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\nEXCHANGE ACT OF 1934

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For the Quarterly Period Ended October 31, 2010\n

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

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For the Transition Period from to \n\n

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Commission File Number 1-14959

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BRADY CORPORATION\n

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(Exact name of registrant as specified in its charter)

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Wisconsin\n		39-0178960
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(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)\n

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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 during the preceding 12 months (or for such shorter period\nthat the registrant was required to submit and post such files). Yes þ No o\n

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a\nnon-accelerated filer, or a smaller reporting company. See the definitions 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 December 2, 2010, there were outstanding 49,031,965 shares of Class A Nonvoting Common Stock\nand 3,538,628 shares of Class B Voting Common Stock. The Class B Voting Common Stock, all of which\nis held by affiliates 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\n

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BRADY CORPORATION AND SUBSIDIARIES\n\n

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CONDENSED CONSOLIDATED BALANCE SHEETS
\n(DOLLARS IN THOUSANDS)\n\n

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


	October 31, 2010			July 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	326,100			$	314,840
Accounts receivable — net		242,207				221,621
Inventories:
Finished products		53,935				52,906
Work-in-process		15,781				13,146
Raw materials and supplies		31,479				28,620

Total inventories		101,195				94,672
Prepaid expenses and other current assets		38,017				37,839

Total current assets		707,519				668,972
Other assets:
Goodwill		786,203				768,600
Other intangible assets		101,070				103,546
Deferred income taxes		46,874				39,103
Other		21,261				20,808
Property, plant and equipment:
Cost:
Land		6,346				6,265
Buildings and improvements		102,781				101,138
Machinery and equipment		295,605				289,727
Construction in progress		11,026				9,873

		415,758				407,003
Less accumulated depreciation		273,437				261,501

Property, plant and equipment — net		142,321				145,502

Total	$	1,805,248			$	1,746,531

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable	$	95,513			$	96,702
Wages and amounts withheld from employees		51,577				67,285
Taxes, other than income taxes		7,993				7,537
Accrued income taxes		19,975				10,138
Other current liabilities		54,804				50,862
Short-term borrowings and current maturities on long-term obligations		61,264				61,264

Total current liabilities		291,126				293,788
Long-term obligations, less current maturities		389,660				382,940
Other liabilities		67,243				64,776

Total liabilities		748,029				741,504
Stockholders’ investment:
Class A nonvoting common stock — Issued 51,261,487 and 51,261,487\nshares, respectively and outstanding 48,981,331 and 48,875,716\nshares, respectively		513				513
Class B voting common stock — Issued and outstanding 3,538,628 shares		35				35
Additional paid-in capital		306,474				304,205
Earnings retained in the business		735,368				718,512
Treasury stock — 1,970,156 and 2,175,771 shares, respectively of\nClass A nonvoting common stock, at cost		(60,208	)			(66,314	)
Accumulated other comprehensive income		80,212				50,905
Other		(5,175	)			(2,829	)

Total stockholders’ investment		1,057,219				1,005,027

Total	$	1,805,248			$	1,746,531

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See Notes to Condensed Consolidated Financial Statements.\n

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BRADY CORPORATION AND SUBSIDIARIES\n\n

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME\n

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

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	Three Months Ended October 31,
	(Unaudited)
								Percentage
	2010			2009			Change
Net sales	$	329,588			$	318,486			3.5	%
Cost of products sold		165,076				161,043			2.5	%

Gross margin		164,512				157,443			4.5	%
Operating expenses:
Research and development		9,944				9,609			3.5	%
Selling, general and administrative		109,324				108,676			0.6	%
Restructuring charge		3,641				3,601			1.1	%

Total operating expenses		122,909				121,886			0.8	%
Operating income		41,603				35,557			17.0	%
Other income (expense):
Investment and other income —net		290				48			504.2	%
Interest expense		(5,687	)			(5,162	)		10.2	%

Income before income taxes		36,206				30,443			18.9	%
Income taxes		9,925				8,775			13.1	%

Net income	$	26,281			$	21,668			21.3	%

Per Class A Nonvoting Common Share:
Basic net income	$	0.50			$	0.41			22.0	%
Diluted net income	$	0.50			$	0.41			22.0	%
Dividends	$	0.18			$	0.175			2.9	%
Per Class B Voting Common Share:
Basic net income	$	0.48			$	0.40			20.0	%
Diluted net income	$	0.48			$	0.39			23.1	%
Dividends	$	0.163			$	0.158			3.2	%
Weighted average common shares outstanding (in thousands):
Basic		52,448				52,337
Diluted		52,810				52,943

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See Notes to Condensed Consolidated Financial Statements.\n

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BRADY CORPORATION AND SUBSIDIARIES\n\n

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS \n
\n(Dollars in Thousands)\n\n

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	Three Months Ended
	October 31,
	(Unaudited)
	2010			2009
Operating activities:
Net income	$	26,281			$	21,668
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		12,594				13,817
Deferred income taxes		(4,849	)			(2,985	)
Non-cash portion of stock-based compensation expense		4,069				2,952
Non-cash portion of restructuring		951				288
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable		(13,614	)			(28,818	)
Inventories		(3,689	)			3,144
Prepaid expenses and other assets		1,078				(657	)
Accounts payable and other liabilities		(16,909	)			19,801
Income taxes		10,245				4,626

Net cash provided by operating activities		16,157				33,836
Investing activities:
Acquisition of business, net of cash acquired		—				(1,840	)
Purchases of property, plant and equipment		(2,810	)			(9,001	)
Other		(908	)			80

Net cash used in investing activities		(3,718	)			(10,761	)
Financing activities:
Payment of dividends		(9,424	)			(8,578	)
Proceeds from issuance of common stock		2,105				716
Net income tax benefit from the exercise of stock options and deferred compensation		(146	)			173

Net cash used in financing activities		(7,465	)			(7,689	)
Effect of exchange rate changes on cash		6,286				4,096

Net increase in cash and cash equivalents		11,260				19,482
Cash and cash equivalents, beginning of period		314,840				188,156

Cash and cash equivalents, end of period	$	326,100			$	207,638

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	7,211			$	7,904
Income taxes, net of refunds		5,907				8,393
Acquisitions:
Fair value of assets acquired, net of cash	$	—			$	1,104
Liabilities assumed		—				(42	)
Goodwill		—				778

Net cash paid for acquisitions	$	—			$	1,840

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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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Three Months Ended October 31, 2010
\n(Unaudited)
\n(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 October 31, 2010 and July 3l, 2010, and\nits results of operations and cash flows for the three months ended October 31, 2010 and 2009. The\ncondensed consolidated balance sheet as of July 31, 2010 has been derived from the audited\nconsolidated financial statements of that date. The preparation of financial statements in\nconformity with accounting principles generally accepted in the United States of America (“GAAP”)\nrequires management to make estimates and assumptions that affect the reported amounts therein. Due\nto the inherent uncertainty involved in making estimates, actual results in future periods may\ndiffer 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 condensed or omitted pursuant to rules and regulations\nof the Securities and Exchange Commission. Accordingly, the condensed consolidated financial\nstatements do not include all of the information and footnotes required by GAAP for complete\nfinancial statement presentation. It is suggested that these condensed consolidated financial\nstatements be read in conjunction with the consolidated financial statements and the notes thereto\nincluded in the Company’s latest annual report on Form 10-K for the year ended July 31, 2010.\n

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The Company has reclassified certain prior year financial statement amounts to conform to\ntheir current year presentation. The operating activities including “Other,” “Other liabilities,”\nand “Accounts payable and accrued liabilities”, which were previously disclosed as single line\nitems, have been combined and reported as “Accounts payable and other liabilities” on the Condensed\nConsolidated Statement of Cash Flows for the three months ended October 31, 2009. These\nreclassifications had no effect on total assets, net income, or earnings per share.\n

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NOTE B — Goodwill and Intangible Assets\n

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Changes in the carrying amount of goodwill for the quarter ended October 31, 2010, are as\nfollows:\n


	Americas		Europe			Asia-Pacific		Total

Balance as of July 31, 2010	$	425,018		$	163,189		$	180,393	$	768,600
Current year acquisitions		—			—			—		—
Translation adjustments		825			9,727			7,051		17,603

Balance as of October 31, 2010	$	425,843		$	172,916		$	187,444	$	786,203

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Goodwill increased $17,603 during the three months ended October 31, 2010 due to the effects\nof foreign currency translation. Goodwill at October 31, 2010 and July 31, 2010 did not include\nany accumulated impairment losses.\n

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6\n

\n\n

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

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


	October 31, 2010		July 31, 2010
	Weighted												Weighted
	Average												Average
	Amortization		Gross									Amortization		Gross
	Period		Carrying			Accumulated		Net Book		Period			Carrying		Accumulated		Net Book
	(Years)		Amount			Amortization		Value		(Years)			Amount		Amortization		Value
Amortized other\nintangible assets:
Patents		5		$	9,449		$	(8,046	)	$	1,403			5		$	9,314	$	(7,855	)	$	1,459
Trademarks and other		7			9,144			(6,042	)		3,102			7			8,823		(5,685	)		3,138
Customer relationships		7			157,297			(102,886	)		54,411			7			152,720		(95,996	)		56,724
Non-compete agreements		4			12,454			(11,763	)		691			4			11,930		(11,059	)		871
Other		4			3,311			(3,298	)		13			4			3,309		(3,297	)		12
Unamortized other\nintangible assets:
Trademarks		N/A			41,450			—			41,450			N/A			41,342		—			41,342

Total				$	233,105		$	(132,035	)	$	101,070					$	227,438	$	(123,892	)	$	103,546

\n\n\n

The value of goodwill and other intangible assets in the Condensed Consolidated Financial\nStatements at October 31, 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 the\nfinancial statements into the United States Dollar between the date of acquisition and October 31,\n2010.\n

\n\n

Amortization expense on intangible assets was $5,147 and $5,607 for the three-month periods\nended October 31, 2010 and 2009, respectively. The amortization over each of the next five fiscal\nyears is projected to be $20,808, $13,645, $10,340, $5,395 and $5,001 for the years ending July 31,\n2011, 2012, 2013, 2014 and 2015, respectively.\n

\n\n\n\n

NOTE C — Comprehensive Income\n

\n\n\n\n\n

Total comprehensive income for the periods presented was as follows:\n


	Three Months Ended
	October 31, 2010			October 31, 2009

Net Income	$	26,281			$	21,668
Unrealized (loss) gain on cash flow hedges		(725	)			(364	)
Amortization of gain on post-retirement medical, dental and vision plan		(63	)			(82	)
Foreign currency translation adjustments (1)		30,095				24,618

Total comprehensive income	$	55,588			$	45,840

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


(1)		The cumulative translation adjustment in the table above includes the revaluation of the\nEuro-denominated debt of $6,720 for the three months ended October 31, 2010.

\n\n\n

The increase in total comprehensive income for the quarter ended October 31, 2010 as compared\nto October 31, 2009 was primarily due to the depreciation of the U.S. dollar against other\ncurrencies and net income.\n

\n\n\n\n

NOTE D — Net Income per Common Share\n

\n\n\n\n\n

In June 2008, the FASB issued accounting guidance addressing whether instruments granted in\nshare-based payment transactions are participating securities prior to vesting, and therefore need\nto be included in the earnings allocation in computing earnings per share. This guidance requires\nthat all outstanding unvested share-based payment awards that contain rights to non-forfeitable\ndividends be considered participating securities in undistributed earnings with common\nshareholders. The Company adopted the guidance during the first quarter of fiscal 2010. As a\nresult, the dividends on the Company’s performance-based restricted shares are included in the\nbasic EPS calculations for the respective periods presented.\n

\n\n

7\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
	October 31,
	2010			2009
Numerator: (in thousands)
Net income	$	26,281			$	21,668
Less:
Restricted stock dividends		(56	)			(37	)

Numerator for basic and diluted Class A net income per share	$	26,225			$	21,631

Less:
Preferential dividends		(820	)			(816	)
Preferential dividends on dilutive stock options		(6	)			(11	)

Numerator for basic and diluted Class B net income per share	$	25,399			$	20,804

Denominator: (in thousands)
Denominator for basic net income per share for both Class A and Class B		52,448				52,337
Plus: Effect of dilutive stock options		362				606

Denominator for diluted net income per share for both Class A and Class B		52,810				52,943

Class A Nonvoting Common Stock net income per share:
Basic	$	0.50			$	0.41
Diluted	$	0.50			$	0.41
Class B Voting Common Stock net income per share:
Basic	$	0.48			$	0.40
Diluted	$	0.48			$	0.39

\n\n\n

Options to purchase approximately 3,636,000 and 2,360,000 shares of Class A Nonvoting Common\nStock were not included in the computation of diluted net income per share for the quarters ended\nOctober 31, 2010 and 2009, respectively, because the option exercise price was greater than the\naverage market price of the common shares and, therefore, the effect would be anti-dilutive.\n

\n\n\n\n

NOTE E — Segment Information\n

\n\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 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

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 by its own management team, maintains its own financial reports and is evaluated based\non regional segment profit. The Company has determined that these regions comprise its operating\nand reportable segments based on the information used by the Chief Executive Officer to allocate\nresources 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 months ended October 31, 2010 and\n2009:\n


												Corporate
												and
	Americas		Europe			Asia-Pacific		Total Region	Eliminations		Totals
Three months ended October 31, 2010:
Revenues from external customers	$	145,988		$	92,050		$	91,550	$	329,588		$	—		$	329,588
Intersegment revenues		9,748			893			5,946		16,587			(16,587	)		—
Segment profit		39,359			24,061			16,829		80,249			(3,436	)		76,813
Three months ended October 31, 2009:
Revenues from external customers	$	136,239		$	94,335		$	87,912	$	318,486		$	—		$	318,486
Intersegment revenues		13,434			1,755			3,969		19,158			(19,158	)		—
Segment profit		32,801			24,862			15,127		72,790			(2,920	)		69,870

\n\n

8\n

\n\n

Following is a reconciliation of segment profit to net income for the three months ended\nOctober 31, 2010 and 2009:\n


	Three months ended:
	October 31,
	2010			2009
Total profit from reportable segments	$	80,249			$	72,790
Corporate and eliminations		(3,436	)			(2,920	)
Unallocated amounts:
Administrative costs		(31,569	)			(30,712	)
Restructuring charge		(3,641	)			(3,601	)
Investment and other income		290				48
Interest expense		(5,687	)			(5,162	)

Income before income taxes		36,206				30,443
Income taxes		(9,925	)			(8,775	)

Net income	$	26,281			$	21,668

\n\n\n\n\n

NOTE F — Stock-Based Compensation\n

\n\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\nClass A Nonvoting Common Stock are available for grant. The stock options have an exercise price\nequal to the fair market value of the underlying stock at the date of grant and generally vest\nratably over a three-year period, with one-third becoming exercisable one year after the grant date\nand one-third additional in each of the succeeding two years. Stock options issued under these\nplans, referred to herein as “service-based” stock options, generally expire 10 years from the date\nof grant. The Company also grants stock options to certain executives and key management employees\nthat vest upon meeting certain financial performance conditions over the vesting schedule described\nabove; these options are referred to herein as “performance-based” stock options. Performance-based\nstock options expire 10 years from the date of grant. Restricted shares have an issuance price\nequal to the fair market value of the underlying stock at the date of grant. The Company granted\nrestricted shares in fiscal 2008 and fiscal 2011 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, with respect to the restricted shares issued in fiscal 2008, and ratably at the\nend of years 3, 4 and 5 with respect to the restricted shares issued in fiscal 2011, and upon\nmeeting certain financial performance conditions; these shares are referred to herein as\n“performance-based restricted shares.”\n

\n\n

As of October 31, 2010, the Company has reserved 6,239,135 shares of Class A Nonvoting Common\nStock for outstanding stock options and restricted shares and 732,000 shares of Class A Nonvoting\nCommon Stock remain for future issuance of stock options and restricted shares under the various\nplans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver\nshares under 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 October 31, 2010 and 2009 was $4,069 ($2,482 net of taxes)\nand $2,952 ($1,801 net of taxes), respectively. As of October 31, 2010, total unrecognized\ncompensation cost related to share-based compensation awards was $23,749 pre-tax, net of estimated\nforfeitures, which the Company expects to recognize over a weighted-average period of 2.6 years.\n

\n\n

The Company has estimated the fair value of its service-based and performance-based stock\noption awards granted during the three months ended October 31, 2010 and 2009 using the\nBlack-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes\nvaluation model are reflected in the following table:\n


	Three Months Ended			Three Months Ended
	October 31, 2010			October 31, 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)		5.92				6.57			5.96			6.57
Expected volatility		40.22	%			39.39	%		39.83	%		38.72	%
Expected dividend yield		1.94	%			1.96	%		3.02	%		3.02	%
Risk-free interest rate		1.65	%			2.35	%		2.65	%		3.03	%
Weighted-average market value of\nunderlying stock at grant date	$	29.09				28.35		$	28.73			28.73
Weighted-average exercise price	$	29.09				28.35		$	28.73			29.78
Weighted-average fair value of options\ngranted during the period	$	9.58				9.82		$	8.78			8.70

\n\n

9\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

The Company granted 100,000 shares of performance-based restricted stock to Frank M. Jaehnert,\nthe Company’s President and Chief Executive Officer, in August of 2010, with a grant price and fair\nvalue of $28.35. The Company also granted 210,000 shares of performance-based restricted stock\nduring fiscal 2008, with a grant price and fair value of $32.83. As of October 31, 2010, 310,000\nperformance-based restricted shares were outstanding.\n

\n\n

The Company granted 465,000 performance-based stock options during the three months ended\nOctober 31, 2010, with a weighted average exercise price of $28.35 and a weighted average fair\nvalue of $9.82. The Company also granted 895,500 service-based stock options during the three\nmonths ended October 31, 2010, with a weighted average exercise price of $29.09 and a weighted\naverage fair value of $9.58.\n

\n\n

A summary of stock option activity under the Company’s share-based compensation plans for the\nthree months ended October 31, 2010 is presented below:\n


									Weighted
									Average
					Weighted			Remaining			Aggregate
					Average			Contractual			Intrinsic
Options	Shares			Exercise Price			Term			Value
Outstanding at July 31, 2010		5,108,736			$	28.69
New grants		1,360,500			$	28.83
Exercised		(123,767	)		$	18.82
Forfeited or expired		(223,264	)		$	31.43

Outstanding at October 31, 2010		6,122,205			$	28.83				6.9		$	21,759

Exercisable at October 31, 2010		3,301,195			$	29.10				5.0		$	14,647

\n\n\n

There were 3,301,195 and 2,790,910 options exercisable with a weighted average exercise price\nof $29.10 and $27.68 at October 31, 2010 and 2009, respectively. The cash received from the\nexercise of options during the quarters ended October 31, 2010 and 2009 was $2,105 and $716,\nrespectively. The tax benefit on stock options exercised during the quarters ended October 31, 2010\nand 2009 was $440 and $202, respectively.\n

\n\n

The total intrinsic value of options exercised during the three months ended October 31, 2010\nand 2009, based upon the average market price at the time of exercise during the period, was $1,320\nand $661, respectively. The total fair value of stock options vested during the three months ended\nOctober 31, 2010 and 2009, was $3,685 and $139, respectively.\n

\n\n\n\n

NOTE G — Stockholders’ Equity\n

\n\n\n\n\n

In fiscal 2009, the Company’s Board of Directors authorized share repurchase plans for the\nCompany’s Class A Nonvoting Common Stock. The share repurchase plans were implemented by purchasing\nshares in the open market or privately negotiated transactions, with repurchased shares available\nfor use in connection with the Company’s stock-based plans and for other corporate purposes. The\nCompany reacquired approximately 102,067 shares of its Class A Common Stock for $2.5 million in\nfiscal 2010 in connection with its stock repurchase plans. No shares were reacquired during the\nthree months ended October 31, 2010. As of October 31, 2010, there remained 204,133 shares to\npurchase in connection with this share repurchase plan.\n

\n\n\n\n

NOTE H — Employee Benefit Plans\n

\n\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\n2011 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, 2010.\n

\n\n

10\n

\n\n\n\n

NOTE I — Fair Value Measurements\n

\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 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 prices in\nactive markets for identical instruments as of the reporting date.\n

\n\n\n

Level 2 — Assets or liabilities for which fair value is based on valuation models for\nwhich pricing inputs were either directly or indirectly observable.\n

\n\n\n

Level 3 — Assets or liabilities for which fair value is based on valuation models with\nsignificant unobservable pricing inputs and which result in the use of management estimates.\n

\n\n

The following tables set forth by level within the fair value hierarchy, our financial assets\nand liabilities that were accounted for at fair value on a recurring basis at October 31, 2010, and\nJuly 31, 2010, according to the valuation techniques the Company used to determine their fair\nvalues.\n

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


	Fair Value Measurements Using Inputs
	Considered as
	Quoted Prices
	in Active
	Markets		Significant
	for		Other			Significant
	Identical		Observable			Unobservable
	Assets		Inputs			Inputs		Fair	Balance Sheet
	(Level 1)		(Level 2)			(Level 3)		Value	Classification
October 31, 2010:
Trading Securities	$	9,685		$	—		$	—	$	9,685	Other assets
Foreign exchange contracts — cash flow hedges		—			185			—		185	Prepaid expenses and other current assets

Total Assets	$	9,685		$	185		$	—	$	9,870


Foreign exchange contracts — cash flow hedges	$	—		$	1,461			—	$	1,461	Other current liabilities
Foreign currency denominated debt — net\ninvestment hedge		—			104,467			—		104,467	Long term obligations, less current maturities

Total Liabilities	$	—		$	105,928		$	—	$	105,928

July 31, 2010:
Trading Securities	$	8,757		$	—		$	—	$	8,757	Other assets
Foreign exchange contracts — cash flow hedges		—			156			—		156	Prepaid expenses and other current assets
Foreign exchange contracts		—			24			—		24	Prepaid expenses and other current assets

Total Assets	$	8,757		$	180		$	—	$	8,937


Foreign exchange contracts — cash flow hedges	$	—		$	829		$	—	$	829	Other current liabilities
Foreign exchange contracts					64					64	Other current liabilities
Foreign currency denominated debt — net\ninvestment hedge		—			97,747			—		97,747	Long term obligations, less current maturities

Total Liabilities	$	—		$	98,640		$	—	$	98,640

\n\n

11\n

\n\n

The following methods and assumptions were used to estimate the fair value of each class of\nfinancial instrument:\n

\n\n\n

Trading Securities: The Company’s deferred compensation investments consist of investments in\nmutual funds. These investments were classified as Level 1 as the shares of these investments\ntrade with sufficient frequency and volume to enable us to obtain pricing information on an\nongoing basis.\n

\n\n\n

Foreign currency exchange contacts: The Company’s foreign currency exchange contracts were\nclassified as Level 2, as the fair value was based on the present value of the future cash flows\nusing external models that use observable inputs, such as interest rates, yield curves and\nforeign currency exchange rates. See Note K, “Derivatives and Hedging Activities” for additional\ninformation.\n

\n\n\n

Foreign currency denominated debt — net investment hedge: The Company’s foreign currency\ndenominated debt designated as a net investment hedge was classified as Level 2, as the fair\nvalue was based on the present value of the future cash flows using external models that use\nobservable inputs, such as interest rates, yield curves and foreign currency exchange rates. See\nNote K, “Derivatives and Hedging Activities” for additional information.\n

\n\n

There have been no transfers of assets or liabilities between the fair value hierarchy levels,\noutlined above, during the three months ended October 31, 2010.\n

\n\n

The Company’s financial instruments, other than those presented in the disclosures above,\ninclude cash, notes receivable, accounts receivable, accounts payable, accrued liabilities and\nshort-term and long-term debt. The fair values of cash, accounts receivable, accounts payable,\naccrued liabilities and short-term debt approximated carrying values because of the short-term\nnature of these instruments.\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$468,780 and $467,479 at October 31, 2010 and July 31, 2010, respectively, as compared to the\ncarrying value of $450,924 and $444,204 at October 31, 2010 and July 31, 2010, 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 months ended October 31, 2010, the Company had no\nsignificant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent\nto their initial recognition.\n

\n\n\n\n

NOTE J — Restructuring\n

\n\n\n\n\n

In fiscal 2010, the Company continued the execution of its restructuring actions announced in\nfiscal 2009. These actions included a reduction in its contract labor and decreased discretionary\nspending. The Company implemented a plan to reduce its workforce through voluntary and involuntary\nseparation programs, voluntary retirement programs, and facility consolidations. As a result of\nthese actions, the Company recorded restructuring charges of $15,314 in fiscal 2010. The\nrestructuring charges included $10,850 of employee separation costs, $2,260 of non-cash fixed asset\nwrite-offs, $1,493 of other facility closure related costs, and $711 of contract termination costs.\nThe Company continued executing its restructuring actions during the first quarter of fiscal 2011.\n

\n\n

During the three months ended October 31, 2010, the Company recorded restructuring charges of\n$3,641, which consisted of $2,665 of employee separation costs, $951 of fixed asset write-offs, and\n$25 of other facility closure related costs and contract termination costs. Of the $3,641 of\nrestructuring charges recorded during the three months ended October 31, 2010, $1,989 was incurred\nin the Americas, $1,597 was incurred in Europe, and $55 was incurred in Asia-Pacific. The charges\nfor employee separation costs consisted of severance pay, outplacement services, medical and other\nrelated benefits. The costs related to these restructuring activities have been recorded on the\ncondensed consolidated statements of income as restructuring charges. The Company expects the\nmajority of the remaining cash payments to be made during the next twelve months.\n

\n\n\n

A reconciliation of the Company’s fiscal 2011 restructuring activity is as follows:\n


	Employee			Asset Write-
	Related			offs			Other		Total
Beginning balance, July 31, 2010	$	6,055			$	—		$	106		$	6,161

Restructuring charge		2,665				951			25			3,641
Non-cash write-offs		—				(951	)		—			(951	)
Cash payments		(3,413	)			—			(112	)		(3,525	)

Ending balance, October 31, 2010	$	5,307			$	—		$	19		$	5,326

\n\n

12\n

\n\n\n\n

NOTE K — Derivatives and Hedging Activities\n

\n\n\n\n\n

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate\nrisk of specific foreign currency denominated transactions. These contracts typically require the\nexchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities\nof less than 12 months, which qualify as cash flow hedges under the accounting guidance for\nderivative instruments and hedging activities. The primary objective of the Company’s foreign\ncurrency exchange risk management is to minimize the impact of currency movements due to products\npurchased in other than the respective subsidiaries’ functional currency. To achieve this\nobjective, the Company hedges a portion of known exposures using forward foreign exchange currency\ncontracts. As of October 31, 2010 and July 31, 2010, the notional amount of outstanding forward\nexchange contracts was $24,987 and $45,328, respectively.\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 quarters ended October 31, 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, Swiss Franc, and\nthe Korean Won. Generally, these risk management transactions will involve the use of foreign\ncurrency derivatives to protect against exposure resulting from sales and identified inventory or\nother asset 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 October 31, 2010 and July 31, 2010,\nunrealized losses of $185 and $493 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 October 31, 2010 and July 31, 2010, the Company had $185 and $156 of forward exchange\ncontracts designated as cash flow hedges included in “Prepaid expenses and other current assets” on\nthe accompanying Condensed Consolidated Balance Sheets. At October 31, 2010 and July 31, 2010, the\nCompany had $1,461 and $829 respectively, of forward exchange contracts designated as hedge\ninstruments included in “Other current liabilities” on the accompanying Condensed Consolidated\nBalance Sheets. At October 31, 2010 and July 31, 2010, the U.S. dollar equivalent of these\noutstanding forward foreign exchange contracts totaled $24,987 and $32,020, respectively, including\ncontracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and\nSwiss Franc.\n

\n\n

On May 13, 2010, the Company completed the private placement of €75.0 million aggregate\nprincipal amount of senior unsecured notes to accredited institutional investors. This\nEuro-denominated debt obligation was designated as a net investment hedge to selectively hedge\nportions of its net investment in European foreign operations. As net investment hedges, the\ncurrency effects of the debt obligations are reflected in the foreign currency translation\nadjustments component of accumulated other comprehensive income where they offset gains and losses\nrecorded on the Company’s net investment in European operations. The Company’s foreign denominated\ndebt obligations are valued under a market approach using publicized spot prices.\n

\n\n

Additionally, during fiscal 2010, the Company 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 October 31, 2010 and July 31, 2010, the Company had no forward foreign exchange\ncurrency contracts designated as net investment hedges included in “Prepaid expenses and other\ncurrent assets” on the Condensed Consolidated Balance Sheet.\n

\n\n

13\n

\n\n

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

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


	Asset Derivatives		Liability Derivatives
	October 31, 2010		July 31, 2010		October 31, 2010			July 31, 2010
Derivatives designated as	Balance Sheet				Balance Sheet					Balance Sheet				Balance Sheet
hedging instruments	Location	Fair Value		Location		Fair Value			Location	Fair Value		Location	Fair Value
Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	185		Prepaid expenses and other current assets		$	156		Other current liabilities	$	1,461		Other current liabilities	$	829

Net investment hedges

Foreign currency denominated debt	Prepaid expenses and other current assets	$	—		Prepaid expenses and other current assets		$	—		Long term obligations, less current maturities	$	104,467		Long term obligations, less current maturities	$	97,747


Total derivatives\ndesignated as hedging\ninstruments		$	185				$	156			$	105,928			$	98,576


Derivatives not\ndesignated as hedging\ninstruments
Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	—		Prepaid expenses and other current assets		$	24		Other current liabilities	$	—		Other current liabilities	$	64

Total derivatives not\ndesignated as hedging\ninstruments		$	—				$	24			$	—			$	64

\n\n\n

The pre-tax effects of derivative instruments designated as cash flow hedges on the Condensed\nConsolidated Statements of Income consisted of the following:\n

\n\n\n

Location of

Amount of Gain

Gain or (Loss)

Location of Gain or

or (Loss)

Recognized in

Amount of Gain

Amount of Gain or (Loss)

(Loss) Reclassified

Reclassified From

Income on

or (Loss)

Derivatives in

Recognized in OCI on

From Accumulated

Accumulated OCI

Derivative

Recognized in

Cash Flow Hedging

Derivative

OCI into Income

Into Income

(Ineffective

Income on Derivative

Relationships

(Effective Portion)

Effective Portion)

(Effective Portion)

Portion)

(Ineffective Portion)

Three months ended

October 31,

2010

2009

2010

2009

2010

2009

Foreign exchange\ncontracts

(185

)

(321

)

Cost of goods sold

(100

)

228

Cost of goods sold

—

Total

(185

)

(321

)

(100

)

228

—

\n\n\n\n

The pre-tax effects of derivative instruments designated as net investment hedges on the\nCondensed Consolidated Balance Sheet consisted of the following:\n

\n\n\n

Location of Gain

Amount of Gain

or (Loss)

Location of

Amount of Gain

Derivatives in

Amount of Gain or (Loss)

Reclassified From

Gain or (Loss)

or (Loss)

Net Investment

Recognized in OCI on

Accumulated

Accumulated OCI

Recognized in

Hedging

Derivative

OCI into Income

Into Income

Income on Derivative

Relationships

(Effective Portion)

(Ineffective Portion)

Three months ended

October 31,

2010

2009

2010

2009

2010

2009

Foreign currency denominated debt

(6,720

)

—

Investment and other income — net

—

Investment and other income — net

—

Total

(6,720

)

—

\n\n\n\n

\n\n

14\n

\n\n

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

\n\n\n

Overview\n

\n\n\n

Brady, a Wisconsin corporation founded in 1914, is an international manufacturer and marketer\nof identification solutions and specialty materials that identify and protect premises, products,\nand people. Its products include facility identification products; safety and complementary\nproducts; wire and cable identification products; sorbent materials; people identification\nproducts; regulatory publishing products; high-performance identification products for product\nidentification and work-in-process identification; and bar-code labels and precision die-cut\ncomponents for mobile telecommunications devices, hard disk drives, medical devices and supplies,\nand automotive and other electronics. The Company serves customers in general manufacturing,\nmaintenance and safety, process industries, construction, electrical, telecommunications,\nelectronics, laboratory/healthcare, airline/transportation, brand protection, education,\ngovernmental, public utility, and a variety of other industries. The Company manufactures and sells\nproducts domestically and internationally through multiple channels including distributors,\nresellers, business-to-business direct marketing and a direct sales force. The Company believes\nthat its reputation for innovation, commitment to quality and service, and dedicated employees have\nmade it a world leader in the markets it serves. The Company operates in Australia, Belgium,\nBrazil, Canada, the Cayman Islands, China, Denmark, France, Germany, Hong Kong, India, Italy,\nJapan, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, the Philippines, Poland, Singapore,\nSouth Korea, Spain, Sweden, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the\nUnited States. Brady sells through subsidiaries or sales offices in these countries, with\nadditional sales through a dedicated team of international sales representatives in New Zealand,\nRussia, Taiwan, Turkey, Vietnam, and the United Arab Emirates. The Company further markets its\nproducts to parts of Eastern Europe, the Middle East, Africa and Russia.\n

\n\n

Sales for the quarter ended October 31, 2010, increased 3.5% to $329.6 million, compared to\n$318.5 million in the same period of fiscal 2010. Of the 3.5% increase in sales, organic sales and\nacquisitions both increased 2.0% for a total increase of 4.0%. The sales increase was partially\noffset by a 0.5% decrease due to the fluctuations in the exchange rates used to translate financial\nresults into the United States Dollar for the three months ended October 31, 2010 compared to the\nsame period in the previous year. Net income for the quarter ended October 31, 2010, was $26.3\nmillion or $0.50 per diluted Class A Nonvoting Common Share, up 21.3% from $21.7 million or $0.41\nper diluted Class A Nonvoting Common Share reported in the first quarter of last fiscal year. Net\nincome before restructuring related expenses for the quarter ended October 31, 2010 was $28.9\nmillion, or $0.55 per diluted Class A Nonvoting Common Share, up 19.0% from $24.3 million or $0.46\nper diluted Class A Nonvoting Common Share reported in the first quarter of last fiscal year.\n

\n\n

Results of Operations\n

\n\n\n

Sales for the three months ended October 31, 2010 were up 3.5% compared to the same period in\nfiscal 2010. Of the 3.5% increase in sales, organic and acquisition sales both increased 2.0%, for\na total of 4.0%. The sales related to acquisitions resulted from the three acquisitions made in\nfiscal 2010: Welconstruct Group Limited (“Welco”), Stickolor Industria e Comerciao de Auto Adesivos\nLtd (“Stickolor”), and Securimed SAS (“Securimed”). The sales increase was partially offset by a\n0.5% decrease due to the fluctuations in the exchange rates used to translate financial results\ninto the United States Dollar for the three months ended October 31, 2010. The increase in\norganic sales for the quarter ended October 31, 2010, was due primarily to the 4.3% and 0.7%\nincrease in sales in the Americas and Europe segments, respectively, offset by the 0.3% decline in\nsales in the Asia-Pacific segment.\n

\n\n

Gross margin as a percentage of sales increased to 49.9% for the quarter ended October 31,\n2010, compared to 49.4% in the same period of the previous year. The increase in gross margin as a\npercentage of sales was mainly due to the cost reduction efforts and restructuring activities\nduring fiscal 2010, which continued into the first quarter of fiscal 2011.\n

\n\n

Research and development (“R&D”) expenses increased 3.5% to $9.9 million for the three months\nended October 31, 2010, compared to $9.6 million for the same period in the prior year. As a\npercentage of sales, R&D expenses remained constant at 3.0% during the three months ended October\n31, 2010 and 2009. The Company remains committed to innovation and new product development and\nexpects R&D expense to increase for the remainder of fiscal 2011.\n

\n\n

Selling, general, and administrative (“SG&A”) expenses increased 0.6% to $109.3 million for\nthe three months ended October 31, 2010, as compared to $108.7 million for the same period in the\nprior year. SG&A expense as percentage of sales declined to 33.2% in the first quarter compared to\n34.1% in the same quarter last year. The Company has continued to focus on reducing its SG&A\nexpenses as a percentage of sales, partially offset by its reinvestment in growth initiatives. In\naddition, the Company realized cost savings from prior year cost reduction activities and\nrestructuring activities.\n

\n\n

Restructuring charges were $3.6 million during each of the three-month periods ended October\n31, 2010 and 2009. In fiscal 2009, in response to the global economic downturn the Company took\nseveral measures to address its cost structure. The Company continued to incur costs related to the\nreduction of its workforce and facility consolidations during the three months ended October 31,\n2010 and 2009. The Company expects to incur approximately $12 to $15 million of pre-tax\nrestructuring charges during fiscal 2011.\n

\n\n

16\n

\n\n

Other income and expense increased $0.2 million during the three months ended October 31, 2010\nto $0.3 million from $0.1 million in the prior year. The increase was primarily due to the gains on\nsecurities held in executive deferred compensation plans, partially offset by an increase in\nforeign exchange losses.\n

\n\n

Interest expense increased to $5.7 million for the quarter ended October 31, 2010 from $5.2\nmillion for the quarter ended October 31, 2009. The increase was due to the additional interest on\nthe Company’s May 2010 private placement as compared to the same period in fiscal 2010.\n

\n\n

The Company’s income tax rate was 27.4% for the quarter ended October 31, 2010 and 28.8% for\nthe same period of the previous year. The decrease in the Company’s income tax rate during the\nfirst quarter of fiscal 2011 was primarily due to the mix of profits in low and high tax countries\nas well as positive impacts from certain adjustments to prior year tax returns. These positive\nadjustments were partially offset by the expiration of certain U.S. tax legislation, including the\nR&D tax credit as well as other international taxation rules. If these U.S. tax provisions are not\nextended, it could have a material impact on the Company’s quarterly income tax rate. The Company\nexpects the full year income tax rate for fiscal 2011 to be approximately 26%, subject to potential\neffects of pending and proposed U.S. tax legislation.\n

\n\n

Net income for the three months ended October 31, 2010, increased 21.3% to $26.3 million,\ncompared to $21.7 million for the same quarter of the previous year. Net income as a percentage of\nsales increased to 8.0% for the quarter ended October 31, 2010 from 6.8% for the same period in the\nprior year. Net income before restructuring related expenses was $28.9 million or $0.55 per diluted\nClass A Common Share for the three months ended October 31, 2010 compared to $24.3 million, or\n$0.46 per diluted Class A Common Share for the same period of the previous year.\n

\n\n

Business Segment Operating Results\n

\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

Following is a summary of segment information for the three months ended October 31, 2010 and\n2009:\n

\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \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:
October 31, 2010	$	145,988			$	92,050		$	91,550			$	329,588			$	—		$	329,588
October 31, 2009	$	136,239			$	94,335		$	87,912			$	318,486			$	—		$	318,486
SALES GROWTH INFORMATION
Three months ended October 31, 2010
Organic		4.3	%			0.7	%		(0.3	)%			2.0	%			—			2.0	%
Currency		0.7	%			(6.9	)%		4.4	%			(0.5	)%			—			(0.5	)%
Acquisitions		2.2	%			3.8	%		0.0	%			2.0	%			—			2.0	%

Total		7.2	%			(2.4	)%		4.1	%			3.5	%			—			3.5	%
SEGMENT PROFIT
Three months ended:
October 31, 2010	$	39,359			$	24,061		$	16,829			$	80,249			$	(3,436	)	$	76,813
October 31, 2009	$	32,801			$	24,862		$	15,127			$	72,790			$	(2,920	)	$	69,870
Percentage increase (decrease)		20.0	%			(3.2	)%		11.3	%			10.2	%

\n\n

17\n

\n\n

NET INCOME RECONCILIATION\n

\n\n


	Three months ended:
	October 31,
(Dollars in thousands)	2010			2009
Total profit from reportable segments	$	80,249			$	72,790
Corporate and eliminations		(3,436	)			(2,920	)
Unallocated amounts:
Administrative costs		(31,569	)			(30,712	)
Restructuring charges		(3,641	)			(3,601	)
Investment and other income		290				48
Interest expense		(5,687	)			(5,162	)

Income before income taxes		36,206				30,443
Income taxes		(9,925	)			(8,775	)

Net income	$	26,281			$	21,668

\n\n\n

\n\n

Americas:\n

\n\n\n

Sales in the Americas increased 7.2% to $146.0 million for the quarter ended October 31, 2010,\ncompared to $136.2 million for the same period in the prior year. Organic sales increased 4.3% in\nthe first quarter of fiscal 2011 compared to the same period last year. Fluctuations in the\nexchange rates used to translate financial results into the U.S. dollar increased sales by 0.7% in\nthe quarter. Sales in the segment also increased 2.2% in the quarter due to the fiscal year 2010\nacquisition of Stickolor in Brazil. The increase in segment sales during the quarter was due to the\nstrong MRO sales in the United States, Mexico, and Canada, driven by proprietary consumable\nproducts and new product applications developed within the wire identification, lean, compliance\nand brand protection categories. Brazil also yielded positive sales in both the MRO and OEM\nmarkets.\n

\n\n

Segment profit increased 20.0% to $39.4 million for the quarter ended October 31, 2010,\ncompared to $32.8 million for the same period in the prior year. As a percentage of sales, segment\nprofit increased to 27.0% for the quarter ended October 31, 2010 from 24.1% for the same period in\nthe prior year. The segment profit increase was primarily due to the leveraging of the segment’s\ncost structure on increased sales in addition to the segment’s commitment to its productivity\ninitiatives.\n

\n\n

Europe:\n

\n\n\n

Europe sales declined 2.4% to $92.1 million for the quarter ended October 31, 2010, compared\nto $94.3 million for the same period in the prior year. Organic sales were up 0.7% in the quarter\nas compared to the same period last year. Sales were affected by fluctuations in the exchange rates\nused to translate financial results into the U.S. dollar, primarily the Euro and the British pound,\nwhich decreased sales within the segment by 6.9% in the quarter. The fiscal 2010 acquisitions of\nWelco and Securimed increased sales by 3.8% in the quarter. Sales during the quarter ended October\n31, 2010 were impacted by the growth of the Brady brand business in continental Europe offset by\nthe weaknesses in the United Kingdom. Management\nanticipates a slow economic recovery in Europe throughout fiscal 2011.\n

\n\n

Segment profit decreased 3.2% to $24.1 million for the quarter ended October 31, 2010,\ncompared to $24.9 million for the same period of the prior year. As a percentage of sales, segment\nprofit decreased to 26.1% in the first quarter of fiscal 2011 from 26.4% in the first quarter of\nfiscal 2010. The decline in segment profit in fiscal 2011 as compared to the same period of the\nprior year was primarily attributable to the impact of foreign currency translation on the reported\nresults.\n

\n\n

18\n

\n\n

Asia-Pacific:\n

\n\n\n

Asia-Pacific sales increased 4.1% to $91.6 million for the quarter ended October 31, 2010,\ncompared to $87.9 million for the same period in the prior year. Organic sales were down 0.3% in\nthe quarter as compared to the same period last year. Sales were positively affected by\nfluctuations in the exchange rates used to translate financial results into the U.S. dollar, which\nincreased sales within the segment by 4.4% in the quarter. The decline in organic sales during the\nquarter ended October 31, 2010 was primarily due to the segment’s overall strategy to move away\nfrom lower-end commodity parts and replace them with higher-end engineered solutions.\n

\n\n

Segment profit increased 11.3% to $16.8 million for the quarter ended October 31, 2010,\ncompared to $15.1 million for the same period in the prior year. As a percentage of sales, segment\nprofit increased to 18.4% in the first quarter of fiscal 2011 from 17.2% in the first quarter of\nfiscal 2010. The increase in segment profit was primarily due to the segment’s strategy to exit\nlower profit lower-end commodity parts as well as the segment’s continued focus on lean initiatives\nincluding the Brady Business Performance System.\n

\n\n

Financial Condition\n

\n\n\n

Cash and cash equivalents were $326.1 million at October 31, 2010, compared to $314.8 million\nat July 31, 2010. The increase in cash of $11.3 million was the result of cash provided by\noperations of $16.2 million, cash used in investing activities of $3.7 million, cash used in\nfinancing activities of $7.5 million, and the effects of the depreciation of the U.S. dollar\nagainst other currencies, which positively impacted cash in the amount of $6.3 million during the\nquarter ended October 31, 2010.\n

\n\n

The Company’s working capital, excluding cash and cash equivalents, increased to $90.3 million\nat October 31, 2010 from $60.3 million at July 31, 2010. Accounts receivable balances increased\n$20.6 million from July 31, 2010 to October 31, 2010. The increase in accounts receivable was a\nresult of increased sales volumes during the quarter as well as the impact of foreign currency\ntranslation during the quarter. Inventories increased $6.5 million for the quarter. The change in\ninventory was a result of increased production volumes in addition to the impact of foreign\ncurrency translation during the quarter. The net decrease in current liabilities of $2.7 million\nfor the quarter was primarily due to the decrease in accrued wages due to the payment of the\nCompany’s fiscal 2010 annual incentive compensation during the quarter ended October 31, 2010.\n

\n\n

In the first quarter of fiscal 2011, the Company generated $16.2 million of cash from\noperations, a decrease of $17.7 million from the same period last year. The decrease was primarily\ndue to the payment of the Company’s fiscal 2010 annual incentive compensation during the quarter\nwhereas no incentive compensation was paid in same period in the prior year due to the elimination\nof the annual incentive compensation in fiscal 2009.\n

\n\n

Capital expenditures were $2.8 million for the quarter ended October 31, 2010, compared to\n$9.0 million in the same period last year. The Company expects capital expenditures to be between\n$25.0 million and $30.0 million for fiscal 2011, similar to fiscal 2010. Net cash used in financing\nactivities was $7.5 million for the quarter ended October 31, 2010, related primarily to the\npayment of dividends of $9.4 million.\n

\n\n

The Company did not complete any acquisitions during the three months ended October 31, 2010.\nCash used for acquisitions totaled $1.8 million for the quarter ended October 31, 2009 due to the\nacquisition of certain assets of Welco, a division of Welconstruct Group Limited.\n

\n\n

19\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

On May 13, 2010, the Company completed a private placement of €75.0 million aggregate\nprincipal amount of senior unsecured notes to accredited institutional investors. The €75.0 million\nof senior notes consists of €30.0 million aggregate principal amount of 3.71% Series 2010-A Senior\nNotes, due May 13, 2017 and €45.0 million aggregate principal amount of 4.24% Series 2010-A Senior\nNotes, due May 13, 2020, with interest payable on the notes semiannually. This private placement\nwas exempt from the registration requirements of the Securities Act of 1933. The notes were not\nregistered for resale and may not be resold absent such registration or an applicable exemption\nfrom the registration requirements of the Securities Act of 1933 and applicable state securities\nlaws. The notes have certain prepayment penalties for prepaying them prior to maturity. The notes\nhave been fully and unconditionally guaranteed on an unsecured basis by the Company’s domestic\nsubsidiaries. These unsecured notes were issued pursuant to a note purchase agreement, dated\nMay 13, 2010.\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.\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 conditions, the available amount under the credit facility\nmay be increased from $200 million up to $300 million. Under the credit agreement, the Company has\nthe option to select either a base interest rate (based upon the higher of the federal funds rate\nplus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency interest rate (at the\nLIBOR rate plus a margin based on the Company’s consolidated leverage ratio). A commitment fee is\npayable on the unused amount of the facility. The agreement restricts the amount of certain types\nof payments, including dividends, which can be made annually to $50 million plus an amount equal to\n75% of consolidated net income for the prior fiscal year of the Company. The Company believes that\nbased on historic dividend practice, this restriction would not impede the Company in following a\nsimilar dividend practice in the future. On March 18, 2008, the Company entered into an amendment\nto the revolving loan agreement which extended the maturity date from October 5, 2011 to March 18,\n2013. All other terms of the revolving loan agreement remained the same. As of October 31, 2010,\nthere 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, March 2007, and May 2010 private placement debt\nagreements require the Company to maintain a ratio of debt to the trailing twelve months EBITDA, as\ndefined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio). As of October\n31, 2010, the Company was in compliance with the financial covenant of these debt agreements, with\nthe ratio of debt to EBITDA, as defined by the agreements, equal to 2.2 to 1.0. Additionally, the\nCompany’s October 2006 revolving loan agreement requires the Company to maintain a ratio of debt to\ntrailing twelve months EBITDA, as defined by the debt agreement, of not more than a 3.0 to 1.0\nratio. The revolving loan agreement requires the Company’s trailing twelve months earnings before\ninterest and taxes (“EBIT”) to interest expense of not less than a 3.0 to 1.0 ratio (interest\nexpense coverage). As of October 31, 2010, the Company was in compliance with the financial\ncovenants of the revolving loan agreement, with the ratio of debt to EBITDA, as defined by the\nagreement, equal to 2.3 to 1.0 and the interest expense coverage ratio equal to 6.7 to 1.0.\n

\n\n

Long-term obligations, less current obligations, as a percentage of long-term obligations,\nless current obligations, plus stockholders’ investment were 27.0% at October 31, 2010 and 27.6% at\nJuly 31, 2010. Long-term obligations increased by $6.7 million from July 31, 2010 to October 31,\n2010 due to the negative impact of foreign currency translation on the Company’s Euro-denominated\ndebt.\n

\n\n

Stockholders’ investment increased $52.2 million during the three months October 31, 2010 as a\nresult of the Company’s net income of $26.3 million as well as the increase in the accumulated\nother comprehensive income of $29.3 million due to the impact of foreign currency translation. The\nincrease was offset by the dividends paid on Class A and Class B Common Stock of $8.8 million and\n$0.6 million, respectively.\n

\n\n

20\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 sources of borrowing, are sufficient to fund its anticipated requirements for\nworking capital, capital expenditures, restructuring activities, acquisitions, common stock\nrepurchases, scheduled debt repayments, and dividend payments. The Company believes that its\ncurrent credit arrangements are sound and that the strength of its balance sheet will allow the\nCompany the financial flexibility to respond to both internal growth opportunities and those\navailable through acquisition.\n

\n\n

Subsequent Events Affecting Financial Condition\n

\n\n\n

On November 18, 2010, the Board of Directors declared a quarterly cash dividend to\nshareholders of the Company’s Class A and Class B Common Stock of $0.18 per share payable on\nJanuary 31, 2011 to shareholders of record at the close of business on January 10, 2011.\n

\n\n

On November 1, 2010, the Company acquired ID Warehouse, a leading supplier of people\nidentification and security solutions, located in New South Wales, Australia. The ID Warehouse\nbusiness is included in the Company’s Asia-Pacific segment. Pro forma information related to the\nacquisition is not included because the impact on the Company’s consolidated results of operations\nis considered to be immaterial.\n

\n\n

21\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 such\nas manufacturing facilities, warehouses and office space, computer equipment and Company vehicles.\n

\n\n

Purchase Commitments — The Company has purchase commitments for materials, supplies, services,\nand 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.\n

\n\n

Related-Party Transactions — The Company evaluated its affiliated party transactions for the\nperiod ended October 31, 2010. Based on the evaluation the Company does not have material related\nparty transactions that affect the results of operations, cash flow or financial condition.\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 maintain compliance with its debt covenants; technology changes;\nbusiness interruptions due to implementing business systems; environmental, health and safety\ncompliance costs and liabilities; future competition; interruptions to sources of supply; Brady’s\nability to realize cost savings from operating initiatives; difficulties associated with exports;\nrisks associated with restructuring plans; risks associated with obtaining governmental approvals\nand maintaining regulatory compliance; and numerous other matters of national, regional and global\nscale, including those of a political, economic, business, competitive and regulatory nature\ncontained from time to time in Brady’s U.S. Securities and Exchange Commission filings, including,\nbut not limited to, those factors listed in the “Risk Factors” section located in Item 1A of Part I\nof the Company’s most recently filed Form 10-K for the year ended July 31, 2010. These\nuncertainties may cause Brady’s actual future results to be materially different than those\nexpressed in its forward-looking statements. Brady does not undertake to update its forward-looking\nstatements.\n

\n\n

22\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 objective of the Company’s foreign currency exchange risk management is to minimize the\nimpact of currency movements on non-functional currency transactions and minimize the foreign\ncurrency translation impact on the Company’s European operations. To achieve this objective, the\nCompany hedges a portion of known exposures using forward contracts. Main exposures are related to\ntransactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar,\nSingapore Dollar, Swedish Krona, Danish Krone, Japanese Yen, Swiss Franc, and the Korean Won\ncurrency. As of October 31, 2010, the notional amount of outstanding forward contracts designated\nas cash flow hedges was $25.0 million. Beginning in fiscal 2010 the Company also hedged portions\nof its net investments in its European foreign operations using forward foreign exchange currency\ncontracts and Euro-denominated debt of €75.0 million designated as a hedge instrument.\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 if there is a desire to modify the Company’s exposure to interest rates.\nAs of October 31, 2010, the Company had no interest rate 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 Australian dollar, the Canadian dollar, the Singapore dollar, the\nEuro, the British Pound, the Brazilian Real, the Korean Won, and the Chinese Yuan. Changes in\nforeign currency exchange rates for the Company’s foreign subsidiaries reporting in local\ncurrencies are generally reported as a component of stockholders’ investment. The Company’s\ncurrency translation adjustments recorded for the three months ended October 31, 2010 and 2009 were\n$30.0 million favorable and $24.8 million unfavorable, respectively. As of October 31, 2010 and\n2009, the Company’s foreign subsidiaries had net current assets (defined as current assets less\ncurrent liabilities) subject to foreign currency translation risk of $166.2 million and $268.0\nmillion, respectively. The potential decrease in the net current assets as of October 31, 2010 from\na hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be $16.6\nmillion. This sensitivity analysis assumes a parallel shift in foreign currency exchange rates.\nExchange rates rarely move in the same direction relative to the dollar. This assumption may\noverstate the impact of changing exchange rates on individual assets and liabilities denominated in\na 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 Senior Executive Vice President and Chief Financial\nOfficer, of 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 Senior Executive Vice President and Chief Financial\nOfficer concluded that the Company’s disclosure controls and procedures are effective as of the end\nof the period 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

23\n

\n\n

EXHIBIT 31.1\n

\n\n\n

RULE 13a-14(a)/15d-14(a) CERTIFICATION\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 those\nentities, 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 fourth\nfiscal quarter in the case of an annual report)that has materially affected, or is reasonably\nlikely to materially affect, the registrant’s internal control over financial reporting; 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 audit\ncommittee of the registrant’s board of directors (or persons performing the equivalent functions):\n

\n\n

a) All significant deficiencies and material weaknesses in the design or operation of internal\ncontrol over financial reporting which are reasonably likely to adversely affect the registrant’s\nability 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\n \n \n \n\n\n\n\n\n \n \n \n\n\n \n \n \n\n\n \n \n \n\n\n \n \n \n\n


Date: December 7, 2010

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

\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\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 act 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

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


Date: December 7, 2010

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

\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 October\n31, 2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange\nAct of 1934; and\n

\n\n

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

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


Date: December 7, 2010

/s/ FRANK M. JAEHNERT\n \nFrank M. Jaehnert\n
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

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EXHIBIT 32.2\n

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SECTION 1350 CERTIFICATION\n

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

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Date: December 7, 2010

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

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	Page
PART I. Financial Information

Item 1. Financial Statements (Unaudited)		3

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		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		23

Item 4. Controls and Procedures		23

PART II. Other Information		24

Item 6. Exhibits		24

Signatures		24

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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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
	101			Interactive Data File


	BRADY CORPORATION \n
Date: December 7, 2010	/s/ FRANK M. JAEHNERT\n
	Frank. M. Jaehnert
	President & Chief Executive Officer

Date: December 7, 2010	/s/ THOMAS J. FELMER\n
	Thomas J. Felmer
	Senior Vice President & Chief Financial Officer \n(Principal Financial Officer)