UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

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

Commission File Number 1-14959

BRADY CORPORATION

(Exact name of registrant as specified in its charter)

Wisconsin		39-0178960
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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

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

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

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of March 3, 2011 there were outstanding 49,146,902 shares of Class A Nonvoting Common Stock and 3,538,628 shares of Class B Voting Common Stock. The Class B Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock.

 

 

FORM 10-Q
BRADY CORPORATION
INDEX

		Page
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Income			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4. Controls and Procedures			25
PART II. Other Information
Item 6. Exhibits			26
CERTIFICATION
CERTIFICATION
Section 1350 Certification
Section 1350 Certification
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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

		January 31, 2011				July 31, 2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	362,302			$	314,840
Accounts receivable — net			240,173				221,621
Inventories:
Finished products			56,085				52,906
Work-in-process			14,614				13,146
Raw materials and supplies			28,129				28,620
Total inventories			98,828				94,672
Prepaid expenses and other current assets			36,233				37,839
Total current assets			737,536				668,972
Other assets:
Goodwill			781,776				768,600
Other intangible assets			98,560				103,546
Deferred income taxes			45,087				39,103
Other			19,673				20,808
Property, plant and equipment:
Cost:
Land			6,331				6,265
Buildings and improvements			103,305				101,138
Machinery and equipment			294,414				289,727
Construction in progress			15,208				9,873
			419,258				407,003
Less accumulated depreciation			278,710				261,501
Property, plant and equipment — net			140,548				145,502
Total		$	1,823,180			$	1,746,531
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable		$	92,696			$	96,702
Wages and amounts withheld from employees			52,161				67,285
Taxes, other than income taxes			8,898				7,537
Accrued income taxes			16,603				10,138
Other current liabilities			60,105				50,862
Current maturities on long-term obligations			61,265				61,264
Total current liabilities			291,728				293,788
Long-term obligations, less current maturities			387,875				382,940
Other liabilities			66,120				64,776
Total liabilities			745,723				741,504
Stockholders’ investment:
Class A nonvoting common stock — Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 49,105,601 and 48,875,716 shares, respectively			513				513
Class B voting common stock — Issued and outstanding 3,538,628 shares			35				35
Additional paid-in capital			308,002				304,205
Earnings retained in the business			750,038				718,512
Treasury stock —1,845,866 and 2,175,771 shares, respectively of Class A nonvoting common stock, at cost			(56,069	)			(66,314	)
Accumulated other comprehensive income			79,674				50,905
Other			(4,736	)			(2,829	)
Total stockholders’ investment			1,077,457				1,005,027
Total		$	1,823,180			$	1,746,531

See Notes to Condensed Consolidated Financial Statements.

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Amounts)

		Three Months Ended January 31,												Six Months Ended January 31,
		(Unaudited)												(Unaudited)
										Percentage												Percentage
		2011				2010				Change				2011				2010				Change
Net sales		$	329,009			$	295,829				11.2	%		$	658,597			$	614,315				7.2	%
Cost of products sold			169,999				148,911				14.2	%			335,075				309,955				8.1	%
Gross margin			159,010				146,918				8.2	%			323,522				304,360				6.3	%
Operating expenses:
Research and development			11,732				10,632				10.3	%			21,676				20,241				7.1	%
Selling, general and administrative			108,064				108,735				(0.6	%)			217,388				217,411				0.0	%
Restructuring charge — (See Note J)			2,134				3,649				(41.5	%)			5,775				7,250				(20.3	%)
Total operating expenses			121,930				123,016				(0.9	%)			244,839				244,902				0.0	%
Operating income			37,080				23,902				55.1	%			78,683				59,458				32.3	%
Other income (expense):
Investment and other income — net			1,174				1,104				6.3	%			1,464				1,153				27.0	%
Interest expense			(5,850	)			(5,163	)			13.3	%			(11,537	)			(10,325	)			11.7	%
Income before income taxes			32,404				19,843				63.3	%			68,610				50,286				36.4	%
Income taxes			8,205				4,842				69.5	%			18,130				13,617				33.1	%
Net income		$	24,199			$	15,001				61.3	%		$	50,480			$	36,669				37.7	%
Per Class A Nonvoting Common Share:
Basic net income		$	0.46			$	0.29				58.6	%		$	0.96			$	0.70				37.1	%
Diluted net income		$	0.46			$	0.28				64.3	%		$	0.95			$	0.69				37.7	%
Dividends		$	0.18			$	0.175				2.9	%		$	0.36			$	0.35				2.9	%
Per Class B Voting Common Share:
Basic net income		$	0.46			$	0.29				58.6	%		$	0.94			$	0.68				38.2	%
Diluted net income		$	0.46			$	0.28				64.3	%		$	0.94			$	0.67				40.3	%
Dividends		$	0.18			$	0.175				2.9	%		$	0.34			$	0.33				3.1	%
Weighted average common shares outstanding (in thousands):
Basic			52,593				52,370								52,521				52,354
Diluted			53,053				53,096								52,932				53,020

See Notes to Condensed Consolidated Financial Statements.

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

		Six Months Ended
		January 31,
		(Unaudited)
		2011				2010
Operating activities:
Net income		$	50,480			$	36,669
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			25,502				27,366
Non-cash portion of restructuring charges			1,714				1,420
Non-cash portion of stock-based compensation expense			6,869				5,156
Gain on the divestiture of business			(4,394	)			—
Deferred income taxes			(4,926	)			(4,398	)
Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures):
Accounts receivable			(11,938	)			(10,300	)
Inventories			(879	)			(1,891	)
Prepaid expenses and other assets			2,384				(1,585	)
Accounts payable and accrued liabilities			(13,792	)			12,926
Income taxes			6,589				2,670
Net cash provided by operating activities			57,609				68,033
Investing activities:
Acquisition of businesses, net of cash acquired			(7,970	)			(20,299	)
Divestiture of business, net of cash retained in business			12,979				—
Payments of contingent consideration			(979	)			—
Purchases of property, plant and equipment			(9,045	)			(14,974	)
Other			(494	)			(570	)
Net cash used in investing activities			(5,509	)			(35,843	)
Financing activities:
Payment of dividends			(18,954	)			(18,344	)
Proceeds from issuance of common stock			4,909				1,672
Excess income tax benefit from the exercise of stock options and deferred compensation			359				380
Net cash used in financing activities			(13,686	)			(16,292	)
Effect of exchange rate changes on cash			9,048				1,530
Net increase in cash and cash equivalents			47,462				17,428
Cash and cash equivalents, beginning of period			314,840				188,156
Cash and cash equivalents, end of period		$	362,302			$	205,584
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest		$	9,138			$	10,313
Income taxes, net of refunds			17,398				10,817
Acquisitions:
Fair value of assets acquired, net of cash and goodwill		$	4,624			$	8,829
Liabilities assumed			(1,446	)			(2,678	)
Goodwill			4,792				14,148
Net cash paid for acquisitions		$	7,970			$	20,299

See Notes to Condensed Consolidated Financial Statements.

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended January 31, 2011
(Unaudited)

(In thousands, except share and per share amounts)

NOTE A — Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the “Company” or “Brady”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of January 31, 2011 and July 3l, 2010, its results of operations for the three and six months ended January 31, 2011 and 2010, and its cash flows for the six months ended January 31, 2011 and 2010. The condensed consolidated balance sheet as of July 31, 2010 has been derived from the audited consolidated financial statements of that date. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K for the year ended July 31, 2010.

The Company has reclassified certain prior year financial statement amounts to conform to their current year presentation. The operating activities including “Other,” “Other liabilities,” and “Accounts payable and accrued liabilities”, which were previously disclosed as single line items, have been combined and reported as “Accounts payable and accrued liabilities” on the Condensed Consolidated Statement of Cash Flows for the six months ended January 31, 2011 and 2010. These reclassifications had no effect on total assets, net income, or earnings per share.

NOTE B — Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the six months ended January 31, 2011, are as follows:

		Americas				Europe				Asia-Pacific				Total
Balance as of July 31, 2010		$	425,018			$	163,189			$	180,393			$	768,600
Current year acquisitions			—				—				4,792				4,792
Current year divestitures			(3,696	)			(8,380	)			—				(12,076	)
Translation adjustments			1,699				9,868				8,893				20,460
Balance as of January 31, 2011		$	423,021			$	164,677			$	194,078			$	781,776

Goodwill increased $13,176 during the six months ended January 31, 2011. Of the $13,176 increase, $20,460 was due to the positive effects of foreign currency translation and $4,792 resulted from the acquisition of ID Warehouse during the second quarter of fiscal 2011. The increase was offset by a $12,076 decrease in goodwill as a result of the divestiture of the Company’s Teklynx business during the three months ended January 31, 2011. See Note L, “Acquisitions and Divestitures” for further discussion.

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

		January 31, 2011																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 intangible assets:
Patents			5			$	9,555			$	(8,244	)		$	1,311				5			$	9,314			$	(7,855	)		$	1,459
Trademarks and other			7				9,090				(6,196	)			2,894				7				8,823				(5,685	)			3,138
Customer relationships			7				159,773				(107,917	)			51,856				7				152,720				(95,996	)			56,724
Non-compete agreements			4				12,996				(12,031	)			965				4				11,930				(11,059	)			871
Other			4				2,730				(2,721	)			9				4				3,309				(3,297	)			12
Unamortized other intangible assets:
Trademarks			N/A				41,525				—				41,525				N/A				41,342				—				41,342
Total						$	235,669			$	(137,109	)		$	98,560							$	227,438			$	(123,892	)		$	103,546

The value of goodwill and other intangible assets in the Condensed Consolidated Balance Sheet at January 31, 2011 differs from the value assigned to them in the allocation of purchase price due to the effect of fluctuations in the exchange rates used to translate financial statements into the United States Dollar between the date of acquisition and January 31, 2011. The acquisition completed during the three and six months ended January 31, 2011 increased the customer relationships by $1,846 and increased the amortizable trademarks by $487. See Note L, “Acquisitions and Divestitures” for further discussion.

Amortization expense on intangible assets was $5,123 and $5,628 for the three-month periods ended January 31, 2011 and 2010, respectively and $10,270 and $11,235 for the six-month periods ended January 31, 2011 and 2010, respectively. Annual amortization is projected to be $21,125, $13,861, $10,570, $5,604 and $5,212 for the years ending July 31, 2011, 2012, 2013, 2014 and 2015, respectively.

NOTE C — Comprehensive Income (Loss)

Total comprehensive income for the periods presented was a follows:

		Three Months Ended January 31,								Six Months Ended January 31,
		2011				2010				2011				2010
Net Income		$	24,199			$	15,001			$	50,480			$	36,669
Unrealized (loss) gain on cash flow hedges			(165	)			317				(890	)			(47	)
Amortization of gain on post-retirement medical, dental and vision plan			(32	)			(63	)			(95	)			(145	)
Foreign currency translation adjustments			(341	)			(18,768	)			29,754				5,850
Total comprehensive income (loss)		$	23,661			$	(3,513	)		$	79,249			$	42,327

The increase in total comprehensive income for the quarter ended January 31, 2011 as compared to January 31, 2010 was primarily due to the depreciation of the U.S. dollar against other currencies and net income.

NOTE D — Net Income Per Common Share

In June 2008, the Financial Accounting Standards Board (“FASB”) issued accounting guidance addressing whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share. This guidance requires that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends be considered participating securities in undistributed earnings with common shareholders. The Company adopted the guidance during the first quarter of fiscal 2010. As a result, the dividends on the Company’s performance-based restricted shares are included in the basic and diluted earnings per share calculations for the respective periods presented.

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

		Three Months Ended January 31,								Six Months Ended January 31,
		2011				2010				2011				2010
Numerator:
Net income (numerator for basic and diluted Class A net income per share)		$	24,199			$	15,001			$	50,480			$	36,669
Less:
Restricted stock dividends			(56	)			(37	)			(112	)			(74	)
Numerator for basic and diluted Class A net income per share		$	24,143			$	14,964			$	50,368			$	36,595
Less:
Preferential dividends			—				—				(820	)			(816	)
Preferential dividends on dilutive stock options			—				—				(6	)			(11	)
Numerator for basic and diluted Class B net income per share		$	24,143			$	14,964			$	49,542			$	35,768
Denominator:
Denominator for basic net income per share for both Class A and Class B			52,593				52,370				52,521				52,354
Plus: Effect of dilutive stock options			460				726				411				666
Denominator for diluted net income per share for both Class A and Class B			53,053				53,096				52,932				53,020
Class A Nonvoting Common Stock net income per share:
Basic		$	0.46			$	0.29			$	0.96			$	0.70
Diluted		$	0.46			$	0.28			$	0.95			$	0.69
Class B Voting Common Stock net income per share:
Basic		$	0.46			$	0.29			$	0.94			$	0.68
Diluted		$	0.46			$	0.28			$	0.94			$	0.67

Options to purchase approximately 4,281,000 and 3,959,000 shares of Class A Nonvoting Common Stock for the three and six months ended January 31, 2011, respectively, and 3,019,000 and 2,690,000 shares of Class A Nonvoting Common Stock for the three and six months ended January 31, 2010, respectively, were not included in the computations of diluted net income per share because the impact of the inclusion of the options would have been anti-dilutive.

NOTE E — Segment Information

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

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

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

Following is a summary of segment information for the three and six months ended January 31, 2011 and 2010:

																		Corporate
														Total				And
		Americas				Europe				Asia-Pacific				Region				Eliminations				Totals
Three months ended January 31, 2011:
Revenues from external customers		$	136,011			$	104,041			$	88,957			$	329,009			$	—			$	329,009
Intersegment revenues			11,043				620				6,400				18,063				(18,063	)			—
Segment profit			31,015				29,165				11,524				71,704				(5,088	)			66,616
Three months ended January 31, 2010:
Revenues from external customers		$	121,603			$	96,614			$	77,612			$	295,829			$	—			$	295,829
Intersegment revenues			14,129				822				4,932				19,883				(19,883	)			—
Segment profit			23,546				25,947				10,687				60,180				(3,683	)			56,497
Six months ended January 31, 2011:
Revenues from external customers		$	281,999			$	196,091			$	180,507			$	658,597			$	—			$	658,597
Intersegment revenues			20,791				1,513				12,346				34,650				(34,650	)			—
Segment profit			70,374				53,226				28,353				151,953				(8,525	)			143,428
Six months ended January 31, 2010:
Revenues from external customers		$	257,842			$	190,949			$	165,524			$	614,315			$	—			$	614,315
Intersegment revenues			27,564				2,577				8,901				39,042				(39,042	)			—
Segment profit			56,347				50,809				25,814				132,970				(6,603	)			126,367

Following is a reconciliation of segment profit to net income for the three months and six months ended January 31, 2011 and 2010:

		Three months ended:								Six months ended:
		January 31,								January 31,
		2011				2010				2011				2010
Total profit from reportable segments		$	71,704			$	60,180			$	151,953			$	132,970
Corporate and eliminations			(5,088	)			(3,683	)			(8,525	)			(6,603	)
Unallocated amounts:
Administrative costs			(27,402	)			(28,946	)			(58,970	)			(59,659	)
Restructuring charges			(2,134	)			(3,649	)			(5,775	)			(7,250	)
Investment and other income			1,174				1,104				1,464				1,153
Interest expense			(5,850	)			(5,163	)			(11,537	)			(10,325	)
Income before income taxes			32,404				19,843				68,610				50,286
Income taxes			(8,205	)			(4,842	)			(18,130	)			(13,617	)
Net income		$	24,199			$	15,001			$	50,480			$	36,669

NOTE F —Stock-Based Compensation

The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees. Additionally, the Company has a nonqualified stock option plan for non-employee directors under which stock options to purchase shares of Class A Nonvoting Common Stock are available for grant. The stock options have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Stock options issued under these plans, referred to herein as “service-based” stock options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above; these options are referred to herein as “performance-based” stock options. Performance-based stock options expire 10 years from the date of grant. Restricted shares have an issuance price equal to the fair market value of the underlying stock at the date of grant. The Company granted restricted shares in fiscal 2008 and fiscal 2011 that have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares vest at the end of a five-year period, with respect to the restricted shares issued in fiscal 2008, and ratably at the end of years 3, 4 and 5 with respect to the restricted shares issued in fiscal 2011, and upon meeting certain financial performance conditions; these shares are referred to herein as “performance-based restricted shares.”

As of January 31, 2011, the Company has reserved 6,051,999 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 742,000 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the various plans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.

The Company recognizes the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Total stock compensation expense recognized by the Company during the three months ended January 31, 2011 and 2010 was $2,800 ($1,708 net of taxes) and $2,205 ($1,345 net of taxes, respectively, and expense recognized during the six months ended January 31, 2011 and 2010 was $6,869 ($4,190 net of taxes), and $5,156 ($3,145 net of taxes), respectively. As of January 31, 2011, total unrecognized compensation cost related to share-based compensation awards was $20,970 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.4 years.

The Company has estimated the fair value of its service-based and performance-based option awards granted during the six months ended January 31, 2011 and 2010 using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:

		Six Months Ended								Six Months Ended
		January 31, 2011								January 31, 2010
						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				5.95				6.57
Expected volatility			40.22	%			39.39	%			39.85	%			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 underlying stock at grant date		$	29.09				28.43			$	28.73				28.73
Weighted-average exercise price		$	29.09				28.35			$	28.73				29.78
Weighted-average fair value of options granted during the period		$	9.58				9.87			$	8.78				8.70

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

The Company granted 100,000 shares of performance-based restricted stock to Frank M. Jaehnert, the Company’s President and Chief Executive Officer, in August of 2010, with a grant price and fair value of $28.35. The Company also granted 210,000 shares of performance-based restricted stock during fiscal 2008, with a grant price and fair value of $32.83. As of January 31, 2011, 310,000 performance-based restricted shares were outstanding.

The Company granted 465,000 performance-based stock options during the six months ended January 31, 2011, with a weighted average exercise price of $28.35 and a weighted average fair value of $9.87. The Company also granted 895,500 service-based stock options during the six months ended January 31, 2011, with a weighted average exercise price of $29.09 and a weighted average fair value of $9.58.

A summary of stock option activity under the Company’s share-based compensation plans for the six months ended January 31, 2011 is presented below:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
Options		Shares				Price				Term				Value
Outstanding at July 31, 2010			5,108,736			$	28.69
New grants			1,360,500			$	28.83
Exercised			(239,237	)		$	20.54
Forfeited or expired			(251,000	)		$	31.75
Outstanding at January 31, 2011			5,978,999			$	28.92				6.75			$	29,952
Exercisable at January 31, 2011			3,499,632			$	29.28				5.11			$	19,373

There were 3,499,632 and 3,340,857 options exercisable with a weighted average exercise price of $29.28 and $28.52 at January 31, 2011 and 2010, respectively. The cash received from the exercise of options during the three months ended January 31, 2011 and 2010 was $2,804 and $956, respectively. The cash received from the exercise of options during the six months ended January 31, 2011 and 2010 was $4,909 and $1,672, respectively. The cash received from the tax benefit on options exercised during the three months ended January 31, 2011 and 2010 was $263 and $181, respectively. The cash received from the tax benefit on options exercised during the six months ended January 31, 2011 and 2010 was $703 and $383, respectively.

The total intrinsic value of options exercised during the six months ended January 31, 2011 and 2010, based upon the average market price at the time of exercise during the period, was $2,505 and $1,266, respectively. The total fair value of stock options vested during the six months ended January 31, 2011 and 2010, was $6,744 and $12,054, respectively.

NOTE G — Stockholders’ Investment

In fiscal 2009, the Company’s Board of Directors authorized share repurchase plans for the Company’s Class A Nonvoting Common Stock. The share repurchase plans were implemented by purchasing shares in the open market or privately negotiated transactions, with repurchased shares available for use in connection with the Company’s stock-based plans and for other corporate purposes. The Company reacquired approximately 102,067 shares of its Class A Common Stock for $2.5 million in fiscal 2010 in connection with its stock repurchase plans. No shares were reacquired during the six months ended January 31, 2011. As of January 31, 2011, there remained 204,133 shares to purchase in connection with this share repurchase plan.

NOTE H — Employee Benefit Plans

The Company provides postretirement medical, dental and vision benefits for eligible regular full and part-time domestic employees (including spouses) outlined by the plan. Postretirement benefits are provided only if the employee was hired prior to April 1, 2008, and retires on or after attainment of age 55 with 15 years of credited service. Credited service begins accruing at the later of age 40 or date of hire. All active employees first eligible to retire after July 31, 1992, are covered by an unfunded, contributory postretirement healthcare plan where employer contributions will not exceed a defined dollar benefit amount, regardless of the cost of the program. Employer contributions to the plan are based on the employee’s age and service at retirement.

The Company funds benefit costs on a pay-as-you-go basis. There have been no changes to the components of net periodic benefit cost or the amount that the Company expects to fund in fiscal 2011 from those reported in Note 3 to the consolidated financial statements included in the Company’s latest annual report on Form 10-K for the year ended July 31, 2010.

NOTE I — Fair Value Measurements

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

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

Level 1 — Assets or liabilities for which fair value is based on quoted market prices in active markets for identical instruments as of the reporting date.

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

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

The following tables set forth by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at January 31, 2011, and July 31, 2010, according to the valuation techniques the Company used to determine their fair values.

		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
January 31, 2011:
Trading Securities		$	10,210			$	—			$	—			$	10,210			Other assets
Foreign exchange contracts — cash flow hedges			—				95				—				95			Prepaid expenses and other current assets
Total Assets		$	10,210			$	95			$	—			$	10,305
Foreign exchange contracts — cash flow hedges		$	—			$	1,390				—			$	1,390			Other current liabilities
Foreign exchange contracts — net investment hedge			—				5,082				—				5,082			Other current liabilities
Foreign exchange contracts			—				717				—				717			Other current liabilities
Foreign currency denominated debt — net investment hedge			—				102,683				—				102,683			Long term obligations, less current maturities
Total Liabilities		$	—			$	109,872			$	—			$	109,872
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 investment hedge			—				97,747				—				97,747			Long term obligations, less current maturities
Total Liabilities		$	—			$	98,640			$	—			$	98,640

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

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

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

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

There have been no transfers of assets or liabilities between the fair value hierarchy levels, outlined above, during the six months ended January 31, 2011.

The Company’s financial instruments, other than those presented in the disclosures above, include cash, notes receivable, accounts receivable, accounts payable, accrued liabilities and short-term and long-term debt. The fair values of cash, accounts receivable, accounts payable, accrued liabilities and short-term debt approximated carrying values because of the short-term nature of these instruments.

The estimated fair value of the Company’s long-term obligations, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities, was $468,140 and $467,479 at January 31, 2011 and July 31, 2010, respectively, as compared to the carrying value of $449,140 and $444,204 at January 31, 2011 and July 31, 2010, respectively.

Disclosures for nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis, were required prospectively beginning August 1, 2009. During the six months ended January 31, 2011, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition other than for the acquisition of ID Warehouse and divestiture of the Teklynx. See Note L, “Acquisitions and Divestitures” for further information.

NOTE J — Restructuring

In fiscal 2010, the Company continued the execution of its restructuring actions announced in fiscal 2009. As a result of these actions, the Company recorded restructuring charges of $15,314 in fiscal 2010. The restructuring charges included $10,850 of employee separation costs, $2,260 of non-cash fixed asset write-offs, $1,493 of other facility closure related costs, and $711 of contract termination costs. The Company continued executing its restructuring actions during the first and second quarters of fiscal 2011.

During the three and six months ended January 31, 2011, the Company recorded restructuring charges of $2,134 and $5,775, respectively. The year-to-date charges of $5,775 consisted of $3,878 of employee separation costs, $1,714 of fixed asset write-offs, and $183 of other facility closure related costs and contract termination costs. Of the $5,775 of restructuring charges recorded during the six months ended January 31, 2011, $3,575 was incurred in the Americas, $2,128 was incurred in Europe, and $72 was incurred in Asia-Pacific. The charges for employee separation costs consisted of severance pay, outplacement services, medical and other related benefits. The costs related to these restructuring activities have been recorded on the condensed consolidated statements of income as restructuring charges. The Company expects the majority of the remaining cash payments to be made during the next twelve months.

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

		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
Restructuring charge			1,213				763				158				2,134
Non-cash write-offs			—				(763	)			—				(763	)
Cash payments			(2,679	)			—				(169	)			(2,848	)
Ending balance, January 31, 2011		$	3,841			$	—			$	8			$	3,849

NOTE K — Derivatives and Hedging Activities

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions and net investments. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of 12 months or less, which qualify as either cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objectives of the Company’s foreign currency exchange risk management are to minimize the impact of currency movements due to products purchased in other than the respective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s net investment denominated in a currency other than the U.S. dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts. As of January 31, 2011 and July 31, 2010, the notional amount of outstanding forward exchange contracts was $144,509 and $45,328, respectively.

Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not significant for the three-month or six-month periods ended January 31, 2011 and 2010.

The Company hedges a portion of known exposure using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Singapore Dollar, Swedish Krona, Japanese Yen, Swiss Franc, and the Korean Won. Generally, these risk management transactions will involve the use of foreign currency derivatives to protect against exposure resulting from sales and identified inventory or other asset purchases.

The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the Condensed Consolidated Balance Sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At January 31, 2011 and July 31, 2010, unrealized losses of $1,296 and $493 have been included in OCI, respectively. All balances are expected to be reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings.

At January 31, 2011 and July 31, 2010, the Company had $95 and $156 of forward exchange contracts designated as cash flow hedges included in “Prepaid expenses and other current assets” on the accompanying Condensed Consolidated Balance Sheets. At January 31, 2011 and July 31, 2010, the Company had $1,390 and $829, respectively, of forward exchange contracts designated as cash flow hedges included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets. At January 31, 2011 and July 31, 2010, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $17,657 and $32,020, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and Swiss Franc.

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

During the three and six month period ended January 31, 2011, the Company used forward foreign exchange currency contracts designated as net investment hedges to hedge portions of the Company’s net investments in Euro-denominated foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign exchange translation adjustment component of accumulated other comprehensive income where it offsets gains and losses recorded on the Company’s net investment in Euro-denominated foreign operations. Any ineffective portions are recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At January 31, 2011, the Company had $5,082 of forward foreign exchange currency contracts designated as net investment hedges included in “Other current liabilities” on the Condensed Consolidated Balance Sheet. At January 31, 2011, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $100,000. There were no forward foreign exchange contracts designated as net investment hedges outstanding as of July 31, 2010.

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

		Asset Derivatives												Liability Derivatives
		January 31, 2011						July 31, 2010						January 31, 2011						July 31, 2010
		Balance Sheet						Balance Sheet						Balance Sheet						Balance Sheet
		Location		Fair Value				Location		Fair Value				Location		Fair Value				Location		Fair Value
Derivatives designated as hedging instruments
Cash flow hedges
Foreign exchange contracts		Prepaid expenses and other current assets		$	95			Prepaid expenses and other current assets		$	156			Other current liabilities		$	1,390			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		$	102,683			Long term obligations, less current maturities		$	97,747
Foreign exchange contracts		Prepaid expenses and other current assets		$	—			Prepaid expenses and other current assets		$	—			Other current liabilities		$	5,082			Other current liabilities		$	—
Total derivatives designated as hedging instruments				$	95					$	156					$	109,155					$	98,576
Derivatives not designated as hedging instruments
Foreign exchange contracts		Prepaid expenses and other current assets		$	—			Prepaid expenses and other current assets		$	24			Other current liabilities		$	717			Other current liabilities		$	64
Total derivatives not designated as hedging instruments				$	—					$	24					$	717					$	64

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

																				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)
		Recognized in OCI on								From Accumulated		Accumulated OCI								Derivative		Recognized in
		Derivative								OCI into Income		Into Income								(Ineffective		Income on Derivative
		(Effective Portion)								Effective Portion)		(Effective Portion)								Portion)		(Ineffective Portion)
Derivatives in		Six months ended										Six months ended										Six months ended
Cash Flow Hedging		January 31,										January 31,										January 31,
Relationships		2011				2010						2011				2010						2011				2010
Foreign exchange contracts		$	(1,296	)		$	(69	)		Cost of goods sold		$	(282	)		$	144			Cost of goods sold		$	—			$	—
Total		$	(1,296	)		$	(69	)				$	(282	)		$	144					$	—			$	—

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

										Location of Gain		Amount of Gain
										or (Loss)		or (Loss)								Location of		Amount of Gain
		Amount of Gain or (Loss)								Reclassified From		Reclassified From								Gain or (Loss)		or (Loss)
		Recognized in OCI on								Accumulated		Accumulated OCI								Recognized in		Recognized in
		Derivative								OCI into Income		Into Income								Income on Derivative		Income on Derivative
Derivatives in		(Effective Portion)								(Effective Portion)		(Effective Portion)								(Ineffective Portion)		(Ineffective Portion)
Net Investment		Six months ended										Six months ended										Six months ended
Hedging		January 31,										January 31,										January 31,
Relationships		2011				2010						2011				2010						2011				2010
Foreign currency denominated debt		$	(4,935	)		$	—			Investment and other income — net		$	—			$	—			Investment and other income — net		$	—			$	—
Foreign exchange contracts		$	(5,082	)		$	—			Investment and other income — net		$	—			$	—			Investment and other income — net		$	—			$	—
Total		$	(10,017	)		$	—					$	—			$	—					$	—			$	—