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EX-23 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - BRADY CORPbrc-2017731xex23.htm
EX-32.2 - SECTION 1350 CERTIFICATION - AARON J. PEARCE - BRADY CORPbrc-2017731xex322.htm
EX-32.1 - SECTION 1350 CERTIFICATION - J. MICHAEL NAUMAN - BRADY CORPbrc-2017731xex321.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION - AARON J. PEARCE - BRADY CORPbrc-2017731xex312.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION - J. MICHAEL NAUMAN - BRADY CORPbrc-2017731xex311.htm
EX-21 - SCHEDULE OF SUBSIDIARIES - BRADY CORPbrc-2017731xex21.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission file number 1-14959 
BRADY CORPORATION
(Exact name of registrant as specified in charter)
Wisconsin
 
39-0178960
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
6555 West Good Hope Road,
Milwaukee, WI
 
53223
(Address of principal executive offices)
 
(Zip Code)
(414) 358-6600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A Nonvoting Common Stock, Par
Value $.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
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  ý    No  ¨
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  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
Accelerated filer
 
¨
Emerging growth company
 
¨
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
The aggregate market value of the non-voting common stock held by non-affiliates of the registrant as of January 31, 2017, was approximately $1,632,463,306 based on the closing sale price of $36.35 per share on that date as reported for the New York Stock Exchange. As of September 11, 2017, there were 47,844,015 outstanding shares of Class A Nonvoting Common Stock (the “Class A Common Stock”), and 3,538,628 shares of Class B Common Stock. The Class B Common Stock, all of which is held by affiliates of the registrant, is the only voting stock.




INDEX
PART I
Page
PART II
 
PART III
 
PART IV
 

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PART I
Item 1. Business
(a) General Development of Business
Brady Corporation (“Brady,” “Company,” “we,” “us,” “our”) was incorporated under the laws of the state of Wisconsin in 1914. The Company’s corporate headquarters are located at 6555 West Good Hope Road, Milwaukee, Wisconsin 53223, and the telephone number is (414) 358-6600.

Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The ability to provide customers with a broad range of proprietary, customized and diverse products for use in various applications, along with a commitment to quality and service, a global footprint, and multiple sales channels, have made Brady a leader in many of its markets.
The Company’s primary objective is to build upon its market position and increase shareholder value by performance of the following key competencies:
Operational excellence — Continuous productivity improvement and process transformation.
Customer service — Focus on the customer and understanding customer needs.
Innovation advantage — Technologically advanced, internally developed products that drive growth and sustain gross profit margins.
Global leadership position in niche markets.
Digital capabilities.
Compliance expertise.

The long-term sales growth and profitability of our segments will depend not only on improved demand in end markets and the overall economic environment, but also on our ability to continuously improve operational excellence, focus on the customer, develop and market innovative new products, and to advance our digital capabilities. In our Identification Solutions ("ID Solutions" or "IDS") business, our strategy for growth includes an increased focus on key customers, industries and products and improving the efficiency and effectiveness of the research and development ("R&D") function. In our Workplace Safety ("WPS") business, our strategy for growth includes a focus on workplace safety critical industries, innovative new product offerings, compliance expertise, and improving our digital capabilities.

The following were key initiatives supporting the strategy in fiscal 2017:

Enhancing our innovation development process and the speed to deliver high-value, innovative products that align with our target markets.
Driving operational excellence and providing our customers with the highest level of customer service.
Performing comprehensive product reviews to optimize our product offerings.
Expanding and enhancing our digital presence with a heightened focus on mobile technologies.
Growing through focused sales and marketing actions in selected vertical markets and strategic accounts.
Enhancing our global employee development process to attract and retain key talent.
(b) Financial Information About Industry Segments
The information required by this Item is provided in Note 8 of the Notes to Consolidated Financial Statements contained in Item 8 - Financial Statements and Supplementary Data.
(c) Narrative Description of Business
Overview
The Company is organized and managed on a global basis within two reportable segments: Identification Solutions and Workplace Safety.
The IDS segment includes high-performance and innovative industrial and healthcare identification products that are manufactured under multiple brands, including the Brady brand. Industrial identification products are sold through distribution to a broad range of maintenance, repair, and operations ("MRO") and original equipment manufacturing ("OEM") customers and through other channels, including direct sales, catalog marketing, and digital. Healthcare identification products are sold direct and through distribution via group purchasing organizations ("GPO").

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The WPS segment includes workplace safety and compliance products, which are sold under multiple brand names through catalog and digital channels to a broad range of MRO customers. Approximately half of the WPS business is derived from internally manufactured products and half is from externally sourced products.
Below is a summary of sales by reportable segments for the fiscal years ended July 31: 
 
 
2017
 
2016
 
2015
IDS
 
71.9
%
 
71.0
%
 
70.6
%
WPS
 
28.1
%
 
29.0
%
 
29.4
%
Total
 
100.0
%
 
100.0
%
 
100.0
%

ID Solutions
Within the ID Solutions segment, the primary product categories include:
Facility identification and protection, which includes safety signs, pipe markers, labeling systems, spill control products, lockout/tagout devices, and software and services for safety compliance auditing, procedure writing and training.
Product identification, which includes materials and printing systems for product identification, brand protection labeling, work in process labeling, and finished product identification.
Wire identification, which includes hand-held printers, wire markers, sleeves, and tags.
People identification, which includes name tags, badges, lanyards, and access control software.
Patient identification, which includes wristbands and labels used in hospitals for tracking and improving the safety of patients.
Custom wristbands used in the leisure and entertainment industry such as theme parks, concerts and festivals.
Approximately 65% of ID Solutions products are sold under the Brady brand. In the United States, identification products for the utility industry are marketed under the Electromark brand; spill-control products are marketed under the SPC brand; and security and identification badges and systems are marketed under the Identicard, PromoVision, and Brady People ID brands. Wire identification products are marketed under the Modernotecnica brand in Italy and lockout/tagout products are offered under the Scafftag brand in the U.K.; identification and patient safety products in the healthcare industry are available under the PDC Healthcare brand in the U.S. and Europe; and custom wristbands for the leisure and entertainment industry are available under the PDC brand in the U.S. and the B.I.G. brand in Europe.
The ID Solutions segment offers high quality products with rapid response and superior service to provide solutions to customers. The business markets and sells products through multiple channels including distributors, direct sales, catalog marketing, and digital. The ID Solutions sales force partners with end-users and distributors by providing technical application and product expertise.
This segment manufactures differentiated, proprietary products, most of which have been internally developed. These internally developed products include materials, printing systems, and software. IDS competes for business principally on the basis of price, customer support, product innovation, product offering, product quality, expertise, production capabilities, and for multinational customers, our global footprint. Competition is highly fragmented, ranging from smaller companies offering minimal product variety, to some of the world's largest major adhesive and electrical product companies offering competing products as part of their overall product lines.
ID Solutions serves customers in many industries, which include industrial manufacturing, electronic manufacturing, healthcare, chemical, oil, gas, automotive, aerospace, defense, mass transit, electrical contractors, leisure and entertainment and telecommunications, among others.
Workplace Safety
Within the Workplace Safety segment, the primary product categories include:
Safety and compliance signs, tags, and labels.
Informational and architectural signage.
Asset tracking labels.
First aid products.
Industrial warehouse and office equipment.
Labor law compliance posters.


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Products within the Workplace Safety segment are sold under a variety of brands including: safety and facility identification products offered under the Seton, Emedco, Signals, Safety Signs, SafetyShop, Signs & Labels and Pervaco brands; first aid supplies under the Accidental Health and Safety, Trafalgar, and Securimed brands; warehouse supplies and industrial furniture under the Runelandhs brand; wire identification products marketed under the Carroll brand; and labor law compliance posters under the Personnel Concepts and Clement brands.
The Workplace Safety segment manufactures a broad range of stock and custom identification products, and also sells a broad range of related resale products. Historically, both the Company and many of our competitors focused their businesses on catalog marketing, often with varying product niches. However, the competitive landscape has changed with the continued evolution of digital channels. Many of our competitors extensively utilize e-commerce to promote the sale of their products. A consequence of this shift is price transparency, as prices on non-proprietary products can be easily compared. Therefore, to compete effectively, we continue to focus on developing dynamic pricing capabilities, enhancing customer experience, and providing compliance expertise as these are critical to convert customers from traditional catalog channels to digital. Workplace Safety primarily sells to businesses and serves many industries, including manufacturers, process industries, government, education, construction, and utilities.
Discontinued Operations
Discontinued operations include the Asia Die-Cut and European Die-Cut businesses ("Die-Cut"), which were announced as held for sale in the third and fourth quarters of fiscal 2013, respectively. In fiscal 2014, the Company entered into an agreement with LTI Flexible Products, Inc. (d/b/a Boyd Corporation) for the sale of Die-Cut. The first phase of the divestiture closed in the fourth quarter of fiscal 2014 and the second phase of the divestiture closed in the first quarter of fiscal 2015. The operating results of the Die-Cut, businesses were reflected as discontinued operations in the consolidated statements of earnings for the year ended July 31, 2015 for the second phase of the divestiture.
The Die-Cut business consisted of the manufacture and sale of precision converted products such as gaskets, meshes, heat-dissipation materials, antennaes, dampers, filters, and similar products sold primarily to the electronics industry with a concentration in the mobile-handset and hard-disk drive industries.
Research and Development
The Company focuses its research and development ("R&D") efforts on pressure sensitive materials, printing systems and software, and it mainly supports the IDS segment. Material development involves the application of surface chemistry concepts for top coatings and adhesives applied to a variety of base materials. Systems design integrates materials, embedded software and a variety of printing technologies to form a complete solution for customer applications. In addition, the research and development team supports production and marketing efforts by providing application and technical expertise.
The Company owns patents and tradenames relating to certain products in the United States and internationally. Although the Company believes that patents are a significant driver in maintaining its position for certain products, technology in the areas covered by many of the patents continues to evolve and may limit the value of such patents. The Company's business is not dependent on any single patent or group of patents. Patents applicable to specific products extend for up to 20 years according to the date of patent application filing or patent grant, depending upon the legal term of patents in the various countries where patent protection is obtained. The Company's tradenames are valid ten years from the date of registration, and are typically renewed on an ongoing basis.
The Company spent $39.6 million, $35.8 million, and $36.7 million on its R&D activities during the fiscal years ended July 31, 2017, 2016, and 2015, respectively. The increase in R&D spending in fiscal 2017 compared to the prior year was due to increased spending on new product development, as well as increased headcount. As of July 31, 2017, 234 employees were engaged in R&D activities for the Company, an increase from 210 as of July 31, 2016.
Operations
The materials used in the products manufactured consist of a variety of plastic and synthetic films, paper, metal and metal foil, cloth, fiberglass, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers, and solvents for consumable identification products in addition to electronic components, molded parts and sub-assemblies for printing systems. The Company operates coating facilities that manufacture bulk rolls of label stock for internal and external customers. In addition, the Company purchases finished products for resale.
The Company purchases raw materials, components and finished products from many suppliers. Overall, we are not dependent upon any single supplier for our most critical base materials or components; however, we have chosen in certain situations to sole source, or limit the sources of materials, components, or finished items for design or cost reasons. As a result, disruptions in supply could have an impact on results for a period of time, but we believe any disruptions would simply require qualification of new

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suppliers and the disruption would be modest. In certain instances, the qualification process could be more costly or take a longer period of time and in rare circumstances, such as a global shortage of critical materials or components, the financial impact could be material. The Company currently operates 39 manufacturing and distribution facilities globally.

The Company carries working capital mainly related to accounts receivable and inventory. Inventory consists of raw materials, work in process and finished goods. Generally, custom products are made to order while an on-hand quantity of stock product is maintained to provide customers with timely delivery. Normal and customary payment terms range from net 10 to 90 days from date of invoice and varies by geographies.
The Company has a broad customer base, and no individual customer is 10% or more of total net sales.
Average delivery time for customer orders varies from same-day delivery to one month, depending on the type of product, customer request, and whether the product is stock or custom-designed and manufactured. The Company's backlog is not material, does not provide significant visibility for future business and is not pertinent to an understanding of the business.
Environment
Compliance with federal, state and local environmental protection laws during fiscal 2017 did not have a material impact on the Company’s business, financial condition or results of operations.
Employees
As of July 31, 2017, the Company employed approximately 6,300 individuals. Brady has never experienced a material work stoppage due to a labor dispute and considers its relations with employees to be good.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
The information required by this Item is provided in Note 8 of the Notes to Consolidated Financial Statements contained in Item 8 — Financial Statements and Supplementary Data.
(e) Information Available on the Internet
The Company’s Corporate Internet address is www.bradycorp.com. The Company makes available, free of charge, on or through its Internet website copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to all such reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The Company is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
Item 1A. Risk Factors
Investors should carefully consider the risks set forth below and all other information contained in this report and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as market conditions, geopolitical events, changes in laws or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major health concerns, natural disasters or other disruptions of expected economic or business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business and financial results.
Business Risks

Failure to compete effectively or to successfully execute our strategy may have a negative impact on our business and financial results.

We actively compete with companies that produce and market the same or similar products, and in some instances, with companies that sell different products that are designed for the same end user. Competition may force us to reduce prices or incur additional costs to remain competitive in an environment in which business models are changing rapidly. We compete on the basis of price, customer support, product innovation, product offering, product quality, expertise, digital capabilities, production capabilities, and for multinational customers, our global footprint. Present or future competitors may develop and introduce new and enhanced products, offer products based on alternative technologies and processes, accept lower profit, have greater financial, technical or other resources, or have lower production costs or other pricing advantages. Any of these could put us at a disadvantage by threatening our share of sales or reducing our profit margins, which could adversely impact our business and financial results.

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Additionally, throughout our global business, distributors and customers may seek lower cost sourcing opportunities, which could result in a loss of business that may adversely impact our business and financial results.

Our strategy is to expand into higher-growth adjacent product categories and markets with technologically advanced new products, as well as to grow our sales generated through the digital channel. While traditional direct marketing channels such as catalogs are an important means of selling our products, an increasing number of customers are purchasing products on the internet. Our strategy to increase sales through the digital channel is an investment in our internet sales capabilities. There is a risk that we may not continue to successfully implement this strategy, or if successfully implemented, not realize its expected benefits due to the continued levels of increased competition and pricing pressure brought about by the internet. Our failure to successfully implement our strategy could adversely impact our business and financial results.

Failure to develop technologically advanced products that meet customer demands, including price expectations, could adversely impact our business and financial results.

Development of technologically advanced new products is targeted as a driver of our organic growth and profitability. Technology is changing rapidly and our competitors are innovating quickly. If we do not keep pace with developing technologically advanced products, we risk product commoditization, deterioration of the value of our brand, and reduced ability to effectively compete. We must continue to develop innovative products, as well as acquire and retain the necessary intellectual property rights in these products. If we fail to make innovations, or we launch products with quality problems, or if customers do not accept our products, then our business and financial results could be adversely affected.

Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could adversely affect our business and financial results.

Our business systems collect, maintain, transmit and store data about our customers, vendors and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information. We also employ third-party service providers that store, process and transmit proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our sites, networks and systems or that we or our third-party service providers otherwise maintain.

We and our service providers may not have the resources or technical sophistication to anticipate or prevent all types of attacks, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships. Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate or cover liabilities actually incurred, or that insurance will continue to be available to us on economically reasonable terms, or at all. Any compromise or breach of our security measures, or those of our third-party service providers, could adversely impact our ability to conduct business, violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity, and a loss of confidence in our security measures, which could have an adverse effect on our business and financial results.


Demand for our products may be adversely affected by numerous factors, some of which we cannot predict or control. This could adversely affect our business and financial results.

Numerous factors may affect the demand for our products, including:

Future economic conditions of major markets served.
Consolidation in the marketplace allowing competitors and customers to be more efficient and more price competitive.
Future competitors entering the marketplace.
Decreasing product life cycles.
Changes in customer preferences.

If any of these factors occur, the demand for our products could suffer, and this could adversely impact our business and financial results.

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The loss of large customers or a significant reduction in sales to large customers could adversely affect our business and financial results.

While we have a broad customer base and no individual customer represents 10% or more of total sales, we conduct business with several large customers and distribution companies. Our dependence on these customers makes relationships with them important. We cannot guarantee that these relationships will be retained in the future. Because these large customers account for a significant portion of sales, they may possess a greater capacity to negotiate reduced prices. If we are unable to provide products to our customers at the quality and prices acceptable to them, some of our customers may shift their business to competitors or may substitute another manufacturer's products. If one of our large customers consolidates, is acquired, or loses market share, the result of that event may have an adverse impact on our business. The loss of or reduction of business from one or more of these large customers could have an adverse impact on our business and financial results.

We are a global company headquartered in the United States. We are subject to extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities at various levels of the governing bodies. Failure to comply with laws and regulations could adversely affect our business and financial results.

Our operations are subject to the risks of doing business domestically and globally, including the following:

Delays or disruptions in product deliveries and payments in connection with international manufacturing and sales.
Political and economic instability and disruptions.
Imposition of duties and tariffs.
Import, export and economic sanction laws.
Current and changing governmental policies, regulatory, and business environments.
Disadvantages from competing against companies from countries that are not subject to U.S. laws and regulations including the Foreign Corrupt Practices Act.
Local labor market conditions.
Regulations relating to climate change, air emissions, wastewater discharges, handling and disposal of hazardous materials and wastes.
Regulations relating to health, safety and the protection of the environment.
Specific country regulations where our products are manufactured or sold.
Laws and regulations that apply to companies doing business with the government, including audit requirements of government contracts related to procurement integrity, export control, employment practices, and the accuracy of records and recording of costs.

Further, these laws and regulations are constantly evolving and it is difficult to accurately predict the effect they may have upon our business and financial results.

We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents or business partners that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data privacy. Any such improper actions could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, lead to substantial civil or criminal, monetary and non-monetary penalties and related lawsuits by shareholders and others, damage our reputation, and adversely impact our business and financial results.

Failure to execute facility consolidations or maintain acceptable operational service metrics may adversely impact our business and financial results.

In prior fiscal years, we incurred unplanned operating costs related to the consolidation of certain facilities and we experienced a deterioration in key customer service metrics. We continually assess our global footprint and expect to implement additional measures to reduce our cost structure, simplify our business, and standardize our processes, and these actions could result in unplanned operating costs and business disruptions in the future. In addition, the Company is reliant upon certain suppliers for certain raw or finished products. If we experience service disruptions with these suppliers, or if we fail to successfully address these inefficiencies, their effects could adversely impact our business and financial results.


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We are subject to litigation, including product liability claims that could adversely impact our business, financial results, and reputation.

We are a party to litigation that arises in the normal course of our business operations, including product warranty, product liability and recall (strict liability and negligence) claims, patent and trademark matters, contract disputes and environmental, employment and other litigation matters. We face an inherent business risk of exposure to product liability and warranty claims in the event that the use of our products is alleged to have resulted in injury or other damage. In addition, we face an inherent risk that our competitors will allege that aspects of our products infringe their intellectual property or that our intellectual property is invalid, such that we could be prevented from manufacturing and selling our products or prevented from stopping others from manufacturing and selling competing products. To date, we have not incurred material costs related to these types of claims. However, while we currently maintain insurance coverage in amounts that we believe are adequate, we cannot be sure that we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any claims brought against us, with or without merit, may have an adverse effect on our business, financial results and reputation as a result of potential adverse outcomes. The expenses associated with defending such claims and the diversion of our management’s resources and time may have an adverse effect on our business and financial results.

We depend on key employees and the loss of these individuals could have an adverse effect on our business and financial results.

Our success depends to a large extent upon the continued services of our key executives, managers and other skilled employees. We cannot ensure that we will be able to retain our key executives, managers and employees. The departure of key personnel without adequate replacement could disrupt our business operations. Additionally, we need qualified managers and skilled employees with technical and industry experience to operate our business successfully. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our business and financial results could be adversely affected.

Divestitures, contingent liabilities from divested businesses and the failure to properly identify, integrate and grow acquired companies could adversely affect our business and financial results.

We continually assess the strategic fit of our existing businesses and may divest businesses that we determine do not align with our strategic plan, or that are not achieving the desired return on investment. For example, during fiscal years 2014 and 2015, we divested our Asian Die-Cut and European Die-Cut businesses. Divestitures pose risks and challenges that could negatively impact our business. When we decide to sell a business or assets, we may be unable to do so on satisfactory terms and within our anticipated time-frame, and even after reaching a definitive agreement to sell a business, the sale is typically subject to pre-closing conditions which may not be satisfied. In addition, the impact of the divestiture on our revenue and net earnings may be larger than projected, which could distract management, and disputes may arise with buyers. We have retained responsibility for and have agreed to indemnify buyers against certain contingent liabilities related to a number of businesses that we have sold. The resolution of these contingencies has not had a material adverse impact on our financial results, but we cannot be certain that this favorable pattern will continue.

Our historical growth has included acquisitions, and our future growth strategy may include acquisitions. If our future growth strategy includes a focus on acquisitions, we may not be able to identify acquisition targets or successfully complete acquisitions due to the absence of quality companies in our target markets, economic conditions, or price expectations from sellers. Acquisitions place significant demands on management, operational, and financial resources. Future acquisitions will require integration of operations, sales and marketing, information technology, and administrative operations, which could decrease the time available to focus on our other growth strategies. We cannot assure that we will be able to successfully integrate acquisitions, that these acquisitions will operate profitably, or that we will be able to achieve the desired sales growth or operational success. Our business and financial results could be adversely affected if we do not successfully integrate the newly acquired businesses, or if our other businesses suffer due to the increased focus on the acquired businesses.
Financial/Ownership Risks

The global nature of our business exposes us to foreign currency fluctuations that could adversely affect our business and financial results.

Approximately 45% of our sales are derived outside the United States. Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar, and may adversely affect our financial results. Increased strength of the U.S. dollar will increase the effective price of our products sold in currencies other than U.S. dollars into other countries. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products, and services purchased overseas. Our sales and expenses are translated into U.S. dollars for reporting purposes, and the strengthening or weakening of

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the U.S. dollar could result in unfavorable translation effects, which occurred during fiscal years 2015, 2016 and 2017. In addition, certain of our subsidiaries may invoice customers in a currency other than its functional currency or may be invoiced by suppliers in a currency other than its functional currency, which could result in unfavorable translation effects on our business and financial results.

Changes in tax legislation or tax rates could adversely affect results of operations and financial statements. Additionally, audits by taxing authorities could result in tax payments for prior periods.

We are subject to income taxes in the U.S. and in many non-U.S. jurisdictions. As such, our earnings are subject to risk due to changing tax laws and tax rates around the world. At any point in time, there are a number of tax proposals at various stages of legislation throughout the globe. While it is impossible for us to predict whether some or all of these proposals will be enacted, it likely would have an impact on our earnings.

Our tax filings are subject to audit by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in payments or assessments that differ from our reserves, our future net earnings may be adversely impacted.

We review the probability of the realization of our deferred tax assets quarterly based on forecasts of taxable income in both the U.S. and foreign jurisdictions. As part of this review, we utilize historical results, projected future operating results, eligible carry-forward periods, tax planning opportunities, and other relevant considerations. Adverse changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions, or changes in our geographic footprint may require changes in the valuation allowances for deferred tax assets. Such changes could result in a material impact on earnings. Our annual cash needs could require us to repatriate cash to the U.S. from foreign jurisdictions, which may result in tax charges. Potential tax reform discussed by the U.S. administration, such as reducing the corporate income tax rate, adopting a border-adjustability tax system, or changing the repatriation and taxation of foreign earnings, may impact income tax expenses, deferred tax assets in the U.S. and tax liability balances.

Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact earnings and profitability.
We have goodwill of $437.7 million and other intangible assets of $53.1 million as of July 31, 2017, which represents 46.7% of our total assets. In fiscal year 2015, the Company recorded impairment charges of approximately $46.9 million primarily related to the goodwill and other intangible assets of multiple reporting units. We evaluate goodwill and other intangible assets for impairment on an annual basis, or more frequently if impairment indicators are present, based upon the fair value of each respective asset. These valuations include management's estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures, and other assumptions. Significant negative industry or economic trends, disruptions to our business, inability to achieve sales projections or cost savings, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations. If the estimated fair value of our goodwill or other intangible assets change in future periods, we may be required to record an impairment charge, which would reduce the earnings in such period.

Substantially all of our voting stock is controlled by members of the Brady family, while our public investors hold non-voting stock. The interests of the voting and non-voting shareholders could differ, potentially resulting in decisions that unfavorably affect the value of the non-voting shares.

Substantially all of our voting stock is controlled by Elizabeth P. Bruno, one of our Directors, and William H. Brady III, both of whom are descendants of the Company's founder. All of our publicly traded shares are non-voting. Therefore, Ms. Bruno and Mr. Brady have control in most matters requiring approval or acquiescence by shareholders, including the composition of our Board of Directors and many corporate actions. Such concentration of ownership may discourage a potential acquirer from making a purchase offer that our public shareholders may find favorable, which in turn could adversely affect the market price of our common stock or prevent our shareholders from realizing a premium over our stock price. Certain mutual funds and index sponsors have implemented rules restricting ownership, or excluding from indices, companies with non-voting publicly traded shares. Furthermore, this concentration of voting share ownership may adversely affect the trading price for our non-voting common stock because investors may perceive disadvantages in owning stock in companies whose voting stock is controlled by a limited number of shareholders.


10


Failure to meet certain financial covenants required by our debt agreements may adversely affect our business and financial results.
As of July 31, 2017, we had $107.8 million in outstanding indebtedness. In addition, based on the availability under our credit facilities as of July 31, 2017, we had the ability to borrow an additional $244.6 million under our revolving credit agreement. Our current revolving credit agreement and long-term debt obligations also impose certain restrictions on us. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") within Item 7 for more information regarding our credit agreement and long-term debt obligations. If we breach any of these restrictions or covenants and do not obtain a waiver from the lenders then, subject to applicable cure periods, the outstanding indebtedness and any other indebtedness with cross-default provisions could be declared immediately due and payable, which could adversely affect our financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company currently operates 39 manufacturing and distribution facilities across the globe and are split by reporting segment as follows:
 
IDS: Thirty manufacturing and distribution facilities are used for our IDS business. Five are located in the United States; four each in Belgium and China; three each in Mexico and the United Kingdom; two in Brazil; and one each in Canada, Germany, Hong Kong, India, Japan, Malaysia, Netherlands, Singapore, and South Africa.
 
WPS: Nine manufacturing and distribution facilities are used for our WPS business. Three are located in France; two are located in Australia; and one each in Germany, Sweden, the United Kingdom, and the United States.
 
The Company’s present operating facilities contain a total of approximately 2.1 million square feet of space, of which approximately 1.5 million square feet is leased. The Company believes that its equipment and facilities are modern, well maintained, and adequate for present needs.

Item 3. Legal Proceedings
The Company is, and may in the future be, party to litigation arising in the normal course of business. The Company is not currently a party to any material pending legal proceedings in which management believes the ultimate resolution would have a material effect on the Company’s consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.

11



PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)
Market Information
Brady Corporation Class A Nonvoting Common Stock trades on the New York Stock Exchange under the symbol BRC. The following table sets forth the range of high and low daily closing sales prices for the Company’s Class A stock as reported on the New York Stock Exchange for each of the quarters in the fiscal years ended July 31:
 
 
2017
 
2016
 
2015
 
 
High
 
Low
 
High
 
Low
 
High
 
Low
4th Quarter
 
$
39.80

 
$
33.05

 
$
32.68

 
$
26.29

 
$
26.76

 
$
23.15

3rd Quarter
 
$
39.75

 
$
35.10

 
$
27.82

 
$
21.13

 
$
28.91

 
$
26.03

2nd Quarter
 
$
39.45

 
$
32.55

 
$
26.39

 
$
20.84

 
$
27.56

 
$
23.50

1st Quarter
 
$
35.36

 
$
31.86

 
$
24.29

 
$
19.52

 
$
27.07

 
$
21.19

There is no trading market for the Company’s Class B Voting Common Stock.
(b)
Holders
As of August 31, 2017, there were 1,091 Class A Common Stock shareholders of record and approximately 9,000 beneficial shareholders. There are three Class B Common Stock shareholders.
(c)
Issuer Purchases of Equity Securities
The Company has a share repurchase program of the Company’s Class A Nonvoting Common Stock. The plan may be implemented by purchasing shares in the open market or in 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 did not repurchase any shares during the three months ended July 31, 2017. As of July 31, 2017, there were 2,000,000 shares authorized to purchase in connection with this share repurchase program.
(i)
Dividends
The Company has historically paid quarterly dividends on outstanding common stock. Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual, noncumulative cash dividend of $0.01665 per share (subject to adjustment in the event of future stock splits, stock dividends or similar events involving shares of Class A Common Stock). Thereafter, any further dividend in that fiscal year must be paid on all shares of Class A Common Stock and Class B Common Stock on an equal basis. The Company believes that based on its historic dividend practice, this requirement will not impede it in following a similar dividend practice in the future.

During the two most recent fiscal years and for the first quarter of fiscal 2018, the Company declared the following dividends per share on its Class A and Class B Common Stock for the years ended July 31:
 
 
 
2018
 
2017
 
2016
 
 
1st Qtr
 
1st Qtr
 
2nd Qtr
 
3rd Qtr
 
4th Qtr
 
1st Qtr
 
2nd Qtr
 
3rd Qtr
 
4th Qtr
Class A
 
$
0.2075

 
$
0.2050

 
$
0.2050

 
$
0.2050

 
$
0.2050

 
$
0.2025

 
$
0.2025

 
$
0.2025

 
$
0.2025

Class B
 
0.19085

 
0.18835

 
0.2050

 
0.2050

 
0.2050

 
0.18585

 
0.2025

 
0.2025

 
0.2025



12


(e)
Common Stock Price Performance Graph
The graph below shows a comparison of the cumulative return over the last five fiscal years had $100 been invested at the close of business on July 31, 2012, in each of Brady Corporation Class A Common Stock, the Standard & Poor’s (S&P) 500 Index, the Standard and Poor’s SmallCap 600 Index, and the Russell 2000 Index.
 a2017grapha01.jpg
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
Brady Corporation
 
$
100.00

 
$
128.44

 
$
103.69

 
$
96.32

 
$
136.20

 
$
144.05

S&P 500 Index
 
100.00

 
125.00

 
146.17

 
162.55

 
171.46

 
198.97

S&P SmallCap 600 Index
 
100.00

 
134.78

 
149.65

 
167.57

 
177.38

 
208.71

Russell 2000 Index
 
100.00

 
134.76

 
146.30

 
163.89

 
163.79

 
194.01


Copyright (C) 2017, Standard & Poor’s, Inc. and Russell Investments. All rights reserved.


13


Item 6. Selected Financial Data

CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATA
Years Ended July 31, 2013 through 2017
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(In thousands, except per share amounts)
Operating data (1)
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,113,316

 
$
1,120,625

 
$
1,171,731

 
$
1,225,034

 
$
1,157,792

Gross margin
 
558,292

 
558,773

 
558,432

 
609,564

 
609,348

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 
39,624

 
35,799

 
36,734

 
35,048

 
33,552

Selling, general and administrative
 
387,653

 
405,096

 
422,704

 
452,164

 
427,858

Restructuring charges (2)
 

 

 
16,821

 
15,012

 
26,046

Impairment charges (3)
 

 

 
46,867

 
148,551

 
204,448

Total operating expenses
 
427,277

 
440,895

 
523,126

 
650,775

 
691,904

Operating income (loss)
 
131,015

 
117,878

 
35,306

 
(41,211
)
 
(82,556
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
Investment and other income (expense) —net
 
1,121

 
(709
)
 
845

 
2,402

 
3,523

Interest expense
 
(5,504
)
 
(7,824
)
 
(11,156
)
 
(14,300
)
 
(16,641
)
Net other expense
 
(4,383
)
 
(8,533
)
 
(10,311
)
 
(11,898
)
 
(13,118
)
Earnings (loss) from continuing operations before income taxes
 
126,632

 
109,345

 
24,995

 
(53,109
)
 
(95,674
)
Income tax expense (benefit) (4)
 
30,987

 
29,235

 
20,093

 
(4,963
)
 
42,583

Earnings (loss) from continuing operations
 
$
95,645

 
$
80,110

 
$
4,902

 
$
(48,146
)
 
$
(138,257
)
(Loss) Earnings from discontinued operations, net of income taxes (5)
 

 

 
(1,915
)
 
2,178

 
(16,278
)
Net earnings (loss)
 
$
95,645

 
$
80,110

 
$
2,987

 
$
(45,968
)
 
$
(154,535
)
Earnings (loss) from continuing operations per Common Share— (Diluted):
 
 
 
 
 
 
 
 
 
 
Class A nonvoting
 
$
1.84

 
$
1.58

 
$
0.10

 
$
(0.93
)
 
$
(2.70
)
Class B voting
 
$
1.83

 
$
1.56

 
$
0.08

 
$
(0.95
)
 
$
(2.71
)
(Loss) Earnings from discontinued operations per Common Share - (Diluted):
 
 
 
 
 
 
 
 
 
 
Class A nonvoting
 
$

 
$

 
$
(0.04
)
 
$
0.04

 
$
(0.32
)
Class B voting
 
$

 
$

 
$
(0.04
)
 
$
0.05

 
$
(0.32
)
Cash Dividends on:
 
 
 
 
 
 
 
 
 
 
Class A common stock
 
$
0.82

 
$
0.81

 
$
0.80

 
$
0.78

 
$
0.76

Class B common stock
 
$
0.80

 
$
0.79

 
$
0.78

 
$
0.76

 
$
0.74

Balance Sheet at July 31:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,050,223

 
$
1,043,964

 
$
1,062,897

 
$
1,253,665

 
$
1,438,683

Long-term obligations, less current maturities
 
104,536

 
211,982

 
200,774

 
159,296

 
201,150

Stockholders’ investment
 
700,140

 
603,598

 
587,688

 
733,076

 
830,797

Cash Flow Data:
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
144,032

 
$
138,976

 
$
93,348

 
$
93,420

 
$
143,503

Net cash (used in) provided by investing activities
 
(15,253
)
 
(15,416
)
 
(14,365
)
 
10,207

 
(325,766
)
Net cash used in financing activities
 
(136,241
)
 
(99,576
)
 
(32,152
)
 
(115,387
)
 
(33,060
)
Depreciation and amortization
 
27,303

 
32,432

 
39,458

 
44,598

 
48,725

Capital expenditures
 
(15,167
)
 
(17,140
)
 
(26,673
)
 
(43,398
)
 
(35,687
)


14


(1)
Operating data has been impacted by the reclassification of the Die-Cut businesses into discontinued operations in fiscal years 2013, 2014, and 2015. The Company has elected to not separately disclose the cash flows related to discontinued operations. Refer to Note 13 within Item 8 for further information on discontinued operations. The operating data is also impacted by acquisitions with one acquisition being completed in the fiscal year ended July 31, 2013. There were no acquisitions in fiscal years 2017, 2016, 2015, or 2014.
(2)
During fiscal 2013, the Company executed a business simplification project which included various measures to address its cost structure and resulted in restructuring charges during fiscal 2013 and into fiscal 2014. In addition, in fiscal 2014, the Company approved a plan to consolidate facilities in the Americas, Europe, and Asia in order to enhance customer service, improve efficiency of operations, and reduce operating expenses. This plan resulted in restructuring charges during fiscal 2014 and fiscal 2015.
(3)
The Company recognized impairment charges of $46.9 million, $148.6 million, and $204.4 million during the fiscal years ended July 31, 2015, 2014, and 2013, respectively. The impairment charges primarily related to the following reporting units: WPS Americas and WPS APAC in fiscal 2015; People ID in fiscal 2014; and WPS Americas and IDS APAC in fiscal 2013.
(4)
Fiscal 2015 was significantly impacted by the impairment charges of $46.9 million, of which $39.8 million was non-deductible for income tax purposes. Fiscal 2014 was significantly impacted by the impairment charges of $148.6 million, of which $61.1 million was non-deductible for income tax purposes. Fiscal 2013 was significantly impacted by the impairment charges of $204.4 million, of which $168.9 million was non-deductible for income tax purposes, as well as a tax charge of $26.6 million associated with the funding of the Precision Dynamics Corporation ("PDC") acquisition.
(5)
The Die-Cut business was sold in two phases. The first phase closed in the fourth quarter of fiscal 2014 and the second and final phase closed in the first quarter of fiscal 2015. The loss from discontinued operations in fiscal 2015 includes a $0.4 million net loss on the sale of the Die-Cut business, recorded during the three months ended October 31, 2014. The earnings from discontinued operations in fiscal 2014 include a $1.2 million net loss on the sale of the Die-Cut business recorded during the three months ended July 31, 2014. The loss from discontinued operations in fiscal 2013 was primarily attributable to a $15.7 million write-down of the Die-Cut business to its estimated fair value less costs to sell. Refer to Note 13 within Item 8 for further information regarding discontinued operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The IDS segment is primarily involved in the design, manufacture, and distribution of high-performance and innovative identification and healthcare products. The WPS segment provides workplace safety and compliance products, half of which are internally manufactured and half are externally sourced. Approximately 45% of our total sales are derived outside of the United States. Foreign sales within the IDS and WPS segments are approximately 35% and 65%, respectively.
The ability to provide customers with a broad range of proprietary, customized and diverse products for use in various applications across multiple customers and geographies, along with a commitment to quality and service, have made Brady a leader in many of its markets. The long-term sales growth and profitability of our segments will depend not only on improved demand in end markets and the overall economic environment, but also on our ability to continuously improve operational excellence, focus on the customer, develop and market innovative new products, and to advance our digital capabilities. In our IDS business, our strategy for growth includes an increased focus on key customers, industries and products and improving the efficiency and effectiveness of the research and development ("R&D") function. In our WPS business, our strategy for growth includes a focus on workplace safety critical industries, innovative new product offerings, compliance expertise, and improving our digital capabilities.

15


Results of Operations

A comparison of results of operating income from continuing operations for the fiscal years ended July 31, 2017, 2016, and 2015 is as follows:
(Dollars in thousands)
 
2017
 
% Sales
 
2016
 
% Sales
 
2015
 
% Sales
Net sales
 
$
1,113,316

 


 
$
1,120,625

 


 
$
1,171,731

 


Gross margin
 
558,292

 
50.1
%
 
558,773

 
49.9
%
 
558,432

 
47.7
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
     Research and development
 
39,624

 
3.6
%
 
35,799

 
3.2
%
 
36,734

 
3.1
%
     Selling, general & administrative
 
387,653

 
34.8
%
 
405,096

 
36.1
%
 
422,704

 
36.1
%
     Restructuring charges
 

 
%
 

 
%
 
16,821

 
1.4
%
     Impairment charges
 

 
%
 

 
%
 
46,867

 
4.0
%
Total operating expenses
 
427,277

 
38.4
%
 
440,895

 
39.3
%
 
523,126

 
44.6
%
Operating income
 
$
131,015

 
11.8
%
 
$
117,878

 
10.5
%
 
$
35,306

 
3.0
%

References in this Form 10-K to “organic sales” refer to sales from continuing operations calculated in accordance with U.S. GAAP, excluding the impact of foreign currency translation. The Company’s organic sales disclosures exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying sales trends in our businesses and facilitating comparisons of our sales performance with prior periods.

In fiscal 2017, sales decreased 0.7% to $1,113.3 million, compared to $1,120.6 million in fiscal 2016, which consisted of organic sales growth of 0.5% and a negative foreign currency impact of 1.2% due to the strengthening of the U.S. dollar against certain other major currencies during the year. Organic sales grew 1.6% in the IDS segment and declined 2.0% in the WPS segment. The IDS segment realized sales growth in the Product ID and Wire ID product lines, partially offset by sales declines in the Healthcare ID product line. Catalog sales in the WPS segment declined, but were partially offset by sales growth in the digital channel.

During fiscal 2016, net sales decreased 4.4% from fiscal 2015, which consisted of an organic sales decline of 0.7% and a negative currency impact of 3.7% due to the strengthening of the U.S. dollar against certain other major currencies during the year. Organic sales declined in both the IDS and WPS segments in fiscal 2016 compared to fiscal 2015. The IDS segment experienced sales declines in the Wire ID and Safety and Facility ID product lines, which were partially offset by sales growth in the Product ID and Healthcare ID product lines. Catalog sales in the WPS segment declined, but were partially offset by sales growth in the digital channel.

Gross margin declined 0.1% to $558.3 million in fiscal 2017 from $558.8 million in fiscal 2016. As a percentage of sales, gross margin increased to 50.1% in fiscal 2017 from 49.9% in fiscal 2016. The increase in gross margin percentage was primarily due to our on-going efforts to streamline manufacturing processes and drive operational efficiencies in manufacturing facilities. These efforts resulted in reduced material and labor costs compared to the same periods in the prior year.

Gross margin increased 0.1% to $558.8 million in fiscal 2016 from $558.4 million in fiscal 2015. As a percentage of sales, gross margin increased to 49.9% in fiscal 2016 from 47.7% in fiscal 2015. In fiscal 2015 we incurred on-going costs related to facility consolidation activities primarily in our Americas region which reduced our gross margin percentage to below historical normal levels. These facility consolidation activities were completed during fiscal 2015, therefore the increase in gross margin percentage in 2016 was primarily due to our on-going efforts to enhance operational efficiencies in the newly consolidated facilities.
  
Research and development expenses increased to $39.6 million in fiscal 2017 from $35.8 million in fiscal 2016. The increase in R&D spending in fiscal 2017 compared to the prior year was primarily due to the hiring of R&D personnel as well as increased spending on printing and software solutions projects within our IDS businesses.

Research and development expenses decreased to $35.8 million in fiscal 2016 from $36.7 million in fiscal 2015. The decrease in R&D spending in fiscal 2016 compared to the prior year was primarily due to efficiency gains within the R&D function and the strengthening of the U.S. dollar, which were partially offset by an increase in our investment in new product development within the IDS segment to drive organic growth.


16


Selling, general and administrative expenses ("SG&A") include selling costs directly attributed to the IDS and WPS segments, as well as certain other expenses including finance, information technology, human resources, and other administrative expenses. SG&A expenses decreased 4.3% to $387.7 million in fiscal 2017 compared to $405.1 million in fiscal 2016. The decrease in SG&A expense from the prior year was primarily due to reduced selling expenses from efficiency gains, continued efforts to control general and administrative costs, and foreign currency translation. These reductions were partially offset by increases in incentive-based compensation.
SG&A expense decreased to $405.1 million in fiscal 2016 compared to $422.7 million in fiscal 2015. The decrease in SG&A expense from the prior year was primarily due to reduced selling expenses from efficiency gains, continued efforts to control general and administrative costs, and foreign currency translation. These reductions were partially offset by increases in incentive-based compensation.
In fiscal 2014, the Company announced a restructuring plan to consolidate facilities in the Americas, Europe and Asia. The Company implemented this restructuring plan to enhance customer service, improve efficiency of our operations and reduce operating expenses. Restructuring activities related to facility consolidation activities extended into fiscal 2015 and were complete at the end of the fiscal year.
In connection with this plan, the Company incurred restructuring charges of $16.8 million in fiscal 2015. These charges consisted of $5.4 million of employee separation costs, $5.2 million of facility closure related costs, $2.0 million of contract termination costs, and $4.2 million of non-cash asset write-offs. The charges for employee separation costs consisted of severance pay, outplacement services, medical and other benefits. Non-cash asset write-offs consisted mainly of fixed assets written off in conjunction with facility consolidations. Of the $16.8 million recognized in fiscal 2015, $12.1 million was incurred within the IDS segment and $4.7 million was incurred within the WPS segment.
The Company performed its annual goodwill impairment assessment on May 1, 2017 and 2016, and subsequently concluded that the fair value of the goodwill was substantially in excess of its carrying value at 20% or greater for all of the reporting units. No impairment charges were recorded in fiscal 2017 or 2016. In conjunction with the goodwill impairment analysis, management also concluded that no other long-lived assets were impaired.

The Company's annual goodwill impairment assessment performed in fiscal 2015 indicated the WPS Americas and WPS APAC reporting units were impaired. In conjunction with the goodwill impairment analysis, management concluded that other long-lived assets were impaired. Impairment charges were $46.9 million in fiscal 2015, which consisted of $37.1 million in goodwill impairment charges associated with the WPS Americas and WPS APAC reporting units and $9.8 million related to the impairment of certain other long-lived assets.

Operating income increased to $131.0 million in fiscal 2017 compared to $117.9 million in 2016. The increase of $13.1 million in operating income was primarily due to reduced SG&A expense in both the IDS and WPS segments, as well as reductions due to foreign currency translation. The decrease in SG&A leading to the increase in operating income in fiscal 2017 was partially offset by an increase in R&D spending.

The Company generated operating income of $117.9 million in fiscal 2016. Operating income from continuing operations was $35.3 million in fiscal 2015; excluding impairment charges of $46.9 million and restructuring charges of $16.8 million, the Company generated operating income from continuing operations of $99.0 million in 2015. The increase of $18.9 million in operating income was due to the improvement in gross profit margin primarily in the IDS segment as well as reduced SG&A primarily in the WPS segment. The increase was partially offset by the negative impact of currency fluctuations.



17



OPERATING INCOME TO NET EARNINGS
(Dollars in thousands)
 
2017
 
% Sales
 
2016
 
% Sales
 
2015
 
% Sales
Operating income
 
$
131,015

 
11.8
 %
 
$
117,878

 
10.5
 %
 
$
35,306

 
3.0
 %
Other income and (expense):
 
 
 


 
 
 


 
 
 


         Investment and other income (expense)
 
1,121

 
0.1
 %
 
(709
)
 
(0.1
)%
 
845

 
0.1
 %
         Interest expense
 
(5,504
)
 
(0.5
)%
 
(7,824
)
 
(0.7
)%
 
(11,156
)
 
(1.0
)%
Earnings from continuing operations before income taxes
 
126,632

 
11.4
 %
 
109,345

 
9.8
 %
 
24,995

 
2.1
 %
Income taxes
 
30,987

 
2.8
 %
 
29,235

 
2.6
 %
 
20,093

 
1.7
 %
Earnings from continuing operations
 
95,645

 
8.6
 %
 
80,110

 
7.1
 %
 
4,902

 
0.4
 %
Loss from discontinued operations, net of income taxes
 

 
 %
 

 
 %
 
(1,915
)
 
(0.2
)%
Net earnings
 
$
95,645

 
8.6
 %
 
$
80,110

 
7.1
 %
 
$
2,987

 
0.3
 %

Investment and Other Income

Investment and other income was $1.1 million in fiscal 2017 compared to expense of $0.7 million in fiscal 2016 and income of $0.8 million in fiscal 2015. The increase in income in 2017 compared to 2016 was primarily due to an increase in the market value of securities held in executive deferred compensation plans. The increase in expense in 2016 compared to 2015 was primarily due to a decrease in the gain on market value of securities held in deferred compensation plans and an increase in foreign currency exchange losses.

Interest Expense

Interest expense decreased to $5.5 million in fiscal 2017 compared to $7.8 million in fiscal 2016 and $11.2 million in fiscal 2015. The decline since 2015 was due to the Company's declining principal balance under its outstanding debt agreements.

Income Taxes

The Company’s effective income tax rate was 24.5% in fiscal 2017. The effective income tax rate was reduced from the statutory tax rate of 35.0% due to the generation of foreign tax credits from cash repatriations that occurred during the year and geographic profit mix, partially offset by adjustments to the reserve for uncertain tax positions.
The Company’s effective income tax rate was 26.7% in fiscal 2016. The effective income tax rate was reduced from the statutory tax rate of 35.0% due to certain adjustments to tax accruals and reserves, the generation of foreign tax credit carryforwards, research and development tax credits and the section 199 manufacturer’s deduction.
The Company’s effective income tax rate was 80.4% in fiscal 2015. The effective income tax rate was significantly impacted by impairment charges of $46.9 million recognized during the period, as $39.8 million of these charges were nondeductible for income tax purposes. The effective income tax rate was further impacted by the generation of $5.0 million of foreign tax credit carry-forwards from the fiscal 2014 income tax return and increases in uncertain tax positions recognized in fiscal 2015.
Loss from Discontinued Operations

Discontinued operations include the Asia Die-Cut and European Die-Cut businesses ("Die-Cut"), of which a portion was divested in the fourth quarter of fiscal 2014 and the remainder was divested in the first quarter of fiscal 2015. The loss from discontinued operations net of income taxes of $1.9 million in fiscal 2015 primarily related to professional fees associated with the divestiture and a $0.4 million loss on the sale of Die-Cut, recorded during the three months ended October 31, 2014.

There was no depreciation or amortization expense recognized within discontinued operations for fiscal 2015 as the Die-Cut business was reported as held for sale beginning in the third quarter of fiscal 2013, at which point the fixed assets and intangible assets of these businesses were no longer depreciated or amortized in accordance with applicable U.S. GAAP.

Business Segment Operating Results

The Company is organized and managed on a global basis within two reportable segments: ID Solutions and Workplace Safety. Effective August 1, 2016, the Company changed its internal measure of segment profit and loss that is reported to the chief operating

18


decision maker for purposes of making decisions about allocating resources to the segments and assessing its performance. Prior to August 1, 2016, administrative costs were excluded from the measure of segment profit and loss. Effective August 1, 2016, a portion of these administrative costs have been included within the IDS and WPS segments, which includes the cost of finance, information technology, human resources, and certain other administrative costs. Interest expense, investment and other income (expense), income tax expense, and certain corporate administrative expenses continue to be excluded when evaluating segment performance.

Also effective August 1, 2016, the Company realigned certain businesses between the WPS and IDS reportable segments, resulting in increased revenues and segment profit in the IDS segment and equal and offsetting declines in revenues and segment profit in the WPS segment. The Company's accompanying segment information has been restated to reflect the change in measurement of segment profit and loss and the realignment of businesses.

Following is a summary of segment information for the fiscal years ended July 31:
(Dollars in thousands)
 
2017
 
2016
 
2015
SALES
 
 
 
 
 
 
ID Solutions
 
$
800,392

 
$
795,511

 
$
826,824

Workplace Safety
 
312,924

 
325,114

 
344,907

Total
 
$
1,113,316

 
$
1,120,625

 
$
1,171,731

SALES GROWTH INFORMATION
 
 
 
 
 
 
ID Solutions
 
 
 
 
 
 
Organic
 
1.6
 %
 
(0.7
)%
 
1.7
 %
Currency
 
(1.0
)%
 
(3.1
)%
 
(4.2
)%
Total
 
0.6
 %
 
(3.8
)%
 
(2.5
)%
Workplace Safety
 
 
 
 
 
 
Organic
 
(2.0
)%
 
(0.7
)%
 
(0.4
)%
Currency
 
(1.7
)%
 
(5.0
)%
 
(8.0
)%
Total
 
(3.7
)%
 
(5.7
)%
 
(8.4
)%
Total Company
 
 
 
 
 
 
Organic
 
0.5
 %
 
(0.7
)%
 
1.0
 %
Currency
 
(1.2
)%
 
(3.7
)%
 
(5.4
)%
Total
 
(0.7
)%
 
(4.4
)%
 
(4.4
)%
SEGMENT PROFIT
 
 
 
 
 
 
ID Solutions
 
$
130,572

 
$
112,276

 
$
89,392

Workplace Safety
 
25,554

 
30,792

 
29,344

Total
 
$
156,126

 
$
143,068

 
$
118,736

SEGMENT PROFIT AS A PERCENT OF SALES
 
 
 
 
 
 
ID Solutions
 
16.3
 %
 
14.1
 %
 
10.8
 %
Workplace Safety
 
8.2
 %
 
9.5
 %
 
8.5
 %
Total
 
14.0
 %
 
12.8
 %
 
10.1
 %
NET EARNINGS RECONCILIATION
 
Years ended:
(Dollars in thousands)
 
July 31, 2017
 
July 31, 2016
 
July 31, 2015
Total profit from reportable segments
 
$
156,126

 
$
143,068

 
$
118,736

Unallocated costs:
 
 
 
 
 
 
Administrative costs
 
25,111

 
25,190

 
19,742

Restructuring charges
 

 

 
16,821

Impairment charges
 

 

 
46,867

Investment and other (income) expense
 
(1,121
)
 
709

 
(845
)
Interest expense
 
5,504

 
7,824

 
11,156

Earnings from continuing operations before income taxes
 
$
126,632

 
$
109,345

 
$
24,995



19


ID Solutions

Fiscal 2017 vs. 2016     

Approximately 70% of net sales in the ID Solutions segment were generated in the Americas region, 20% in EMEA, and 10% in APAC. IDS sales increased 0.6% to $800.4 million in fiscal 2017, compared to $795.5 million in fiscal 2016. Organic sales increased 1.6% and foreign currency fluctuations decreased sales by 1.0% due to the strengthening of the U.S. dollar against certain other major currencies in fiscal 2017 compared to fiscal 2016.

The IDS business in the Americas realized low-single digit organic sales growth in fiscal 2017 compared to fiscal 2016. The increase was primarily due to growth in the Wire ID product line due to increased sales of printer consumables, which were partially offset by a sales decline in the Healthcare ID product lines due to pricing pressures within certain product categories from the consolidation of group purchasing organizations. Organic sales grew in the mid-single digits in Canada, low-single digits in Mexico and Brazil, and grew slightly in the United States.

The IDS business in EMEA realized low-single digit organic sales growth in fiscal 2017 as compared to fiscal 2016. Organic sales growth in 2017 was primarily due to sales increases in the Product ID and Safety and Facility ID product lines. Organic sales growth in Western Europe was partially offset by organic sales declines in certain emerging markets due to weak demand in the oil and gas industry.

Organic sales in Asia grew in the high-single digits in fiscal 2017 compared to fiscal 2016. The IDS Asia region realized organic sales growth in both the OEM and MRO product categories in 2017 due to several new customer and project wins along with a general increase in activity within our existing customer base. Organic sales increased within all countries in the Asia region in 2017.

Segment profit increased to $130.6 million in fiscal 2017 from $112.3 million in fiscal 2016, an increase of $18.3 million or 16.3%. As a percent of sales, segment profit increased to 16.3% in fiscal 2017, compared to 14.1% in the prior year. The increase in segment profit was primarily driven by operational efficiencies in our manufacturing processes in all regions, as well as a reduction in SG&A expense due to ongoing process improvement activities.

Fiscal 2016 vs. 2015

Approximately 70% of net sales in the ID Solutions segment were generated in the Americas region, 20% in EMEA, and 10% in APAC. IDS sales decreased 3.8% to $795.5 million in fiscal 2016, compared to $826.8 million in fiscal 2015. Organic sales decreased 0.7% and currency fluctuations decreased sales by 3.1% due to the strengthening of the U.S. dollar against certain other major currencies in fiscal 2016 compared to fiscal 2015.

Organic sales in the Americas declined in the low-single digits in fiscal 2016 compared to fiscal 2015 primarily due to a slowdown in order patterns with certain of our customers in the United States and Canada which was reflective of a general slowdown in the industrial sector. In addition, we realized double-digit declines in OEM sales in Brazil due to weak economic conditions and increased competitive pressure. The Americas region experienced sales declines in the Wire ID and Safety and Facility ID product lines, which were partially offset by sales growth in the Product ID and Healthcare ID product lines.

The IDS business in EMEA realized low-single digit organic sales growth in fiscal 2016 compared to fiscal 2015. This increase was primarily driven by our core IDS businesses in Western and Central Europe where we had increased sales despite a lack of significant economic growth. The Product ID and Safety and Facility ID product lines in EMEA realized sales growth in 2016, which was partially offset by a sales decline in the Wire ID product line.

Organic sales in APAC declined in the mid-single digits in fiscal 2016 compared to fiscal 2015. The region had mid-single digit declines in the first three quarters of the year and effectively flat organic sales in the fourth quarter. The overall decline in organic sales was primarily due to reduced demand in the electronics industry in China as well as other regions within Asia, which we addressed through focused additions to our sales organization within the region.

Segment profit increased to $112.3 million in fiscal 2016 from $89.4 million in fiscal 2015, an increase of $22.9 million or 25.6%. As a percent of sales, segment profit increased to 14.1% in fiscal 2016, compared to 10.8% in the prior year. The increase in segment profit was primarily driven by operational efficiencies in our manufacturing processes in the Americas and Europe.


20


Workplace Safety

Fiscal 2017 vs. 2016

Approximately 50% of net sales in the WPS segment were generated in Europe, 35% in the Americas, and 15% in Australia. WPS sales decreased 3.7% to $312.9 million in fiscal 2017, compared to $325.1 million in fiscal 2016, which consisted of an organic sales decline of 2.0% and a negative foreign currency impact of 1.7%.

The WPS business in Europe realized low-single digit organic sales growth in fiscal 2017 compared to fiscal 2016. The growth in the region was driven primarily by France and Sweden due to improvements in website functionality, digital sales, and key account management. Digital sales grew by double digits in the Europe region in fiscal 2017 compared to fiscal 2016.

Organic sales in the Americas declined in the high-single digits in fiscal 2017 compared to fiscal 2016. This decrease was primarily in North America due to lower response rates to catalog promotions and pricing pressures in industrial end markets. Although digital sales increased in the low-single digits, the increase was not enough to balance the decline in sales through the catalog channel. In addition, pricing pressures from certain competitors have led to an acceleration of organic sales declines in the region from prior years.
Organic sales in Australia were essentially flat in fiscal 2017 compared to fiscal 2016, following an extended period of organic sales declines. We have started to realize some sales growth by bringing our diverse product offering to many different industries in Australia as our sales to the mining industry have become less significant over the past several years. We continue to focus on enhancing our expertise in these industries to drive sales growth as well as addressing our cost structure to improve profitability.
Segment profit decreased to $25.6 million in fiscal 2017 from $30.8 million in fiscal 2016, a decrease of $5.2 million, or 16.9%. As a percentage of sales, segment profit decreased to 8.2% in fiscal 2017 compared to 9.5% in the prior year. The decrease in segment profit was primarily due to the decline in sales and reduced gross profit margins due to pricing challenges in the Americas region, which was partially offset by reduced selling, general and administrative expenses.
Fiscal 2016 vs. 2015
Approximately 50% of net sales in the WPS segment were generated in Europe, 35% in the Americas, and 15% in Australia. WPS sales decreased 5.7% to $325.1 million in fiscal 2016, compared to $344.9 million in fiscal 2015, which consisted of an organic sales decline of 0.7% and a negative currency impact of 5.0%. Since half of the WPS business is in Europe, the strengthening of the U.S. dollar against the Euro and British Pound during certain periods of the fiscal year had a larger impact on the WPS segment than it did on the IDS segment.

The WPS business in Europe realized low-single digit organic sales growth in fiscal 2016 compared to the prior year. The increase was primarily driven by Germany, France, and Belgium due to improvements in website functionality and key account management. These improvements led to a double-digit increase in digital sales in Europe compared to fiscal 2015.

Organic sales in the Americas declined in the low-single digits in fiscal 2016 compared to the prior year. This decrease was primarily in North America due to reduced demand for our products in the industrial end markets and a decrease in sales through traditional catalog channels, which were partially offset by slight growth in digital sales.
Organic sales in Australia declined in the mid-single digits in fiscal 2016 compared to fiscal 2015. The decrease in the Australian business was due to its higher concentration in industries that are experiencing economic challenges, which include manufacturing and mining production.
Segment profit for the WPS segment increased to $30.8 million in fiscal 2016 from $29.3 million in fiscal 2015, an increase of $1.5 million, or 5.1%. As a percentage of sales, segment profit increased to 9.5% in fiscal 2016 compared to 8.5% in the prior year. The increase in segment profit margin was mainly driven by a reduction in SG&A and catalog advertising.

21



Liquidity & Capital Resources

Cash and cash equivalents were $133.9 million at July 31, 2017, a decrease of $7.3 million from July 31, 2016. The following summarizes the cash flow statement for fiscal years ended July 31:
(Dollars in thousands)
2017
 
2016
 
2015
Net cash flow provided by (used in):
 
 
 
 
 
Operating activities
$
144,032

 
$
138,976

 
$
93,348

Investing activities
(15,253
)
 
(15,416
)
 
(14,365
)
Financing activities
(136,241
)
 
(99,576
)
 
(32,152
)
Effect of exchange rate changes on cash
178

 
2,752

 
(14,173
)
Net (decrease) increase in cash and cash equivalents
$
(7,284
)
 
$
26,736

 
$
32,658


Fiscal 2017 vs. 2016     

Net cash provided by operating activities increased to $144.0 million during fiscal 2017 compared to $139.0 million in the prior year. The increase in cash provided by operating activities of $5.0 million was primarily due to higher net earnings partially offset by lower non-cash depreciation and amortization.

Net cash used in investing activities was $15.3 million during fiscal 2017, compared to $15.4 million in the prior year.
 
Net cash used in financing activities was $136.2 million during fiscal 2017, compared to $99.6 million during the prior year. The increase in cash used in financing activities of $35.1 million was primarily due to an increase of $75.3 million in credit facility and debt repayments in the current year, which was partially offset by a $14.5 million increase in proceeds from stock option exercises in the current year. The remainder of the change was due to $23.6 million of cash used for share repurchases in the prior year, while no shares were repurchased in the current year.
The effect of fluctuations in exchange rates increased cash balances by $0.2 million in fiscal 2017, primarily due to cash balances held in certain currencies that appreciated against the U.S. dollar during the current fiscal year.
Fiscal 2016 vs. 2015

Net cash provided by operating activities increased to $139.0 million during fiscal 2016 compared to $93.3 million in the prior year. The increase in cash provided by operating activities of $45.7 million was primarily due to an improvement in working capital of $14.0 million and an increase in net earnings compared to the prior fiscal year. The increase to working capital was due to reduced inventory levels that were elevated in the prior year due to the facility consolidations, reduced accounts receivable levels due to improved collections in our Americas and EMEA regions, and increased accrued incentive-based compensation.

Net cash used in investing activities was $15.4 million during fiscal 2016, compared to $14.4 million during fiscal 2015. Fiscal 2016 capital expenditures were $17.1 million compared to $26.7 million in the prior year due to the completion of facility consolidation activities in fiscal 2015. Fiscal 2015 capital expenditures were offset by $6.2 million in cash received for certain assets sold as part of facility consolidation activities, and $6.1 million in net cash received from the Die-Cut divestiture.

Net cash used in financing activities was $99.6 million during fiscal 2016, compared to $32.2 million during the prior year. The increase in cash used in financing activities was primarily due to improved operating performance and cash flow resulting in decreased net borrowings, which were partially offset by $23.6 million of share repurchases in fiscal 2016.

The effect of fluctuations in foreign currency exchange rates increased cash balances by $2.8 million in fiscal 2016 primarily due to cash balances held in currencies that appreciated against the U.S. dollar during the current fiscal year.


22


The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2017, approximately 71% of the Company's cash and cash equivalents were held outside the United States. The Company's growth has historically been funded by a combination of cash provided by operating activities and debt financing. The Company believes that its cash flow from operating activities, in addition to its borrowing capacity, are sufficient to fund its anticipated requirements for working capital, capital expenditures, common stock repurchases, scheduled debt repayments, and dividend payments for the next 12 months. Although the Company believes these sources of cash are currently sufficient to fund domestic operations, annual cash needs could require repatriation of cash to the U.S. from foreign jurisdictions, which may result in tax charges.

Refer to Item 8, Note 6, "Debt" for information regarding the Company's debt holdings.


23


Subsequent Events Affecting Financial Condition
On September 6, 2017, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from $0.82 to $0.83 per share. A quarterly dividend of $0.2075 will be paid on October 31, 2017, to shareholders of record at the close of business on October 10, 2017. This dividend represents an increase of 1.2% and is the 32nd consecutive annual increase in dividends.

Off-Balance Sheet Arrangements

The Company does not have material off-balance sheet arrangements. The Company is not aware of factors that are reasonably likely to adversely affect liquidity trends, other than the risk factors described in this and other Company filings. However, the following additional information is provided to assist those reviewing the Company’s financial statements.
Operating Leases — The leases generally are entered into for investments in facilities such as manufacturing facilities, warehouses and office space and Company vehicles.
Purchase Commitments — The Company has purchase commitments for materials, supplies, services, and property, plant and equipment as part of the ordinary conduct of its business. In the aggregate, such commitments are not in excess of current market prices and are not material to the financial position of the Company. Due to the proprietary nature of many of the Company’s materials and processes, certain supply contracts contain penalty provisions for early termination. The Company does not believe a material amount of penalties will be incurred under these contracts based upon historical experience and current expectations.
Other Contractual Obligations — The Company does not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity.
Payments Due Under Contractual Obligations
The Company’s future commitments at July 31, 2017, for long-term debt, operating lease obligations, purchase obligations, interest obligations, tax obligations and other obligations are as follows (dollars in thousands):
 
 
Payments Due by Period
Contractual Obligations
 
Total
 
Less than
1 Year
 
1-3
Years
 
3-5
Years
 
More
than
5 Years
 
Uncertain
Timeframe
Long-term Debt Obligations and Notes Payable
 
$
107,764

 
$
3,228

 
$
53,202

 
$
51,334

 
$

 
$

Operating Lease Obligations
 
60,585

 
17,456

 
22,155

 
13,075

 
7,899

 

Purchase Obligations (1)
 
33,171

 
31,923

 
1,236

 
12

 

 

Interest Obligations
 
6,777

 
2,259

 
4,518

 

 

 

Tax Obligations
 
18,362

 

 

 

 

 
18,362

Other Obligations (2)
 
3,074

 
449

 
736

 
648

 
1,241

 

Total
 
$
229,733

 
$
55,315

 
$
81,847

 
$
65,069

 
$
9,140

 
$
18,362

 
(1)
Purchase obligations include all open purchase orders as of July 31, 2017.
(2)
Other obligations represent expected payments under the Company’s U.S. postretirement medical plan and international pension plans as disclosed in Note 4 to the Consolidated Financial Statements, under Item 8 of this report.

24


Inflation and Changing Prices
Essentially all of the Company’s revenue is derived from the sale of its products and services in competitive markets. Because prices are influenced by market conditions, it is not always possible to fully recover cost increases through pricing. Changes in product mix from year to year, timing differences in instituting price changes, and the large amount of part numbers make it impracticable to accurately define the impact of inflation on profit margins.
Critical Accounting Estimates
Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases these estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and judgments.
The Company believes the following accounting estimates are most critical to an understanding of its financial statements. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) material changes in the estimates are reasonably likely from period to period. For a detailed discussion on the application of these and other accounting estimates, refer to Note 1 to the Company’s Consolidated Financial Statements.
Income Taxes
We operate in numerous taxing jurisdictions and are subject to regular examinations by U.S. federal, state and non-U.S. taxing authorities. Our income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which we do business. Due to the ambiguity of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, the uncertainty of how underlying facts may be construed and the inherent uncertainty in estimating the final resolution of complex tax audit matters, our estimates of income tax liabilities may differ from actual payments or assessments.
While we have support for the positions we take on our tax returns, taxing authorities may assert interpretations of laws and facts and may challenge cross-jurisdictional transactions. The Company generally re-evaluates the technical merits of its tax positions and recognizes an uncertain tax benefit when (i) there is completion of a tax audit; (ii) there is a change in applicable tax law including a tax case ruling or legislative guidance; or (iii) there is an expiration of the statute of limitations. The gross liability for unrecognized tax benefits, excluding interest and penalties, was $18.4 million and $15.3 million as of July 31, 2017 and 2016, respectively. The entire amount of unrecognized tax benefits as of July 31, 2017 and 2016, would reduce the effective income tax rate if recognized. Accrued interest and penalties related to unrecognized tax benefits were $5.2 million and $4.3 million as of July 31, 2017 and 2016, respectively. We recognize interest and penalties related to unrecognized tax benefits in income tax expense on the Consolidated Statements of Earnings. We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $1.7 million in the next twelve months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or statute expirations, which would be the maximum amount that would be recognized through the Consolidated Statements of Earnings as an income tax benefit.
We recorded a valuation allowance for a portion of our deferred tax assets related to net operating loss and tax credit carry-forwards ("carry-forwards") and certain temporary differences in the amount of $38.6 million at July 31, 2017, and $38.0 million at July 31, 2016, based on the projected profitability of the entity in the respective tax jurisdiction. The valuation allowance is based on an evaluation of the uncertainty that the carry-forwards and certain temporary differences will be realized. Our income would increase if we determine we will be able to use more carry-forwards or certain temporary differences than currently expected. Conversely, our income would decrease if we determine we are unable to realize our deferred tax assets in the future.
The Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. As of July 31, 2017, we have not provided U.S. deferred taxes for $244.1 million of such earnings, since these earnings have been, and under current plans will continue to be, permanently reinvested outside the U.S. At July 31, 2017, approximately $94.9 million of the Company's cash and cash equivalents were held outside the United States.

25


Goodwill and Other Indefinite-lived Intangible Assets

The allocation of purchase price for business combinations requires management estimates and judgment as to expectations for future cash flows of the acquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocation purposes. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets. In addition, accounting guidance requires that goodwill and other indefinite-lived intangible assets be tested at least annually for impairment. If circumstances or events prior to the date of the required annual assessment indicate that, in management's judgment, it is more likely than not that there has been a reduction of fair value of a reporting unit below its carrying value, the Company performs an impairment analysis at the time of such circumstance or event. Changes in management's estimates or judgments could result in an impairment charge, and such a charge could have an adverse effect on the Company's financial condition and results of operations.

The Company has identified six reporting units within its two reportable segments, IDS and WPS, with the following goodwill balances as of July 31, 2017: IDS Americas & Europe, $298.6 million; People ID, $93.3 million; and WPS Europe, $45.8 million. The IDS APAC, WPS Americas, and WPS APAC reporting units each have a goodwill balance of zero. The Company continues to believe that the discounted cash flow model and market multiples model provide a reasonable and meaningful fair value estimate based upon the reporting units' projections of future operating results and cash flows and replicates how market participants would value the Company's reporting units. The projections of future operating results, which are based on both past performance and the projections and assumptions used in the Company's current and long range operating plans, are subject to change as a result of changing economic and competitive conditions. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected growth rates, price increases, fluctuations in gross profit margins and SG&A expense as a percentage of sales, capital expenditures, working capital levels, income tax rates, and a weighted-average cost of capital that reflects the specific risk profile of the reporting unit being tested. Significant negative industry or economic trends, disruptions to the Company's business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations.

The Company completes its annual goodwill impairment analysis on May 1st of each fiscal year and evaluates its reporting units for potential triggering events on a quarterly basis in accordance with ASC 350, "Intangibles - Goodwill and Other." In addition to the metrics listed above, the Company considers multiple internal and external factors when evaluating its reporting units for potential impairment, including (a) U.S. GDP growth, (b) industry and market factors such as competition and changes in the market for the reporting unit's products, (c) new product development, (d) hospital admission rates, (e) competing technologies, (f) overall financial performance such as cash flows, actual and planned revenue and profitability, and (g) changes in the strategy of the reporting unit. In the event the fair value of a reporting unit is less than the carrying value, including goodwill, the Company would then perform an additional assessment that would compare the implied fair value of goodwill with the carrying amount of goodwill. The determination of the implied fair value of goodwill would require management to compare the fair value of the reporting unit to the estimated fair value of the assets and liabilities of the reporting unit. If necessary, the Company may consult valuation specialists to assist with the assessment of the estimated fair value of assets and liabilities for the reporting unit. If the implied fair value of the goodwill is less than the carrying value, an impairment charge would be recorded.

The Company considers a reporting unit’s fair value to be substantially in excess of its carrying value at 20% or greater. The annual impairment testing performed on May 1, 2017, in accordance with ASC 350, “Intangibles - Goodwill and Other” (“Step One”) indicated that all of the reporting units passed Step One of the goodwill impairment test, and each had a fair value substantially in excess of its carrying value.
Other Indefinite-Lived Intangible Assets
Other indefinite-lived intangible assets were analyzed in accordance with the Company's policy outlined above using the income approach. The valuation was based upon current sales projections and profitability for each asset group, and the relief from royalty method was applied. As a result of the analysis, all assets had a fair value in excess of carrying value.
New Accounting Standards
The information required by this Item is provided in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 — Financial Statements and Supplementary Data.


26


Forward-Looking Statements
In this annual report on Form 10-K, statements that are not reported financial results or other historic information are “forward-looking statements.” These forward-looking statements relate to, among other things, the Company's future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations.
The use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady's control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from:
Brady's ability to compete effectively or to successfully execute our strategy
Brady's ability to develop technologically advanced products that meet customer demands
Difficulties in protecting our websites, networks, and systems against security breaches
Decreased demand for the Company's products
Brady's ability to retain large customers
Extensive regulations by U.S. and non-U.S. governmental and self regulatory entities
Brady's ability to execute facility consolidations and maintain acceptable operational service metrics
Litigation, including product liability claims
Risks associated with the loss of key employees
Divestitures, contingent liabilities from divestitures
Brady's ability to properly identify, integrate, and grow acquired companies
Foreign currency fluctuations
Changes in tax legislation and tax rates
Potential write-offs of Brady's substantial intangible assets
Differing interests of voting and non-voting shareholders
Brady's ability to meet certain financial covenants required by our debt agreements
Numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady's U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item 1A of Part I of this Form 10-K.

These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements except as required by law.

Risk Factors
Refer to the information contained in Item 1A - Risk Factors.

27


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company’s business operations give rise to market risk exposure due to changes in foreign exchange rates. To manage that risk effectively, the Company enters into hedging transactions according to established guidelines and policies that enable it to mitigate the adverse effects of this financial market risk.
The global nature of the Company’s business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global scale, the Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions. To achieve this objective, the Company hedges a portion of known exposures using forward contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian dollar, Australian dollar, Mexican Peso, the Malaysian Ringgit, the Chinese Yuan, and Singapore dollar. As of July 31, 2017, the notional amount of outstanding forward foreign exchange contracts designated as cash flow hedges was $30.0 million. The Company uses Euro-denominated debt of €45.0 million designated as a hedge instrument to hedge portions of the Company’s net investment in its Euro-denominated businesses. The Company's revolving credit facility allows it to borrow up to $150.0 million in currencies other than U.S. dollars under an alternative currency sub-limit. The Company has periodically borrowed funds in Euro and British Pounds under this sub-limit. Debt issued in currencies other than U.S. dollars acts as a natural hedge to the Company's exposure to the associated currency.
The Company also faces exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates. Although the Company has a U.S. dollar functional currency for reporting purposes, it has manufacturing sites throughout the world and a significant portion of its sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates in effect during the respective period. As a result, the Company is exposed to movements in the exchange rates of various currencies against the U.S. dollar. In particular, the Company has more sales in European currencies than it has expenses in those currencies. Therefore, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively. Currency exchange rates decreased fiscal 2017 sales by 1.2% compared to fiscal 2016 as the U.S. dollar appreciated, on average, against other major currencies throughout the year.
The Company is subject to the risk of change in foreign currency exchange rates due to its operations in foreign countries. The Company has manufacturing facilities and sells and distributes its products throughout the world. As a result, the Company’s financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company manufactures, distributes and sells its products. The Company’s operating results are principally exposed to changes in exchange rates between the U.S. dollar and the Euro, the Australian dollar, the Canadian dollar, the Mexican Peso, the Singapore dollar, the British Pound, the Malaysian Ringgit, and the Chinese Yuan. Changes in foreign currency exchange rates for the Company’s foreign subsidiaries reporting in local currencies are generally reported as a component of stockholders’ investment. The Company’s currency translation adjustment recorded in fiscal 2017, 2016, and 2015 as a separate component of stockholders’ investment was favorable by $8.6 million, unfavorable by $1.4 million, and unfavorable by $120.3 million, respectively. As of July 31, 2017 and 2016, the Company’s foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $162.5 million and $207.7 million, respectively. The potential decrease in net current assets as of July 31, 2017, from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be approximately $16.2 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar. Exchange rates rarely move in the same direction relative to the U.S. dollar due to positive and negative correlations of the various global currencies. This assumption may overstate the impact of changing exchange rates on individual assets and liabilities denominated in a foreign currency.
The Company could be exposed to interest rate risk through its corporate borrowing activities. The objective of the Company’s interest rate risk management activities is to manage the levels of the Company’s fixed and floating interest rate exposure to be consistent with the Company’s preferred mix. The interest rate risk management program allows the Company to enter into approved interest rate derivatives if there is a desire to modify the Company’s exposure to interest rates. As of July 31, 2017, the Company had no interest rate derivatives. The Company had variable rate debt outstanding of $54.6 million at a current weighted average interest rate of 1.3%. A hypothetical change in the interest rate of 10% from the Company's current weighted average interest rate on variable rate debt obligations of 1.3% would not have a material impact on the Company's interest expense.

28



Item 8. Financial Statements and Supplementary Data
BRADY CORPORATION & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

29




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Brady Corporation
Milwaukee, Wisconsin

We have audited the accompanying consolidated balance sheets of Brady Corporation and subsidiaries (the "Company") as of July 31, 2017 and 2016, and the related consolidated statements of earnings, comprehensive income (loss), stockholders' investment, and cash flows for each of the three years in the period ended July 31, 2017. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Brady Corporation and subsidiaries at July 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of July 31, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 13, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.



/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin
September 13, 2017

30




BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2017 and 2016
 
2017
 
2016
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
133,944

 
$
141,228

Accounts receivable — net
149,638

 
147,333

Inventories:
 
 
 
Finished products
69,760

 
64,313

Work-in-process
18,117

 
16,678

Raw materials and supplies
19,147

 
18,436

Total inventories
107,024

 
99,427

Prepaid expenses and other current assets
17,208

 
19,436

Total current assets
407,814

 
407,424

Other assets:
 
 
 
Goodwill
437,697

 
429,871

Other intangible assets
53,076

 
59,806

Deferred income taxes
35,456

 
27,238

Other
18,077

 
17,181

Property, plant and equipment:
 
 
 
Cost:
 
 
 
Land
7,470

 
5,809

Buildings and improvements
98,228

 
95,355

Machinery and equipment
261,192

 
256,549

Construction in progress
4,109

 
2,842

 
370,999

 
360,555

Less accumulated depreciation
272,896

 
258,111

Property, plant and equipment — net
98,103

 
102,444

Total
$
1,050,223

 
$
1,043,964

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
 
 
Current liabilities:
 
 
 
Notes payable
$
3,228

 
$
4,928

Accounts payable
66,817

 
62,245

Wages and amounts withheld from employees
58,192

 
45,998

Taxes, other than income taxes
7,970

 
7,403

Accrued income taxes
7,373

 
6,136

Other current liabilities
43,618

 
40,017

Total current liabilities
187,198

 
166,727

Long-term obligations
104,536

 
211,982

Other liabilities
58,349

 
61,657

Total liabilities
350,083

 
440,366

Stockholders’ investment:
 
 
 
Class A nonvoting common stock — Issued 51,261,487 shares at July 31, 2017 and 2016, respectively, (aggregate liquidation preference of $42,803 at July 31, 2017 and 2016, respectively)
513

 
513

Class B voting common stock — Issued and outstanding 3,538,628 shares
35

 
35

Additional paid-in capital
322,608

 
317,001

Earnings retained in the business
507,136

 
453,371

Treasury stock — 3,446,669 and 4,340,513 shares at July 31, 2017 and 2016, respectively of Class A nonvoting common stock, at cost
(85,470
)
 
(108,714
)
Accumulated other comprehensive loss
(44,682
)
 
(54,745
)
Other

 
(3,863
)
Total stockholders’ investment
700,140

 
603,598

Total
$
1,050,223

 
$
1,043,964


See Notes to Consolidated Financial Statements.

31


BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended July 31, 2017, 2016 and 2015

 
2017
 
2016
 
2015
 
(In thousands, except per share amounts)
Net sales
$
1,113,316

 
$
1,120,625

 
$
1,171,731

Cost of products sold
555,024

 
561,852

 
613,299

Gross margin
558,292

 
558,773

 
558,432

Operating expenses:
 
 
 
 
 
Research and development
39,624

 
35,799

 
36,734

Selling, general and administrative
387,653

 
405,096

 
422,704

Restructuring charges

 

 
16,821

Impairment charges

 

 
46,867

Total operating expenses
427,277

 
440,895

 
523,126

Operating income
131,015

 
117,878

 
35,306

Other income (expense):
 
 
 
 
 
Investment and other income (expense)
1,121

 
(709
)
 
845

Interest expense
(5,504
)
 
(7,824
)
 
(11,156
)
Earnings from continuing operations before income taxes
126,632

 
109,345

 
24,995

Income tax expense
30,987

 
29,235

 
20,093

Earnings from continuing operations
$
95,645

 
$
80,110

 
$
4,902

Loss from discontinued operations, net of income taxes

 

 
(1,915
)
Net earnings
$
95,645

 
$
80,110

 
$
2,987

Earnings from continuing operations per Class A Nonvoting Common Share:
 
 
 
 
 
Basic
$
1.87

 
$
1.59

 
$
0.10

Diluted
$
1.84

 
$
1.58

 
$
0.10

Earnings from continuing operations per Class B Voting Common Share:
 
 
 
 
 
Basic
$
1.86

 
$
1.57

 
$
0.08

Diluted
$
1.83

 
$
1.56

 
$
0.08

Loss from discontinued operations per Class A Nonvoting Common Share:
 
 
 
 
 
Basic
$

 
$

 
$
(0.04
)
Diluted
$

 
$

 
$
(0.04
)
Loss from discontinued operations per Class B Voting Common Share:
 
 
 
 
 
Basic
$

 
$

 
$
(0.04
)
Diluted
$

 
$

 
$
(0.04
)
Net earnings per Class A Nonvoting Common Share:
 
 
 
 
 
Basic
$
1.87

 
$
1.59

 
$
0.06

Diluted
$
1.84

 
$
1.58

 
$
0.06

Dividends
$
0.82

 
$
0.81

 
$
0.80

Net earnings per Class B Voting Common Share:
 
 
 
 
 
Basic
$
1.86

 
$
1.57

 
$
0.04

Diluted
$
1.83

 
$
1.56

 
$
0.04

Dividends
$
0.80

 
$
0.79

 
$
0.78

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
Basic
51,056

 
50,541

 
51,285

Diluted
51,956

 
50,769

 
51,383

See Notes to Consolidated Financial Statements.


32


BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended July 31, 2017, 2016 and 2015

 
2017
 
2016
 
2015
 
(Dollars in thousands)
Net earnings
$
95,645

 
$
80,110

 
$
2,987

Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net gain (loss) recognized in other comprehensive income (loss)
8,621

 
(1,405
)
 
(85,622
)
Reclassification adjustment for gains included in net earnings

 

 
(34,697
)
 
8,621

 
(1,405
)
 
(120,319
)
 
 
 
 
 
 
Net investment hedge and long-term intercompany loan translation adjustments:
 
 
 
 
 
Net (loss) gain recognized in other comprehensive income (loss)
(1,404
)
 
(2,280
)
 
22,023

Reclassification adjustment for gains included in net earnings

 

 
(393
)
 
(1,404
)
 
(2,280
)
 
21,630

 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
Net (loss) gain recognized in other comprehensive income (loss)
(225
)
 
(1,254
)
 
1,643

Reclassification adjustment for losses (gains) included in net earnings
486

 
196

 
(1,325
)
 
261

 
(1,058
)
 
318

Pension and other post-retirement benefits:
 
 
 
 
 
Net gain (loss) recognized in other comprehensive income (loss)
647

 
(293
)
 
1,057

Actuarial gain amortization
(483
)
 
(612
)
 
(741
)
Prior service credit amortization

 
(1,035
)
 
(1,170
)
Reclassification adjustment for gains included in net earnings

 

 
(1,741
)
 
164

 
(1,940
)
 
(2,595
)
 
 
 
 
 
 
Other comprehensive income (loss), before tax
7,642

 
(6,683
)
 
(100,966
)
Income tax benefit (expense) related to items of other comprehensive income (loss)
2,421

 
(3,028
)
 
(8,224
)
Other comprehensive income (loss), net of tax
10,063

 
(9,711
)
 
(109,190
)
Comprehensive income (loss)
$
105,708

 
$
70,399

 
$
(106,203
)
See Notes to Consolidated Financial Statements.


33


BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ INVESTMENT
Years Ended July 31, 2017, 2016 and 2015
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Earnings
Retained
in the
Business
 
Treasury
Stock
 
Accumulated
Other
Comprehensive (Loss)
Income
 
Other
 
 
(In thousands, except per share amounts)
Balances at July 31, 2014
 
$
548

 
$
311,811

 
$
452,057

 
$
(93,337
)
 
$
64,156

 
$
(2,159
)
Net earnings
 

 

 
2,987

 

 

 

Other comprehensive loss, net of tax
 

 

 

 

 
(109,190
)
 

Issuance of 102,780 shares of Class A Common Stock under stock plan
 

 
(1,315
)
 

 
2,735

 

 

Other
 

 
2,312

 

 
(2,632
)
 

 
(905
)
Tax shortfall from exercise of stock options and deferred compensation distributions
 

 
(2,876
)
 

 

 

 

Stock-based compensation expense (Note 7)
 

 
4,471

 

 

 

 

Cash dividends on Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Class A — $0.80 per share
 

 

 
(38,204
)
 

 

 

Class B — $0.78 per share
 

 

 
(2,771
)
 

 

 

Balances at July 31, 2015
 
$
548

 
$
314,403

 
$
414,069

 
$
(93,234
)
 
$
(45,034
)
 
$
(3,064
)
Net earnings
 

 

 
80,110