BRC-2013.4.30-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
 
FORM 10-Q
 
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2013
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 its charter)
 
 
 
Wisconsin
 
39-0178960
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
6555 West Good Hope Road, Milwaukee, Wisconsin
 
53223
(Address of principal executive offices)
 
(Zip Code)
(414) 358-6600
(Registrant’s telephone number, including area code)
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
 
 
Large accelerated filer
 
þ
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of June 6, 2013, there were 48,135,711 outstanding shares of Class A Nonvoting Common Stock and 3,538,628 shares of Class B Voting Common Stock. The Class B Voting Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock.


Table of Contents

FORM 10-Q
BRADY CORPORATION
INDEX
 
 
 
 
Page


2

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
 
April 30, 2013
 
July 31, 2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
77,034

 
$
305,900

Accounts receivable — net
177,343

 
199,006

Inventories:
 
 
 
Finished products
62,995

 
64,740

Work-in-process
14,908

 
15,377

Raw materials and supplies
21,703

 
25,407

Total inventories
99,606

 
105,524

Assets held for sale
108,623

 

Prepaid expenses and other current assets
41,461

 
40,424

Total current assets
504,067

 
650,854

Other assets:
 
 
 
Goodwill
841,449

 
676,791

Other intangible assets
174,583

 
84,119

Deferred income taxes
6,305

 
45,356

Other
20,915

 
20,584

Property, plant and equipment:
 
 
 
Cost:
 
 
 
Land
9,081

 
8,651

Buildings and improvements
100,504

 
101,962

Machinery and equipment
278,233

 
292,130

Construction in progress
9,358

 
10,417

 
397,176

 
413,160

Less accumulated depreciation
263,527

 
283,145

Property, plant and equipment — net
133,649

 
130,015

Total
$
1,680,968

 
$
1,607,719

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
 
 
Current liabilities:
 
 
 
Notes payable
$
58,658

 
$

Accounts payable
75,204

 
86,646

Wages and amounts withheld from employees
36,840

 
54,629

Liabilities held for sale
34,684

 

Taxes, other than income taxes
7,603

 
9,307

Accrued income taxes
10,650

 
14,357

Other current liabilities
34,396

 
40,815

Current maturities on long-term debt
61,265

 
61,264

Total current liabilities
319,300

 
267,018

Long-term obligations, less current maturities
218,378

 
254,944

Other liabilities
109,635

 
76,404

Total liabilities
647,313

 
598,366

Stockholders’ investment:
 
 
 
Class A nonvoting common stock — Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 47,972,270 and 47,630,926 shares, respectively
513

 
513

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

 
35

Additional paid-in capital
312,905

 
313,008

Earnings retained in the business
725,682

 
732,290

Treasury stock — 2,974,218 and 3,245,561 shares, respectively of Class A nonvoting common stock, at cost
(79,996
)
 
(92,600
)
Accumulated other comprehensive income
76,439

 
59,411

Other
(1,923
)
 
(3,304
)
Total stockholders’ investment
1,033,655

 
1,009,353

Total
$
1,680,968

 
$
1,607,719


See Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands, Except Per Share Amounts)
 
Three months ended April 30,
 
Nine months ended April 30,
 
(Unaudited)
 
(Unaudited)
 
2013
 
2012
 
2013
 
2012
Net sales
$
305,737

 
$
275,388

 
$
856,408

 
$
813,573

Cost of products sold
146,031

 
123,641

 
403,888

 
367,330

Gross margin
159,706

 
151,747

 
452,520

 
446,243

Operating expenses:
 
 
 
 
 
 
 
Research and development
8,062

 
8,200

 
24,162

 
25,657

Selling, general and administrative
112,148

 
98,614

 
321,909

 
293,518

Restructuring charges
8,540

 
1,977

 
10,487

 
1,977

Total operating expenses
128,750

 
108,791

 
356,558

 
321,152

Operating income
30,956

 
42,956

 
95,962

 
125,091

Other income and (expense):
 
 
 
 
 
 
 
Investment and other income
1,131

 
1,108

 
2,427

 
1,719

Interest expense
(4,185
)
 
(4,735
)
 
(12,755
)
 
(14,715
)
Earnings from continuing operations before income taxes
27,902

 
39,329

 
85,634

 
112,095

Income taxes
6,064

 
11,290

 
47,965

 
27,767

Earnings from continuing operations
$
21,838

 
$
28,039

 
$
37,669

 
$
84,328

(Loss) from discontinued operations, net of income taxes
(17,605
)
 
(387
)
 
(14,933
)
 
(113,898
)
Net earnings (loss)
$
4,233

 
$
27,652

 
$
22,736

 
$
(29,570
)
Earnings from continuing operations per Class A Nonvoting Common Share
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.53

 
$
0.73

 
$
1.60

Diluted
$
0.42

 
$
0.53

 
$
0.73

 
$
1.59

Earnings from continuing operations per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.53

 
$
0.72

 
$
1.59

Diluted
$
0.42

 
$
0.53

 
$
0.71

 
$
1.57

(Loss) from discontinued operations per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
(0.34
)
 
$

 
$
(0.29
)
 
$
(2.17
)
Diluted
$
(0.34
)
 
$
(0.01
)
 
$
(0.29
)
 
$
(2.16
)
(Loss) from discontinued operations per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
(0.34
)
 
$

 
$
(0.30
)
 
$
(2.17
)
Diluted
$
(0.34
)
 
$
(0.01
)
 
$
(0.29
)
 
$
(2.15
)
Net earnings (loss) per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.53

 
$
0.44

 
$
(0.57
)
Diluted
$
0.08

 
$
0.52

 
$
0.44

 
$
(0.57
)
Dividends
$
0.19

 
$
0.185

 
$
0.57

 
$
0.555

Net earnings (loss) per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.53

 
$
0.42

 
$
(0.58
)
Diluted
$
0.08

 
$
0.52

 
$
0.42

 
$
(0.58
)
Dividends
$
0.19

 
$
0.185

 
$
0.553

 
$
0.538

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
51,415

 
52,513

 
51,210

 
52,539

Diluted
52,041

 
53,003

 
51,685

 
52,946

See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
 
 
Three months ended April 30,
 
Nine months ended April 30,
 
(Unaudited)
 
(Unaudited)
 
2013
 
2012
 
2013
 
2012
Net earnings (loss)
$
4,233

 
$
27,652

 
$
22,736

 
$
(29,570
)
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(8,752
)
 
(2,313
)
 
19,318

 
(36,323
)
Net investment hedge translation adjustments
4,461

 
(281
)
 
(5,270
)
 
12,971

Long-term intercompany loan translation adjustments
(79
)
 
(1,291
)
 
1,510

 
(3,532
)
Cash flow hedges:
 
 
 
 
 
 
 
Net gain (loss) recognized in other comprehensive income
330

 
(400
)
 
(668
)
 
1,328

Reclassification adjustment for losses (gains) included in net earnings
9

 
(382
)
 
(548
)
 
252

 
339

 
(782
)
 
(1,216
)
 
1,580

Pension and other post-retirement benefits:
 
 
 
 
 
 
 
Gain recognized in other comprehensive income

 

 

 
1,105

Actuarial gain amortization
(12
)
 
(63
)
 
(35
)
 
(127
)
Prior service credit amortization
(50
)
 
(68
)
 
(152
)
 
(135
)
 
(62
)
 
(131
)
 
(187
)
 
843

Other comprehensive (loss) income, before tax
(4,093
)
 
(4,798
)
 
14,155

 
(24,461
)
Income tax (expense) benefit related to items of other comprehensive (loss) income
(943
)
 
(29
)
 
2,873

 
(9,005
)
Other comprehensive (loss) income, net of tax
(5,036
)
 
(4,827
)
 
17,028

 
(33,466
)
Comprehensive (loss) income
$
(803
)
 
$
22,825

 
$
39,764

 
$
(63,036
)
See Notes to Condensed Consolidated Financial Statements.


5

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
 
Nine Months Ended April 30,
 
(Unaudited)
 
2013
 
2012
Operating activities:
 
 
 
Net earnings (loss)
$
22,736

 
$
(29,570
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
36,037

 
32,921

Non-cash portion of restructuring charges
3,701

 
458

Non-cash portion of stock-based compensation expense
6,964

 
7,592

Impairment charge

 
115,688

Loss on write-down of assets held for sale
15,658

 

Loss (gain) on sales of businesses
3,138

 

Deferred income taxes
33,780

 
(3,192
)
Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures):
 
 
 
Accounts receivable
(6,410
)
 
11,050

Inventories
(91
)
 
(5,595
)
Prepaid expenses and other assets
541

 
(4,386
)
Accounts payable and accrued liabilities
(22,226
)
 
(39,472
)
Income taxes
(4,198
)
 
15,101

Net cash provided by operating activities
89,630

 
100,595

Investing activities:
 
 
 
Purchases of property, plant and equipment
(26,082
)
 
(14,498
)
Payments of remaining consideration

 
(2,580
)
Settlement of net investment hedges

 
(797
)
Acquisition of business, net of cash acquired
(301,157
)
 
(3,039
)
Sales of businesses, net of cash retained
10,178

 

Other
(1,245
)
 
(1,536
)
Net cash used in investing activities
(318,306
)
 
(22,450
)
Financing activities:
 
 
 
Payment of dividends
(29,344
)
 
(29,235
)
Proceeds from issuance of common stock
10,246

 
3,624

Purchase of treasury stock
(5,121
)
 
(12,309
)
Proceeds from borrowing on notes payable
220,000

 

Repayment of borrowing on notes payable
(173,000
)
 

Proceeds from borrowings on line of credit
11,491

 

Principal payments on debt
(42,514
)
 
(42,514
)
Debt issuance costs

 
(961
)
Income tax benefit from the exercise of stock options and deferred compensation distributions, and other
1,794

 
754

Net cash used in financing activities
(6,448
)
 
(80,641
)
Effect of exchange rate changes on cash
6,258

 
(13,050
)
Net decrease in cash and cash equivalents
(228,866
)
 
(15,546
)
Cash and cash equivalents, beginning of period
305,900

 
389,971

Cash and cash equivalents, end of period
$
77,034

 
$
374,425

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of capitalized interest
$
13,194

 
$
15,746

Income taxes, net of refunds
26,786

 
19,959

Acquisitions:
 
 
 
Fair value of assets acquired, net of cash
$
169,830

 
$
2,395

Liabilities assumed
(57,860
)
 
(583
)
Goodwill
189,187

 
1,227

Net cash paid for acquisitions
$
301,157

 
$
3,039

See Notes to Condensed Consolidated Financial Statements.

6

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended April 30, 2013
(Unaudited)
(In thousands, except share and per share amounts)
NOTE A — Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the "Company," "Brady," "we," or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of April 30, 2013 and July 31, 2012, and its results of operations, comprehensive income, and cash flows for the three and nine months ended April 30, 2013 and 2012. The condensed consolidated balance sheet as of July 31, 2012, has been derived from the audited consolidated financial statements of that date. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K for the year ended July 31, 2012.
During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. As a result, the assets and liabilities of the business were presented in accordance with the authoritative literature on assets held for sale in the condensed consolidated balance sheet as of April 30, 2013. The results of operations of the Company's Die-Cut Asia business have been reported as discontinued operations within the condensed consolidated statements of earnings for all periods presented. In accordance with the authoritative literature, the Company has elected to not separately disclose the cash flows related to the Die-Cut Asia discontinued operations. Refer to Note N, "Discontinued Operations" for further discussion regarding the business.
NOTE B — Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended April 30, 2013, were as follows:
 
 
Americas
 
EMEA
 
Asia-Pacific
 
Total
Balance as of July 31, 2012
$
417,886

 
$
174,868

 
$
84,037

 
$
676,791

Current year acquisitions
189,187

 

 

 
189,187

Current year divestitures
(2,882
)
 

 

 
(2,882
)
Reclassification to assets held for sale

 

 
(29,673
)
 
(29,673
)
Translation adjustments
408

 
6,848

 
770

 
8,026

Balance as of April 30, 2013
$
604,599

 
$
181,716

 
$
55,134

 
$
841,449


Goodwill increased $164,658 during the nine months ended April 30, 2013. Of the $164,658 increase, $189,187 was due to the acquisition of Precision Dynamics Corporation ("PDC"), and $8,026 was due to the positive effects of foreign currency translation. These increases were partially offset by the divestitures of the Precision Converting, LLC (“Brady Medical”) and the Varitronics businesses during the first quarter of fiscal 2013, which decreased goodwill by $863 and $2,019, respectively. In addition, the assets and liabilities of the Die-Cut Asia business are classified as held for sale as of April 30, 2013, which resulted in a decrease of $29,673 for the goodwill balance associated with the disposal group. Refer to Note K, “Acquisitions and Divestitures” and Note N, "Discontinued Operations" for further discussion.


7

Table of Contents

Other intangible assets include patents, trademarks, customer relationships, non-compete agreements and other intangible assets with finite lives being amortized in accordance with the accounting guidance for other intangible assets. The net book value of these assets was as follows:
 
 
April 30, 2013
 
July 31, 2012
 
Weighted
Average
Amortization
Period
(Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Weighted
Average
Amortization
Period
(Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Amortized other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Patents
5
 
$
10,818

 
$
(9,481
)
 
$
1,337

 
5
 
$
10,418

 
$
(9,058
)
 
$
1,360

Trademarks and other
5
 
15,283

 
(7,765
)
 
7,518

 
7
 
8,945

 
(7,094
)
 
1,851

Customer relationships
8
 
264,501

 
(141,102
)
 
123,399

 
7
 
164,392

 
(128,805
)
 
35,587

Non-compete agreements and other
4
 
15,681

 
(15,285
)
 
396

 
4
 
15,988

 
(15,417
)
 
571

Unamortized other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
N/A
 
41,933

 

 
41,933

 
N/A
 
44,750

 

 
44,750

Total
 
 
$
348,216

 
$
(173,633
)
 
$
174,583

 
 
 
$
244,493

 
$
(160,374
)
 
$
84,119

The value of goodwill and other intangible assets in the condensed consolidated balance sheets at April 30, 2013, differs from the value assigned to them in the original allocation of purchase price due to the effect of fluctuations in the exchange rates used to translate the financial statements into the United States Dollar between the date of acquisition and April 30, 2013. The acquisition of PDC increased customer relationships and amortized trademarks by $102,500 and $6,800, respectively.
Amortization expense on intangible assets was $6,597 and $3,944 for the three months ended April 30, 2013 and 2012, respectively, and $15,759 and $12,102 for the nine months ended April 30, 2013 and 2012, respectively. The amortization over each of the next five fiscal years is projected to be $19,934, $19,134, $16,934, $13,608 and 12,241 for the fiscal years ending July 31, 2014, 2015, 2016, 2017 and 2018, respectively.

8

Table of Contents

NOTE C — Net Earnings per Common Share
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
 
Three months ended April 30,
 
Nine months ended April 30,
 
2013
 
2012
 
2013
 
2012
Numerator: (in thousands)
 
 
 
 
 
 
 
Earnings from continuing operations
$
21,838

 
$
28,039

 
$
37,669

 
$
84,328

Less:
 
 
 
 
 
 
 
Restricted stock dividends
(60
)
 
(57
)
 
(179
)
 
(172
)
Numerator for basic and diluted earnings from continuing operations per Class A Nonvoting Common Share
$
21,778

 
$
27,982

 
$
37,490

 
$
84,156

Less:
 
 
 
 
 
 
 
Preferential dividends

 

 
(797
)
 
(818
)
Preferential dividends on dilutive stock options

 

 
(5
)
 
(5
)
Numerator for basic and diluted earnings from continuing operations per Class B Voting Common Share
$
21,778

 
$
27,982

 
$
36,688

 
$
83,333

Denominator: (in thousands)
 
 
 
 
 
 
 
Denominator for basic earnings from continuing operations per share for both Class A and Class B
51,415

 
52,513

 
51,210

 
52,539

Plus: Effect of dilutive stock options
626

 
490

 
475

 
407

Denominator for diluted earnings from continuing operations per share for both Class A and Class B
52,041

 
53,003

 
51,685

 
52,946

Earnings from continuing operations per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.53

 
$
0.73

 
$
1.60

Diluted
$
0.42

 
$
0.53

 
$
0.73

 
$
1.59

Earnings from continuing operations per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.53

 
$
0.72

 
$
1.59

Diluted
$
0.42

 
$
0.53

 
$
0.71

 
$
1.57

(Loss) from discontinued operations per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
(0.34
)
 
$

 
$
(0.29
)
 
$
(2.17
)
Diluted
$
(0.34
)
 
$
(0.01
)
 
$
(0.29
)
 
$
(2.16
)
(Loss) from discontinued operations per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
(0.34
)
 
$

 
$
(0.30
)
 
$
(2.17
)
Diluted
$
(0.34
)
 
$
(0.01
)
 
$
(0.29
)
 
$
(2.15
)
Net earnings (loss) per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.53

 
$
0.44

 
$
(0.57
)
Diluted
$
0.08

 
$
0.52

 
$
0.44

 
$
(0.57
)
Net earnings (loss) per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.53

 
$
0.42

 
$
(0.58
)
Diluted
$
0.08

 
$
0.52

 
$
0.42

 
$
(0.58
)
Options to purchase approximately 2,591,000 and 3,182,000 shares of Class A Nonvoting Common Stock for the three months ended April 30, 2013 and 2012, respectively, were not included in the computation of diluted net earnings per share because the impact of the inclusion of the options would have been anti-dilutive. Options to purchase approximately 3,560,000 and 4,013,000 shares of Class A Nonvoting Common Stock for the nine months ended April 30, 2013 and 2012, respectively, were not included in the computation of diluted net earnings (loss) per share as the impact of the inclusion of the options would have been anti-dilutive.

NOTE D — Segment Information
The Company evaluates short-term segment performance based on segment profit or loss and customer sales. Segment profit or loss does not include certain administrative costs, such as the cost of finance, information technology, human resources, and

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executive leadership, which are managed as global functions. Restructuring charges, impairment charges, equity compensation costs, interest expense, investment and other income (expense) and income taxes are also excluded when evaluating segment performance. Intersegment sales and transfers are recorded at cost plus a standard percentage markup.
Through April 30, 2013, the Company is organized and managed on a geographic basis by region. Each of these regions, Americas, EMEA and Asia-Pacific, has a President that reports directly to the Company’s chief operating decision maker, its Chief Executive Officer. Each region has its own distinct operations, is managed locally by its own management team, maintains its own financial reports and is evaluated based on regional segment profit. The Company has determined that these regions comprise its operating and reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance. Effective May 1, 2013, the Company will reorganize into two global product-based business platforms: Identification Solutions and Workplace Safety, which is known as Direct Marketing through the quarter ended April 30, 2013.
Following is a summary of segment information for the three and nine months ended April 30, 2013 and 2012:
 
 
Americas
 
EMEA
 
Asia-Pacific
 
Total Region
 
Corporate
and
Eliminations
 
Totals
Three months ended April 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
178,559

 
$
94,044

 
$
33,134

 
$
305,737

 
$

 
$
305,737

Segment profit
42,942

 
22,993

 
5,485

 
71,420

 
(1,282
)
 
70,138

Three months ended April 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
143,083

 
$
94,136

 
$
38,169

 
$
275,388

 
$

 
$
275,388

Segment profit
39,181

 
25,566

 
6,080

 
70,827

 
(388
)
 
70,439

Nine months ended April 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
470,418

 
$
279,420

 
$
106,570

 
$
856,408

 
$

 
$
856,408

Segment profit
119,179

 
70,568

 
15,793

 
205,540

 
(5,049
)
 
200,491

Nine months ended April 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
$
419,862

 
$
279,506

 
$
114,205

 
$
813,573

 
$

 
$
813,573

Segment profit
118,871

 
78,432

 
18,411

 
215,714

 
(6,010
)
 
209,704

Following is a reconciliation of segment profit to net earnings (loss) for the three and nine months ended April 30, 2013 and 2012:
 
Three months ended April 30,
 
Nine Months Ended April 30,
 
2013
 
2012
 
2013
 
2012
Total profit from reportable segments
$
71,420

 
$
70,827

 
$
205,540

 
$
215,714

Corporate and eliminations
(1,282
)
 
(388
)
 
(5,049
)
 
(6,010
)
Unallocated amounts:
 
 
 
 
 
 
 
Administrative costs
(30,642
)
 
(25,506
)
 
(94,042
)
 
(82,636
)
Restructuring charges
(8,540
)
 
(1,977
)
 
(10,487
)
 
(1,977
)
Investment and other income
1,131

 
1,108

 
2,427

 
1,719

Interest expense
(4,185
)
 
(4,735
)
 
(12,755
)
 
(14,715
)
Earnings from continuing operations before income taxes
27,902

 
39,329

 
85,634

 
112,095

Income taxes
(6,064
)
 
(11,290
)
 
(47,965
)
 
(27,767
)
Earnings from continuing operations
21,838

 
28,039

 
37,669

 
84,328

(Loss) from discontinued operations, net of income taxes
(17,605
)
 
(387
)
 
(14,933
)
 
(113,898
)
Net earnings (loss)
$
4,233

 
$
27,652

 
$
22,736

 
$
(29,570
)

Following is a summary of sales by business platform for the three and nine months ended April 30, 2013 and 2012: 
 
Three months ended April 30,
 
Nine Months Ended April 30,
 
2013
 
2012
 
2013
 
2012
Identification Solutions
$
212,799

 
$
180,414

 
$
576,233

 
$
531,188

Direct Marketing
88,004

 
90,528

 
266,109

 
267,785

Die-Cut
4,934

 
4,446

 
14,066

 
14,600

Total
$
305,737

 
$
275,388

 
$
856,408

 
$
813,573


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NOTE E – Stock-Based Compensation
The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees and non-employee directors. The options have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan, referred to herein as “service-based” options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above. These options are referred to herein as “performance-based” options. Performance-based stock options expire 10 years from the date of grant.
Restricted shares issued under the plan have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 were amended in fiscal 2011 to allow for vesting after either a five-year period or a seven-year period based upon both performance and service conditions. The restricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. These shares are referred to herein as “performance-based restricted shares.” Restricted shares granted in fiscal 2013 vest at the end of a three-year period based upon service conditions. These shares are referred to herein as “cliff-vested restricted shares.”
The Company also grants restricted stock units to certain executives and key management employees that vest upon meeting certain financial performance conditions over a specified vesting period, referred to herein as “performance-based restricted stock units.” The performance-based restricted stock units granted in fiscal 2013 vest over a two-year period upon meeting both performance and service conditions.
As of April 30, 2013, the Company has reserved 6,205,350 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 4,198,516 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the active plans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.
The Company recognizes the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Total stock-based compensation expense recognized by the Company during the three months ended April 30, 2013 and 2012, was $155 ($94 net of taxes) and $2,102 ($1,282 net of taxes), respectively, and expense recognized during the nine months ended April 30, 2013 and 2012 was $6,964 ($4,248 net of taxes), and $7,592 ($4,631 net of taxes), respectively. The decrease in stock-based compensation expense in the quarter ended April 30, 2013 was due to a reversal of $2,186. The reversal consisted of $1,286 of stock-based compensation expense on performance-based stock options that will not meet the financial performance conditions, and $900 of stock compensation expense on performance-based restricted shares for which the original service conditions will not be met.
As of April 30, 2013, total unrecognized compensation cost related to share-based compensation awards was $11,484 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 1.7 years.
The Company has estimated the fair value of its service-based and performance-based stock option awards granted during the nine months ended April 30, 2013 and 2012, using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:
 
 
 
Nine months ended April 30, 2013
 
Nine months ended April 30, 2012
 
 
Service-Based
 
Performance-
Based
 
Service-Based
 
Performance-
Based
Black-Scholes Option Valuation Assumptions
 
Option Awards
 
Option Awards
 
Option Awards
 
Option Awards
Expected term (in years)
 
5.94

 

 
5.89

 
6.57

Expected volatility
 
38.68
%
 

 
39.41
%
 
39.21
%
Expected dividend yield
 
2.21
%
 

 
2.07
%
 
1.99
%
Risk-free interest rate
 
0.90
%
 

 
1.16
%
 
2.05
%
Weighted-average market value of underlying stock at grant date
 
$
30.54

 
$

 
$
27.05

 
$
29.55

Weighted-average exercise price
 
$
30.54

 
$

 
$
27.05

 
$
29.55

Weighted-average fair value of options granted during the period
 
$
9.05

 
$

 
$
8.42

 
$
10.01


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The Company uses historical data regarding stock option exercise behaviors to estimate the expected term of options granted based on the period of time that options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company’s stock. The expected dividend yield is based on the Company’s historical dividend payments and historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for the length of time corresponding to the expected term of the option. The market value is calculated as the average of the high and the low stock price on the date of the grant.
The Company granted 5,000 cliff-vested restricted shares in December 2012, with a grant price and fair value of $32.99. The Company granted 10,000 shares of performance-based restricted stock units in September 2012, with a grant price and fair value of $30.21. The Company granted 100,000 shares of performance-based restricted stock in August of 2010, with a grant price and fair value of $28.35, and 210,000 shares in fiscal 2008, with a grant price and fair value of $32.83. As of April 30, 2013, 5,000 cliff-vested restricted shares were outstanding, 10,000 performance-based restricted stock units were outstanding and 310,000 performance-based restricted shares were outstanding.
The Company granted 815,450 service-based stock options during the nine months ended April 30, 2013, with a weighted average exercise price of $30.54 and a weighted average fair value of $9.05. There were no performance-based stock options granted during the nine months ended April 30, 2013.
A summary of stock option activity under the Company’s share-based compensation plans for the nine months ended April 30, 2013 is presented below:
Options
 
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding at July 31, 2012
 
6,253,751
 
$
29.24

 
 
 
 
New grants
 
815,450
 
$
30.54

 
 
 
 
Exercised
 
(642,579)
 
$
21.22

 
 
 
 
Forfeited or expired
 
(519,272)
 
$
30.52

 
 
 
 
Outstanding at April 30, 2013
 
5,907,350
 
$
30.18

 
6.5
 
$
25,094

Exercisable at April 30, 2013
 
3,736,320
 
$
30.70

 
4.9
 
$
15,728

There were 3,736,320 and 3,848,048 options exercisable with a weighted average exercise price of $30.70 and $29.67 at April 30, 2013 and 2012, respectively. The cash received from the exercise of options during the three months ended April 30, 2013 and 2012, was $5,837 and $1,441, respectively. The cash received from the exercise of options during the nine months ended April 30, 2013 and 2012, was $10,246 and $3,624, respectively. The tax benefit on stock options exercised during the three months ended April 30, 2013 and 2012, was $495 and $166, respectively. The tax benefit on stock options exercised during the nine months ended April 30, 2013 and 2012, was $1,760 and $761, respectively.
The total intrinsic value of options exercised during the nine months ended April 30, 2013 and 2012, based upon the average market price at the time of exercise during the period, was $7,360 and $2,987, respectively. The total fair value of stock options vested during the nine months ended April 30, 2013 and 2012, was $10,860 and $8,035, respectively.
NOTE F — Stockholders’ Equity
On September 9, 2011, the Company’s Board of Directors authorized a share repurchase program for up to two million shares 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. As of July 31, 2012, there remained 334,940 shares to purchase in connection with this share repurchase plan.
On September 6, 2012, the Company’s Board of Directors authorized an additional share repurchase program for up to two million additional shares of the Company’s Class A Nonvoting Common Stock. During the nine months ended April 30, 2013, the Company purchased 188,167 shares of its Class A Nonvoting Common Stock for $5,121. As of April 30, 2013, there remained 2,146,773 shares to purchase in connection with these plans.
NOTE G — Employee Benefit Plans
The Company provides postretirement medical benefits for eligible regular full and part-time domestic employees (including spouses) outlined by the plan. Postretirement benefits are provided only if the employee was hired prior to April 1, 2008, and

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retires on or after attainment of age 55 with 15 years of credited service. Credited service begins accruing at the later of age 40 or date of hire. All active employees first eligible to retire after July 31, 1992, are covered by an unfunded, contributory postretirement healthcare plan where employer contributions will not exceed a defined dollar benefit amount, regardless of the cost of the program. Employer contributions to the plan are based on the employee’s age and service at retirement.
The Company funds benefit costs on a pay-as-you-go basis. There have been no changes to the components of net periodic benefit cost or the amount that the Company expects to fund in fiscal 2013 from those reported in Note 3 to the consolidated financial statements included in the Company’s latest annual report on Form 10-K for the year ended July 31, 2012.
NOTE H — Fair Value Measurements
In accordance with fair value accounting guidance, the Company’s assets and liabilities measured at fair market value are classified in one of the following categories:
Level 1 — Assets or liabilities for which fair value is based on quoted market prices in active markets for identical instruments as of the reporting date.
Level 2 — Assets or liabilities for which fair value is based on valuation models for which pricing inputs were either directly or indirectly observable.
Level 3 — Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.
The following tables set forth by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis at April 30, 2013, and July 31, 2012, according to the valuation techniques the Company used to determine their fair values.
 
 
Inputs
Considered As
 
 
 
 
 
Quoted Prices in Active Markets for Identical
Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Fair Values
 
Balance Sheet Classifications
April 30, 2013
 
 
 
 
 
 
 
Trading securities
$
14,614

 
$

 
$
14,614

 
Other assets
Foreign exchange contracts

 
1,242

 
1,242

 
Prepaid expenses and other current assets
Total Assets
$
14,614

 
$
1,242

 
$
15,856

 
 
Foreign exchange contracts
$

 
$
438

 
$
438

 
Other current liabilities
Foreign currency denominated debt

 
108,001

 
108,001

 
Long term obligations, less current maturities
Total Liabilities
$

 
$
108,439

 
$
108,439

 
 
July 31, 2012
 
 
 
 
 
 
 
Trading securities
$
12,676

 
$

 
$
12,676

 
Other assets
Foreign exchange contracts

 
1,234

 
1,234

 
Prepaid expenses and other current assets
Total Assets
$
12,676

 
$
1,234

 
$
13,910

 
 
Foreign exchange contracts
$

 
$
281

 
$
281

 
Other current liabilities
Foreign currency denominated debt

 
99,081

 
99,081

 
Long term obligations, less current maturities
Total Liabilities
$

 
$
99,362

 
$
99,362

 
 
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Trading securities: The Company’s deferred compensation investments consist of investments in mutual funds. These investments were classified as Level 1 as the shares of these investments trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.

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


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

There have been no transfers of assets or liabilities between the fair value hierarchy levels, outlined above, during the three or nine months ended April 30, 2013 and 2012. In addition, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the three and nine months ended April 30, 2013.

During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. As such, the assets and liabilities of the Die-Cut Asia disposal group were recorded at approximate fair value less cost to sell and classified as "Assets held for sale" and "Liabilities held for sale." This resulted in a loss on the write-down of the disposal group of $15,658 recorded within discontinued operations for the three and nine months ended April 30, 2013. Fair value was determined utilizing a combination of external market factors, internal projections, and other relevant Level 3 measurements.

During the three months ended January 31, 2012, goodwill with a carrying amount of $163,702 in the former North/South Asia reporting unit was written down to its estimated implied fair value of $48,014, resulting in a non-cash impairment charge of $115,688. In order to arrive at the implied fair value of goodwill, the Company assigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Intangible assets consisted of customer lists, and were valued using the income approach based upon customers in existence at the valuation date. After assigning fair value to the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of $48,014, which represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to its original recognition.
The Company’s financial instruments, other than those presented in the disclosures above, include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term and long-term debt. The fair values of cash and cash equivalents, accounts receivable, notes payable, accounts payable, and accrued liabilities approximated carrying values because of the short-term nature of these instruments.
The estimated fair value of the Company’s short-term and long-term debt obligations, including notes payable, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities, was $359,427 and $338,668 at April 30, 2013 and July 31, 2012, respectively, as compared to the carrying value of $338,301 and $316,208 at April 30, 2013 and July 31, 2012, respectively.
The Company drew down on its revolving loan agreement during the nine months ended April 30, 2013, in order to fund the acquisition of PDC. There was $47,000 outstanding on the revolving loan agreement at April 30, 2013. In addition, the Company entered into a USD-denominated line of credit facility with Bank of America in China in the amount of $26,200, of which $11,658 was drawn during the three months ended April 30, 2013, in order to fund working capital and operations for the Company's Chinese entities. These outstanding balances are classified as "Notes Payable" in the amount of $58,658 on the condensed consolidated balance sheets, and the fair value approximates carrying value due to the short-term nature of the instruments.
NOTE I — Restructuring
During the three months ended April 30, 2013, the Company announced a restructuring action to reduce approximately 5-7% of its global workforce in order to address its cost structure. In connection with this restructuring action, the Company incurred restructuring charges of $8,540 and $10,487 in continuing operations during the three and nine months ended April 30, 2013, respectively. Of the $10,487 recognized in continuing operations during the nine months ended April 30, 2013, $1,947 was incurred during the second quarter ended January 31, 2013, and related primarily to restructuring costs incurred as part of the acquisition of PDC.
The three months restructuring charges of $8,540 consisted of $2,863 of employee separation costs, $3,423 of long-lived asset write-offs, and $2,254 of other facility closure related costs. Of the $8,540 of restructuring charges recorded during the quarter, $5,067 was incurred in the Americas and $3,473 was incurred in EMEA.
The year-to-date restructuring charges of $10,487 consisted of $4,829 of employee separation costs, $3,423 of long-lived asset write-offs, and $2,235 of other facility closure related costs. Of the $10,487 of restructuring charges recorded during fiscal 2013, $6,534 was incurred in the Americas, $3,816 was incurred in EMEA, and $137 was incurred in Asia-Pacific. The Company expects to incur approximately an additional $13-$16 million in restructuring in the fourth quarter of fiscal 2013 associated with this plan, which includes tradename write-offs in conjunction with brand consolidation. The charges for employee separation costs consisted of severance pay, outplacement services, medical and other benefits. The costs related to these restructuring activities were recorded on the condensed consolidated statements of earnings as restructuring charges. The Company expects the majority of the remaining cash payments to be made during the next twelve months.

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During the three months ended April 30, 2012, the Company took various measures to address its cost structure in response to weaker sales forecasts across the Company. As a result of these actions, the Company recorded restructuring charges of $1,977, which consisted of $1,006 of employee separation costs, $458 of fixed asset write-offs, and $513 of other facility closure related costs. Of the $1,977 of restructuring charges recorded during the three months ended April 30, 2012, $1,709 was incurred in the Americas, $258 was incurred in EMEA, and $10 was incurred in Asia-Pacific.
A reconciliation of the Company’s restructuring liability is as follows:
 
Employee
Related
 
Asset Write-offs
 
Other
 
Total
Beginning balance, July 31, 2012
$
8,809

 
$

 
$
265

 
$
9,074

Restructuring charges in continuing operations
4,829

 
3,423

 
2,235

 
10,487

Restructuring charges in discontinued operations
1,337

 
283

 
1,344

 
2,964

Non-cash write-offs

 
(3,706
)
 

 
(3,706
)
Cash payments
(10,239
)
 

 
(1,946
)
 
(12,185
)
Ending balance, April 30, 2013
$
4,736

 
$

 
$
1,898

 
$
6,634

NOTE J — Derivatives and Hedging Activities
The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of less than 18 months, which qualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency movements due to transactions in other than the respective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s net investment denominated in a currency other than the U.S. Dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts. As of April 30, 2013 and July 31, 2012, the notional amount of outstanding forward exchange contracts was $170,641 and $61,169, respectively.
The Company hedges a portion of known exposure using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Malaysian Ringgit and Singapore Dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.
Hedge effectiveness is determined by how closely the changes in fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings.
Cash Flow Hedges
The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At April 30, 2013, unrealized gains of $132 have been included in OCI. As of April 30, 2012, unrealized gains of $46 were included in OCI. These balances are expected to be reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings. For the three months ended April 30, 2013 and 2012, the Company reclassified losses of $9 and gains $382 from OCI into earnings, respectively. For the nine months ended April 30, 2013 and 2012, the Company reclassified gains of $548 and losses of $252 from OCI into earnings, respectively. At April 30, 2013 and July 31, 2012, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $11,632 and $39,458, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds and U.S. Dollars.
Net Investment Hedges
The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. At April 30, 2013, the Company designated £25,036 of intercompany loans as net investment hedges to hedge portions of its net investment in British foreign operations. At July 31, 2012, the Company designated €4,581 of intercompany loans as net investment hedges to hedge portions of its net investment in European foreign operations. On May 13, 2010, the Company completed the private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited

15

Table of Contents

institutional investors. This Euro-denominated debt obligation was designated as a net investment hedge to selectively hedge portions of its net investment in European foreign operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.
Additionally, the Company utilizes forward foreign exchange currency contracts designated as hedge instruments to hedge portions of the Company’s net investments in foreign operations. The net gains or losses attributable to changes in spot exchange rates are recorded in other comprehensive income. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At April 30, 2013 and July 31, 2012, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $7,399 and $10,650, respectively. As of April 30, 2013 and 2012, the Company recognized in OCI gains of $24 and $3,228, respectively, on its net investment hedges.
Non-Designated Hedges
For the three and nine months ended April 30, 2013, the Company recognized losses of $520 and $478, respectively, in “Investment and other income” on the condensed consolidated statements of earnings related to non-designated hedges. For the three and nine months ended April 30, 2012, the Company recognized a loss of $227 and a gain of $188, respectively.
Fair values of derivative instruments in the condensed consolidated balance sheets were as follows: 
 
Asset Derivatives
 
Liability Derivatives
 
April 30, 2013
 
July 31, 2012
 
April 30, 2013
 
July 31, 2012
  
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Prepaid expenses and other current assets
 
$
149

 
Prepaid expenses and other current assets
 
$
1,156

 
Other current liabilities
 
$
57

 
Other current liabilities
 
$
210

Net investment hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Prepaid expenses and other current assets
 
$

 
Prepaid expenses and other current assets
 
$

 
Other current liabilities
 
$
26

 
Other current liabilities
 
$
71

Foreign currency denominated debt
Prepaid expenses and other current assets
 
$

 
Prepaid expenses and other current assets
 
$

 
Long term obligations, less current maturities
 
$
98,228

 
Long term obligations, less current maturities
 
$
99,081

Total derivatives designated as hedging instruments
 
 
$
149

 
 
 
$
1,156

 
 
 
$
98,311

 
 
 
$
99,362

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Prepaid expenses and other current assets
 
$
1,093

 
Prepaid expenses and other current assets
 
$
78

 
Other current liabilities
 
$
355

 
Other current liabilities
 
$

Total derivatives not designated as hedging instruments
 
 
$
1,093

 
 
 
$
78

 
 
 
$
355

 
 
 
$

NOTE K — Acquisitions and Divestitures
In August 2012, the Company sold all of its assets of Precision Converting, LLC, doing business as Brady Medical, in Mesquite, Texas. Brady Medical specialized in manufacturing and converting die-cut products for the medical and diagnostic industry. Brady Medical had operations in the Company’s Americas segment. The Company received proceeds of $3,378 for this business, of which $3,018 was in cash and $360 was in non-cash consideration. The non-cash consideration consisted of an escrow account to be released upon the terms of the agreement, which is classified within “Other Long Term Assets” on the Condensed Consolidated Balance Sheets. The transaction resulted in a pre-tax loss of ($3,675), which was accounted for during the three month period ended October 31, 2012.

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In October 2012, the Company sold certain assets of its Varitronics business, an education technology solutions business. Varitronics had operations in the Company’s Americas segment. The Company received proceeds of $8,410 for this business, of which $7,160 was in cash and $1,250 was in the form of a promissory note, which is classified as a long-term asset. The transaction resulted in a pre-tax gain of $237, which was accounted for during the three month period ended October 31, 2012.
The Brady Medical and Varitronics divestitures are part of the Company’s continued long-term strategy to focus resources on businesses with a clear path to sustainable organic growth and profitability.
On December 28, 2012, the Company acquired all of the outstanding shares of Precision Dynamics Corporation ("PDC"), a manufacturer of identification products primarily for the healthcare sector headquartered in Valencia, California. PDC is reported within the Company's Americas segment. Net sales and net earnings attributable to PDC for the three months ended April 30, 2013 were $40,682 and $1,865, respectively. Net sales and net earnings attributable to PDC from the acquisition date through April 30, 2013 were approximately $56,750 and $626, respectively. Financing for this acquisition consisted of $220,000 from the Company's revolving loan agreement with a group of six banks, and the balance from cash on hand. As of April 30, 2013, the Company repaid $173,000 of the borrowing on the credit facility with cash on hand. The Company incurred $3,600 in acquisition-related expenses during the nine months ended April 30, 2013.
The Company acquired PDC to create an anchor position in the healthcare sector, consistent with the Company's mission to identify and protect premises, products and people. PDC's large customer base, strong channels to market, and broad product offering provide a strong foundation to build upon PDC's market position.
The table below details a preliminary allocation of the PDC purchase price:
Fair values:
April 30, 2013
 
Cash and cash equivalents
$
12,904

 
Accounts receivable — net
21,178

 
Total inventories
16,788

 
Prepaid expenses and other current assets
3,915

 
Goodwill
189,187

 
Other intangible assets
109,300

 
Other assets
483

 
Property, plant and equipment
18,165

 
Accounts payable
(10,386
)
 
Wages and amounts withheld from employees
(4,234
)
 
Taxes, other than income taxes
(600
)
 
Accrued income taxes
(57
)
 
Other current liabilities
(4,704
)
 
Other long-term liabilities
(37,878
)
 
 
314,061

 
Less: cash acquired
(12,904
)
Fair value of total consideration
$
301,157

The final purchase price allocation is subject to completion of final valuation of the assets acquired and liabilities assumed. The final valuation is expected to be completed as soon as is practicable but no later than 12 months after the closing date of the acquisition. The intangible assets consist of a customer relationship of $102,500, which is being amortized over a life of 10 years, and a definite-lived trademark of $6,800, which is being amortized over a life of 3 years. The goodwill acquired of $189,187 is not tax deductible.






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The following table reflects the unaudited pro forma operating results of the Company for the three and nine months ended April 30, 2013 and 2012, which give effect to the acquisition of PDC as if it had occurred at the beginning of fiscal 2012, after giving effect to certain adjustments, including amortization of intangible assets, interest expense on acquisition debt, and income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations which may occur in the future or that would have occurred had the acquisitions been effected on the date indicated, nor are they necessarily indicative of the Company's future results of operations.
 
Three months ended April 30,
 
Nine Months Ended April 30,
 
2013
 
2012
 
2013
 
2012
Net sales, as reported
$
305,737

 
$
275,388

 
$
856,408

 
$
813,573

Net sales, pro forma
305,737

 
319,077

 
924,832

 
938,774

Earnings from continuing operations, as reported
21,838

 
28,039

 
37,669

 
84,328

Earnings from continuing operations, pro forma
21,838

 
29,893

 
42,553

 
83,271

Basic earnings from continuing operations per Class A Common Share, as reported
0.42

 
0.53

 
0.73

 
1.60

Basic earnings from continuing operations per Class A Common Share, pro forma
0.42

 
0.57

 
0.83

 
1.58

Diluted earnings from continuing operations per Class A Common Share, as reported
0.42

 
0.53

 
0.73

 
1.59

Diluted earnings from continuing operations per Class A Common Share, pro forma
0.42

 
0.56

 
0.82

 
1.57

Pro forma results for the nine months ended April 30, 2012, were adjusted to include $3,600 of acquisition-related expenses, $1,530 of nonrecurring expense related to the fair value adjustment to acquisition-date inventory, $720 in interest expense on acquisition debt, and ($827) in income tax benefit.
Pro forma results for the nine months ended April 30, 2013, were adjusted to exclude $3,600 of acquisition-related expenses and $1,530 of nonrecurring expense related to the fair value adjustment to acquisition-date inventory, and were adjusted to include $529 in interest expense on acquisition debt and ($135) in income tax benefit.
Pro forma results for the nine months ended April 30, 2013 and 2012 includes $5,141 and $9,313 of pretax amortization expense related to intangible assets, respectively.

NOTE L - Notes Payable
In December 2012, the Company drew down $220,000 from its revolving loan agreement with a group of six banks to fund a portion of the purchase price of the acquisition of PDC. Prior to April 30, 2013, the Company repaid $173,000 of the borrowing with cash on hand. The Company intends to repay the remainder of the borrowing within 12 months of the current period end, as such, the borrowing is classified as "Notes Payable" within current liabilities on the Condensed Consolidated Balance Sheets. During the nine months ended April 30, 2013, the maximum amount outstanding on the revolving loan agreement was $220,000. As of April 30, 2013, the outstanding balance on the credit facility was $47,000 and there was $253,000 available for future borrowing under the credit facility, which can be increased to $403,000 at the Company's option, subject to certain conditions.
In February 2013, the Company entered into a USD-denominated line of credit facility with in China. The facility supports USD-denominated borrowing to fund working capital and operations for the Company's Chinese entities. During the nine months ended April 30, 2013, the maximum amount outstanding was $11,658 which was the balance outstanding at April 30, 2013. As of April 30, 2013, there was $14,542 available for future borrowing under this credit facility.
As of April 30, 2013, borrowings on the revolving loan agreement and China line of credit are as follows:
 
 
Interest Rate
 
April 30, 2013
USD-denominated borrowing on revolving loan agreement
 
1.3000
%
 
$
47,000

USD-denominated borrowing on China line of credit
 
1.1332
%
 
11,658

Notes payable
 
1.2000
%
 
58,658


NOTE M - Income Taxes

During the nine months ended April 30, 2013, the Company recorded a $25,630 non-cash tax charge for the repatriation of approximately $208,000 of cash associated with the funding of the acquisition of PDC. The Company does not provide for U.S.

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deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. The remaining earnings continue to be reinvested indefinitely as of April 30, 2013, and it is impracticable to estimate the amount of such remaining earnings on an interim basis.

NOTE N — Discontinued Operations

During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. As a result, the business has been classified as assets and liabilities held for sale in accordance with the authoritative literature as of April 30, 2013. The disposal group has been recorded based on the estimated fair value less cost to sell, which resulted in a write down of $15,658. The operating results have been reported as discontinued operations for the comparative periods ended April 30, 2013 and 2012, including the operating results of the following three previously divested businesses:
Divestitures
 
Segment
 
Date Completed
Etimark
 
EMEA
 
July 2012
Precision Converting, LLC (“Brady Medical”)
 
Americas
 
August 2012
Varitronics
 
Americas
 
October 2012
 
The following table summarizes the operating results of discontinued operations for the three and nine months ended April 30, 2013 and 2012:
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
44,653

 
$
56,241

 
$
155,811

 
$
188,148

(Loss) on write-down of disposal group
(15,658
)
 

 
(15,658
)
 

(Loss) earnings from operations of discontinued businesses
(417
)
 
(2,002
)
 
4,463

 
(112,246
)
Income tax (expense) benefit
(1,530
)
 
1,615

 
(3,738
)
 
(1,652
)
(Loss) from discontinued operations, net of income tax
$
(17,605
)
 
$
(387
)
 
$
(14,933
)
 
$
(113,898
)

The following table details assets and liabilities of the Die-Cut Asia disposal group classified as held for sale as of April 30, 2013:
 
April 30, 2013
Accounts receivable—net
$
50,564

Total inventories
19,889

Prepaid expenses and other current assets
2,119

Total current assets
72,572

 
 
Other assets:
 
Goodwill
29,673

Other intangible assets
491

Other
1,985

Property, plant and equipment—net
19,560

Total assets
$
124,281

 
 
Current liabilities:
 
Accounts payable
$
30,403

Wages and amounts withheld from employees
3,119

Other current liabilities
1,162

Total current liabilities
34,684

 
 
Net assets of disposal group
89,597

Less: write-down on disposal group
(15,658
)
Net assets of disposal group at fair value
$
73,939


In accordance with authoritative literature, accumulated other comprehensive income will be reclassified to the statement of earnings upon liquidation or substantial liquidation of the disposal group.


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NOTE O — New Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Presentation of Comprehensive Income,” which eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently, in December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income,” which indefinitely defers the requirements in ASU 2011-05 to present on the face of the financial statements adjustments for items that are reclassified from OCI to net earnings in the statement where the components of net earnings and the components of OCI are presented. The ASU does not change the items that must be reported in OCI. The Company has provided the required statements of comprehensive income beginning with the first quarter of fiscal 2013.
In January 2013, the FASB issued ASU 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarified that the scope of the disclosures under U.S. GAAP is limited to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are offset either in accordance with ASC 210 or ASC 815. Entities with other types of financial assets and financial liabilities subject to a master netting arrangement or similar agreement are no longer subject to the disclosure requirements in ASU 2011-11. The guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. Disclosures are to be provided retrospectively for all periods presented. The adoption of this update will not have a material impact on the financial statements of the Company.
In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to disclose additional information for items reclassified out of accumulated other comprehensive income (AOCI). For items reclassified out of AOCI and into net earnings in their entirety, entities are required to disclose the effect of the reclassification in each affected line in the statement of earnings. For AOCI reclassification items that are not reclassified in their entirety into net earnings, a cross reference to other required U.S. GAAP disclosures is required. This information may be provided either in the notes or parenthetically on the face of the statement that reports net earnings as long as all the information is disclosed in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement that reports net earnings if it has items that are not reclassified in their entirety into net earnings. The guidance is effective for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update will not have a material impact on the financial statements of the Company.
In March 2013, the FASB issued ASU 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," which applies to the release of the cumulative translation adjustment into net earnings when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The guidance requires that a parent deconsolidate a subsidiary or derecognize a group of assets that is a business if the parent ceases to have a controlling financial interest in that group of assets, and resolves the diversity in practice for the treatment of business combinations achieved in stages involving a foreign entity. The guidance is effective for annual and interim reporting periods beginning after December 15, 2013. The adoption of this update will not have a material impact on the financial statements of the Company.
NOTE P — Subsequent Events

On May 15, 2013, the Board of Directors declared a quarterly cash dividend to shareholders of the Company’s Class A and Class B Common Stock of $0.19 per share payable on July 31, 2013 to shareholders of record at the close of business on July 10, 2013.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Brady Corporation was incorporated under the laws of the state of Wisconsin in 1914. Brady Corporation is an international manufacturer of identification solutions and specialty materials that identify and protect premises, products and people. The ability to provide customers with a broad range of proprietary, customized, and diverse products for use in various applications, along with a commitment to quality and service, a global footprint and multiple sales channels, have made Brady a world leader in many of its markets.
The Company operates in Australia, Belgium, Brazil, Canada, the Cayman Islands, China, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, the Philippines, Poland, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the United States. Brady sells through subsidiaries or sales offices in these countries, with additional sales through a dedicated team of international sales representatives in Russia, Taiwan, Central Europe, the Middle East, Africa and South America.
Through April 30, 2013, the Company is organized and managed on a geographic basis within three regions: Americas, EMEA (Europe, the Middle East and Africa), and Asia-Pacific, which are the reportable segments. Across these regions, the Company operates three primary business platforms: Identification Solutions (“ID Solutions”), Direct Marketing and Die-Cut. Refer to Item 1 of the Company’s fiscal 2012 Form 10-K for additional information regarding the business platforms. Effective May 1, 2013, the Company will reorganize into two global product-based business platforms: Identification Solutions and Workplace Safety, which is known as Direct Marketing through the quarter ended April 30, 2013.

Results of Operations

During the three months ended April 30, 2013, the Company implemented a plan to divest its Die-Cut Asia business. This is a part of the Company's ongoing efforts to shift its portfolio of businesses into more stable industries that are supported by macro-economic trends. The Die-Cut Asia business platform primarily consists of the sale of high performance products such as gaskets, meshes, heat dissipation materials, antennae, dampers, filters, and similar products sold into the electronics industries including the mobile handset and hard-disk drive industries. The business has shown many signs of improvement and has recently secured several new orders; however, management no longer considers the business to be core to the overall strategy and believes that customers and employees will be better served being owned by a company in which die-cut is a core product offering. As such, the assets and liabilities of the business were classified as held for sale in the condensed consolidated balance sheet as of April 30, 2013, and its operating results are reflected as discontinued operations in the condensed consolidated statements of earnings for the three and nine months ended April 30, 2013 and 2012.

The Company's continuing operations were affected by continued global economic weakness primarily in Europe, Brazil and Australia during the three and nine months ended April 30, 2013. In addition, the continued decline in the Direct Marketing Americas business impacted results as the growth in e-commerce sales have only partially offset the decline in the traditional catalog model sales. In December 2012, the Company made a strategic acquisition with the purchase of Precision Dynamics Corporation ("PDC"), a leader in the U.S. healthcare identification sector, moving into faster growing end markets. The purchase price paid for PDC on December 28, 2012, was $301.2 million, and annual revenue for PDC for calendar year 2012 was $173 million. This acquisition contributed 15% to our sales growth for the three months and 7% for the nine months ended April 30, 2013. In addition to acquisitions, we are focused on the following initiatives in order to create growth:

Expanding our business in emerging geographies, or geographies where we are under-penetrated
Developing and introducing new products
Expanding globally in selected vertical markets, such as Aerospace and Mass Transit, Chemical, Oil & Gas, and Food & Beverage
Commitment to customer conversion, and
Expanding our on-line capabilities to deliver the best buying experience for our customers

The comparability of the operating results for the three and nine months ended April 30, 2013, to the prior year has been impacted by the following acquisitions completed in fiscal 2013 and fiscal 2012:
Fiscal 2013
Acquisitions
 
Segment
 
Date Completed
Precision Dynamics Corporation ("PDC")
 
Americas
 
December 2012

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Fiscal 2012
Acquisitions
 
Segment
 
Date Completed
Grafo Wiremarkers Africa (“Grafo”)
 
EMEA
 
March 2012
Runelandhs Försäljnings AB (“Runelandhs”)
 
EMEA
 
May 2012
Pervaco AS (“Pervaco”)
 
EMEA
 
May 2012

Sales for the three months ended April 30, 2013, increased 11.0% to $305.7 million, compared to $275.4 million in the same period of the last fiscal year. Of the 11.0% increase in sales, organic sales decreased by 4.7%, and fluctuations in the exchange rates used to translate financial results into the United States dollar decreased sales by 1.1%. Acquisitions increased sales by 16.8% during the three months ended April 30, 2013. The decrease in organic sales for the three months ended April 30, 2013, was comprised of a 2.9% decrease in the Americas, and 4.8% and 11.6% declines in sales in the EMEA and Asia-Pacific segments, respectively. Net earnings from continuing operations for the three months ended April 30, 2013 and 2012, were $21.8 million and $28.0 million, respectively.

Sales for the nine months ended April 30, 2013, increased 5.3% to $856.4 million, compared to $813.6 million in the same period of the last fiscal year. Organic sales declined 2.7%, acquisitions increased sales by 9.3% and the effects of fluctuations in the exchange rates used to translate financial results into the United States dollar decreased sales by 1.3%. Net earnings from continuing operations for the nine months ended April 30, 2013, were $37.7 million, which includes a non-cash tax charge of $25.0 million due to the repatriation of cash in order to fund the PDC acquisition. Net earnings from continuing operations for the nine months ended April 30, 2012, were $84.3 million.

Gross margin as a percentage of sales decreased to 52.2% from 55.1% for the three months and decreased to 52.8% from 54.8% for the nine months ended April 30, 2013, compared to the same periods of the prior year. Excluding the acquisition of PDC, gross margin as a percentage of sales decreased to 53.8% from 55.1% for the three months and decreased to 54.0% from 54.8% for the nine months ended April 30, 2013. As PDC is a lower gross margin business compared to the remainder of the ID Solutions platform, the year-over-year decline is expected to continue through the second quarter of next fiscal year. The remaining decline in gross margin was primarily due to the challenging global economy, as we have passed limited cost increases on to our customers.

Research and development ("R&D") expenses decreased 1.7% to $8.1 million for the three months ended April 30, 2013, compared to $8.2 million for the same period in the prior year, and decreased 5.8% to $24.2 million for the nine months ended April 30, 2013, compared to $25.7 million for the same period in the prior year. The Company's R&D expenditures are primarily related to the organic ID Solutions business platform. As a percentage of organic ID Solutions sales, R&D expense was consistent year over year at 4.7% and 4.5% for the three months ended April 30, 2013 and 2012, respectively, and 4.7% and 4.8% for the nine months ended April 30, 2013 and 2012, respectively.

Selling, general and administrative ("SG&A") expenses increased 13.7% to $112.1 million for the three months ended April 30, 2013, compared to $98.6 million for the same period in the prior year, and increased 9.7% to $321.9 million for the nine months ended April 30, 2013, compared to $293.5 million for the same period in the prior year. As a percentage of sales, SG&A expenses increased to 36.0% from 35.8% for the three months and increased to 37.6% from 36.1% for the nine months ended April 30, 2013, compared to the same period of the prior year, respectively. The increase was primarily due to the addition of PDC SG&A expense of $14.5 million and $19.7 million during the three and nine months ended April 30, 2013, as well as acquisition-related expenses for PDC of $3.6 million during the nine month period. The remaining increase for the three and nine months was related to investments to fund key growth initiatives as well as other general expense increases.
 
Restructuring charges were $8.5 million and $10.5 million for the three and nine months ended April 30, 2013, respectively. The charges for the quarter relate primarily to employee separation costs associated with restructuring announcements made in February 2013. In addition to employee costs, $3.2 million relates to a non-cash write-off of tradenames as a result of brand consolidation efforts that took place during the quarter. Of the $10.5 million in restructuring charges recognized during the nine months ended April 30, 2013, $2.0 million was recorded during the second quarter and was primarily related to employee separation costs associated with the acquisition of PDC. In February, the Company announced that the total restructuring charges expected to be incurred as part of the restructuring plan were $15 million to $18 million, with corresponding annual savings of approximately $25 million to $30 million. The Company expects to reinvest approximately $10 million to $15 million of the savings into ongoing business initiatives.

Other income remained consistent for the three months ended April 30, 2013, compared to the same period in the prior year, and increased to $2.4 million from $1.7 million for the nine months ended April 30, 2013, compared to the same period in the

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prior year. The increase in other income in the current year was primarily due to a larger foreign exchange loss realized in the prior year.

Interest expense decreased to $4.2 million from $4.7 million for the three months, and to $12.8 million and $14.7 million for the nine months ended April 30, 2013, compared to the same periods in the prior year. The decrease was due to the Company's declining principal balance under its outstanding debt agreements, along with changes in its debt structure reducing the Company's weighted average interest rate.

The Company's effective tax rate on continuing operations was 21.8% for the three months, and 56.0% for the nine months ended April 30, 2013. The Company's effective tax rate on continuing operations was 28.7% and 24.8% for the same periods in the prior year. The decrease in the three month tax rate was primarily due to a benefit from the release of tax reserves as a result of the expiration of statutes of limitation. The increase in the nine month tax rate was primarily driven by the $25.0 million non-cash tax charge recorded in the second quarter ended January 31, 2013, associated with the repatriation of cash to fund the acquisition of PDC. Excluding the impact of the PDC charge, the nine month tax rate was 25.9%, which was consistent with the same period in the prior year.

The Company's earnings from continuing operations, net of income taxes, were $21.8 million for the three months and $37.7 million for the nine months ended April 30, 2013, compared to earnings from continuing operations, net of income taxes, of $28.0 million and $84.3 million for the same periods in the prior year, respectively. The decline in the three months ended April 30, 2013, was primarily due a decline in organic sales as well as an increase of $6.5 million in restructuring charges. Excluding the non-cash tax charge of $25 million recognized in the nine months ended April 30, 2013, earnings from continuing operations, net of income taxes, were $62.7 million, a decline of $21.6 million from the prior year. This decline was primarily due to the organic sales decline of 2.7% and an increase in restructuring charges of $8.5 million compared to the same period in the prior year.

Discontinued Operations

Discontinued operations consist of the divestitures of Etimark in the EMEA segment in July 2012, Brady Medical in the Americas segment in August 2012, Varitronics in the Americas segment in October 2012, and the Die-Cut Asia business, based primarily in the Asia-Pacific segment which was classified as held for sale as of April 30, 2013. The loss from discontinued operations net of income taxes was $17.6 million for the three months, and $14.9 million for the nine months ended April 30, 2013, compared to $0.4 million and $113.9 million in the same periods in the prior year, respectively. The loss in the three months ended April 30, 2013, primarily related to a $15.7 million write-down of the disposal group to estimated fair value less cost to sell. The loss in the nine months ended April 30, 2012 primarily related to the $115.7 million goodwill impairment charge recorded during the second quarter of fiscal 2012, which was related to the disposal group.

Depreciation and amortization recognized within discontinued operations during the three and nine months ended April 30, 2013, were $2.8 million and $8.4 million, respectively, compared to $2.5 million and $9.1 million in the same periods of the prior year. EBITDA for discontinued operations was $2.4 million and $12.9 million for the three and nine months ended April 30, 2013, and $0.5 million and $12.5 million for the three and nine months ended April 30, 2012.

Business Segment Operating Results
The Company is organized and managed on a geographic basis by region. Each of these regions, Americas, EMEA and Asia-Pacific, has a President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each region has its own distinct operations, is managed locally by its own management team, maintains its own financial reports and is evaluated based on regional segment profit. The Company has determined that these regions comprise its operating and reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance.
The segment results have been adjusted to reflect continuing operations in all periods presented. The sales and profit of discontinued operations have been excluded from the following information.

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Following is a summary of segment information for the three and nine months ended April 30, 2013 and 2012:
(in thousands)
Americas
EMEA
Asia-Pacific
Total Region
Corporate and Eliminations
Total
SALES TO EXTERNAL CUSTOMERS
Three months ended:
April 30, 2013
$
178,559

$
94,044

$
33,134

$
305,737


$
305,737

April 30, 2012
143,083

94,136

38,169

275,388


275,388

 
 
 
 
 
 
 
Nine months ended:
April 30, 2013
$
470,418

$
279,420

$
106,570

$
856,408


$
856,408

April 30, 2012
419,862