installment of $26.1 million.\n

\n\n

On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan\nagreement with a group of five banks that replaced the Company’s previous credit agreement. At the\nCompany’s option, and subject to certain standard conditions, the available amount under the credit\nfacility may be increased from $200 million up to $300 million. Under the credit agreement, the\nCompany has the option to select either a base interest rate (based upon the higher of the federal\nfunds rate plus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency interest\nrate (at the LIBOR rate plus a margin based on the Company’s consolidated leverage ratio). A\ncommitment fee is payable on the unused amount of the facility. The agreement restricts the amount\nof certain types of payments, including dividends, which can be made annually to $50 million plus\nan amount equal to 75% of consolidated net income for the prior fiscal year of the Company. The\nCompany believes that based on historic dividend practice, this restriction would not impede the\nCompany in following a similar dividend practice in the future. On March 18, 2008, the Company\nentered into an amendment to the revolving loan agreement which extended the maturity date from\nOctober 5, 2011 to March 18, 2013. All other terms of the revolving loan agreement remained the\nsame. As of April 30, 2010, there were no outstanding borrowings under the credit facility.\n

\n\n

The Company’s debt and revolving loan agreements require it to maintain certain financial\ncovenants. The Company’s June 2004, February 2006, and March 2007 private placement debt agreements\nrequire the Company to maintain a ratio of debt to the trailing twelve months earnings before\ninterest, taxes, depreciation and amortization (“EBITDA”), as defined in the debt agreements, of\nnot more than a 3.5 to 1.0 ratio (leverage ratio). As of April 30, 2010, the Company was in\ncompliance with the financial covenant of these debt agreements, with the ratio of debt to EBITDA,\nas defined by the agreements, equal to 1.9 to 1.0. Additionally, the Company’s October 2006\nrevolving loan agreement requires the Company to maintain a ratio of debt to trailing twelve months\nEBITDA, as defined by the debt agreement, of not more than a 3.0 to 1.0 ratio. The revolving loan\nagreement requires the Company’s trailing twelve months earnings before interest and taxes (“EBIT”)\nto interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of April\n30, 2010, the Company was in compliance with the financial covenants of the revolving loan\nagreement, with the ratio of debt to EBITDA, as defined by the agreement, equal to 1.9 to 1.0 and\nthe interest expense coverage ratio equal to 6.5 to 1.0.\n

\n\n

The Company’s growth has historically been funded by a combination of cash provided by\noperating activities and debt financing. The Company believes that its cash from operations, in\naddition to its borrowing capacity and ability to obtain additional financing, are sufficient to\nfund its anticipated requirements for working capital, capital expenditures, restructuring\nactivities, acquisitions, common stock repurchases, scheduled debt repayments, and dividend\npayments. As of the date of this Form 10-Q, the credit and financial markets are in a period of\ninstability and uncertainty that is affecting the availability of credit to borrowers. The Company\nbelieves that its current credit arrangements are sound and that the strength of its balance sheet\nwill allow the Company the financial flexibility to respond to both internal growth opportunities\nand those available through acquisition.\n

\n\n\n\n\n

\n\n

22\n

\n\n\n\n

Off-Balance Sheet Arrangements — The Company does not have material off-balance sheet\narrangements or related-party transactions. The Company is not aware of factors that are reasonably\nlikely to adversely affect liquidity trends, other than the risk factors described in this and\nother Company filings. However, the following additional information is provided to assist those\nreviewing the Company’s financial statements.\n

\n\n

Operating Leases — These leases generally are entered into for investments in facilities,\nsuch as manufacturing facilities, warehouses and office buildings, computer equipment and Company\nvehicles, for which the economic profile is favorable.\n

\n\n

Purchase Commitments — The Company has purchase commitments for materials, supplies,\nservices, and property, plant and equipment as part of the ordinary conduct of its business. In the\naggregate, such commitments are not in excess of current market prices and are not material to the\nfinancial position of the Company. Due to the proprietary nature of many of the Company’s materials\nand processes, certain supply contracts contain penalty provisions for early termination. The\nCompany does not believe a material amount of penalties will be incurred under these contracts\nbased upon historical experience and current expectations.\n

\n\n

Other Contractual Obligations — The Company does not have material financial guarantees or\nother contractual commitments that are reasonably likely to adversely affect liquidity. Under the\naccounting guidelines established for reserves for uncertain tax positions, the Company is unable\nto determine the period in which the cash settlement of any reserves for uncertain tax positions\nwill occur with the respective taxing authority.\n

\n\n

Related-Party Transactions — The Company does not have any related-party transactions that\nmaterially affect the results of operations, cash flow or financial condition.\n

\n\n

Subsequent Events Affecting Financial Condition\n

\n\n\n

\n\n

On May 13, 2010, the Company completed a private placement of €75,000 (approximately $95,000\nUSD) aggregate principal amount of senior unsecured notes to accredited institutional investors.\nThe €75,000 of senior notes consists of €30,000 aggregate principal amount of 3.71% Series 2010-A\nSenior Notes, due May 13, 2017 and €45,000 aggregate principal amount of 4.24% Series 2010-A Senior\nNotes, due May 13, 2020. These unsecured notes were issued pursuant to a Note Purchase Agreement,\ndated as of May 13, 2010. The Company intends to use the net proceeds of the private placement to\nrefinance existing debt, to fund future acquisitions, and for general corporate purposes. The Note\nPurchase Agreement requires the Company to maintain a ratio of debt to the trailing twelve months\nEBITDA, as defined by the agreement, of not more than a 3.5 to 1.0 ratio.\n

\n\n\n\n\n

\n\n

23\n

\n\n\n\n

Forward-Looking Statements\n

\n\n\n

Brady believes that certain statements in this Form 10-Q are “forward-looking statements”\nwithin the meaning of the Private Securities Litigation Reform Act of 1995. All statements related\nto future, not past, events included in this Form 10-Q, including, without limitation, statements\nregarding Brady’s future financial position, business strategy, targets, projected sales, costs,\nearnings, capital expenditures, debt levels and cash flows, and plans and objectives of management\nfor future operations are forward-looking statements. When used in this Form 10-Q, words such as\n“may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or\n“plan” or similar terminology are generally intended to identify forward-looking statements. These\nforward-looking statements by their nature address matters that are, to different degrees,\nuncertain and are subject to risks, assumptions and other factors, some of which are beyond Brady’s\ncontrol, that could cause actual results to differ materially from those expressed or implied by\nsuch forward-looking statements. For Brady, uncertainties arise from the length or severity of the\ncurrent worldwide economic downturn or timing or strength of a subsequent recovery; future\nfinancial performance of major markets Brady serves, which include, without limitation,\ntelecommunications, manufacturing, electrical, construction, laboratory, education, governmental,\npublic utility, computer, transportation; difficulties in making and integrating acquisitions;\nrisks associated with newly acquired businesses; Brady’s ability to develop and successfully market\nnew products; changes in the supply of, or price for, parts and components; increased price\npressure from suppliers and customers; fluctuations in currency rates versus the US dollar;\nunforeseen tax consequences; potential write-offs of Brady’s substantial intangible assets; Brady’s\nability to retain significant contracts and customers; risks associated with international\noperations; Brady’s ability to attract and retain key talent; Brady’s ability to maintain\ncompliance with its debt covenants; technology changes; business interruptions due to implementing\nbusiness systems; environmental, health and safety compliance costs and liabilities; future\ncompetition; interruptions to sources of supply; Brady’s ability to realize cost savings from\noperating initiatives; difficulties associated with exports; risks associated with restructuring\nplans; risks associated with obtaining governmental approvals and maintaining regulatory\ncompliance; and numerous other matters of national, regional and global scale, including those of a\npolitical, economic, business, competitive and regulatory nature contained from time to time in\nBrady’s U.S. Securities and Exchange Commission filings, including, but not limited to, those\nfactors listed in the “Risk Factors” section located in Item 1A of Part I of Brady’s Form 10-K for\nthe year ended July 31, 2009. These uncertainties may cause Brady’s actual future results to be\nmaterially different than those expressed in its forward-looking statements. Brady does not\nundertake to update its forward-looking statements.\n

\n\n\n\n\n

\n\n

24\n

\n\n\n

\n\n

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n

\n\n\n

The Company’s business operations give rise to market risk exposure due to changes in foreign\nexchange rates. To manage that risk effectively, the Company enters into hedging transactions,\naccording to established guidelines and policies that enable it to mitigate the adverse effects of\nthis financial market risk.\n

\n\n

The global nature of the Company’s business requires active participation in the foreign\nexchange markets. As a result of investments, production facilities and other operations on a\nglobal scale, the Company has assets, liabilities and cash flows in currencies other than the U.S.\nDollar. The primary objective of the Company’s foreign currency exchange risk management is to\nminimize the impact of currency movements on intercompany transactions and foreign raw-material\nimports. To achieve this objective, the Company hedges a portion of known exposures using forward\ncontracts. Main exposures are related to transactions denominated in the British Pound, the Euro,\nCanadian Dollar, Australian Dollar, Singapore Dollar, Swedish Krona, Danish Krone, Japanese Yen,\nand the Korean Won currency. As of April 30, 2010, the notional amount of outstanding forward\ncontacts designated as cash flow hedges was $7.1 million. During the third quarter of fiscal 2010,\nthe Company also used forward foreign exchange currency contracts designated as hedge instruments\nto hedge portions of the Company’s net investments in European foreign operations. As of April\n30, 2010, the notional amount of forward foreign exchange currency contracts designated as net\ninvestment hedges was $101.2 million.\n

\n\n

The Company could be exposed to interest rate risk through its corporate borrowing activities.\nThe objective of the Company’s interest rate risk management activities is to manage the levels of\nthe Company’s fixed and floating interest rate exposure to be consistent with the Company’s\npreferred mix. The interest rate risk management program allows the Company to enter into approved\ninterest rate derivatives, with the approval of the Board of Directors, if there is a desire to\nmodify the Company’s exposure to interest rates. As of April 30, 2010, the Company had no interest\nrate derivatives.\n

\n\n

The Company is subject to the risk of changes in foreign currency exchange rates due to its\noperations in foreign countries. The Company has manufacturing facilities and sells and distributes\nits products throughout the world. As a result, the Company’s financial results could be\nsignificantly affected by factors such as changes in foreign currency exchange rates or weak\neconomic conditions in the foreign markets in which the Company manufactures, distributes and sells\nits products. The Company’s operating results are principally exposed to changes in exchange rates\nbetween the U.S. Dollar and the European currencies, primarily the Euro, changes between the U.S.\nDollar and the Australian Dollar, changes between the U.S. Dollar and the Canadian Dollar, and\nchanges between the U.S. Dollar and the Chinese Yuan. Changes in foreign currency exchange rates\nfor the Company’s foreign subsidiaries reporting in local currencies are generally reported as a\ncomponent of shareholders’ equity. The Company’s currency translation adjustments for the three\nand nine months ended April 30, 2010 were $1.8 million unfavorable and $4.0 million favorable,\nrespectively. The Company’s currency translation adjustments for the three and nine months ended\nApril 30, 2009 were $16.5 million favorable and $138.5 million unfavorable, respectively. As of\nApril 30, 2010 and 2009, the Company’s foreign subsidiaries had net current assets (defined as\ncurrent assets less current liabilities) subject to foreign currency translation risk of $221.7\nmillion and $239.7 million, respectively. The potential decrease in the net current assets as of\nApril 30, 2010 from a hypothetical 10 percent adverse change in quoted foreign currency exchange\nrates would be $22.2 million. This sensitivity analysis assumes a parallel shift in foreign\ncurrency exchange rates. Exchange rates rarely move in the same direction relative to the U.S.\nDollar. This assumption may overstate the impact of changing exchange rates on individual assets\nand liabilities denominated in a foreign currency\n

\n\n

ITEM 4. CONTROLS AND PROCEDURES\n

\n\n\n

Brady Corporation maintains a set of disclosure controls and procedures that are designed to\nensure that information required to be disclosed by the Company in the reports filed by the Company\nunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,\nsummarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure\ncontrols and procedures include, without limitation, controls and procedures designed to ensure\nthat information required to be disclosed by the Company in the reports the Company files under the\nExchange Act is accumulated and communicated to the Company’s management, including the Company’s\nprincipal executive and principal financial officers, or persons performing similar functions, as\nappropriate to allow timely decisions regarding required disclosure. The Company carried out an\nevaluation, under the supervision and with the participation of its management, including its\nPresident and Chief Executive Officer and its Executive Vice President and Chief Financial Officer,\nof the effectiveness of the design and operation of the Company’s disclosure controls and\nprocedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Company’s\nPresident and Chief Executive Officer and Executive Vice President and Chief Financial Officer\nconcluded that the Company’s disclosure controls and procedures are effective as of the end of the\nperiod covered by this report.\n

\n\n

There were no changes in the Company’s internal control over financial reporting (as defined\nin Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recently\ncompleted fiscal quarter that have materially affected, or are reasonably likely to materially\naffect, the Company’s internal control over financial reporting.\n

\n\n\n\n\n

\n\n

25\n

\n\n\n\n

EXHIBIT 31.1\n

\n\n\n

RULE 13a-14(a)/15d-14(a) CERTIFICATION\n

\n\n\n\n

I, Frank M. Jaehnert, certify that:\n

\n\n\n

(1) I have reviewed this quarterly report on Form 10-Q of Brady Corporation;\n

\n\n

(2) Based on my knowledge, this report does not contain any untrue statement of a material\nfact or omit to state a material fact necessary to make the statements made, in light of the\ncircumstances under which such statements were made, not misleading with respect to the period\ncovered by this report;\n

\n\n

(3) Based on my knowledge, the financial statements, and other financial information included\nin this report, fairly present in all material respects the financial condition, results of\noperations and cash flows of the registrant as of, and for, the periods presented in this report;\n

\n\n

(4) The registrant’s other certifying officer and I are responsible for establishing and\nmaintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and\n15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules\n13a-15(f) and 15d-15(f)) for the registrant and have:\n

\n\n

a) Designed such disclosure controls and procedures, or caused such disclosure controls and\nprocedures to be designed under our supervision, to ensure that material information relating to\nthe registrant, including its consolidated subsidiaries, is made known to us by others within\nthose entities, particularly during the period in which this report is being prepared;\n

\n\n

b) Designed such internal control over financial reporting, or caused such internal control\nover financial reporting to be designed under our supervision to provided reasonable assurance\nregarding the reliability of financial reporting and the preparation of financial statements for\nexternal purposes in accordance with generally accepted accounting principles;\n

\n\n

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and\npresented in this report our conclusions about the effectiveness of the disclosure controls and\nprocedures, as of the end of the period covered by this report based on such evaluation; and\n

\n\n

d) Disclosed in this report any change in the registrant’s internal control over financial\nreporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s\nfourth fiscal quarter in the case of an annual report) that has materially affected, or is\nreasonably likely to materially affect, the registrant’s internal control over financial\nreporting; and\n

\n\n

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent\nevaluation of internal control over financial reporting, to the registrant’s auditors and the\naudit committee of the registrant’s board of directors (or persons performing the equivalent\nfunctions):\n

\n\n

a) All significant deficiencies and material weaknesses in the design or operation of\ninternal control over financial reporting which are reasonably likely to adversely affect the\nregistrant’s ability to record, process, summarize and report financial information; and\n

\n\n

b) Any fraud, whether or not material, that involves management or other employees who have a\nsignificant role in the registrant’s internal control over financial reporting.\n

\n\n

Date: June 4, 2010\n

\n\n

\n\n\n \n \n \n\n\n\n\n\n \n \n \n\n\n \n \n \n\n\n \n \n \n\n


/s/ FRANK M. JAEHNERT\n
Frank M. Jaehnert
President and Chief Executive Officer

\n\n\n\n\n\n

\n\n

\n\n\n\n

EXHIBIT 31.2\n

\n\n\n

RULE 13a-14(a)/15d-14(a) CERTIFICATION\n

\n\n\n

I, Thomas J. Felmer, certify that:\n

\n\n

(1) I have reviewed this quarterly report on Form 10-Q of Brady Corporation;\n

\n\n

b) Any fraud, whether or not material, that involves management or other employees who have a\nsignificant role in the registrant’s internal control over financial reporting.\n

\n\n

Date: June 4, 2010\n

\n\n

\n\n\n \n \n \n\n\n\n\n\n \n \n \n\n\n \n \n \n\n\n \n \n \n\n


/s/ THOMAS J. FELMER\n
Thomas J. Felmer
Senior Vice President and Chief Financial Officer

\n\n\n\n\n\n

\n\n

\n\n\n\n

EXHIBIT 32.1\n

\n\n\n

SECTION 1350 CERTIFICATION\n

\n\n\n

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley\nAct of 2002, the undersigned officer of Brady Corporation (the “Company”) certifies to his\nknowledge that:\n

\n\n

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended April 30,\n2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act\nof 1934; and\n

\n\n

(2) The information contained in that Form 10-Q fairly presents, in all material respects,\nthe financial conditions and results of operations of the Company.\n

\n\n

Date: June 4, 2010\n

\n\n

\n\n\n \n \n \n\n\n\n\n\n \n \n \n\n\n \n \n \n\n\n \n \n \n\n


/s/ FRANK M. JAEHNERT\n
Frank M. Jaehnert
President and Chief Executive Officer

\n\n\n

A signed original of this written statement required by Section 906, or other document\nauthenticating, acknowledging, or otherwise adopting the signature that appears in typed form\nwithin the electronic version of this written statement required by Section 906, has been provided\nto the Company and will be retained by the Company and furnished to the Securities and Exchange\nCommission or its staff upon request. This certification accompanies this report pursuant to\nSection 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for\npurposes of Section 18 of the Securities Exchange Act of 1934, as amended.\n

\n\n\n\n\n

\n\n

\n\n\n\n

EXHIBIT 32.2\n

\n\n\n

SECTION 1350 CERTIFICATION\n

\n\n\n

\n\n

(2) The information contained in that Form 10-Q fairly presents, in all material respects,\nthe financial conditions and results of operations of the Company.\n

\n\n

Date: June 4, 2010\n

\n\n

\n\n\n \n \n \n\n\n\n\n\n \n \n \n\n\n \n \n \n\n\n \n \n \n\n


/s/ THOMAS J. FELMER\n
Thomas J. Felmer
Senior Vice President and Chief Financial Officer

\n\n\n

\n\n


	Page
PART I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of Income		4

Condensed Consolidated Statements of Cash Flows		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		25

Item 4. Controls and Procedures		25

PART II. Other Information

Item 6. Exhibits		26

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


	\n \nBRADY CORPORATION \n
Date: June 4, 2010	/s/ Frank M. Jaehnert\n
	Frank M. Jaehnert
	President & Chief Executive Officer

Date: June 4, 2010	/s/ Thomas J. Felmer\n
	Thomas J. Felmer
	Senior Vice President & Chief\nFinancial Officer \n(Principal Financial Officer)

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	31.1			Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert
	31.2			Rule 13a-14(a)/15d-14(a) Certification of Thomas J. Felmer
	32.1			Section 1350 Certification of Frank M. Jaehnert
	32.2			Section 1350 Certification of Thomas J. Felmer