Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2020
OR
For the transition period from to
Commission file number 1-14959
BRADY CORPORATION
(Exact name of registrant as specified in charter)
Wisconsin
(State or other jurisdiction of incorporation or organization)
39-0178960
(IRS Employer Identification No.)
6555 West Good Hope Road
Milwaukee, Wisconsin
53223
(Address of principal executive offices and 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
Trading Symbol
Name of each exchange on which registered
Class A Nonvoting Common Stock, par value $0.01 per share
BRC
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 ☑ 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 ☑
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
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
Non-accelerated filer
☑
☐
Accelerated filer
Smaller reporting company
☐
☐
Emerging growth 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the non-voting common stock held by non-affiliates of the registrant as of January 31, 2020, was approximately $2,613,354,710 based on the closing sale price of
$55.37 per share on that date as reported for the New York Stock Exchange. As of September 14, 2020, there were 48,466,712 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
Table of Contents
Item.1 Business
General Development of Business
Narrative Description of Business
Overview
Research and Development
Operations
Environment
Employees
Information Available on the Internet
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Compensation Discussion and Analysis
Management Development and Compensation Committee Interlocks and Insider Participation
Management Development and Compensation Committee Report
Compensation Policies and Practices
Summary Compensation Table
Grants of Plan-Based Awards for 2020
Outstanding Equity Awards at 2020 Fiscal Year End
Option Exercises and Stock Vested for Fiscal 2020
Non-Qualified Deferred Compensation for Fiscal 2020
Potential Payments Upon Termination or Change in Control
CEO Pay Ratio Disclosure
Compensation of Directors
Director Compensation Table — Fiscal 2020
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships, Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
2
3
3
4
4
5
6
6
6
6
6
11
11
11
11
12
14
15
24
25
55
55
58
58
63
63
76
76
76
77
79
80
83
84
84
84
88
89
90
92
92
93
97
98
Table of Contents
Forward-Looking Statements
PART I
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,
income, 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,” "continue," 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:
Raw material and other cost increases
Extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities
Risks associated with the loss of key employees
• Adverse impacts of the novel coronavirus ("COVID-19") pandemic or other pandemics
• Decreased demand for the Company's products
• Ability to compete effectively or to successfully execute its strategy
• Ability to develop technologically advanced products that meet customer demands
•
• Difficulties in protecting websites, networks, and systems against security breaches
•
•
• Divestitures, contingent liabilities from divestitures and the failure to identify, integrate, and grow acquired companies
•
•
•
•
• Differing interests of voting and non-voting shareholders
• Numerous other matters of national, regional and global scale, including major public health crises and government responses thereto and 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.
Litigation, including product liability claims
Foreign currency fluctuations
Potential write-offs of goodwill and other intangible assets
Changes in tax legislation and tax rates
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.
Item 1. Business
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 enabling a highly competent and experienced
organization to focus on the following key competencies:
• Operational excellence — Continuous productivity improvement, automation, and product customization capabilities.
•
•
Customer service — Understanding customer needs and providing a high level of customer service.
Innovative products — Technologically-advanced, internally-developed proprietary products that drive revenue growth and sustain gross profit
margins.
• Global leadership position in niche markets.
• Digital capabilities.
•
Compliance expertise.
3
Table of Contents
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 certain industries and products, a focus on improving the customer buying experience, and investment in research and development ("R&D") to
develop new products. In our Workplace Safety ("WPS") business, our strategy for growth includes a focus on workplace safety critical industries,
innovative new product offerings, compliance expertise, customization expertise, and improving our digital capabilities.
The following were key initiatives supporting the strategy in fiscal 2020:
•
Investing in organic growth by enhancing our research and development process and improving the time to launch high-value, innovative products
in alignment with our target markets.
Providing our customers with the highest level of customer service.
Expanding and enhancing our sales capabilities through an improved digital presence and increased sales resources.
•
•
• Driving operational excellence and executing sustainable efficiency gains within our global operations and selling, general and administrative
structures.
• Growing through focused actions in selected vertical markets and strategic accounts.
•
Enhancing our employee development process to create an engaged diverse workforce and to attract and retain key talent.
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 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").
The WPS segment includes workplace safety and compliance products sold under multiple brand names primarily 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 segment for the fiscal years ended July 31:
IDS
WPS
Total
ID Solutions
2020
2019
2018
72.6 %
27.4 %
100.0 %
74.4 %
25.6 %
100.0 %
72.1 %
27.9 %
100.0 %
Within the ID Solutions segment, the primary product categories include:
•
•
Facility identification and protection, which includes safety signs, floor-marking tape, 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.
4
Table of Contents
Approximately 67% of ID Solutions products are sold under the Brady brand, with other primary brands including identification products for the utility
industry which are marketed under the Electromark brand and security and identification badges and systems which are marketed under the IDenticard,
PromoVision, and Brady People ID brands. Spill control products are marketed under the SPC brand, and lockout/tagout products are offered under the
Scafftag brand. Identification and patient safety products in the healthcare industry are available under the PDC Healthcare brand and custom wristbands
for the leisure and entertainment industry are available under the PDC brand and under the BIG brand.
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 on several factors, including customer service, product innovation, product
offering, product quality, price, 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 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, governments, 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, labels, and markings.
Informational signage and markings.
•
•
• Asset tracking labels.
•
•
•
Facility safety and personal protection equipment.
First aid products.
Labor law and other compliance posters.
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; wire identification products marketed under the Carroll brand; and labor law and compliance posters under the Personnel
Concepts and Clement Communications 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.
Many of our competitors extensively utilize e-commerce to promote the sale of their products. A consequence of e-commerce is price transparency, as
prices on non-proprietary products can be easily compared. Therefore, to compete effectively, we continue to build out our e-commerce capabilities and
focus on developing unique or customized solutions, enhancing customer experience, and providing compliance expertise as these are critical to retain
existing customers and convert new customers. Workplace Safety primarily sells to businesses and serves many industries, including manufacturers,
process industries, government, education, construction, and utilities.
Research and Development
The Company focuses its R&D efforts on pressure sensitive materials, printing systems, software, and the development of other workplace safety
related products. Although there is an increasing amount of R&D that supports the WPS segment, the majority of R&D spend 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. The
design of printing systems integrates materials, embedded software and a variety of printing technologies to form a complete solution for customer
applications. In addition, the R&D 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
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
5
Table of Contents
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 $40.7 million, $45.2 million, and $45.3 million on its R&D activities during the fiscal years ended July 31, 2020, 2019, and 2018,
respectively. The decrease in spending in fiscal 2020 compared to the prior year was primarily due to reductions in incentive-based compensation, project
spending and headcount in as part of our ongoing efficiency efforts within R&D. As of July 31, 2020, 232 individuals were engaged in R&D activities for
the Company, which is a decrease from 249 as of July 31, 2019.
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 manufacturing 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 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 certain situations, such as a global shortage of critical materials or components, the
financial impact could be material.
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 vary by geography.
The Company has a broad customer base, and no individual customer represents 10% or more of total net sales.
Average time to fulfill customer orders varies from same-day 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 the fiscal year ended July 31, 2020 did not have a material impact on
the Company’s business, financial condition or results of operations.
Employees
As of July 31, 2020, the Company employed approximately 5,400 individuals. Brady has never experienced a material work stoppage due to a labor
dispute and considers its relations with employees to be good.
Information Available on the Internet
The Company’s Corporate Internet address is www.bradyid.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
6
Table of Contents
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
Our results of operations have been and may in the future be adversely impacted by the COVID-19 pandemic or other pandemics, and the duration
and extent to which it will impact our business and financial results remains uncertain.
The global spread of COVID-19 has resulted in significant economic disruption, has negatively impacted our financial results, and significantly
increased future uncertainty. The extent to which our business and financial results are further impacted will depend on numerous evolving factors which
are uncertain and cannot be predicted, including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in
response; the effect on our customers and customers’ demand for our services and products; the decrease in healthcare services provided; the effect on our
suppliers and disruptions to the global supply chain; our ability to sell and manufacture our products; disruptions to our operations resulting from the illness
of any of our employees; restrictions or disruptions to transportation, including reduced availability of ground or air transport; the ability of our customers
to pay for our products; and any closures of our facilities, our suppliers’ facilities, and our customers’ facilities. The effects of the COVID-19 pandemic
have resulted and will result in additional expenses, lost or delayed revenue, and we have been experiencing disruptions to our business and additional
expenses as we implement modifications to employee travel, work locations and cancellation of events, among other modifications. In addition, the
deterioration of macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates,
commodity and energy prices, and interest rates. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our
business and financial results due to any economic recession or depression that has occurred, and due to any major public health crises that may occur in
the future.
Although our current accounting estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual
conditions could differ from our expectations, which could materially affect our results of operations and financial position. In particular, a number of
estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration, as well as the economic
consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions
may change over time in response to COVID-19. Such changes could result in future impairments of goodwill, intangible assets, long-lived assets,
incremental credit losses on accounts receivable, excess and obsolete inventory, or a decrease in the carrying amount of our deferred tax assets. Any of
these events could amplify the other risks and uncertainties described in this Annual Report on Form 10-K for the fiscal year ended July 31, 2020 and 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:
Consolidation in the marketplace allowing competitors to be more efficient and more price competitive.
Competitors entering the marketplace.
• Deterioration of economic conditions in major markets served.
• Ongoing economic and operational impact of the COVID-19 or other pandemics.
•
•
• Decreasing product life cycles.
•
• Ability to achieve operational excellence.
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.
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 several factors, including customer support, product innovation,
product offering, product quality, price, 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
7
Table of Contents
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.
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 innovate, 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.
Raw material and other cost increases could adversely affect our business and financial results.
We manufacture certain parts and components of our products and therefore require raw materials from suppliers, which could be interrupted for a
variety of reasons, including availability and pricing. Prices for raw materials necessary for production have fluctuated in the past and significant increases
could adversely affect our profit margins and results of operations. Changes in trade policies, shortages due to the COVID-19 or other pandemics, the
imposition of duties and tariffs and potential retaliatory countermeasures could adversely impact the price or availability of raw materials. In addition, labor
shortages or an increase in the cost of labor could adversely affect our profit margins and results of operations. Due to pricing pressure or other factors, the
Company may not be able to pass along increased raw material and component part costs to its customers in the form of price increases or its ability to do
so could be delayed, which could adversely impact our business and financial results.
Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, to protect our
confidential information, or to facilitate our digital strategy, could adversely affect our business and financial results.
Our business systems collect, transmit and store data about our customers, vendors and others, including credit card information and personally
identifiable 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 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 engage third-party service providers to assist with certain of our website and digital platform upgrades, which may result
in a decline in sales when initially deployed, which could have an adverse effect on our business and financial results.
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 to 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 will 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
8
Table of Contents
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.
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.
Approximately 45% of our sales are derived outside of the United States. 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.
•
•
Regulations resulting from political and economic instability and disruptions.
Imposition of new, or change in existing, duties, tariffs and trade agreements, which could have a direct or indirect impact on our ability to
manufacture products, on our customers' demand for our products, or on our suppliers' ability to deliver raw materials.
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 regulations.
Regulations relating to climate change, air emissions, wastewater discharges, handling and disposal of hazardous materials and wastes.
Regulations relating to product content, health, safety and the protection of the environment.
Imposition of trade or travel restrictions as a result of the COVID-19 or other pandemics.
Specific country regulations where our products are manufactured or sold.
Regulations relating to compliance with data protection and privacy laws throughout our global business.
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.
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. Divestitures pose risks and challenges that could negatively impact our business. When we decide
to sell a business or specific assets, we may be unable to do so on satisfactory terms or 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 income 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 several
9
Table of Contents
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.
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 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 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 for certain types of claims that we believe is adequate, we cannot be certain 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.
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 of the U.S. dollar could result in unfavorable translation effects, which occurred during fiscal years 2019 and 2020. 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.
Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact income and
profitability.
We have goodwill of $416.0 million and other intangible assets of $22.3 million as of July 31, 2020, which represents 38.4% of our total assets, and we
have recognized impairment charges in the past. 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. The valuations prepared for the required impairment test 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 changes in the use of the assets, 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 net income in such period.
10
Table of Contents
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 income is subject to risk due to changing tax laws and tax
rates around the world. 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 income 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. Changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions, or changes in
our geographic footprint may require modifications in the valuation allowance for deferred tax assets. 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, many will likely have an impact on our business and financial results.
Substantially all of our voting stock is controlled by two shareholders, while our public investors hold non-voting stock. The interests of the voting
and non-voting shareholders could differ, potentially resulting in decisions that 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, the voting shareholders have control in most matters requiring
approval or acquiescence by shareholders, including the composition of our Board of Directors and many corporate actions, and their interests may not
align with those of the non-voting shareholders. Such concentration of ownership may discourage a potential acquirer from making a purchase offer that
our public shareholders may find favorable and it 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. Additionally, certain mutual funds and
index sponsors have implemented rules restricting ownership, or excluding from indices, companies with non-voting publicly traded shares.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company currently operates 38 manufacturing and distribution facilities across the globe and are split by reporting segment as follows:
IDS: Twenty-nine manufacturing and distribution facilities are used for our IDS business. Six are located in the United States; four each in China and
Belgium; three in Mexico; two each in Brazil and the United Kingdom; and one each in Canada, India, Japan, Malaysia, Netherlands, Singapore, South
Africa, and Thailand.
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, Norway, the United Kingdom, and the United States.
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, named as a defendant in various legal proceedings and claims that arise in the normal course of business in
which claims are asserted against the Company. The Company records a liability for these legal actions when a loss is known or considered probable and
the amount can be reasonably estimated. 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
Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information
PART II
Brady Corporation Class A Nonvoting Common Stock trades on the New York Stock Exchange under the symbol BRC. There is no trading market for
the Company’s Class B Voting Common Stock.
(b) Holders
As of August 31, 2020, there were approximately 1,100 Class A Common Stock shareholders of record and approximately 9,000 beneficial
shareholders. There are three Class B Common Stock shareholders.
(c) 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 2021, the Company declared the following dividends per share on its Class A
and Class B Common Stock for the years ended July 31:
2021
1st Qtr
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
2020
2019
Class A
Class B
$
0.22
$
0.2175
$
0.2175
$
0.2175
$
0.2175
$
0.2125
$
0.2125
$
0.2125
$
0.20335
0.20085
0.2175
0.2175
0.2175
0.19585
0.2125
0.2125
0.2125
0.2125
(d) Issuer Purchases of Equity Securities
The Company has a share repurchase program for 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. On February 16, 2016, the Company's Board of Directors authorized a share repurchase program of 2,000,000
shares. As of July 31, 2020, there were 461,796 shares authorized to purchase in connection with this share repurchase program.
The following table provides information with respect to the purchase of Class A Nonvoting Common Stock during the three months ended July 31,
2020:
Period
May 1, 2020 - May 31, 2020
June 1, 2020 - June 30, 2020
July 1, 2020 - July 31, 2020
Total
Total Number of Shares
Purchased
Average Price Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
Maximum Number of
Shares That May Yet Be
Purchased Under the
Plans
39.95
—
—
39.95
10,029
—
—
10,029
461,796
461,796
461,796
461,796
10,029
$
—
—
10,029
$
12
Table of Contents
(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,
2015, in each of Brady Corporation Class A Common Stock, the Standard & Poor’s ("S&P") 500 Index, the S&P SmallCap 600 Index, and the Russell
2000 Index.
Brady Corporation
S&P 500 Index
S&P SmallCap 600 Index
Russell 2000 Index
2015
2016
2017
2018
2019
2020
$
100.00
$
141.41
$
149.56
$
176.13
$
242.63
$
100.00
100.00
100.00
105.48
105.86
99.93
122.40
124.55
118.38
142.28
153.34
140.55
153.64
142.99
134.34
219.50
172.01
130.59
128.18
Copyright (C) 2020, Standard & Poor’s, Inc. and Russell Investments. All rights reserved.
13
Table of Contents
Item 6. Selected Financial Data
CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATA
Years Ended July 31, 2016 through 2020
Operating data
Net sales
Gross margin
Operating expenses:
Research and development
Selling, general and administrative(1)
Impairment charges(2)
Total operating expenses
Operating income
Other income (expense):
Investment and other income (expense)
Interest expense
Net other income (expense)
Income before income taxes and losses of
unconsolidated affiliate
Income tax expense(3)
Income before losses of unconsolidated affiliate
Equity in losses of unconsolidated affiliate(4)
Net income
Net income per Common Share— (Diluted):
Class A nonvoting
Class B voting
Cash Dividends on:
Class A common stock
Class B common stock
Balance Sheet at July 31:
Total assets
Long-term debt, less current maturities
Stockholders’ equity
Cash Flow Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Depreciation and amortization
Capital expenditures
2020
2019
2018
2017
2016
(In thousands, except per share amounts)
$
1,081,299
$
1,160,645
$
1,173,851
$
1,113,316
$
528,565
578,678
588,291
558,292
1,120,625
558,773
40,662
336,059
13,821
390,542
138,023
5,079
(2,166)
2,913
140,936
28,321
45,168
371,082
—
416,250
162,428
5,046
(2,830)
2,216
164,644
33,386
45,253
390,342
—
435,595
152,696
2,487
(3,168)
(681)
152,015
60,955
39,624
387,653
—
427,277
131,015
1,121
(5,504)
(4,383)
126,632
30,987
112,615
$
131,258
$
91,060
$
95,645
$
(246)
—
—
—
112,369
$
131,258
$
91,060
$
95,645
$
2.11
2.10
0.87
0.85
$
$
$
$
2.46
2.45
0.85
0.83
$
$
$
$
1.73
1.72
0.83
0.81
$
$
$
$
1.84
1.83
0.82
0.80
$
$
$
$
35,799
405,096
—
440,895
117,878
(709)
(7,824)
(8,533)
109,345
29,235
80,110
—
80,110
1.58
1.56
0.81
0.79
1,142,466
$
1,157,308
$
1,056,931
$
1,050,223
$
1,043,964
—
863,072
—
850,774
52,618
752,112
104,536
700,140
140,977
$
162,211
$
143,042
$
144,032
$
(36,119)
(163,520)
23,437
(27,277)
(34,463)
(27,628)
23,799
(32,825)
(2,905)
(90,680)
25,442
(21,777)
(15,253)
(136,241)
27,303
(15,167)
211,982
603,598
138,976
(15,416)
(99,576)
32,432
(17,140)
$
$
$
$
$
$
$
$
(1) During fiscal 2018, the Company recognized a gain of $4.7 million on the sale of its Runelandhs Försäljnings AB business which was recorded as
a reduction of selling, general and administrative expense.
(2) The Company recognized impairment charges of $13.8 million during the fiscal year ended July 31, 2020, primarily related to other intangible and
long-lived assets of the WPS business.
(3) Fiscal 2018 was significantly impacted by the Tax Reform Act which resulted in total incremental tax expense of $21.1 million, which consisted
of $1.0 million related to the recording of a deferred tax liability for future withholdings and income taxes on the distribution of foreign income,
an income tax charge of $3.3 million related to the deemed repatriation of the historical income of foreign subsidiaries, and the impact of the Tax
Reform Act on the revaluation of deferred tax assets and liabilities of $16.8 million.
14
Table of Contents
(4) During fiscal 2020, the Company invested $6.0 million in React Mobile, Inc., an employee safety software and hardware company based in the
United States, which is accounted for as an equity method investment. Equity in losses of unconsolidated affiliate of $0.2 million in fiscal 2020
represented the Company's equity interest in React Mobile, Inc.
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, approximately half of which are internally manufactured and
half of which 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 40% and 70%, respectively.
The ability to provide customers with a broad range of proprietary, customized and diverse products for use in various applications across multiple
industries 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 the efficiency of our global operations, deliver a high level of customer service, 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 certain industries and products, a focus on
improving the customer buying experience, and the development of technologically advanced, innovative and proprietary products. In our WPS business,
our strategy for growth includes a focus on workplace safety critical industries, innovative new product offerings, compliance expertise, customization
expertise, and improving our digital capabilities.
Impact of the COVID-19 Pandemic on Our Business
The impact of the COVID-19 pandemic on the global economic environment has resulted in reduced demand across the majority of our end markets.
In the near-term, the COVID-19 pandemic is expected to continue to have adverse effects on our sales, overall profitability, and cash provided by operating
activities. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic.
Brady Corporation is deemed an essential business under the majority of local government orders. Our products support first responders, healthcare
workers, food processing companies, and many other critical industries. Certain of our businesses were shutdown temporarily and many employees worked
remotely during the second half of 2020, which had a negative impact on our financial results, operations, and employee productivity. However, the
majority of our facilities were operating globally while implementing enhanced safety protocols designed to protect the well-being of our employees.
We have taken actions throughout our business to reduce controllable costs, including actions to reduce labor costs, eliminating non-essential travel,
and reducing discretionary spend. We believe we have the financial strength to continue to invest in organic sales growth opportunities and R&D, while
continuing to drive efficiencies and automation in our operations and selling, general and administrative expenses ("SG&A") functions. At July 31, 2020,
we had cash of $217.6 million, an undrawn credit facility of $200 million, which can be increased up to $400 million at the Company's option and subject
to certain conditions, and outstanding letters of credit of $3.1 million, for total available liquidity of approximately $615 million.
Due to the speed with which the COVID-19 pandemic has developed and the resulting uncertainty, including the depth and duration of any disruptions
to customers and suppliers, its future effect on our business, results of operations, and financial condition cannot be predicted. Despite this uncertainty, we
believe that our financial resources, liquidity levels and no outstanding debt, along with various contingency plans to reduce costs are sufficient to manage
the impact of the COVID-19 pandemic, which may result in reduced sales, reduced net income, and reduced cash provided by operating activities. Refer to
Risk Factors, included in Part I, Item 1A of this Annual Report on Form 10-K, for further discussion of the possible impact of the COVID-19 pandemic on
our business.
15
Table of Contents
Results of Operations
A comparison of results of operating income for the fiscal years ended July 31, 2020, 2019, and 2018 is as follows:
(Dollars in thousands)
Net sales
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Impairment charges
Total operating expenses
Operating income
2020
% Sales
2019
% Sales
2018
% Sales
$
$
1,081,299
528,565
40,662
336,059
13,821
390,542
138,023
48.9 %
3.8 %
31.1 %
1.3 %
36.1 %
$
1,160,645
578,678
$
1,173,851
588,291
49.9 %
3.9 %
32.0 %
— %
35.9 %
45,168
371,082
—
416,250
162,428
50.1 %
3.9 %
33.3 %
— %
37.1 %
13.0 %
45,253
390,342
—
435,595
152,696
12.8 % $
14.0 % $
A discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found under Item 7 in our
Annual Report on Form 10-K for the fiscal year ended July 31, 2019, filed with the SEC on September 6, 2019, which is available free of charge on the
SEC's website at www.sec.gov and our corporate website at www.bradyid.com/corporate/investors. References in this Form 10-K to “organic sales” refer to
net sales calculated in accordance with U.S. GAAP, excluding the impact of foreign currency translation and divestitures. 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. All analytical
commentary within the Results of Operations section regarding the change in sales when compared to prior periods are in reference to organic sales unless
otherwise noted.
Net sales decreased 6.8% to $1,081.3 million in fiscal 2020, compared to $1,160.6 million in fiscal 2019, which consisted of an organic sales decline
of 5.4% and a decrease from foreign currency translation of 1.4%. Organic sales declined 8.0% in the IDS segment and grew 2.3% in the WPS segment.
The COVID-19 pandemic had a significant impact on organic sales during the second half of 2020, with the impact varying between the IDS and WPS
segments. The IDS segment realized reduced demand across all major product lines beginning in the third quarter which continued throughout the fourth
quarter, while the WPS segment realized essentially flat organic sales in the third quarter, which improved to 10.8% organic sales growth in the fourth
quarter primarily due to increased sales of personal protective equipment and other pandemic-related products. In total, the rate of decline in organic sales
decreased through the fourth quarter of fiscal 2020.
Gross margin decreased 8.7% to $528.6 million in fiscal 2020, compared to $578.7 million in fiscal 2019. As a percentage of net sales, gross margin
decreased to 48.9% in fiscal 2020, compared to 49.9% in fiscal 2019. The decrease in gross margin as a percentage of net sales was primarily due to the
decline in sales volumes resulting from the economic slowdown caused by the COVID-19 pandemic during second half of the fiscal 2020.
R&D expenses decreased to $40.7 million in fiscal 2020, compared to $45.2 million in fiscal 2019. The decrease in R&D expense in fiscal 2020
compared to the prior year was primarily due to a reduction in incentive-based compensation, and to a lesser extent a reduction in project spending and
headcount. The Company remains committed to investing in new product development to increase sales within our IDS and WPS businesses. Investments
in new printers and materials continue to be the primary focus of R&D expenditures, along with investment in products specifically designed for the fight
against COVID-19.
SG&A expenses include selling and administrative costs directly attributed to the IDS and WPS segments, as well as certain other corporate
administrative expenses including finance, information technology, human resources, and other administrative expenses. SG&A expenses decreased 9.4%
to $336.1 million in fiscal 2020 compared to $371.1 million in fiscal 2019. SG&A expense as a percentage of net sales was 31.1% in fiscal 2020 compared
to 32.0% in fiscal 2019. The decrease in both SG&A expenses and SG&A expenses as a percentage of net sales from the prior year was due to ongoing
efficiency gains and continued efforts to reduce selling, general and administrative costs, reduced incentive-based compensation, and a decline in
headcount. Increased cost associated with the COVID-19 pandemic during the second half of the fiscal year, including employee severance and other
related costs, were effectively offset by reduced incentive-based compensation.
16
Table of Contents
Impairment charges of $13,821 were recognized in fiscal 2020 due to a decline in sales in certain businesses primarily in the WPS segment. Refer to
Note 3, "Other Intangible and Long-Lived Assets" for further information regarding impairment charges.
OPERATING INCOME TO NET INCOME
(Dollars in thousands)
Operating income
Other income (expense):
Investment and other income
Interest expense
Income before income taxes and losses of unconsolidated affiliate
Income tax expense
Income before losses of unconsolidated affiliate
Equity in losses of unconsolidated affiliate
Net income
Investment and Other Income
2020
% Sales
2019
% Sales
2018
% Sales
$
138,023
12.8 % $
162,428
14.0 % $
152,696
13.0 %
5,079
(2,166)
140,936
28,321
112,615
(246)
0.5 %
(0.2) %
13.0 %
2.6 %
10.4 %
— %
5,046
(2,830)
164,644
33,386
131,258
—
0.4 %
(0.2) %
14.2 %
2.9 %
11.3 %
— %
2,487
(3,168)
152,015
60,955
91,060
—
$
112,369
10.4 % $
131,258
11.3 % $
91,060
0.2 %
(0.3) %
13.0 %
5.2 %
7.8 %
— %
7.8 %
Investment and other income was $5.1 million in fiscal 2020 compared to $5.0 million in fiscal 2019. Reduced interest income in fiscal 2020 was
effectively offset by an increase in the market value of securities held in deferred compensation plans compared to fiscal 2019.
Interest Expense
Interest expense decreased to $2.2 million in fiscal 2020 compared to $2.8 million in fiscal 2019. The decrease in interest expense was due to the
repayment of the Company's remaining principal balance under its private placement debt agreement during the quarter ended July 31, 2020.
Income Tax Expense
The Company's effective income tax rate was 20.1% in fiscal 2020. The effective income tax rate was below the applicable U.S. statutory tax rate of
21.0% primarily due to the favorable settlement of a domestic income tax audit and tax benefits from stock-based compensation, which were partially
offset by an increase in the foreign income tax rate differential.
The Company's effective income tax rate was 20.3% in fiscal 2019. The effective income tax rate was below the applicable U.S. statutory tax rate of
21.0% primarily due to adjustments to the reserve for uncertain tax positions and R&D tax credits, partially offset by non-deductible executive
compensation and the tax rate differential on foreign income.
Equity in Losses of Unconsolidated Affiliate
Equity in losses of unconsolidated affiliate of $0.2 million in fiscal 2020 represented the Company's equity interest in React Mobile, Inc., an employee
safety software and hardware company based in the United States.
Business Segment Operating Results
The Company evaluates short-term segment performance based on segment profit and customer sales. Impairment charges, interest expense,
investment and other income, income tax expense, equity in losses of unconsolidated affiliate, and certain corporate administrative expenses are excluded
when evaluating segment performance.
17
Table of Contents
Following is a summary of segment information for the fiscal years ended July 31:
SALES GROWTH INFORMATION
2020
2019
2018
ID Solutions
Organic
Currency
Total
Workplace Safety
Organic
Currency
Divestitures
Total
Total Company
Organic
Currency
Divestitures
Total
SEGMENT PROFIT AS A PERCENT OF NET SALES
ID Solutions
Workplace Safety
Total
ID Solutions
(8.0) %
(1.1) %
(9.1) %
2.3 %
(2.6) %
— %
(0.3) %
(5.4) %
(1.4) %
— %
(6.8) %
19.2 %
7.1 %
15.9 %
4.1 %
(2.1) %
2.0 %
(0.7) %
(3.7) %
(4.8) %
(9.2) %
2.8 %
(2.6) %
(1.3) %
(1.1) %
19.1 %
7.7 %
16.2 %
3.4 %
2.3 %
5.7 %
0.7 %
4.6 %
(0.6) %
4.7 %
2.6 %
3.0 %
(0.2) %
5.4 %
16.9 %
9.7 %
14.9 %
IDS net sales decreased 9.1% to $784.7 million in fiscal 2020, compared to $863.1 million in fiscal 2019. The net sales decrease consisted of an
organic sales decline of 8.0% and a decrease from foreign currency translation of 1.1%. The economic slowdown caused by the COVID-19 pandemic had a
significant impact on organic sales trends during the second half of fiscal 2020, in large part due to the varied government responses to the pandemic.
Following a 0.7% organic sales decline through the first half of fiscal 2020, organic sales declined in all product lines in the second half of the year
resulting in an 8.0% organic sales decline in fiscal 2020.
Organic sales in the Americas region declined in the high-single digits in fiscal 2020 compared to fiscal 2019. Organic sales declined in all major
product lines during the second half of fiscal 2020 due to the economic slowdown caused by the COVID-19 pandemic. Organic sales declined in the high-
single digits in the U.S., Canada, and Brazil, and declined in the low-teens in Mexico.
Organic sales in Europe decreased in the low-teens in fiscal 2020 compared to fiscal 2019. The decline was broad-based throughout Europe due to the
economic slowdown caused by the COVID-19 pandemic in the second half of fiscal 2020, except within a group of small businesses based in the Nordic
region. Organic sales declined in all major product lines in the second half of 2020 due to the economic slowdown caused by the COVID-19 pandemic.
Organic sales in Asia decreased in the low-single digits in fiscal 2020 compared to fiscal 2019. The COVID-19 pandemic had a varying impact on our
Asian businesses in fiscal 2020 with a mid-single digit decline in China and a mid-teens decline in India, which were partially offset by a mid-single digit
growth in Japan and Malaysia. Organic sales declined in the safety and facility identification product line, which was partially offset by growth in the
product identification and wire identification product lines which occurred in the first half of fiscal 2020.
Segment profit decreased to $150.6 million in fiscal 2020 from $165.0 million in fiscal 2019, a decrease of $14.3 million or 8.7%. As a percent of net
sales, segment profit increased to 19.2% in fiscal 2020, compared to 19.1% in fiscal 2019. The increase in segment profit as a percentage of sales was due
to cost actions taken in response to the decline in revenue from the impact of the COVID-19 pandemic, reduced incentive-based compensation, and
efficiency gains throughout SG&A during fiscal 2020.
18
Table of Contents
Workplace Safety
WPS sales decreased 0.3% to $296.6 million in fiscal 2020, compared to $297.5 million in fiscal 2019. The change in net sales consisted of organic
sales growth of 2.3% and a decrease from foreign currency translation of 2.6%. The economic effect of the COVID-19 pandemic had a significant impact
on organic sales trends during the second half of fiscal 2020. Organic sales decreased by 0.9% through the first half of fiscal 2020 and organic sales
increased during the second half of the year, resulting in organic sales growth of 2.3% in fiscal 2020. Digital marketing was the driver of sales growth
during the COVID-19 pandemic. Organic sales through the digital channel increased in the mid-teens in fiscal 2020, with the majority of this generated by
45% digital sales growth in the fourth quarter compared to the fourth quarter of fiscal 2019. The WPS business realized increased demand globally for
personal protective equipment and other social distancing signage and floor markings resulting from the COVID-19 pandemic. Organic sales growth was
generated entirely through the digital channel while sales through the traditional catalog channel decreased in the low-single digits in fiscal 2020 compared
to fiscal 2019.
Organic sales in Europe increased in the mid-single digits in fiscal 2020 compared to fiscal 2019. Sales growth was driven by digital marketing
campaigns emphasizing personal protective equipment and other pandemic-related products, which resulted in sales growth in the mid-teens. The U.K. and
France led sales growth in the region, with both businesses growing organically in the mid-teens in fiscal 2020. This sales growth was partially offset by a
mid-single digit decline in Germany.
Organic sales in North America decreased in the mid-single digits in fiscal 2020 compared to fiscal 2019. Digital channel sales were effectively flat
and sales through the traditional catalog channel decreased in the high-single digits. The target customer demographic of one particular business in WPS
North America consists primarily of small companies, of which many were subject to government-ordered shutdowns during the second half of fiscal 2020.
This resulted in a significant decline in sales orders during the shutdowns which caused the majority of the decline in sales in fiscal 2020.
Organic sales in Australia increased in the low-teens in fiscal 2020 compared to fiscal 2019. Digital channel sales grew nearly 45%, which was driven
by digital marketing campaigns emphasizing personal protective equipment and other pandemic-related products. Sales through the traditional catalog
channel increased in the high-single digits. Australia was not impacted as severely by the COVID-19 pandemic as other countries in which we operate, and
our Australian business generated increased sales in a variety of product categories related to mitigating the COVID-19 pandemic, including various types
of personal protective equipment and other healthcare supplies.
Segment profit decreased to $21.0 million in fiscal 2020 compared to $23.0 million in fiscal 2019, a decrease of $2.0 million, or 8.7%. As a percentage
of net sales, segment profit decreased to 7.1% in fiscal 2020 compared to 7.7% in fiscal 2019. The decrease in segment profit was due to increased reserves
for inventory and the accelerated expense of previously capitalized catalog costs, as well as other costs incurred as a result of the COVID-19 pandemic,
such as severance. These expenses were approximately $4.0 million, which were included in segment profit in 2020.
Liquidity & Capital Resources
The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2020, approximately 68% 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 and its borrowing capacity are
sufficient to fund its anticipated requirements for working capital, capital expenditures, research and development, common stock repurchases, 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 additional tax payments.
Refer to Item 8, Note 6, "Debt" for information regarding the Company's credit facility.
19
Table of Contents
Cash Flows
Cash and cash equivalents were $217.6 million at July 31, 2020, a decrease of $61.4 million from July 31, 2019. The following summarizes the cash
flow statement for the fiscal years ended July 31:
(Dollars in thousands)
Net cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
2020
2019
2018
$
140,977
$
162,211
$
(36,119)
(163,520)
(2,767)
(34,463)
(27,628)
(2,475)
$
(61,429)
$
97,645
$
143,042
(2,905)
(90,680)
(1,974)
47,483
Net cash provided by operating activities was $141.0 million during fiscal 2020, compared to $162.2 million in fiscal 2019. The decrease was due to a
decrease in net income adjusted for non-cash items and an increase in cash used for inventories in selected geographies to ensure adequate inventory to
meet customer demand, which was partially offset by an increase in cash provided by accounts receivable.
Net cash used in investing activities was $36.1 million during fiscal 2020, compared to $34.5 million in the prior year. The increase in cash used in
investing activities was primarily driven by the $6.0 million equity investment in React Mobile, Inc. and to a lesser extent by investment purchases to fund
deferred compensation plans. These increases were partially offset by a decrease in capital expenditures during fiscal 2020 compared to fiscal 2019.
Net cash used in financing activities was $163.5 million during fiscal 2020, compared to $27.6 million during the prior year. The change was primarily
driven by an increase of $61.3 million in share repurchases, $48.7 million in debt repayments, and a decrease of $20.1 million in cash proceeds from stock
option exercises in fiscal 2020 when compared to the fiscal 2019.
Subsequent Events Affecting Financial Condition
Refer to Item 8, Note 17, "Subsequent Events" for information regarding the Company's subsequent events affecting financial condition.
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.
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.
20
Table of Contents
Payments Due Under Contractual Obligations
The Company’s future commitments at July 31, 2020, for operating lease obligations, purchase obligations, and tax obligations are as follows (dollars
in thousands):
Contractual Obligations
Operating Lease Obligations
Purchase Obligations(1)
Tax Obligations
Total
Payments Due by Period
Total
Less than
1 Year
1-3
Years
3-5
Years
More
than
5 Years
Uncertain
Timeframe
$
$
50,251
$
16,684
$
24,522
$
8,090
$
955
$
53,293
13,622
52,423
—
862
—
1
—
7
—
117,166
$
69,107
$
25,384
$
8,091
$
962
$
—
—
13,622
13,622
(1) Purchase obligations include all open purchase orders as of July 31, 2020.
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
The Company operates in numerous taxing jurisdictions and is subject to regular examinations by U.S. federal, state and non-U.S. taxing authorities.
Its income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which the Company does
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, the Company's
estimates of income tax liabilities may differ from actual payments or assessments.
While the Company has support for the positions it takes on tax returns, taxing authorities may assert different 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 laws including a tax case ruling or legislative guidance; or
(iii) there is an expiration of the statute of limitations. The liability for unrecognized tax benefits, excluding interest and penalties, was $13.6 million and
$14.8 million as of July 31, 2020 and 2019, respectively. If recognized, $10.6 million and $12.0 million of unrecognized tax benefits as of July 31, 2020
and 2019, respectively, would reduce the Company's income tax rate. Accrued interest and penalties related to unrecognized tax benefits were $2.0 million
and $2.4 million as of July 31, 2020 and 2019, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income
tax expense on the Consolidated Statements of Income. The Company believes it is reasonably possible that the amount of gross unrecognized tax benefits
could be reduced by up to $1.4 million in the next 12 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 as an income tax benefit in the Consolidated Statements
of Income.
21
Table of Contents
The Company recognizes deferred tax assets and liabilities for differences between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. The Company establishes valuation allowances for its deferred tax assets if it is more likely than not that some or all of the
deferred tax asset will not be realized. This requires management to make judgments regarding: (i) the timing and amount of the reversal of taxable
temporary differences, (ii) expected future taxable income or loss, and (iii) the impact of tax planning strategies. The Company recognized valuation
allowances for its deferred tax assets of $58.8 million and $60.1 million as of July 31, 2020 and 2019, respectively, which were primarily related to foreign
tax credit carryforwards and net operating loss carryforwards in its various tax jurisdictions.
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,
2020: IDS Americas & Europe, $289.1 million; PDC, $93.3 million; and WPS Europe, $33.6 million. The IDS APAC, WPS Americas, and WPS APAC
reporting units each have a goodwill balance of zero. The Company believes that the discounted cash flow model and the market approach 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 reflecting 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 1 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 (i) U.S. GDP growth, (ii) industry and market
factors such as competition and changes in the market for the reporting unit's products, (iii) new product development, (iv) hospital admission rates, (v)
competing technologies, (vi) overall financial performance such as cash flows, actual and planned revenue and profitability, and (vii) 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
recognized.
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, 2020, 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.
22
Table of Contents
Other Indefinite-Lived Intangible Assets
Other indefinite-lived intangible assets in accordance with the Company's policy outlined above using the income approach. Fair value is estimated
using the income approach based upon current sales projections applying the relief from royalty method. If the carrying value of the indefinite-lived
intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Indicators of impairment primarily in the WPS
segment consisted of a decline in sales in certain of its businesses resulting from the economic challenges presented by the COVID-19 pandemic. As a
result of the impairment analyses performed during the fiscal year ended July 31, 2020, indefinite-lived tradenames with a carrying amount of $9.3 million
were written down to their estimated fair value of $0.6 million. Refer to Note 3, "Other Intangible and Long-Lived Assets" for further information
regarding impairment charges during fiscal 2020.
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.
23
Table of Contents
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. The Company has manufacturing facilities
and sells and distributes its products throughout the world and therefore has assets, liabilities and cash flows in currencies other than the U.S. dollar. 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 British Pound, the Mexican Peso, the Canadian dollar, the Australian dollar,
the Singapore dollar, the Malaysian Ringgit, and the Chinese Yuan.
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. As of July 31, 2020, the
notional amount of outstanding forward foreign exchange contracts designated as cash flow hedges was $24.6 million. The Company's multi-currency
revolving credit facility allows it to borrow up to $200.0 million in currencies other than U.S. dollars. The Company has periodically borrowed funds in
Euros and British Pounds under its revolving credit facility. 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 2020 net sales by 1.4% compared to fiscal 2019 as the U.S. dollar appreciated, on average, against
other major currencies throughout the year.
Changes in foreign currency exchange rates for the Company’s foreign subsidiaries reporting in local currencies are generally reported as a component
of stockholders’ equity. The Company’s currency translation adjustments recorded in the fiscal years ended July 31, 2020, 2019, and 2018, as a separate
component of stockholders’ equity, was favorable by $6.6 million, unfavorable by $13.2 million, and unfavorable by $13.7 million, respectively. As of
July 31, 2020 and 2019, the Company’s foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign
currency translation risk of $210.6 million and $192.9 million, respectively. The potential decrease in net current assets as of July 31, 2020, from a
hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be approximately $21.1 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, 2020, the Company had no interest rate derivatives and no variable rate debt outstanding.
24
Table of Contents
Item 8. Financial Statements and Supplementary Data
BRADY CORPORATION & SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets — July 31, 2020 and 2019
Consolidated Statements of Income — Years Ended July 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income — Years Ended July 31, 2020, 2019, and 2018
Consolidated Statements of Stockholders’ Equity — Years Ended July 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows — Years Ended July 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements — Years Ended July 31, 2020, 2019, and 2018
25
Page
26
28
29
30
31
32
33
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Brady Corporation
Milwaukee, Wisconsin
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brady Corporation and subsidiaries (the "Company") as of July 31, 2020 and 2019, the
related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended July
31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2020 and 2019, and the results of its
operations and its cash flows for each of the three years in the period ended July 31, 2020, in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of July 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 16, 2020, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Adoption of a New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases in the year ended July 31,
2020, due to the adoption of the Financial Accounting Standards Board Accounting Standard Update No. 2016-02, Leases (Topic ASC 842) using the
optional transition method allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Taxes — Valuation Allowances — Refer to Note 11 to the financial statements
Critical Audit Matter Description
The Company recognizes deferred income tax assets and liabilities for the estimated future tax effects attributable to temporary differences and
carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized in the future.
Future realization of deferred tax assets depends on the existence of sufficient
26
Table of Contents
taxable income within the carryback or carryforward period of the appropriate character under the relevant tax law. Sources of taxable income include
future reversals of deferred tax assets and liabilities, future taxable income (exclusive of the reversals of deferred tax assets and liabilities), taxable income
in prior carryback year(s) if permitted under the tax law, and tax planning strategies. The Company’s valuation allowance for deferred tax assets was $58.8
million as of July 31, 2020.
The Company’s determination of the valuation allowance involves estimates. Management’s primary estimate in determining whether a valuation
allowance should be established is the projection of future sources of taxable income. Auditing management’s estimate of future sources of taxable income,
which affects the recorded valuation allowances, required a high degree of auditor judgment and an increased extent of effort, including the need to involve
our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to estimated future sources of taxable income included the following, among others:
• We tested the effectiveness of management’s controls over the estimates of future sources of taxable income.
• With the assistance of our income tax specialists, we considered relevant tax laws and regulations in evaluating the appropriateness of
management’s estimates of future sources of taxable income.
• We evaluated management’s ability to accurately estimate future sources of taxable income by comparing actual results to management’s historical
estimates. Further, we evaluated the reasonableness of management’s estimates of future sources of taxable income by comparing the estimates to
historical sources of taxable income or losses and minutes of the Board of Directors.
• With the assistance of our income tax specialists, we evaluated whether the estimated future sources of taxable income were of the appropriate
character to utilize the deferred tax assets under tax law.
• We evaluated management’s assessment that it is more likely than not that sufficient taxable income will be generated in the future to utilize the
net deferred tax assets.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 16, 2020
We have served as the Company's auditor at least since 1981; however, an earlier year cannot be reliably determined.
27
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2020 and 2019
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable—net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment—net
Goodwill
Other intangible assets
Deferred income taxes
Operating lease assets
Other assets
Total
Current liabilities:
Accounts payable
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
Accrued compensation and benefits
Taxes, other than income taxes
Accrued income taxes
Current operating lease liabilities
Other current liabilities
Current maturities on long-term debt
Total current liabilities
Long-term operating lease liabilities
Other liabilities
Total liabilities
Stockholders’ equity:
Class A nonvoting common stock — Issued 51,261,487 shares, and outstanding 48,456,954 and 49,458,841
shares, respectively (aggregate liquidation preference of $42,716 and $42,803, respectively)
Class B voting common stock — Issued and outstanding 3,538,628 shares
Additional paid-in capital
Retained earnings
Treasury stock — 2,804,533 and 1,802,646 shares, respectively, of Class A nonvoting common stock, at cost
Accumulated other comprehensive loss
Total stockholders’ equity
Total
See Notes to Consolidated Financial Statements.
28
2020
2019
(Dollars in thousands)
$
217,643
$
146,181
135,662
9,962
509,448
115,068
416,034
22,334
8,845
41,899
28,838
279,072
158,114
120,037
16,056
573,279
110,048
410,987
36,123
7,298
—
19,573
1,142,466
$
1,157,308
62,547
$
41,546
8,057
8,652
15,304
49,782
—
185,888
31,982
61,524
279,394
513
35
331,761
704,456
(107,216)
(66,477)
863,072
64,810
62,509
8,107
6,557
—
49,796
50,166
241,945
—
64,589
306,534
513
35
329,969
637,843
(46,332)
(71,254)
850,774
$
1,142,466
$
1,157,308
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended July 31, 2020, 2019 and 2018
Table of Contents
Net sales
Cost of goods sold
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Impairment charges
Total operating expenses
Operating income
Other income (expense):
Investment and other income
Interest expense
Income before income taxes and losses of unconsolidated affiliate
Income tax expense
Income before losses of unconsolidated affiliate
Equity in losses of unconsolidated affiliate
Net income
Net income per Class A Nonvoting Common Share:
Basic
Diluted
Dividends
Net income per Class B Voting Common Share:
Basic
Diluted
Dividends
Weighted average common shares outstanding:
Basic
Diluted
See Notes to Consolidated Financial Statements.
29
2020
2019
2018
(In thousands, except per share amounts)
$
1,081,299
$
1,160,645
$
1,173,851
552,734
528,565
40,662
336,059
13,821
390,542
138,023
5,079
(2,166)
140,936
28,321
112,615
(246)
581,967
578,678
45,168
371,082
—
416,250
162,428
5,046
(2,830)
164,644
33,386
131,258
—
$
$
$
$
$
$
$
112,369
$
131,258
$
2.13
2.11
0.87
2.11
2.10
0.85
$
$
$
$
$
$
2.50
2.46
0.85
2.48
2.45
0.83
$
$
$
$
$
$
585,560
588,291
45,253
390,342
—
435,595
152,696
2,487
(3,168)
152,015
60,955
91,060
—
91,060
1.76
1.73
0.83
1.75
1.72
0.81
52,763
53,231
52,596
53,323
51,677
52,524
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended July 31, 2020, 2019 and 2018
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Cash flow hedges:
Net (loss) gain recognized in other comprehensive loss
Reclassification adjustment for (gains) losses included in net income
Pension and other post-retirement benefits:
Net (loss) gain recognized in other comprehensive income (loss)
Net actuarial gain amortization
Other comprehensive income (loss), before tax
Income tax benefit (expense) related to items of other comprehensive income (loss)
Other comprehensive income (loss), net of tax
Comprehensive income
See Notes to Consolidated Financial Statements.
30
2020
2019
2018
(Dollars in thousands)
$
112,369
$
131,258
$
91,060
6,640
(13,223)
(13,675)
(576)
(614)
(1,190)
(468)
(380)
(848)
4,602
175
4,777
837
(1,048)
(211)
(97)
(569)
(666)
(14,100)
(753)
(14,853)
$
117,146
$
116,405
$
966
551
1,517
446
(576)
(130)
(12,288)
569
(11,719)
79,341
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended July 31, 2020, 2019 and 2018
Balances at July 31, 2017
Net income
Other comprehensive loss, net of tax
Issuance of shares of Class A Common Stock under
stock plan
Tax benefit and withholdings from deferred
compensation distribution
Stock-based compensation expense (Note 7)
Repurchase of shares of Class A Common Stock
Adoption of ASU 2018-02
Cash dividends on Common Stock:
Class A — $0.83 per share
Class B — $0.81 per share
Balances at July 31, 2018
Net income
Other comprehensive loss, net of tax
Issuance of shares of Class A Common Stock under
stock plan
Tax benefit and withholdings from deferred
compensation distribution
Stock-based compensation expense (Note 7)
Repurchase of shares of Class A Common Stock
Adoption of ASU 2014-09 "Revenue from Contracts
with Customers" (Note 9)
Cash dividends on Common Stock:
Class A — $0.85 per share
Class B — $0.83 per share
Balances at July 31, 2019
Net income
Other comprehensive income, net of tax
Issuance of shares of Class A Common Stock under
stock plan
Tax benefit and withholdings from deferred
compensation distributions
Stock-based compensation expense (Note 7)
Repurchase of shares of Class A Common Stock
Cash dividends on Common Stock:
Class A — $0.87 per share
Class B — $0.85 per share
Balances at July 31, 2020
See Notes to Consolidated Financial Statements.
Common Stock
Additional Paid-In
Capital
Retained Earnings
Treasury Stock
(In thousands, except per share amounts)
$
548
$
322,608
$
507,136
$
(85,470)
$
—
—
—
—
—
—
—
—
—
—
—
(7,171)
214
9,980
—
—
—
—
91,060
—
—
—
—
—
(1,869)
(39,998)
(2,875)
—
—
16,234
(422)
—
(1,462)
—
—
—
$
548
$
325,631
$
553,454
$
(71,120)
$
—
—
—
—
—
—
—
—
—
—
—
(7,963)
209
12,092
—
—
—
—
131,258
—
—
—
—
—
(2,137)
(41,784)
(2,948)
—
—
27,970
—
—
(3,182)
—
—
—
Accumulated
Other
Comprehensive
Loss
(44,682)
—
(11,719)
—
—
—
—
—
—
—
(56,401)
—
(14,853)
—
—
—
—
—
—
$
548
$
329,969
$
637,843
$
(46,332)
$
(71,254)
—
—
—
—
—
—
—
—
—
—
(7,184)
134
8,843
—
—
—
112,369
—
—
—
—
—
(42,736)
(3,020)
—
—
3,630
—
—
(64,514)
—
—
—
4,777
—
—
—
—
—
—
$
548
$
331,762
$
704,456
$
(107,216)
$
(66,477)
31
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended July 31, 2020, 2019 and 2018
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Gain on sale of business, net
Deferred income taxes
Impairment charges
Equity in losses of unconsolidated affiliate
Other
Changes in operating assets and liabilities (net of effects of business divestitures):
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Income taxes
Net cash provided by operating activities
Investing activities:
Purchases of property, plant and equipment
Purchase of equity method investment
Sale of business, net of cash transferred with business
Other
Net cash used in investing activities
Financing activities:
Payment of dividends
Proceeds from exercise of stock options
Payments for employee taxes withheld from stock-based awards
Purchase of treasury stock
Proceeds from borrowing on credit facilities
Repayment of borrowing on credit facilities
Principal payments on debt
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
Income taxes
See Notes to Consolidated Financial Statements.
$
$
32
2020
2019
2018
(Dollars in thousands)
$
112,369
$
131,258
$
91,060
23,437
8,843
—
(764)
13,821
246
2,611
13,902
(13,917)
4,477
(26,128)
2,080
140,977
(27,277)
(6,000)
—
(2,842)
(36,119)
(45,756)
5,511
(9,065)
(64,514)
20,697
(21,855)
(48,672)
134
(163,520)
(2,767)
(61,429)
279,072
23,799
12,092
—
7,825
—
—
2,347
3,496
(9,922)
368
(11,903)
2,851
162,211
(32,825)
—
—
(1,638)
(34,463)
(44,732)
25,658
(5,651)
(3,182)
13,637
(13,568)
—
210
(27,628)
(2,475)
97,645
181,427
217,643
$
279,072
$
25,442
9,980
(4,666)
33,656
—
—
(15)
(16,612)
(7,563)
1,747
13,106
(3,093)
143,042
(21,777)
—
19,141
(269)
(2,905)
(42,873)
12,999
(3,936)
(1,462)
23,221
(78,419)
—
(210)
(90,680)
(1,974)
47,483
133,944
181,427
2,401
$
2,651
$
29,600
24,335
2,976
33,267
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 2020, 2019 and 2018
(In thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
Nature of Operations — 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 world leader in
many of its markets.
Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Brady Corporation and its wholly owned
subsidiaries. The equity method of accounting is used for investments in the associated company where the Company has significant influence and
generally 20% to 50% ownership interest. All intercompany accounts and transactions between consolidated subsidiaries have been eliminated in
consolidation.
Use of Estimates — The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States ("U.S. GAAP"), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents — The Company considers all highly-liquid investments purchased with original maturities of three months or less to be cash
equivalents.
Concentration of Credit Risk — The Company places temporary cash investments with global financial institutions of high credit quality. The
Company performs periodic evaluations of the relative credit standing of its financial institutions and limits the amount of credit exposure with any one
financial institution. In addition, the Company has a broad customer base representing many diverse industries throughout the globe. Consequently, no
significant concentration of credit risk is considered to exist.
Accounts Receivables — Accounts receivables are stated at net realizable value. Specific customer reserves are made during review of significant
outstanding balances due, in which customer creditworthiness and current economic trends may indicate that it is probable the receivable will not be
recovered. In addition, general reserves are made for the remainder of accounts receivable based on historical loss experience, the age of the delinquent
receivable balances due, and economic conditions. Accounts receivables are presented net of allowances for doubtful accounts of $7,157 and $5,005 as of
July 31, 2020 and 2019, respectively.
Inventories — Inventories are stated at the lower of cost or net realizable value and include material, labor, and overhead. Cost has been determined
using the last-in, first-out (“LIFO”) method for certain inventories in the U.S. (14.7% of total inventories at July 31, 2020, and 13.4% of total inventories at
July 31, 2019) and the first-in, first-out (“FIFO”) or average cost methods for other inventories. Had all inventories been accounted for on a FIFO basis
instead of on a LIFO basis, the carrying value of inventories would have increased by $7,195 and $7,259 as of July 31, 2020 and 2019, respectively.
Inventories consist of the following as of July 31:
Finished products
Work-in-process
Raw materials and supplies
Total inventories
2020
2019
85,547
$
24,044
26,071
77,532
20,515
21,990
135,662
$
120,037
$
$
Property, Plant and Equipment — Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed primarily
on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are depreciated over the shorter of the lease term or the
estimated useful life of the respective asset. The estimated useful lives range from 3 to 33 years as shown below.
33
Table of Contents
Property, plant and equipment consist of the following as of July 31:
Land
Buildings and improvements
Machinery and equipment
Construction in progress
Property, plant and equipment—gross
Accumulated depreciation
Property, plant and equipment—net
Range of Useful Lives
2020
2019
10 to 33 Years
3 to 10 Years
$
9,960
$
105,129
267,795
8,432
391,316
(276,248)
$
115,068
$
9,752
99,685
266,991
7,500
383,928
(273,880)
110,048
Depreciation expense was $18,218, $18,023, and $19,009 for the years ended July 31, 2020, 2019 and 2018, respectively.
Goodwill — The Company evaluates the carrying amount of goodwill annually or more frequently if events or changes in circumstances have occurred
that indicate the goodwill might be impaired. The Company completes impairment reviews for its reporting units using a fair-value method based on
management's judgments and assumptions. When performing its annual impairment assessment, the Company evaluates the recoverability of goodwill
assigned to each of its reporting units by comparing the estimated fair value of the respective reporting unit to the carrying value, including goodwill. The
Company estimates fair value utilizing the income approach and the market approach. The income approach requires management to make a number of
assumptions and estimates for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows,
working capital levels, income tax rates, and a weighted-average cost of capital reflecting the specific risk profile of the respective reporting unit. The
market approach estimates fair value using performance multiples of comparable publically-traded companies. In the event the fair value of a reporting unit
is less than the carrying value, including goodwill, an impairment loss, if any, is recognized for the difference between the implied fair value and the
carrying value of the reporting unit's goodwill. The annual impairment testing performed on May 1, 2020, indicated that all reporting units with remaining
goodwill had a fair value substantially in excess of its carrying value. No goodwill impairment charges were recognized during the year ended July 31,
2020.
Other Intangible and Long-Lived Assets — Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives to
reflect the pattern of economic benefits consumed. Intangible assets with indefinite lives as well as goodwill are not subject to amortization. These assets
are assessed for impairment on an annual basis or more frequently if events or changes in circumstances have occurred that indicate the asset may not be
recoverable or that the remaining estimated useful life may warrant revision. In addition, the Company performs qualitative assessments on a quarterly
basis of significant events and circumstances, such as historical and current results, assumptions regarding future performance, and strategic initiatives and
overall economic factors.
The Company evaluates indefinite-lived intangible assets for impairment by comparing the estimated fair value of the asset to the carrying value. Fair
value is estimated using the income approach based upon current sales projections applying the relief from royalty method. If the carrying value of the
indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company evaluates long-
lived assets, including finite-lived intangible assets, operating lease assets, and property, plant, and equipment, for recoverability by comparing an estimate
of undiscounted future cash flows, derived from internal forecasts, over the remaining life of the primary asset to the carrying amount of the asset group. To
the extent the undiscounted future cash flows attributable to the asset are less than the carrying amount, an impairment loss is recognized for the amount by
which the carrying value of the asset exceeds its fair value.
Indicators of impairment primarily in the WPS segment consisted of a decline in sales in certain of its businesses resulting from the economic
challenges presented by the COVID-19 pandemic. As a result of impairment assessments performed, impairment charges of $13,821 were recognized in
connection with writing down the carrying values of certain indefinite-lived intangible assets and long-lived assets to their respective fair values during the
year ended July 31, 2020. Refer to Note 3, "Other Intangible and Long-Lived Assets" for further information regarding impairment charges during fiscal
2020.
Leases — The Company determines whether an arrangement contains a lease at contract inception. The contract is considered to contain a lease if it
provides the Company with the right to direct the use of and the right to obtain substantially all of the economic benefits from an identified asset in
exchange for consideration. The Company recognizes a right-of-use ("ROU") asset and lease liability for its lease commitments with initial terms greater
than one year.
The initial measurement of ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of future lease
payments over the expected lease term. The ROU asset also includes any lease payments made on or before the commencement date, initial direct costs
incurred, and is reduced by any lease incentives received. Some of the
34
Table of Contents
Company’s leases include options to extend the lease agreement, of which the exercise is at the Company’s sole discretion. The majority of renewal options
are not included in the calculation of ROU assets and liabilities as they are not reasonably certain to be exercised. Some of the Company's lease agreements
include rental payments that are adjusted periodically for inflation or the change in an index or rate. These variable lease payments are generally excluded
from the initial measurement of the ROU asset and lease liability and are recognized in the period in which the obligation for those payments is incurred.
The Company has lease agreements that include both lease and non-lease components, which the Company has elected to account for as a single lease
component. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines the present value of future lease payments using its incremental borrowing rate, as the discount rate implicit within the
Company’s leases generally cannot be readily determined. The incremental borrowing rate is estimated based on the sovereign credit rating for the
countries in which the Company has its largest operations, adjusted for several factors, such as internal credit spread, lease terms, and other market
information available at the lease commencement date.
As of July 31, 2020, all leases are accounted for as operating leases, with lease expense being recognized on a straight-line basis over the lease term.
Operating leases are reflected in “Operating lease assets,” “Current operating lease liabilities,” and “Long-term operating lease liabilities” in the
accompanying Consolidated Balance Sheets. Operating lease expense is recognized in either cost of goods sold or selling, general, and administrative
expenses in the Consolidated Statements of Income, based on the nature of the lease. ROU assets are evaluated for impairment in the same manner as long-
lived assets. Impairment charges of $2,475 were recognized related to operating lease assets during the fiscal year ended July 31, 2020. Refer to Note 3,
"Other Intangible and Long-Lived Assets" for additional information regarding the impairment charges recognized.
Revenue Recognition — The majority of the Company’s revenue relates to the sale of identification solutions and workplace safety products to
customers. The Company accounts for revenue in accordance with Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with
Customers", which was adopted on August 1, 2018 using the modified retrospective approach. Revenue is recognized when control of the product or
service transfers to the customer in an amount that represents the consideration expected to be received in exchange for those products and services. The
Company considers control to have transferred when legal title, physical possession, and the significant risks and rewards of ownership of the asset have
transferred to the customer and the collection of the transaction price is reasonably assured, most of which occur upon shipment or delivery of goods to
customers. Given the nature of the Company’s business, revenue recognition practices do not contain estimates that materially affect the results of
operations, with the exception of estimated customer returns and credit memos. The Company records an allowance for estimated product returns and
credit memos using the expected value method based on historical experience, which is recognized as a deduction from net sales at the time of sale. As of
July 31, 2020 and 2019, the Company had a reserve for estimated product returns and credit memos of $6,295 and $5,796, respectively.
Sales Incentives — The Company accounts for cash consideration (such as sales incentives, rebates, and cash discounts) given to its customers or
resellers as a reduction of revenue. Sales incentives for the years ended July 31, 2020, 2019, and 2018 were $38,476, $40,811, and $40,671, respectively.
Shipping and Handling Costs — Shipping and handling fees billed to a customer in a sale transaction are reported as net sales and the related costs
incurred for shipping and handling are reported in cost of goods sold.
Advertising Costs — Advertising costs are expensed as incurred. Advertising expense for the years ended July 31, 2020, 2019, and 2018 was $63,482,
$62,454, and $67,429, respectively.
Stock-Based Compensation — The Company measures and recognizes the compensation expense for all share-based awards made to employees and
directors based on estimated grant-date fair values. The Black-Scholes option valuation model is used to determine the fair value of stock option awards on
the date of grant. The Company recognizes the compensation cost, net of estimated forfeitures, of all share-based awards on a straight-line basis over the
vesting period of the award. If it is determined that it is unlikely the award will vest, the expense recognized to date for the award is reversed in the period
in which this is evident and the remaining expense is not recorded.
The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards. 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. Refer to Note 7, “Stockholders' Equity” for more information regarding the Company’s incentive stock plans.
35
Table of Contents
Research and Development — Amounts expended for research and development are expensed as incurred.
Other Comprehensive Income — Other comprehensive income consists of net unrealized gains and losses from cash flow hedges, the unamortized gain
on defined-benefit pension plans net of their related tax effects, and foreign currency translation adjustments, which includes the impact of foreign currency
translations and the settlements of net investment hedges.
Foreign Currency Translation — The assets and liabilities of subsidiaries whose functional currency is a currency other than the U.S. dollar are
translated into United States dollars at end of period rates of exchange, and income and expense accounts are translated at the average rates of exchange for
the period. Resulting foreign currency translation adjustments are included in other comprehensive income.
Income Taxes — The Company accounts for income taxes under the asset and liability method in accordance with ASC 740 "Income Taxes." Under
this method, deferred income tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the
financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax laws and rates
applicable to the periods in which the differences are expected to be realized or settled. Valuation allowances are established when it is estimated that it is
more likely than not that the tax benefit of the deferred tax asset will not be realized. The Company recognizes the benefit of income tax positions only if
those positions are more likely than not to be sustained upon examination by the tax authority. Changes in recognition or measurement are reflected in the
period in which a change in judgment occurs.
Fair Value of Financial Instruments — The Company believes that the carrying amount of its financial instruments (cash and cash equivalents,
accounts receivable, accounts payable, and other current liabilities) approximate fair value due to the short-term nature of these instruments. Refer to Note
6, "Debt" for more information regarding the fair value of long-term debt and Note 13, "Fair Value Measurements" for information regarding fair value
measurements.
Foreign Currency Hedging — The objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency
movements on non-functional currency transactions and minimize the foreign currency translation impact on the Company’s foreign operations. While the
Company’s risk management objectives and strategies are driven from an economic perspective, the Company attempts, where possible and practical, to
ensure that the hedging strategies it engages in qualify for hedge accounting and result in accounting treatment where the earnings effect of the hedging
instrument provides substantial offset (in the same period) to the income effect of the hedged item.
The Company recognizes derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. Gains and
losses resulting from changes in fair value of the derivatives designated as hedges are recorded as a component of Accumulated Other Comprehensive
Income ("AOCI") in the accompanying Consolidated Balance Sheets and in the Consolidated Statements of Comprehensive Income and are reclassified
into the same income statement line item in the period or periods during which the hedged transaction affects income. Refer to Note 14, "Derivatives and
Hedging Activities" for more information regarding the Company’s derivative instruments and hedging activities.
New Accounting Standards
Adopted Standards
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASC 842"), which replaced the former lease accounting standards. The
update requires, among other items, lessees to recognize the assets and liabilities that arise from most leases on the balance sheet and disclose key
information about leasing arrangements. In July 2018, the FASB issued ASU 2018-11 "Leases (Topic 842): Targeted Improvements," which provides,
among other items, an additional transition method allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of
adoption.
The Company adopted ASU 2016-02 (and related updates) effective August 1, 2019, using the optional transition method provided in ASU 2018-11 to
apply this guidance to the impacted lease population at the date of initial application. Results for reporting periods beginning after August 1, 2019, are
presented under ASU 2016-02, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in
effect during those periods.
The Company elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to
carryforward the historical lease accounting of expired or existing leases with respect to lease identification, lease classification and accounting treatment
for initial direct costs as of the adoption date. The Company also elected the practical expedient related to lease versus nonlease components, allowing the
Company to recognize lease and nonlease components as a single lease. Lastly, the Company elected the hindsight practical expedient, allowing the
Company to use hindsight in determining the lease term and assessing impairment of right-of-use assets when transitioning to ASC 842. The Company has
made a policy election not to capitalize leases with an initial term of 12 months or less.
36
Table of Contents
Upon adoption of ASC 842, the Company recorded additional operating lease assets and liabilities of $55,984 and $58,544, respectively, as of August
1, 2019, which included operating lease assets and liabilities of $9,769 and $9,674, respectively, for leases that commenced on the adoption date of August
1, 2019. No cumulative effect adjustment to retained earnings was recognized upon adoption of the new standard. Adoption of ASC 842 did not have a
material impact on the Company's cash flows or operating results. Refer to Note 4 "Leases" for additional information and required disclosures under the
new standard.
In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities," which simplifies and reduces the complexity of the hedge accounting requirements and better aligns
an entity's financial reporting for hedging relationships with its risk management activities. The guidance is effective for interim periods in fiscal years
beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2017-12 effective August 1, 2019, using the required
modified retrospective adoption approach to apply this guidance to existing hedging relationships as of the adoption date, which did not have a material
impact on its consolidated financial statements.
Standards not yet adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments," which changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an
incurred loss impairment methodology that reflects losses once the losses are probable. Under ASU 2016-13, the Company will be required to use a current
expected credit loss model ("CECL") that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial
instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable
information in the development of credit loss estimates. This guidance becomes effective for interim periods in fiscal years beginning after December 15,
2019. The Company adopted ASU 2016-13 effective August 1, 2020, which did not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Goodwill and Other, Simplifying the Test for Goodwill Impairment." The new guidance removes
Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a
reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain
largely unchanged. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods thereafter. Early adoption is
permitted for any impairment tests performed after January 1, 2017. The Company adopted this guidance, effective August 1, 2020. This guidance will
only impact the Company's consolidated financial statements if there is a future impairment of goodwill.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)." The new guidance
removes certain exceptions to the general principles in ASC 740 such as recognizing deferred taxes for equity investments, the incremental approach to
performing intraperiod tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under U.S.
GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a
consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the
interim period that includes the enactment date. This guidance is effective for annual periods beginning after December 15, 2020, and interim periods
thereafter. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on the consolidated
financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting." Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification
accounting under existing U.S. GAAP, to address the expected phase out of the London Inter-bank Offered Rate ("LIBOR") by the end of 2021. This
guidance is effective upon issuance and allows application to contract changes as early as January 1, 2020. Some of the Company's contracts with respect to
its borrowing agreements already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR. The
Company is in the process of reviewing its bank facilities and commercial contracts that utilize LIBOR as the reference rate and is currently evaluating the
potential impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures.
37
Table of Contents
2. Goodwill
Changes in the carrying amount of goodwill by reportable segment for the years ended July 31, 2020 and 2019, were as follows:
Balance as of July 31, 2018
Translation adjustments
Balance as of July 31, 2019
Translation adjustments
Balance as of July 31, 2020
IDS
WPS
Total
385,524
$
34,291
$
419,815
(6,519)
(2,309)
379,005
$
31,982
$
3,342
1,705
(8,828)
410,987
5,047
382,347
$
33,687
$
416,034
$
$
$
The annual impairment testing performed on May 1, 2020, in accordance with ASC 350, “Intangibles - Goodwill and Other” (“Step One”) indicated
that all of the reporting units with remaining goodwill (IDS Americas & Europe, PDC, and WPS Europe) passed Step One of the goodwill impairment test
as each had a fair value substantially in excess of its carrying value.
3. Other Intangible and Long-Lived Assets
Other intangible assets include customer relationships and tradenames with finite lives being amortized in accordance with the accounting guidance for
other intangible assets. The Company also has unamortized indefinite-lived tradenames that are classified as other intangible assets.
The net book value of these assets was as follows:
July 31, 2020
July 31, 2019
Weighted
Average
Amortization
Period
(Years)
9
N/A
$
$
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted
Average
Amortization
Period
(Years)
45,385
$
(32,670)
$
12,715
9
9,619
—
9,619
N/A
55,004
$
(32,670)
$
22,334
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
$
$
46,595
$
(29,343)
$
17,252
18,871
—
18,871
65,466
$
(29,343)
$
36,123
Amortized other intangible assets:
Customer relationships and other
Unamortized other intangible assets:
Tradenames
Total
The change in the gross carrying amount of other intangible assets as of July 31, 2020 compared to July 31, 2019 was primarily due to $8,665 of
impairment charges recognized and to a lesser extent the effect of currency translations during the fiscal year.
The Company evaluates other intangible and long-lived assets for impairment on an annual basis or more frequently if events or changes in
circumstances have occurred that indicate the asset may not be recoverable or that the remaining estimated useful life may warrant revision. As a result of
the adverse impacts of the COVID-19 pandemic on both the global economic environment and the Company’s supply chain, operations, and customer
demand, the Company performed an interim analysis during the third quarter of the fiscal year ended July 31, 2020. Indefinite-lived tradenames were
valued using the income approach based upon current sales projections applying the relief from royalty method. As a result of the analysis, indefinite-lived
tradenames with a carrying amount of $9,328 were written down to their estimated fair value of $663 during the fiscal year ended July 31, 2020.
Consistent with the circumstances leading to the intangible asset impairment, the Company performed an interim recoverability and fair value test of
other long-lived assets in certain businesses within both the IDS and WPS segments. Long-lived assets were evaluated for recoverability by comparing
undiscounted future cash flows derived from internal forecasts to the carrying amount of the asset. For specific long-lived assets, this analysis resulted in an
amount that was less than the carrying value of the asset. The Company measured the impairment loss of long-lived assets as the amount by which the
carrying value of the assets exceeded their fair value. As a result of the analysis, impairment charges of $2,681 were recognized related to property, plant
and equipment, of which $2,353 and $328 related to the IDS and WPS segments, respectively. In addition, impairment charges of $2,475 were recognized
related to operating lease assets, of which $2,035 and $440 related to the WPS and IDS segments, respectively.
38
Table of Contents
These items resulted in a total impairment charge of $13,821 recognized in "Impairment charges" on the Consolidated Statements of Income for the
fiscal year ended July 31, 2020.
In addition to the interim impairment assessments described above, the Company performed its annual impairment test of other intangible and long-
lived assets on May 1, 2020. As a result of the annual analysis, no additional impairment charges were recognized.
Amortization expense on intangible assets during the fiscal years ended July 31, 2020, 2019, and 2018 was $5,219, $5,776, and $6,433, respectively.
Amortization expense over each of the next five fiscal years is projected to be $5,384, $5,140, and $2,191 for the fiscal years ending July 31, 2021, 2022,
and 2023 respectively. No amortization expense for intangible assets is projected after July 31, 2023.
4. Leases
The Company leases certain manufacturing facilities, warehouses and office space, computer equipment, and vehicles accounted for as operating
leases. Lease terms typically range from one year to fifteen years. As of July 31, 2020, the Company did not have any finance leases.
The Company evaluates right-of-use assets for impairment in the same manner as long-lived assets. Refer to Note 3, "Other Intangible and Long-Lived
Assets" for information regarding impairment charges recognized during the fiscal year ended July 31, 2020.
Short-term lease expense, variable lease expenses, and sublease income were immaterial to the Consolidated Statements of Income for the for the fiscal
year ended July 31, 2020.
The following table summarizes lease expense recognized for the fiscal year ended July 31, 2020:
Operating lease cost
Cost of goods sold
Operating lease cost
Selling, general, and administrative expenses
Consolidated Statements of Income Location
2020
$
9,197
8,974
Lease expense of $19,984 and $15,938 was recognized in operating expenses for the years ended July 31, 2019 and 2018, respectively.
The following table summarizes the maturity of the Company's lease liabilities as of July 31, 2020:
Years ended July 31,
Operating Leases
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
$
$
$
The weighted average remaining lease terms and discount rates for the Company's operating leases as of July 31, 2020 were as follows:
July 31, 2020
Weighted average remaining lease term (in years)
Weighted average discount rate
39
16,684
14,703
9,819
5,677
2,413
955
50,251
(2,965)
47,286
3.5
3.5 %
Table of Contents
Supplemental cash flow information related to the Company's operating leases for the twelve months ended July 31, 2020, was as follows:
Operating cash outflows from operating leases
Operating lease assets obtained in exchange for new operating lease liabilities
Twelve months ended
July 31, 2020
$
17,123
12,641
Operating lease assets obtained in exchange for new operating lease liabilities include $9,769 of operating lease assets related to leases that
commenced on August 1, 2019, which were included in the adoption impact of the new lease accounting standard.
The following table summarizes future minimum lease payments under operating leases as of July 31, 2019:
Years ended July 31,
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
5. Employee Benefit Plans
Operating Leases
18,450
16,132
13,439
10,065
5,656
3,502
67,244
$
$
The accounting guidance on defined benefit pension and other postretirement plans requires full recognition of the funded status of defined benefit and
other postretirement plans on the balance sheet as an asset or a liability. The guidance also requires that unrecognized prior service costs/credits,
gains/losses, and transition obligations/assets be recorded in AOCI, thus not changing the income statement recognition rules for such plans.
The Company provides postretirement medical benefits (the “Plan”) for eligible regular full and part-time domestic employees (including spouses)
who retired prior to January 1, 2016, as outlined by the Plan. The Plan is unfunded, and the liability, unrecognized gain, and associated income statement
impact are immaterial. The liability is recorded in the accompanying Consolidated Balance Sheets as of July 31, 2020 and 2019. The unrecognized gain is
reported as a component of AOCI.
The Company also has two deferred compensation plans, the Executive Deferred Compensation Plan and the Director Deferred Compensation Plan
which allow for compensation to be deferred into either the Company's Class A Nonvoting Common Stock or in other investment funds. Neither plan
allows funds to be transferred between the Company's Class A Nonvoting Common Stock and the other investment funds. The Company also has an
additional non-qualified deferred compensation plan, the Brady Restoration Plan, which allows an equivalent benefit to the Matched 401(k) Plan and the
Funded Retirement Plan for executives' income exceeding the IRS limits for participation in a qualified 401(k) plan. Deferred compensation of $18,606 and
$15,744 was included in "Other liabilities" in the accompanying Consolidated Balance Sheets as of July 31, 2020 and 2019, respectively.
The Company has retirement and profit-sharing plans covering substantially all full-time domestic employees and certain employees of its foreign
subsidiaries. Contributions to the plans are determined annually or quarterly, according to the respective plan, based on income of the respective companies
and employee contributions. Accrued retirement and profit-sharing contributions of $3,577 and $3,342 were included in "Other current liabilities" on the
accompanying Consolidated Balance Sheets as of July 31, 2020 and 2019, respectively. The amounts charged to expense for these retirement and profit
sharing plans were $12,129, $14,158, and $14,395 during the years ended July 31, 2020, 2019 and 2018, respectively.
40
Table of Contents
6. Debt
On May 13, 2010, the Company completed a private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited
institutional investors. The €75.0 million of senior notes consisted of €30.0 million aggregate principal amount of 3.71% Series 2010-A Senior Notes,
which were repaid during fiscal 2017, and €45.0 million aggregate principal amount of 4.24% Series 2010-A Senior Notes, which were repaid during fiscal
2020. The Company funded the private placement principal payments due during the year ended July 31, 2020 with cash on hand. The Company had no
outstanding debt as of July 31, 2020. As of July 31, 2019, the Company's outstanding debt balance consisted of the €45.0 million aggregate principal
amount of 4.24% Series 2010-A Senior Notes, which was included in "Current maturities on long-term debt" in the accompanying Consolidated Balance
Sheets.
On August 1, 2019, the Company and certain of its subsidiaries entered into an unsecured $200 million multi-currency revolving loan agreement with
a group of five banks that replaced and terminated the Company’s previous loan agreement that had been entered into on September 25, 2015. Under the
new revolving loan agreement, the Company has the option to select either a Eurocurrency rate loan that bears interest at the LIBOR rate plus a margin
based on the Company's consolidated net leverage ratio or a base interest rate (based upon the higher of the federal funds rate plus 0.5%, the prime rate of
the Bank of Montreal plus a margin based on the Company’s consolidated net leverage ratio, or the Eurocurrency base rate at the LIBOR rate plus a margin
based on the Company’s consolidated net leverage ratio plus 1%). At the Company's option, and subject to certain conditions, the available amount under
the revolving loan agreement may be increased from $200 million to $400 million. The maximum amount outstanding on the Company's revolving loan
agreement during the fiscal year ended July 31, 2020 was $16.2 million. As of July 31, 2020, there were no borrowings outstanding on the credit facility.
The Company had letters of credit outstanding under the loan agreement of $3.1 million as of July 31, 2020 and there was $196.9 million available for
future borrowing, which can be increased to $396.9 million at the Company's option, subject to certain conditions. The revolving loan agreement has a final
maturity date of August 1, 2024, as such, any borrowing would be classified as long-term on the accompanying Consolidated Balances Sheets.
The Company's revolving loan agreement requires it to maintain certain financial covenants, including a ratio of debt to the trailing twelve months
EBITDA, as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio) and the trailing twelve months EBITDA to interest expense
of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of July 31, 2020, the Company was in compliance with these financial covenants.
The Company had outstanding letters of credit of $3,116 and $3,271 at July 31, 2020 and 2019, respectively.
The estimated fair value of the Company's current maturities on long-term debt obligations at July 31, 2019 was $51,566, compared to the carrying
value of $50,166, which was based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities.
7. Stockholders' Equity
Information as to the Company’s capital stock at July 31, 2020 and 2019 is as follows:
Preferred Stock, $.01 par value
Cumulative Preferred Stock:
6% Cumulative
1972 Series
1979 Series
Common Stock, $.01 par value: Class A
Nonvoting
Class B Voting
Shares
Authorized
5,000,000
5,000
10,000
30,000
July 31, 2020
Shares
Issued
(thousands)
Amount
Shares
Authorized
July 31, 2019
Shares
Issued
(thousands)
Amount
5,000,000
5,000
10,000
30,000
100,000,000
10,000,000
51,261,487
$
3,538,628
$
513
35
548
100,000,000
10,000,000
51,261,487
$
3,538,628
$
513
35
548
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. Thereafter, any further dividend in that fiscal year must be paid on each share of Class A Common
Stock and Class B Common Stock on an equal basis.
41
Table of Contents
Other than as required by law, holders of the Class A Common Stock are not entitled to any vote on corporate matters, unless, in each of the three
preceding fiscal years, the $0.01665 preferential dividend described above has not been paid in full. Holders of the Class A Common Stock are entitled to
one vote per share for the entire fiscal year immediately following the third consecutive fiscal year in which the preferential dividend is not paid in full.
Holders of Class B Common Stock are entitled to one vote per share for the election of directors and for all other purposes.
Upon liquidation, dissolution or winding up of the Company, and after distribution of any amounts due to holders of Preferred Stock, if any, holders of
the Class A Common Stock are entitled to receive the sum of $0.833 per share before any payment or distribution to holders of the Class B Common Stock.
Thereafter, holders of the Class B Common Stock are entitled to receive a payment or distribution of $0.833 per share. Thereafter, holders of the Class A
Common Stock and Class B Common Stock share equally in all payments or distributions upon liquidation, dissolution or winding up of the Company.
The preferences in dividends and liquidation rights of the Class A Common Stock over the Class B Common Stock will terminate at any time that the
voting rights of Class A Common Stock and Class B Common Stock become equal.
The following is a summary of other activity in stockholders’ equity for the fiscal years ended July 31, 2020, 2019, and 2018:
Balances at July 31, 2017
Shares at July 31, 2017
Sale of shares at cost
Purchase of shares at cost
Balances at July 31, 2018
Shares at July 31, 2018
Sale of shares at cost
Purchase of shares at cost
Balances at July 31, 2019
Shares at July 31, 2019
Sale of shares at cost
Purchase of shares at cost
Balances at July 31, 2020
Shares at July 31, 2020
Deferred Compensation
Shares Held in Rabbi
Trust, at cost
Total
$
$
$
$
$
$
$
8,124
$
314,082
(977)
$
1,075
8,222
$
299,916
(928)
$
1,212
8,506
$
285,533
(460)
$
1,293
9,339
$
292,329
(8,124)
$
314,082
977
$
(1,075)
(8,222)
$
299,916
928
$
(1,212)
(8,506)
$
285,533
460
$
(1,293)
(9,339)
$
292,329
—
—
—
—
—
—
—
—
—
—
Deferred Compensation Plans
The Company has two deferred compensation plans, the Executive Deferred Compensation Plan and the Director Deferred Compensation Plan that
allow for compensation to be deferred into either the Company's Class A Nonvoting Common Stock or into other investment funds. Neither plan allows
funds to be transferred between the Company's Class A Nonvoting Common Stock and the other investment funds.
At July 31, 2020, the deferred compensation balance in stockholders’ equity represents the investment at the original cost of shares held in the
Company’s Class A Nonvoting Common Stock for the deferred compensation plans. The balance of shares held in the Rabbi Trust represents the
investment in the Company’s Class A Nonvoting Common Stock at the original cost of all the Company’s Class A Nonvoting Common Stock held in
deferred compensation plans.
Incentive Stock Plans
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, restricted stock units ("RSUs"), or restricted and unrestricted shares of Class A Nonvoting Common Stock to employees and
non-employee directors. Certain awards may be subject to pre-established performance goals.
42
Table of Contents
As of July 31, 2020, the Company has reserved 1,554,402 shares of Class A Nonvoting Common Stock for outstanding stock options and RSUs and
3,348,834 shares of Class A Nonvoting Common Stock remain for future issuance of stock options, RSUs and restricted and unrestricted 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.
Total stock-based compensation expense recognized by the Company during the years ended July 31, 2020, 2019, and 2018, was $8,843 ($8,048 net of
taxes), $12,092 ($10,628 net of taxes), and $9,980 ($7,485 net of taxes), respectively. As of July 31, 2020, total unrecognized compensation cost related to
share-based compensation awards that are expected to vest was $9,334 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a
weighted-average period of 1.8 years.
Stock Options
The stock options issued under the plan 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 “time-based” options, generally expire 10 years from the date of grant.
The Company has estimated the fair value of its time-based stock option awards granted during the fiscal years ended July 31, 2020, 2019, and 2018,
using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the
following table:
Black-Scholes Option Valuation Assumptions
2020
2019
2018
Expected term (in years)
Expected volatility
Expected dividend yield
Risk-free interest rate
Weighted-average market value of underlying stock at grant date
Weighted-average exercise price
Weighted-average fair value of options granted during the period
6.20
26.07 %
2.63 %
1.64 %
54.05
54.05
10.63
$
$
$
6.20
26.05 %
2.71 %
3.01 %
43.96
43.96
9.70
$
$
$
6.07
28.19 %
2.72 %
1.96 %
36.85
36.85
7.96
$
$
$
The following is a summary of stock option activity for the fiscal year ended July 31, 2020:
Time-Based Options
Balance as of July 31, 2019
New grants
Exercised
Forfeited
Balance as of July 31, 2020
Option Price
Options Outstanding
Weighted Average Exercise
Price
$
19.96 — $43.98
54.05
19.96 — 43.98
22.66 — 54.05
$
19.96 — $54.05
1,594,716
$
247,297
(556,143)
(12,488)
1,273,382
$
31.63
54.05
27.21
39.59
37.84
The total fair value of options vested during the fiscal years ended July 31, 2020, 2019, and 2018, was $2,800, $2,864, and $3,006, respectively. The
total intrinsic value of options exercised during the fiscal years ended July 31, 2020, 2019, and 2018, was $14,692, $20,969, and $6,208, respectively.
There were 776,273, 1,025,811, and 1,722,229 options exercisable with a weighted average exercise price of $31.50, $27.06, and $26.82 at July 31,
2020, 2019, and 2018, respectively. The cash received from the exercise of stock options during the fiscal years ended July 31, 2020, 2019, and 2018, was
$5,511, $23,466, and $12,099, respectively. The tax benefit on options exercised during the fiscal years ended July 31, 2020, 2019, and 2018, was $3,673,
$5,242, and $1,893, respectively.
43
Table of Contents
The following table summarizes information about stock options outstanding at July 31, 2020:
Range of Exercise Prices
$19.96 - $29.99
$30.00 - $39.99
$40.00 - $54.05
Total
Number of Shares
Outstanding at
July 31, 2020
265,600
519,870
487,912
1,273,382
Options Outstanding
Weighted Average
Remaining
Contractual Life (in
years)
Options Outstanding and Exercisable
Weighted Average
Exercise Price
Shares Exercisable
at July 31, 2020
Weighted Average
Remaining
Contractual Life (in
years)
Weighted Average
Exercise Price
4.1 $
6.2
8.7
6.7 $
22.07
35.36
49.06
37.84
265,600
433,576
77,097
776,273
4.1 $
6.0
8.2
5.5 $
22.07
35.07
43.96
31.50
As of July 31, 2020, the aggregate intrinsic value (defined as the amount by which the fair value of the underlying stock exceeds the exercise price of
an option) of options outstanding and the options exercisable was $11,964 and $10,940, respectively.
RSUs
RSUs issued under the plan have a grant date fair value equal to the fair market value of the underlying stock at the date of grant. Shares issued under
the plan are referred to herein as either "time-based" or "performance-based" RSUs. The time-based RSUs issued under the plan 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. The
performance-based RSUs granted under the plan vest at the end of a three-year service period provided specified financial performance metrics are met.
The following tables summarize the RSU activity for the fiscal year ended July 31, 2020:
Time-Based RSUs
Balance as of July 31, 2019
New grants
Vested
Forfeited
Balance as of July 31, 2020
Shares
Weighted Average Grant
Date
Fair Value
188,638
$
76,358
(107,187)
(2,849)
154,960
$
38.15
53.38
35.49
43.73
47.39
The time-based RSUs granted during the fiscal year ended July 31, 2019, had a weighted-average grant-date fair value of $44.20. The total fair value
of time-based RSUs vested during the years ended July 31, 2020 and 2019, was $9,776 and $9,859, respectively.
Performance-Based RSUs
Balance as of July 31, 2019
New grants (1)
Vested
Forfeited
Balance as of July 31, 2020
Shares
Weighted Average Grant
Date
Fair Value
158,410
$
71,921
(87,928)
(16,343)
126,060
$
38.33
75.00
32.03
52.16
50.61
(1) Includes 32,975 shares resulting from the payout of performance-based RSUs granted in fiscal year 2018 due to achievement of performance
metrics exceeding the target payout.
The performance-based RSUs granted during the fiscal year ended July 31, 2020, had a weighted-average grant-date fair value determined by a third-
party valuation involving the use of a Monte Carlo simulation. The performance-based RSUs granted during the fiscal year ended July 31, 2019, had a
weighted-average grant-date fair value of $50.70. The aggregate intrinsic value of unvested time-based and performance-based RSUs outstanding at
July 31, 2020 and 2019, and expected to vest, was $14,013 and $17,953, respectively.
44
Table of Contents
8. Accumulated Other Comprehensive Loss
Other comprehensive loss consists of foreign currency translation adjustments which includes net investment hedges, unrealized gains and losses from
cash flow hedges, and the unamortized gain on post-retirement plans, net of their related tax effects.
The following table illustrates the changes in the balances of each component of accumulated other comprehensive loss, net of tax, for the periods
presented:
Ending balance, July 31, 2018
Other comprehensive income (loss) before reclassification
Amounts reclassified from accumulated other comprehensive loss
Ending balance, July 31, 2019
Other comprehensive (loss) income before reclassification
Amounts reclassified from accumulated other comprehensive loss
Ending balance, July 31, 2020
Unrealized gain
(loss) on
cash flow hedges
Unamortized gain
on postretirement
plans
Foreign currency
translation
adjustments
Accumulated other
comprehensive loss
$
$
$
863
$
3,302
$
(60,566)
$
630
(786)
67
(569)
(14,195)
—
707
$
2,800
$
(74,761)
$
(447)
(460)
(332)
(287)
6,303
—
(56,401)
(13,498)
(1,355)
(71,254)
5,524
(747)
(200)
$
2,181
$
(68,458)
$
(66,477)
The decrease in accumulated other comprehensive loss as of July 31, 2020, compared to July 31, 2019, was primarily due to the depreciation of the
U.S. dollar against certain other currencies during the fiscal year, most of which occurred in the last month of the fiscal year ended July 31, 2020. The
foreign currency translation adjustments column in the table above includes the impact of foreign currency translation and the settlements of net investment
hedges, net of tax. Of the amounts reclassified from accumulated other comprehensive loss during the fiscal year ended July 31, 2020, unrealized gains on
cash flow hedges were reclassified to "Cost of goods sold" and unamortized gains on post-retirement plans were reclassified into "Investment and other
income" on the Consolidated Statements of Income.
The following table illustrates the income tax benefit (expense) on the components of other comprehensive income (loss):
Income tax benefit (expense) related to items of other comprehensive income (loss):
Cash flow hedges
Pension and other post-retirement benefits
Other income tax adjustments and currency translation
Adoption of accounting standard ASU 2018-02
Income tax benefit (expense) related to items of other comprehensive income (loss)
9. Revenue Recognition
Years Ended July 31,
2020
2019
2018
$
$
283
229
(337)
—
$
55
$
164
(972)
—
175
$
(753)
$
(669)
(64)
(567)
1,869
569
The Company recognizes revenue when control of the product or service transfers to the customer at an amount that represents the consideration
expected to be received in exchange for those products and services.
Nature of Products
The Company’s revenues are primarily from the sale of identification solutions and workplace safety products that are shipped and billed to customers.
All revenue is from contracts with customers and is included in “Net sales” on the Consolidated Statements of Income. See Note 10 “Segment Information”
for the Company’s disaggregated revenue disclosure.
Performance Obligations
The Company’s contracts with customers consist of purchase orders, which in some cases are governed by master supply or distributor agreements. For
each contract, the Company considers the commitment to transfer tangible products, which are generally capable of being distinct, to be separate
performance obligations.
The majority of the Company's revenue is earned and recognized at a point in time through ship-and-bill performance obligations where the customer
typically obtains control of the product upon shipment or delivery, depending on freight terms. The Company considers control to have transferred if legal
title, physical possession, and the significant risks and rewards of
45
Table of Contents
ownership of the asset have transferred to the customer and the Company has a present right to payment. In almost all cases, control transfers once a
product is shipped or delivered, as this is when the customer is able to direct and obtain substantially all of the remaining benefits associated with use of the
asset.
Transaction Price and Variable Consideration
Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for the transfer of product to a customer. The
transaction price is generally the price stated in the contract specific for each item sold, adjusted for all applicable variable considerations. Variable
considerations generally include discounts, returns, credits, rebates, or other allowances that reduce the transaction price. Certain discounts and price
assurances are fixed and known at the time of sale.
The Company estimates the amount of variable consideration and reduces the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The expected value method is
used to estimate expected returns and allowances based on historical experience. The most likely amount method is used to estimate customer rebates,
which are offered retrospective and typically defined in the master supply or distributor agreement.
Payment Terms
While the Company’s standard payment terms are net 30 days, the specific payment terms and conditions in its contracts with customers vary by type
and location of the customer. Cash discounts may be offered to certain customers. The Company has payment terms in its contracts with customers of less
than one year and has elected the practical expedient applicable to such contracts and does not consider the time value of money.
Warranties
The Company offers standard warranty coverage on substantially all products which provides the customer with assurance that the product will
function as intended. This standard warranty coverage is accounted for as an assurance warranty and is not considered to be a separate performance
obligation. The Company records a liability for product warranty obligations at the time of sale based on historical warranty experience that is included in
cost of goods sold.
The Company also offers extended warranty coverage for certain products, which it accounts for as service warranties. In most cases, the extended
service warranty is included in the sales price of the product and is not sold separately. The Company considers the extended service warranty to be a
separate performance obligation and allocates a portion of the transaction price to the service warranty based on the estimated stand-alone selling price. At
the time of sale, the extended warranty transaction price is recorded as deferred revenue on the Consolidated Balance Sheets and is recognized on a
straight-line basis over the life of the service warranty period. The deferred revenue is considered a contract liability as the Company has a right to payment
at the time the product with the related extended service warranty is shipped or delivered and therefore, payment is received in advance of the Company's
performance.
Contract Balances
The balance of contract liabilities associated with service warranty performance obligations was $2,559 and $2,782 as of July 31, 2020 and 2019,
respectively. This also represents the amount of unsatisfied performance obligations related to contracts that extend beyond one year. The current portion
and non-current portion of contract liabilities are included in “Other current liabilities” and “Other liabilities," respectively, on the accompanying
Consolidated Balance Sheets. During the fiscal year ended July 31, 2020, the Company recognized revenue of $1,251 that was included in the contract
liability balance at the beginning of the period from the amortization of extended service warranties. Of the contract liability balance outstanding at July 31,
2020, the Company expects to recognize 41% by the end of fiscal 2021, an additional 28% by the end of fiscal 2022, and the balance thereafter.
Costs of Obtaining a Contract
The Company expenses incremental direct costs of obtaining a contract (e.g., sales commissions) when incurred because the amortization period is
generally twelve months or less. Contract costs are included in "Selling, general and administrative expense" on the Consolidated Statements of Income.
46
Table of Contents
10. Segment Information
The Company is organized and managed on a global basis within three operating segments, Identification Solutions ("IDS"), Workplace Safety
("WPS"), and People Identification ("PDC"), which aggregate into two reportable segments that are organized around businesses with consistent products
and services: IDS and WPS. The IDS and PDC operating segments aggregate into the IDS reporting segment, while the WPS reporting segment is
comprised solely of the Workplace Safety operating segment.
Following is a summary of segment information as of and for the years ended July 31, 2020, 2019 and 2018:
Net sales:
ID Solutions
Americas
Europe
Asia
Total
Workplace Safety
Americas
Europe
Australia
Total
Total Company
Americas
Europe
Asia-Pacific
Total
Depreciation & amortization:
ID Solutions
WPS
Total Company
Segment profit:
ID Solutions
WPS
Total Company
Assets:
ID Solutions
WPS
Corporate
Total Company
Expenditures for property, plant & equipment:
ID Solutions
WPS
Total Company
47
2020
2019
2018
532,357
$
577,156
$
165,490
86,860
193,852
92,092
784,707
$
863,100
$
92,513
$
98,788
$
152,407
51,672
150,480
48,277
296,592
$
297,545
$
624,870
$
675,944
$
317,897
138,532
344,332
140,369
556,172
197,737
92,178
846,087
106,910
170,265
50,589
327,764
663,082
368,002
142,767
1,081,299
$
1,160,645
$
1,173,851
20,745
$
2,692
23,437
$
21,387
$
2,412
23,799
$
150,639
$
164,953
$
21,019
23,025
171,658
$
187,978
$
737,589
$
740,437
$
187,234
217,643
137,799
279,072
22,075
3,367
25,442
143,411
31,712
175,123
737,174
138,329
181,428
1,142,466
$
1,157,308
$
1,056,931
17,637
$
9,640
27,277
$
17,849
$
14,976
32,825
$
17,283
4,494
21,777
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Table of Contents
Following is a reconciliation of segment profit to income before income taxes and losses of unconsolidated affiliate for the years ended July 31, 2020,
2019 and 2018:
Total profit from reportable segments
Unallocated costs:
Administrative costs
Impairment charges(1)
Gain on sale of business(2)
Investment and other income
Interest expense
Years Ended July 31,
2020
2019
2018
$
171,658
$
187,978
$
175,123
(19,814)
(13,821)
—
5,079
(2,166)
(25,550)
—
—
5,046
(2,830)
(27,093)
—
4,666
2,487
(3,168)
152,015
Income before income taxes and losses of unconsolidated affiliate
$
140,936
$
164,644
$
(1) Of the total $13,821 impairment charges recognized in the year ended July 31, 2020, $11,029 related to the WPS segment and $2,792 related to the IDS segment.
(2) Gain on sale of business during the year ended July 31, 2018 relates to the WPS segment.
Geographic information:
United States
Other
Eliminations
Consolidated total
Revenues*
Years Ended July 31,
Long-Lived Assets**
As of July 31,
2020
2019
2018
2020
2019
2018
$
$
627,160
$
674,924
$
663,935
$
361,005
$
365,205
$
509,530
(55,391)
546,923
(61,202)
573,652
(63,736)
234,330
—
191,953
—
366,638
193,710
—
1,081,299
$
1,160,645
$
1,173,851
$
595,335
$
557,158
$
560,348
* Revenues are attributed based on country of origin.
** Long-lived assets consist of property, plant and equipment, goodwill, other intangible assets, and operating lease assets.
11. Income Taxes
Income before income taxes and losses of unconsolidated affiliate consists of the following:
United States
Other Nations
Total
Years Ended July 31,
2020
2019
2018
$
$
69,433
$
71,503
140,936
$
55,077
$
109,567
164,644
$
48,903
103,112
152,015
48
Table of Contents
Income tax expense consists of the following:
Current income tax expense:
United States
Other Nations
States (U.S.)
Deferred income tax expense (benefit):
United States
Other Nations
States (U.S.)
Total income tax expense
Years Ended July 31,
2020
2019
2018
$
$
$
$
$
3,031
$
2,232
$
25,133
1,160
22,445
913
29,324
$
25,590
$
1,072
$
8,451
$
(2,065)
(10)
(1,003)
28,321
$
$
(667)
12
7,796
33,386
$
$
2,830
26,593
910
30,333
30,267
(1,462)
1,817
30,622
60,955
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. Among the significant changes to the U.S. Internal
Revenue Code, the Tax Reform Act reduced the U.S. federal corporate income tax rate from 35.0% to 21.0%, imposed a one-time tax on deemed
repatriated income of foreign subsidiaries, eliminated the domestic manufacturing deduction and moved to a partial territorial system by providing a 100%
dividend received deduction on certain qualified dividends from foreign subsidiaries.
The tax effects of temporary differences are as follows as of July 31, 2020 and 2019:
Inventories
Prepaid catalog costs
Employee compensation and benefits
Accounts receivable
Fixed assets
Intangible assets
Deferred and equity-based compensation
Postretirement benefits
Tax credit and net operating loss carry-forwards
Valuation allowances
Other, net
Total
July 31, 2020
Liabilities
Total
$
(58)
(15)
(72)
—
(7,285)
(31,488)
—
(31)
—
—
(4,700)
(43,649)
$
4,327
(15)
3,267
1,518
(3,622)
(30,462)
7,851
2,971
56,447
(58,809)
7,086
(9,441)
Assets
$
4,385
$
—
3,339
1,518
3,663
1,026
7,851
3,002
56,447
(58,809)
11,786
$
34,208
$
49
Table of Contents
Inventories
Prepaid catalog costs
Employee compensation and benefits
Accounts receivable
Fixed assets
Intangible assets
Deferred and equity-based compensation
Postretirement benefits
Tax credit and net operating loss carry-forwards
Valuation allowances
Other, net
Total
Assets
July 31, 2019
Liabilities
Total
$
3,856
$
(1)
$
—
7,021
943
3,125
1,432
7,352
2,659
62,966
(60,073)
7,406
$
36,687
$
(631)
(89)
(233)
(6,869)
(31,415)
—
(71)
—
—
(7,961)
(47,270)
$
3,855
(631)
6,932
710
(3,744)
(29,983)
7,352
2,588
62,966
(60,073)
(555)
(10,583)
Tax credit carry-forwards as of July 31, 2020 consist of the following:
•
•
•
•
Foreign net operating loss carry-forwards of $96,104, of which $86,063 have no expiration date and the remainder of which expire within the
next 17 years.
State net operating loss carry-forwards of $29,109, which expire from 2025 to 2040.
Foreign tax credit carry-forwards of $24,633, which expire from 2021 to 2029.
State R&D credit carry-forwards of $12,714, which expire from 2021 to 2035.
Rate Reconciliation
A reconciliation of the income tax rate computed by applying the statutory U.S. federal income tax rate to income before income taxes and losses of
unconsolidated affiliate to the total income tax expense is as follows:
Tax at statutory rate
State income taxes, net of federal tax benefit
International rate differential(1)
Rate variances arising from foreign subsidiary distributions
Foreign tax credit carryforward valuation allowance(2)
Divestiture of business(3)
Adjustments to tax accruals and reserves(4)
Non-deductible executive compensation(5)
Research and development tax credits and domestic manufacturer’s deduction
Deferred tax and other adjustments, net
Income tax rate
Years Ended July 31,
2020
2019
2018
21.0 %
1.0 %
5.1 %
0.2 %
(1.4) %
— %
(2.0) %
0.5 %
(2.0) %
(2.3) %
20.1 %
21.0 %
0.3 %
2.2 %
(0.4) %
1.8 %
— %
(3.6) %
2.3 %
(1.6) %
(1.7) %
20.3 %
26.9 %
1.6 %
(1.1) %
0.8 %
14.1 %
(0.8) %
2.2 %
0.5 %
(2.0) %
(2.1) %
40.1 %
(1) Represents the foreign income tax rate differential when compared to the U.S. statutory income tax rate for the years ended July 31, 2020, 2019,
and 2018.
(2) The year ended July 31, 2018, includes the establishment of a valuation allowance against foreign tax credit carryforwards as a result of the Tax
Reform Act.
(3) The year ended July 31, 2018, includes the divestiture of the Company's Runelandhs business based in Sweden. Refer to Note 15, "Divestiture" for
additional information.
(4) The years ended July 31, 2020 and 2019, include reductions of uncertain tax positions resulting from the closure of audits and lapses in statues of
limitations, while the year ended July 31, 2018, includes increases in uncertain tax positions.
50
Table of Contents
(5) The years ended July 31, 2020, 2019 and 2018, include non-deductible compensation such as salaries, bonuses, and other equity compensation of
the Company's executives (as defined in Internal Revenue Service Code Section 162(m)).
Uncertain Tax Positions
The Company follows the guidance in ASC 740, "Income Taxes" regarding uncertain tax positions. The guidance requires application of a more-likely-
than-not threshold to the recognition and de-recognition of income tax positions. A reconciliation of unrecognized tax benefits (excluding interest and
penalties) is as follows:
Balance at July 31, 2017
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Settlements with tax authorities
Cumulative translation adjustments and other
Balance as of July 31, 2018
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Cumulative translation adjustments and other
Balance as of July 31, 2019
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Cumulative translation adjustments and other
Balance as of July 31, 2020
$
$
$
$
18,362
2,467
1,586
(23)
(489)
(1,277)
(196)
20,430
2,518
612
(378)
(8,140)
(201)
14,841
2,798
1,295
(5,087)
(117)
(108)
13,622
Of the $13,622 of unrecognized tax benefits, if recognized, $10,557 would affect the Company's income tax rate. The Company has classified $8,931
and $10,218, excluding interest and penalties, of the reserve for uncertain tax positions in "Other liabilities" on the Consolidated Balance Sheets as of
July 31, 2020 and 2019, respectively. The Company has classified $4,691 and $4,623, excluding interest and penalties, as a reduction of long-term deferred
income tax assets on the accompanying Consolidated Balance Sheets as of July 31, 2020 and 2019, respectively.
Interest expense is recognized on the amount of potentially underpaid taxes associated with the Company's tax positions, beginning in the first period
in which interest starts accruing under the respective tax law and continuing until the tax positions are settled. The Company recognized a decrease of $372,
an decrease of $1,013, and an increase of $556 in interest expense during the years ended July 31, 2020, 2019, and 2018, respectively. There was a $96
decrease to the reserve for uncertain tax positions for penalties during the year ended July 31, 2020, a decrease of $2,357 during the year ended July 31,
2019, and an increase of $83 during the year end July 31, 2018. These amounts are net of reversals due to reductions for tax positions of prior years, statute
of limitations, and settlements. At July 31, 2020 and 2019, the Company had $1,354 and $1,740, respectively, accrued for interest on unrecognized tax
benefits. Penalties are accrued if the tax position does not meet the minimum statutory threshold to avoid the payment of a penalty. At July 31, 2020 and
2019, the Company had $658 and $663, respectively, accrued for penalties on unrecognized tax benefits. Interest expense and penalties are recorded as a
component of "Income tax expense" in the Consolidated Statements of Income.
The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $1,437 within 12 months as a result of the
resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or the expiration of statute of limitations, all of which, if recognized,
would result in an income tax benefit in the Consolidated Statements of Income.
51
Table of Contents
During the year ended July 31, 2020, the Company recognized $504 of tax benefits (including interest and penalties) associated with the lapse of
statutes of limitations. The Company also recognized $5,133 of tax benefits (including interest and penalties) associated with the reduction of tax positions
for prior years due to the closure of certain tax audits.
The Company and its subsidiaries file income tax returns in the U.S., various states, and foreign jurisdictions. The following table summarizes the open
tax years for the Company's major jurisdictions:
Jurisdiction
United States — Federal
12. Net Income per Common Share
Open Tax Years
F’18 — F’20
Basic net income per common share is computed by dividing net income (after deducting the applicable preferential Class A Common Stock
dividends) by the weighted average Common Shares outstanding. The Company utilizes the two-class method to calculate income per 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:
Numerator (in thousands):
Net Income (Numerator for basic and diluted income per Class A Nonvoting Common Share)
Less:
Preferential dividends
Preferential dividends on dilutive stock options
Numerator for basic and diluted income per Class B Voting Common Share
Denominator (in thousands):
Denominator for basic income per share for both Class A and Class B
Plus: Effect of dilutive equity awards
Denominator for diluted income per share for both Class A and Class B
Net income per Class A Nonvoting Common Share:
Basic
Diluted
Net income per Class B Voting Common Share:
Basic
Diluted
Years ended July 31,
2020
2019
2018
112,369
$
131,258
$
91,060
(828)
(10)
(815)
(13)
111,531
$
130,430
$
52,763
468
53,231
2.13
2.11
2.11
2.10
$
$
$
$
52,596
727
53,323
2.50
2.46
2.48
2.45
$
$
$
$
(799)
(14)
90,247
51,677
847
52,524
1.76
1.73
1.75
1.72
$
$
$
$
$
$
Potentially dilutive securities attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted earnings
per share where the combined exercise price and average unamortized fair value were greater than the average market price of Brady's Class A Nonvoting
Common Stock because the effect would have been anti-dilutive. The amount of anti-dilutive shares were 387,382, 372,255, and 751,200 for the fiscal
years ended July 31, 2020, 2019, and 2018, respectively.
13. Fair Value Measurements
In accordance with fair value accounting guidance, the Company determines fair value based on the exchange price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants. The inputs used to measure fair value are classified into the
following hierarchy:
Level 1 — Unadjusted quoted prices in active markets for identical instruments that are accessible as of the reporting date.
Level 2 — Other significant pricing inputs that are either directly or indirectly observable.
Level 3 — Significant unobservable pricing inputs, which result in the use of management's own assumptions.
52
Table of Contents
The following table summarizes the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at July 31, 2020
and July 31, 2019, according to the valuation techniques the Company used to determine their fair values.
Assets:
Trading securities
Foreign exchange contracts
Liabilities:
Foreign exchange contracts
July 31, 2020
July 31, 2019
Fair Value Hierarchy
$
$
18,606
$
594
777
$
15,744
474
5
Level 1
Level 2
Level 2
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, which are included in "Other assets" on
the accompanying Consolidated Balance Sheets. 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 14,
“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 fiscal years ended July 31, 2020
and July 31, 2019.
See Note 6 for information regarding the fair value of the Company's short-term and long-term debt.
14. 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 program 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 contracts.
Main foreign currency exposures are related to transactions denominated in the British Pound, Euro, Canadian dollar, Australian dollar, Mexican Peso,
Chinese Yuan, 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.
The U.S. dollar equivalent notional amounts of outstanding forward exchange contracts were as follows:
Designated as cash flow hedges
Non-designated hedges
Total foreign exchange contracts
Cash Flow Hedges
July 31, 2020
July 31, 2019
$
$
24,600
$
3,107
27,707
$
26,013
3,376
29,389
The Company has designated a portion of its forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the
accompanying Consolidated Balance Sheets. For these instruments, the gain or loss on the derivative is reported as a component of other comprehensive
income (“OCI”) and reclassified into income in the same period or periods during which the hedged transaction affects income. At July 31, 2020 and 2019,
unrealized losses of $385 and gains of $805 have been included in AOCI, respectively.
53
Table of Contents
Net Investment Hedges
The Company has designated certain third party-foreign currency denominated debt instruments as net investment hedges. On May 13, 2010, the
Company completed the private placement of €75.0 million aggregate principal amount of senior unsecured notes consisting of €30.0 million aggregate
principal amount of 3.71% Series 2010-A Senior Notes, which were repaid during fiscal 2017, and €45.0 million aggregate principal amount of 4.24%
Series 2010-A Senior Notes, which were repaid during fiscal 2020. This Euro-denominated debt obligation was designated as a net investment hedge to
selectively hedge portions of the Company's net investment in European operations. The Company’s foreign denominated debt obligations are valued under
a market approach using publicized spot prices, and the net gains or losses attributable to the changes in spot prices are recorded as cumulative translation
within AOCI and are included in the foreign currency translation adjustments section of the Consolidated Statement of Comprehensive Income. As of
July 31, 2020 and 2019, the cumulative balance recognized in accumulated other comprehensive income were gains of $13,957 and $12,440, respectively,
on the Euro-denominated debt obligations.
The following table summarizes the amount of pre-tax gains and losses related to derivatives designated as hedging instruments:
(Losses) gains recognized in OCI:
Foreign exchange contracts (cash flow hedges)
$
Foreign currency denominated debt (net investment hedges)
(576)
$
1,517
837
$
2,480
July 31, 2020
July 31, 2019
July 31, 2018
Gains reclassified from OCI into cost of goods sold:
Forward exchange contracts (cash flow hedges)
Non-Designated Hedges
614
1,048
966
612
(551)
During the fiscal years ended July 31, 2020, 2019, and 2018, the Company recognized gains of $2, losses of $52, and gains of $24, respectively, in
“Investment and other income” in the Consolidated Statements of Income related to non-designated hedges.
Fair values of derivative and hedging instruments in the accompanying Consolidated Balance Sheets were as follows:
July 31, 2020
July 31, 2019
Prepaid expenses
and
other current
assets
Other current
liabilities
Prepaid expenses
and
other current
assets
Other current
liabilities
Current
maturities on
long-term
obligations
$
$
588
$
761
$
472
$
—
6
—
16
—
2
594
$
777
$
474
$
—
—
5
5
$
$
—
50,189
—
50,189
Derivatives designated as hedging instruments:
Foreign exchange contracts (cash flow hedges)
Foreign currency denominated debt (net investment hedges)
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Total derivative instruments
15. Divestiture
On May 31, 2018, the Company sold Runelandhs Försäljnings AB (“Runelandhs”), a business based in Kalmar, Sweden. Runelandhs is a direct
marketer of industrial and office equipment. Its products include lifting, transporting, and warehouse equipment; workbenches and material handling
supplies; products for environmental protection; and entrance, reception, and office furnishings. The Runelandhs business was part of the Company’s WPS
segment and its income was not material. The Company received proceeds of $19,141, net of cash transferred with the business. The transaction resulted in
a pre-tax and after-tax gain of $4,666, which was included in SG&A expenses in the accompanying Consolidated Statements of Income for the year ended
July 31, 2018. The divestiture of the Runelandhs business was part of the Company’s continued long-term growth strategy to focus the Company’s energies
and resources on growth of the Company’s core businesses.
54
Table of Contents
16. Unaudited Quarterly Financial Information
Fiscal 2019
Net sales
Gross margin
Operating income
Net income
Net income per Class A Nonvoting Common Share:
Basic
Diluted
Fiscal 2020
Net sales
Gross margin
Operating income*
Net income
Net income per Class A Nonvoting Common Share:
Basic
Diluted
First
Second
Quarters
Third
Fourth
Total
$
293,196
$
282,426
$
289,745
$
295,278
$
1,160,645
146,539
40,622
30,637
139,810
36,030
29,227
145,749
39,621
34,781
146,580
46,155
36,613
0.59
0.58
$
$
0.56
0.55
$
$
0.66
0.65
$
$
0.69
0.68
$
$
578,678
162,428
131,258
2.50
2.46
286,947
$
276,665
$
265,943
$
251,744
$
1,081,299
141,405
40,891
37,498
139,127
41,244
33,553
129,527
22,669
13,633
118,506
33,219
27,685
0.71
0.70
$
$
0.63
0.62
$
$
0.26
0.26
$
$
0.53
0.53
$
$
528,565
138,023
112,369
2.13
2.11
$
$
$
$
$
* In the third quarter of fiscal 2020, the Company recognized before tax impairment charges of $13,821.
17. Subsequent Events
On September 15, 2020, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from
$0.87 to $0.88 per share. A quarterly dividend of $0.22 will be paid on October 30, 2020, to shareholders of record at the close of business on October 9,
2020. This dividend represents an increase of 1.1% and is the 35th consecutive annual increase in dividends.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures:
Brady Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company
in the reports filed by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the Company in the reports the Company files under the Exchange Act is
accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the
supervision and with the participation of its management, including its President and Chief Executive Officer and its Chief Financial Officer and Treasurer,
of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based
on that evaluation, the Company’s President and Chief Executive Officer and Chief Financial Officer and Treasurer concluded that the Company’s
disclosure controls and procedures are effective as of the end of the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting:
The management of Brady Corporation and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
55
Table of Contents
With the participation of the President and Chief Executive Officer and Chief Financial Officer and Treasurer, management conducted an evaluation of
the effectiveness of our internal control over financial reporting as of July 31, 2020, based on the framework and criteria established in Internal Control —
Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management
concluded that, as of July 31, 2020, the Company’s internal control over financial reporting is effective based on those criteria.
Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s internal control over financial reporting, as of July 31, 2020, has been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting:
There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
56
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Brady Corporation
Milwaukee, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Brady Corporation and subsidiaries (the “Company”) as of July 31, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2020, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended July 31, 2020, of the Company and our report dated September 16, 2020, expressed an unqualified opinion
on those financial statements, and included an emphasis of a matter paragraph regarding the Company’s change in method of accounting for leases for the
year ended July 31, 2020, due to the adoption of the Financial Accounting Standards Board Accounting Standard Update No. 2016-02, Leases (Topic ASC
842).
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 16, 2020
57
Table of Contents
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Name
J. Michael Nauman
Aaron J. Pearce
Bentley N. Curran
Pascal Deman
Helena R. Nelligan
Russell R. Shaller
Ann E. Thornton
Andrew T. Gorman
Patrick W. Allender
Gary S. Balkema
David S. Bem
Elizabeth P. Bruno
Nancy L. Gioia
Conrad G. Goodkind
Frank W. Harris
Bradley C. Richardson
Michelle E. Williams
Age
58
49
58
55
54
57
38
40
73
65
51
53
60
76
78
62
59
Title
President, CEO and Director
Chief Financial Officer and Treasurer
V.P. - Digital Business and Chief Information Officer
V.P., General Manager - Workplace Safety
Senior V.P. - Human Resources
Senior V.P., President - Identification Solutions
Chief Accounting Officer and Corporate Controller
General Counsel and Secretary
Director
Director
Director
Director
Director
Director
Director
Director
Director
J. Michael Nauman - Mr. Nauman has served on the Company’s Board of Directors and as the Company’s President and CEO since August 2014.
Prior to joining the Company, Mr. Nauman spent 20 years at Molex Incorporated, where he led global businesses in the automotive, data communications,
industrial, medical, military/aerospace and mobile sectors. In 2007, he became Molex's Senior Vice President leading its Global Integrated Products
Division and was named Executive Vice President in 2009. Before joining Molex in 1994, Mr. Nauman was a tax accountant and auditor for Arthur
Andersen and Company and Controller and then President of Ohio Associated Enterprises, Inc. Mr. Nauman’s broad operational and financial experience
and perspective as the Company's CEO, as well as his leadership and strategic perspective, provide the Board with insight and expertise to drive the
Company’s growth and performance. Mr. Nauman holds a bachelor’s of science degree in management from Case Western Reserve University. He is a
certified public accountant and chartered global management accountant. He is a board member of the Arkansas Science, Technology, Engineering and
Math Coalition, the Quapaw Area Council of the Boy Scouts of America, and the Anthony School Board of Trustees.
Aaron J. Pearce - Mr. Pearce joined the Company in 2004 as Director of Internal Audit and currently serves as Chief Financial Officer and Treasurer.
Mr. Pearce was appointed Senior Vice President and Chief Financial Officer in September 2014, and Chief Accounting Officer in July 2015. From 2006 to
2008, he served as Finance Director for the Company’s Asia Pacific region, and from 2008 to 2010, served as Global Tax Director. In January 2010, Mr.
Pearce was appointed Vice
58
Table of Contents
President, Treasurer, and Director of Investor Relations, and in April 2013, was named Vice President - Finance, with responsibility for finance support to
the Company’s Workplace Safety and Identification Solutions businesses, financial planning and analysis, and investor relations. Prior to joining the
Company, Mr. Pearce was an auditor with Deloitte & Touche LLP. He holds a bachelor’s degree in business administration from the University of
Wisconsin-Milwaukee and is a certified public accountant.
Bentley N. Curran - Mr. Curran joined the Company in 1999 and has served as Vice President of Digital Business and Chief Information Officer since
2012. He has also served as Chief Information Officer and Vice President of Information Technology. Prior to joining Brady, Mr. Curran served in a variety
of technology leadership roles for Compucom and the Speed Queen Company. He holds a bachelor's degree in business administration from Marian
University and an associate of science degree in electronics and engineering systems.
Pascal Deman - Mr. Deman joined the Company in 2014 and has served as Vice President and General Manager of Workplace Safety since 2020. Prior
to joining the Company, Mr. Deman worked at Nisbets Plc., as Executive Adviser and General Manager, Europe and North America. Prior to working at
Nisbets, Mr. Deman worked for the Company from 1998 through 2012, holding numerous positions of increasing responsibilities and scope. He holds a
degree in marketing from Hogeschool in Antwerp, Belgium.
Helena R. Nelligan - Ms. Nelligan joined the Company as Senior Vice President - Human Resources in November 2013. Prior to joining the Company,
she was employed by Eaton Corporation beginning in 2005. At Eaton, she served as Vice President of Human Resources - Electrical Products Group, Vice
President - Human Resources, Electrical Sector and Director Human Resources - Electrical Components Division. From 1997 to 2005, Ms. Nelligan served
in human resources leadership roles with Merisant Worldwide, Inc. and British Petroleum. She holds a bachelor’s degree in criminal justice and a master’s
degree in human resources and labor relations from Michigan State University.
Russell R. Shaller - Mr. Shaller joined the Company in June 2015 as Senior Vice President and President - Identification Solutions. From 2008 to 2015,
he served as President, Teledyne Microwave Solutions. Before joining Teledyne, Mr. Shaller held a number of positions of increasing responsibility at W.L.
Gore & Associates, including Division Leader, Electronic Products Division from 2003 to 2008 and General Manager of Gore Photonics from 2001 to
2003. Prior to joining W.L. Gore in 1993, Mr. Shaller worked in engineering and program management positions at Westinghouse Corporation. He holds a
bachelor’s degree in electrical engineering from the University of Michigan, a master’s degree in electrical engineering from Johns Hopkins University and
a master’s degree in business administration from the University of Delaware.
Ann E. Thornton - Ms. Thornton joined the Company in 2009 and has served as Chief Accounting Officer since 2016 and as Corporate Controller and
Director of Investor Relations since 2015. She held the positions of Corporate Accounting Supervisor, Corporate Accounting Manager, External Reporting
Manager, Corporate Finance Manager and Director of Global Accounting from 2009 to 2014. Prior to joining the Company, Ms. Thornton was an auditor
with PricewaterhouseCoopers from 2005 to 2009. She has a bachelor’s degree in business administration and a master of accountancy degree from the
University of Wisconsin-Madison and is a certified public accountant.
Andrew T. Gorman - Mr. Gorman joined the Company as General Counsel and Corporate Secretary in April 2020. Prior to joining the Company, he
was employed at AptarGroup, Inc., beginning in 2012. At AptarGroup, he served as Vice President, General Counsel, North America, Compliance Officer
and Assistant Secretary. Before joining AptarGroup, he counseled corporate clients in private practice, including as an attorney at Mayer Brown, LLP in
Chicago, where Mr. Gorman started his legal career. He holds a juris doctor from Loyola University Chicago School of Law, a master in professional
accounting from The University of Texas at Austin, a bachelor of business administration from The University of Texas at Austin and is a certified public
accountant.
Patrick W. Allender - Mr. Allender was elected to the Board of Directors in 2007. He serves as the Chair of the Finance Committee and as a member of
the Audit and Corporate Governance Committees. He served as Executive Vice President and CFO of Danaher Corporation from 1998 to 2005 and
Executive Vice President from 2005 to 2007. He has served as a director of Colfax Corporation since 2008, and previously served as director of Diebold
Nixdorf, Inc. from 2011 to 2020. He has a bachelor's degree in accounting from Loyola University Maryland and is a certified public accountant.
Mr. Allender's strong background in finance and accounting, as well as his past experience as the CFO of a public company, provides the Board with
financial expertise and insight.
Gary S. Balkema - Mr. Balkema was elected to the Board of Directors in 2010. He serves as the Chair of the Management Development and
Compensation Committee and is a member of the Audit Committee. From 2000 to 2011, he served as the President of Bayer Healthcare LLC and
Worldwide Consumer Care Division. He was also responsible for overseeing Bayer LLC USA's compliance program. He has over 20 years of general
management experience. Mr. Balkema has served as a
59
Table of Contents
director of PLx Pharma, Inc. since 2016. He has bachelor’s degrees in business administration and aeronautical science from Nathaniel Hawthorne College
and a master of business administration degree from Fairleigh Dickinson University. Mr. Balkema brings strong experience in consumer marketing skills
and mergers, acquisitions and integrations. His broad operating and functional experience are valuable to the Company given the diverse nature of the
Company's portfolio.
David S. Bem, Ph.D - Dr. Bem was elected to the Board of Directors in 2019. He serves as a member of the Management Development and
Compensation and the Technology Committees. Dr. Bem is Vice President, Science and Technology and Chief Technology Officer of PPG. Prior to PPG,
he spent 8 years at Dow Chemical Company in a number of research and development roles, most recently as Vice President, Research and Development
Consumer Solutions and Infrastructure Solutions, and also worked in research and development roles at Celanese Corporation and UOP/Honeywell
International, Inc. He has a bachelor’s degree in chemistry from West Virginia University and a doctorate in inorganic chemistry from the Massachusetts
Institute of Technology. Dr. Bem’s extensive experience in technology and research and development provides the Board with important expertise in new
product development and innovation.
Elizabeth P. Bruno, Ph.D - Dr. Bruno was elected to the Board of Directors in 2003. She serves as the Chair of the Corporate Governance Committee
and is a member of the Finance and Technology Committees. Dr. Bruno is the President of the Brady Education Foundation in Chapel Hill, North Carolina.
Dr. Bruno has a bachelor’s degree in psychology from the University of Rochester, a master of child clinical psychology degree from the University of
North Carolina Chapel Hill and a doctorate in developmental psychology from the University of North Carolina Chapel Hill. She is the granddaughter of
William H. Brady, Jr., the founder of Brady Corporation. As a result of her substantial ownership stake in the Company, as well as her family's history with
the Company, she is well positioned to understand, articulate and advocate for the rights and interests of the Company's shareholders.
Nancy L. Gioia - Ms. Gioia was elected to the Board of Directors in 2013. She serves as the Chair of the Technology Committee and is a member of
the Management Development and Compensation Committee. She was the Director, Global Electrical Connectivity and User Experience for Ford Motor
Company until her retirement in 2014, where she also held a variety of engineering and technology roles including, Director, Global Electrification;
Director, Sustainable Mobility Technologies and Hybrid Vehicle Programs; Director, North America Current Vehicle Model Quality; Engineering Director,
Visteon/Ford Due Diligence; Engineering Director, Small Front Wheel Drive/Rear Wheel Drive Car Platforms-North America; and Vehicle Programs
Director, Lifestyle Vehicles. She has served as a director of Meggit PLC since 2017 and as the Executive Director of Blue Current since 2019, and
previously served as director of Exelon Corporation. Ms. Gioia has a bachelor’s degree in electrical engineering from the University of Michigan and a
master of manufacturing systems engineering degree from Stanford University. Ms. Gioia's extensive experience in strategy, technology and engineering
solutions, as well as her general business experience, provides the Board with important expertise in product development and operations.
Conrad G. Goodkind - Mr. Goodkind was elected to the Board of Directors in 2007. He serves as the Chair of the Board of Directors and as a member
of the Corporate Governance, Finance and Audit Committees. He previously served as Secretary of the Company from 1999 to 2007. Mr. Goodkind was a
partner in the law firm of Quarles & Brady, LLP, where his practice concentrated in corporate and securities law from 1979 to 2009. Mr. Goodkind
previously served as a director of Cade Industries, Inc. and Able Distributing, Inc. Mr. Goodkind has a bachelor’s degree in political science and a juris
doctor degree from the University of Wisconsin. His extensive experience in advising companies on a broad range of transactional matters, including
mergers and acquisitions and securities offerings, and historical knowledge of the Company provide the Board with expertise and insight into governance,
business and compliance issues that the Company encounters.
Frank W. Harris, Ph.D - Dr. Harris was elected to the Board of Directors in 1991. He serves as a member of the Technology and Management
Development and Compensation Committees. He is the founder of several technology-based companies including Akron Polymer Systems, where he
serves as Chair of the Board of Directors. Dr. Harris is the inventor of several commercialized products. He is an Emeritus Distinguished Professor of
Polymer Science and Biomedical Engineering at The University of Akron, where he previously served as Director of the Maurice Morton Institute of
Polymer Science. Dr. Harris has a bachelor’s degree in chemistry from the University of Missouri, and a master of organic chemistry and doctorate in
organic chemistry from the University of Iowa. Dr. Harris’ extensive experience in technology and engineering solutions provides the Board with important
expertise in new product development.
Bradley C. Richardson - Mr. Richardson was elected to the Board of Directors in 2007. He serves as the Chair of the Audit Committee and is a
member of the Corporate Governance and Finance Committees. He is the Executive Vice President and CFO of Avient Corporation (formerly PolyOne
Corporation). He previously served as the Executive Vice President and CFO of Diebold, Inc. and as Executive Vice President Corporate Strategy and CFO
of Modine Manufacturing. Prior to Modine, he spent 21 years with BP Amoco serving in various financial and operational roles. Mr. Richardson has served
on the boards of Modine Manufacturing and Tronox, Inc. Mr. Richardson has a bachelor’s degree in finance and economics from Miami University and a
master of business administration in accounting and finance from Indiana University. He brings to the
60
Table of Contents
Company extensive knowledge and global experience in the areas of operations, strategy, accounting, tax accounting and finance, which are areas of
critical importance to the Company as a global company.
Michelle E. Williams, Ph.D - Dr. Williams was elected to the Board of Directors in 2019. She serves as a member of the Management Development
and Compensation and Technology Committees. Dr. Williams is Global Group President of Altuglas International, a subsidiary of Arkema S.A. Prior to
Arkema, she spent 23 years with Rohm and Haas Company and Dow Chemical in manufacturing, commercial, strategy and general management positions.
She was General Manager, Chemical Mechanical Polishing Technologies, and later, General Manager, Adhesives and Sealants. She has a bachelor’s degree
in chemistry from Pace University and a doctorate in physical chemistry from the University of Utah. Dr. Williams’ experience in commercial, technology
and business leadership roles provides the Board with important expertise in innovation, new product development and operations.
All Directors serve until their respective successors are elected at the next annual meeting of shareholders. Officers serve at the discretion of the Board
of Directors. None of the Company's Directors or executive officers has any family relationship with any other Director or executive officer.
Board Leadership Structure - The Board does not have a formal policy regarding the separation of the roles of Chief Executive Officer and Chair of
the Board, as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company
and the membership of the Board. Since September 2015, the Board’s leadership structure has included a non-executive Chair. Mr. Goodkind, an
independent Director, has served in that position since its creation. The duties of the non-executive Chair include, among others: chairing meetings of the
Board and executive sessions of the non-management Directors; meeting periodically with the Chief Executive Officer and consulting as necessary with
management on current significant issues facing the Company; facilitating effective communication among the Chief Executive Officer and all members of
the Board; and overseeing the Board's shareholder communication policies and procedures.
The Board believes that its current leadership structure enhances the Board's oversight of, and independence from, Company management; the ability
of the Board to carry out its roles and responsibilities on behalf of the Company’s shareholders; and the Company’s overall corporate governance.
Risk Oversight - The Board oversees the Company's risk management processes directly and through its committees. In general, the Board oversees the
management of risks inherent in the operation of the Company's businesses, the implementation of its strategic plan, its acquisition and capital allocation
program and its organizational structure. Each of the Board's committees also oversees the management of Company risks that fall within the committee's
areas of responsibility. The Company's management is responsible for reporting significant risks to executive management as a part of the disclosure
process. The significance of the risk is assessed by executive management and escalation to the respective board committee and Board of Directors as
determined. The Company reviews its risk assessment with the Audit Committee annually.
Audit Committee Financial Expert - The Company's Board of Directors has determined that at least one Audit Committee financial expert is serving on
its Audit Committee. Messrs. Richardson, Chair of the Audit Committee, and Allender and Balkema, members of the Audit Committee, are financial
experts and are independent under the rules of the SEC and the New York Stock Exchange (“NYSE”).
Director Independence - A majority of the Directors must meet the criteria for independence established by the Board in accordance with the rules of
the NYSE. In determining the independence of a Director, the Board must find that a Director has no relationship that may interfere with the exercise of his
or her independence from management and the Company. In undertaking this determination with respect to the Company’s Directors other than Mr.
Nauman, the Board considered the commercial relationships of the Company, if any, with those entities that have employed the Company’s Directors. The
commercial relationships, which involved the purchase and sale of products on customary terms, did not exceed the maximum amounts proscribed by the
director independence rules of the NYSE. Furthermore, the compensation paid to the Company’s Directors by their employers was not linked in any way to
the commercial relationships their employers had with the Company in fiscal 2020. After consideration of these factors, the Board concluded that the
commercial relationships were not material and did not prevent the Company’s Directors from being considered independent. Based on application of the
NYSE independence criteria, all Directors, with the exception of Mr. Nauman, President and CEO, are deemed independent. All members of the Audit,
Management Development and Compensation, and Corporate Governance Committees are deemed independent.
Meetings of Non-management Directors - The non-management Directors of the Board regularly meet alone without any members of management
present. As Chair of the Board, Mr. Goodkind is the presiding Director at these sessions. In fiscal 2020, there were executive sessions at all scheduled
Board meetings. Interested parties can raise concerns to be addressed at these meetings by calling the confidential Brady hotline at 1-800-368-3613.
61
Table of Contents
Audit Committee Members - The Audit Committee, which is a separately-designated standing committee of the Board of Directors, is composed of
Messrs. Richardson (Chair), Allender, Balkema, and Goodkind. Each member of the Audit Committee has been determined by the Board to be independent
under the rules of the SEC and NYSE.
Code of Ethics - The Company has a code of ethics. This code of ethics applies to all of the Company's employees, officers and Directors. The code of
ethics can be viewed at the Company's corporate website, www.bradyid.com, or may be obtained in print by any person, without charge, by contacting
Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201. The Company intends to satisfy the disclosure requirements under Item 5.05
of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics by placing such information on its Internet website.
Corporate Governance Guidelines - Brady's Corporate Governance Principles, as well as the charters of the Audit, Corporate Governance and
Management Development and Compensation Committees, are available on the Company's Corporate website, www.bradyid.com. Shareholders may
request printed copies of these documents from Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201.
Director Qualifications - Brady's Corporate Governance Committee reviews the individual skills and characteristics of the Directors, as well as the
composition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, expertise, and industry backgrounds
in the context of the needs of the Board and the Company. Although the Company has no policy regarding diversity, the Corporate Governance Committee
seeks a broad range of perspectives and considers both the personal characteristics and experience of Directors and prospective nominees to the Board so
that, as a group, the Board will possess the appropriate talent, skills and expertise to oversee the Company's businesses. The Board does not discriminate on
the basis of race, national origin, gender, religion, disability, or sexual orientation in selecting director candidates.
DELINQUENT SECTION 16(a) REPORTS
To the Company’s knowledge, based solely on a review of the Section 16(a) filings and written representations that no other reports were required,
during the fiscal year ended July 31, 2020, all Section 16(a) filing requirements were complied with other than with respect to the following:
•
Fund transfers by Thomas J. Felmer in his Company-matched 401(k) plan of 2,500, 7,500 and 7,603 shares of Class A Nonvoting Common Stock
on September 26, 2019, September 27, 2019 and September 30, 2019, respectively, were reported late by Mr. Felmer due to an administrative error. These
transactions were reported on a Form 4 that was filed on October 15, 2019.
62
Table of Contents
Item 11. Executive Compensation
Compensation Discussion and Analysis
Overview
Our Compensation Discussion and Analysis focuses on the Company's total compensation philosophy, the role of the Management Development and
Compensation Committee (the "Committee") and its approach in determining total compensation decisions, elements of total compensation inclusive of
base salary, short-term incentives, long-term incentives, benefits, perquisites, severance amounts and change-in-control agreements for our executive
officers, and peer company and market reviews.
For fiscal 2020, the following named executive officers' (the "NEOs") compensation is disclosed and discussed in this section:
J. Michael Nauman, President, Chief Executive Officer and Director;
Pascal Deman, Vice President and General Manager, Workplace Safety (1);
•
• Aaron J. Pearce, Chief Financial Officer and Treasurer;
•
• Helena R. Nelligan, Senior Vice President, Human Resources;
•
•
•
Russell R. Shaller, Senior Vice President and President - Identification Solutions;
Louis T. Bolognini, Former Senior Vice President, General Counsel and Secretary (2);
Thomas J. Felmer, Former Senior Vice President and President - Workplace Safety (3).
(1) Effective January 3, 2020, Mr. Deman was appointed by the Company as Vice President and General Manager, Workplace Safety.
(2) Effective April 15, 2020, Mr. Bolognini resigned from his position as Senior Vice President, General Counsel and Secretary and retired from the
Company.
(3) Effective January 2, 2020, Mr. Felmer resigned from his position as Senior Vice President and President - Workplace Safety and retired from the
Company.
Retirement of Thomas J. Felmer: Mr. Felmer, Senior Vice President and President - Workplace Safety, provided notice to the Company of his
retirement on September 16, 2019, with an effective retirement date of January 2, 2020. On October 15, 2019, the Company entered into a written
retirement agreement with Mr. Felmer to assist in the transition of his duties and be otherwise available on a consultative basis for a period of six months
following his retirement date. The agreement provided for a severance payment of $650,000 to be paid in equal installments throughout the 24 months
following his retirement date. The agreement also included standard confidentiality, waiver, and non-disparagement provisions, including non-competition
and non-solicitation provisions stipulating his agreement not to compete with the Company or solicit its employees, customers, and vendors for a period for
24 months after his retirement date. In addition, the agreement provided for the modification of vesting conditions for certain outstanding equity awards.
Under the agreement, unvested stock options and restricted stock units granted on September 22, 2017 and September 25, 2018 would vest 100% and 50%,
respectively, on the retirement date.
Appointment of Pascal Deman: The Company appointed Mr. Deman as Vice President and General Manager, Workplace Safety effective January 3,
2020. On January 7, 2020, the Company entered into an amendment to the employment agreement dated September 4, 2014 with Mr. Deman (the
"Amendment"), which was effective as of January 3, 2020. The Amendment provided that Mr. Deman would receive an annual base salary of €255,550,
with eligibility for a target annual bonus at 50% of base salary, and participation in the Company's equity incentive and other benefit plans on a basis
similar to other executive officers. The Amendment further provided that Mr. Deman would receive a retention award of time-based restricted stock units
with a grant date value of $75,000 and a grant date of January 3, 2020. The restricted stock units vest in increments of 10%, 20%, 30%, and 40% upon the
first, second, third, and fourth anniversaries of the grant date. Mr. Deman will have a Company stock ownership requirement equal to two times his base
salary. The Amendment also contained non-competition and non-solicitation provisions stipulating his agreement not to compete with the Company or
solicit its employees, customers, and vendors for a period for 12 months after the date of separation from the Company. Mr. Deman's employment
agreement, including the amendment thereto, does not contain any provisions related to specified payments upon termination of employment.
Effective January 7, 2020, the Company also entered into a change of control agreement with Mr. Deman (the "Change of Control Agreement"). Under
the terms of the Change of Control Agreement, in the event of a qualifying termination within 24 months following a change of control (as such events are
defined in the Change of Control Agreement), Mr. Deman will receive
63
Table of Contents
two times his base salary and two times the average bonus payment received in the three years immediately prior to the date of the change of control.
Executive Summary
Fiscal 2020 Business Highlights
Refer to Item 1 "General Development of Business" for a business overview and key initiatives during fiscal 2020. Highlights for fiscal 2020 include:
• Our fiscal 2020 income before income taxes and losses of unconsolidated affiliate was $140.9 million, a decrease of $23.7 million from fiscal
2019 income before income taxes and losses of unconsolidated affiliate of $164.6 million.
Cash flow from operating activities was $141.0 million during fiscal 2020, a decrease of $21.2 million from fiscal 2019.
•
• Net sales were $1,081.3 million in fiscal 2020 compared to $1,160.6 million in fiscal 2019, a decrease of 6.8%. Organic sales decreased 5.4% and
foreign currency translation decreased sales by 1.4%.
Refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion of fiscal 2020 results,
including the impact of the COVID-19 pandemic on our business.
Fiscal 2020 Executive Summary
For fiscal 2020, the Board of Directors approved a 3.0% increase in base salary for Mr. Nauman. In addition, Mr. Nauman recommended and the
Committee approved increases in base salary for Messrs. Pearce, Shaller, Bolognini and Ms. Nelligan. All increases were made to recognize the
performance, current scope of responsibilities and peer company and other market data for each executive and, with regard to Messrs. Pearce and Shaller,
to better align their base salary with individuals holding comparable positions at peer companies.
Fiscal 2020 equity grants were made in the form of time-based stock options, time-based restricted stock units ("RSUs") and performance-based RSUs
("PRSUs"), of which the quantity was based upon the average stock price on the grant date. Generally, one-third of the award granted was in the form of
stock options that vest equally over a three-year period, which are inherently performance-based and have value only to the extent that the price of the
Company's stock increases. Another one-third of the award granted was in the form of RSUs that vest equally over three years and are intended to facilitate
retention and align with the creation of long-term shareholder value. The final one-third of the award granted was in the form of PRSUs, which reinforce
the Company's pay-for-performance philosophy where the level of rewards is aligned to Company performance. The PRSU awards granted in fiscal 2020
have a three-year performance period with the number of shares issued at vesting determined by the Company's total shareholder return ("TSR") relative to
the S&P 600 SmallCap Industrials Index. Payout opportunities will range from 0% to 200% of the target award at the end of the three-year performance
period.
64
Table of Contents
Executive Compensation Practices
As part of the Company's pay-for-performance philosophy, the Company's compensation program includes several features that maintain alignment
with shareholders:
Emphasis on Variable Compensation
A significant portion of the NEOs' possible compensation is tied to Company performance, which is intended
to drive shareholder value.
Ownership Requirements
Clawback Provisions
Performance Thresholds and Caps
Insider Trading Policy
The Company believes that the interests of shareholders and executives become aligned when executives
become shareholders in possession of a meaningful amount of Company stock. Furthermore, this stock
ownership encourages positive performance behaviors and discourages executive officers from taking undue
risk. In order to encourage our executive officers and directors to acquire and retain ownership of a significant
number of shares of the Company's stock, stock ownership requirements have been established and are equal to
a specified multiple of the executive officer's base salary. Our NEOs are expected to obtain the required
ownership levels within five years of becoming an executive officer. Refer to heading "Stock Ownership
Requirements" for further discussion of the stock ownership requirements established for each NEO and the
actions that the Company may take when an executive is not in compliance with his or her respective stock
ownership requirement.
There is a recoupment policy under which incentive compensation payments and/or awards may be recouped
by the Company if such payments and/or awards were based on erroneous results. If the Committee determines
that an executive officer or other key executive of the Company who participates in any of the Company's
incentive plans has engaged in intentional misconduct that results in a material inaccuracy in the Company's
financial statements or fraudulent or other willful and deliberate conduct that is detrimental to the Company or
there is a material, negative revision of a performance measure for which incentive compensation was paid or
awarded, the Committee may take a variety of actions including, among others, seeking repayment of incentive
compensation (cash and/or equity) that is greater than what would have been awarded if the payments/awards
had been based on accurate results and the forfeiture of incentive compensation. As this policy suggests, the
Committee believes that any incentive compensation should be based only on accurate and reliable financial
and operational information, and, thus, any inappropriately paid incentive compensation should be returned to
the Company for the benefit of shareholders. The Committee believes that this policy enhances the Company's
compensation risk mitigation efforts. While the policy affords the Committee discretion regarding the
application and enforcement of the policy, the Company and the Committee will conform the policy to any
requirements that may be promulgated by the national stock exchanges, as mandated by the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
Our cash incentive awards are determined based on financial results for organic revenue, income before income
taxes, division organic revenue, division operating income, and achievement of fiscal year objectives, which
aggregate to a maximum payout of 193% of target. Executive officers then receive a performance rating that
results in a multiplier ranging from 0% to 150%, resulting in a maximum cash incentive award payout of 289%
of target opportunities.
We grant equity compensation to executive officers that promotes long-term financial and operating
performance by delivering incremental value to the extent our stock price increases over time. Performance-
based RSUs incorporate the achievement of certain financial performance goals or Company performance
relative to a benchmark over a three-year period.
Our Insider Trading Policy prohibits executive officers from trading during certain periods at the end of each
quarter until after we disclose our financial and operating results. We may impose additional restricted trading
periods at any time if we believe trading by executives would not be appropriate because of developments that
are, or could be, material and which have not been publicly disclosed. The Insider Trading Policy also prohibits
the pledging of Company stock as collateral for loans, holding Company securities in a margin account by
officers, directors or employees, and the hedging of Company securities.
Annual Risk Reviews
The Company conducts an annual compensation-related risk review and presents findings and suggested risk
mitigation actions to both the Audit and Management Development and Compensation Committees.
65
Table of Contents
The Company’s compensation programs also maintain alignment with shareholders by not including certain features:
No Excessive Change of Control
Payments
Mr. Nauman's maximum cash benefit is equal to two times salary and two times target annual cash incentive
plus a prorated target annual cash incentive in the year in which the termination occurs. For all other NEOs, the
maximum cash benefit is equal to two times salary and two times the average annual cash incentive payment
received in the three years immediately prior to the date the change of control occurs. In the event of a change
of control, unexercised stock options become fully exercisable or, if canceled, each named executive officer
shall be given cash or stock equal to the in-the-money value of the canceled stock options. In the event of a
change of control, performance-based and time-based RSUs become unrestricted and fully vested at target.
No Employment Agreements with
Severance Arrangements
The Company does not maintain any employment agreements with its executives that contain provision of
benefits related to termination of employment. The offer letters for Messrs. Nauman and Shaller provide that
each is deemed an at-will employee, but will receive a severance benefit in the event his employment is
terminated by the Company without cause or for good reason as described in the respective offer letter.
No Reloads, Repricing, or Options
Issued at a Discount
Stock options issued are not repriced, replaced, or regranted through cancellation or by lowering the option
price of a previously granted option.
Compensation Philosophy and Objectives
We seek to align the interests of our executives with those of our shareholders by evaluating performance on the basis of key financial measurements
that we believe closely correlate to long-term shareholder value. To this end, we have structured our compensation program to accomplish the following:
• Allow the Company to compete for, retain and motivate talented executives;
• Deliver compensation plans that are both internally equitable when comparing similar roles and levels within the Company and externally
competitive when comparing to the external market and the Company’s designated peer group;
• Maintain an appropriate balance between base salary and short-term and long-term incentive opportunities;
•
•
Provide integrated compensation programs aligned to the Company’s annual and long-term financial goals and realized performance;
Recognize and reward individual initiative and achievement with the amount of compensation each executive receives reflective of the executive’s
level of proficiency within his or her role and their level of sustained performance; and
Institute a pay-for-performance philosophy where level of rewards is aligned to Company performance.
•
Determining Compensation
Management Development & Compensation Committee’s Role
The Committee is responsible for monitoring and approving the compensation of the Company's NEOs. The Committee approves compensation and
benefit policies and strategies, approves corporate goals and objectives relative to the chief executive officer and other executive officer compensation,
oversees and reviews the development plan process of key executives, reviews compensation-related risk, administers the Company's equity incentive
plans, and consults with management regarding executive compensation. On an annual basis with respect to executive officers, the Committee approves
base salary adjustments, equity incentive awards, the annual cash incentive paid for performance target achievement in the prior fiscal year, and the annual
cash incentive performance targets for the upcoming fiscal year. In addition, the Committee annually reviews a summary of the elements of compensation
for each executive officer in order to evaluate, among other items, how a potential change to an element of our compensation program would affect the
respective executive officer's overall compensation. When a new executive officer is hired, the Committee is involved in reviewing and approving base
salary, annual incentive opportunity, sign-on incentives, annual equity awards, and other aspects of the executive's compensation.
Consultants’ Role
The Committee has historically utilized the services of an executive compensation consulting firm and legal counsel to assist with the review and
evaluation of compensation levels and policies on a periodic basis, as well as to provide advice with respect to new or modified compensation programs. In
fiscal 2020, the Committee utilized the services of Meridian Compensation Partners and Compensation Strategies, Inc. as compensation consultants and
Quarles & Brady LLP as legal counsel, each of which were determined to be independent by the Corporate Governance Committee.
66
Table of Contents
Management’s Role
To aid in determining compensation for fiscal 2020, management obtained compensation data on peer group executive officer compensation through a
standard data subscription with Equilar, Inc. and published survey data from various third-parties. For fiscal 2020, Mr. Nauman used this data to make
recommendations to the Committee concerning compensation for each NEO other than himself. In setting compensation for NEOs, the Committee takes
into consideration these recommendations, along with Company results during the previous fiscal year, the level of responsibility, demonstrated leadership
capability, third-party compensation data, and the results of annual performance reviews which, for our chief executive officer, included a self-assessment
and feedback from his direct reports and each member of the Board of Directors. In addition, during fiscal 2020, the Committee took into consideration the
recommendations of Meridian Compensation Partners, with respect to compensation elements for the chief executive officer. Mr. Nauman did not attend
the portion of any committee meeting during which the Committee discussed matters related specifically to his compensation.
Elements of Compensation
Our total compensation program includes five elements: base salary, annual cash incentives, long-term equity incentives, employee benefits, and
perquisites. We use these elements of compensation to attract, retain, motivate, develop and reward our executives.
Our compensation philosophy is to allocate a significant portion of total compensation to long-term compensation (equity incentive awards) in order to
align the achievement of performance goals for our executives with shareholder interests. For fiscal 2020, equity incentive awards comprised
approximately 64% of Mr. Nauman’s total target compensation and approximately 50% of the total target compensation of the other NEOs.
The total of base salary, annual cash, and long-term equity incentive compensation elements, in general, is targeted at market median (50th percentile)
up to 75th percentile for the achievement of performance goals, with an opportunity for above market median pay when performance is achieved. Our
compensation structure is balanced by the payment of below market median compensation to our NEOs when actual financial results or individual
performance do not meet expected results. The following table describes the purpose of each compensation element and how that element is related to our
pay-for-performance approach:
Compensation Element
Purpose
Performance Alignment
Base salary
Annual cash incentive award
A fixed level of income used to attract and
retain executives by compensating for the
primary functions and responsibilities of the
position.
To attract, retain, motivate and reward
executives for achieving or exceeding
annual performance goals at total Company
and division levels.
Base salary increases depend upon individual performance, displayed
skills and competencies, and market competitiveness.
Financial performance, achievement of fiscal year objectives and
individual performance of each executive determines the amount of the
executive's annual cash incentive award.
Annual equity incentive award:
Time-based stock options, time-
based RSUs and performance-
based RSUs
To attract, retain, motivate and reward
executives for the successful creation of
long-term shareholder value.
An assessment of executive leadership, experience and expected future
contribution, combined with market data, are used to determine the
amount of equity granted to each executive.
Stock options are inherently performance-based in that the value is
dependent upon the increase in the stock price.
Time-based RSUs are intended to facilitate retention and to align
executives with the creation of long-term shareholder value.
Performance-based RSUs are intended to align executives with long-term
financial goals and the creation of long-term shareholder value.
67
Table of Contents
Benchmarking Total Compensation
The Committee uses peer group data to test the reasonableness and competitiveness of several elements of compensation, including base salaries,
annual cash incentives, and long-term equity awards of positions similar to those of our NEOs. The following 18 companies were included in the fiscal
2020 total compensation analysis conducted using publicly available data:
Apogee Enterprises, Inc.
Balchem Corporation
Barnes Group Inc.
Enerpac Tool Group Corp.
EnPro Industries, Inc.
ESCO Technologies Inc.
Federal Signal Corp.
GCP Applied Technologies Inc.
Graco Inc.
IDEX Corporation
II-VI Incorporated
Ingevity Corporation
MSA Safety Incorporated
Neenah, Inc.
Nordson Corporation
Schweitzer-Mauduit International, Inc.
TriMas Corporation
Watts Water Technologies, Inc.
Fiscal 2020 Named Executive Officer Compensation
Base Salaries
The table below reflects the base salary for each NEO in effect at the end of each fiscal year.
Named Executive Officer
J. Michael Nauman
Aaron J. Pearce
Pascal Deman (1)
Helena R. Nelligan
Russell R. Shaller
Louis T. Bolognini (2)
Thomas J. Felmer (3)
Fiscal 2020
Fiscal 2019
Percentage Increase
$
830,180 $
415,073
282,971
326,290
400,151
360,785
398,623
806,000
396,440
252,625
316,787
378,931
350,277
398,623
3.0 %
4.7 %
15.0 %
3.0 %
5.6 %
3.0 %
— %
(1) Mr. Deman's compensation is denominated in Euros. The amounts shown in U.S. dollars in the table above were converted from Euros at the
average exchange rate for fiscal 2020: 1 EUR = 1.1073 USD and fiscal 2019: 1 EUR = 1.1369 USD. Mr. Deman received a 15% base salary
increase in fiscal 2020 as a result of his appointment as Vice President and General Manager - Workplace Safety. The remainder of the difference
between fiscal 2019 and 2020 base salaries relates to exchange rate fluctuation.
(2) Effective April 15, 2020, Mr. Bolognini resigned from his position as Senior Vice President, General Counsel and Secretary and retired from the
Company.
(3) Effective January 2, 2020, Mr. Felmer resigned from his position as Senior Vice President and President - Workplace Safety and retired from the
Company.
68
Table of Contents
Annual Cash Incentive Awards
The Company is managed on a global basis with two reportable segments: Identification Solutions ("IDS") and Workplace Safety ("WPS"). All
executives participate in an annual cash incentive plan, which is based on fiscal year financial results of the Company or a division. Management and the
Committee annually evaluate the performance metrics of the cash incentive award program, and concluded that the elements of the fiscal 2020 plan
represent critical elements of the Company’s performance that when combined, are designed to result in sustainable long-term sales and profit growth. Set
forth below is a description of the fiscal 2020 financial performance metrics for the annual cash incentive plan:
Performance Metric
Total organic sales
Income before income
taxes
Division organic sales
Division operating
income
Fiscal year objectives
Definition
Total organic sales is measured as total net sales calculated in accordance with U.S.
GAAP, excluding the impact of foreign currency translation, acquisitions and
divestitures.
Weighting
35%
Income before income taxes is defined as total net sales minus total expenses
before deducting income tax expense calculated in accordance with U.S. GAAP,
excluding the impact of foreign currency translation. Income before income taxes
excludes the impact of acquisitions, divestitures, and unconsolidated affiliates.
Division organic sales is measured as division net sales calculated in accordance
with U.S. GAAP, excluding the impact of foreign currency translation, acquisitions
and divestitures.
Division operating income is measured as division net sales less cost of goods sold,
selling expenses, research and development expenses, and administrative expenses
calculated in accordance with U.S. GAAP, excluding the impact of foreign
currency translation, acquisitions and divestitures.
In fiscal 2020, the Company had seven fiscal year objectives that were established
at the beginning of the fiscal year and viewed as critical to the execution of the
Company's strategy.
NEO
Messrs. Nauman, Pearce,
Bolognini and Ms.
Nelligan
Messrs. Nauman, Pearce,
Bolognini and Ms.
Nelligan
Messrs. Deman, Shaller,
and Felmer
Messrs. Deman, Shaller,
and Felmer
55%
35%
55%
10%
All NEOs
The funding of the fiscal 2020 annual cash incentive plan was determined by the achievement of certain sales and profit metrics compared to stated
thresholds, as well as the achievement of seven fiscal year objectives that were established at the beginning of the fiscal year. The annual cash incentive
plan includes a minimum profit threshold that must be exceeded in order for any cash incentive amount to be funded, regardless of the achievement of
revenue or fiscal year objectives, and has an eligibility requirement to be employed on the payment date.
Individual contribution is determined by assessing the level of achievement of each NEO’s individual annual goals combined with their ability to
deliver on the competencies needed to achieve those goals. The competencies include items such as optimizing work processes through continuous
improvement initiatives, building strong customer relationships and providing excellent customer service, creating innovative new product solutions, and
developing our people. Individual annual goals and competencies are included in each NEO’s performance assessment to ensure they are focused on
initiatives within their area of responsibility that will increase both sales and profitability and drive long-term shareholder value.
While our objective is to set goals that are quantitative and measurable, certain elements of the performance assessment may be subjective.
Assessments and rating recommendations for all NEOs, except the CEO, are delivered to the Committee by the CEO in July. The CEO provides the
Committee with a self-assessment of his own performance without a rating recommendation and the Committee determines the CEO's performance rating.
The Company's rating system consists of five performance levels, each with a predetermined multiplier that is applied to the available annual cash
incentive that is earned and payable to the NEO based upon their contribution to the fiscal year objectives and their individual annual goals: Unsatisfactory
- 0%; Needs Improvement - 50%; Fully Meets Objectives - 100%; Exceeds Objectives - 125%; and Outstanding - 150%. The target annual cash incentive
award that would be payable to each NEO is calculated as a percentage of the NEO’s eligible compensation, which is defined as base salary paid during the
fiscal year. The achievement of the financial performance metrics defined in the table above is applied to this target for each NEO, and their individual
performance rating is then applied, resulting in the annual cash incentive award. The following section details this calculation for each NEO.
69
Table of Contents
As a result of their retirement during fiscal 2020, Messrs. Bolognini and Felmer were not eligible for payout under the Company's annual cash
incentive plan for fiscal 2020.
Messrs. Nauman, Pearce and Ms. Nelligan
The cash incentive payable to Messrs. Nauman, Pearce and Ms. Nelligan for fiscal 2020 was based on total organic sales, income before income taxes
and the achievement of fiscal year objectives. For fiscal 2020, no bonus was payable for these named executive officers as the income before income taxes
threshold was not achieved. As a result, the organic sales performance measure, fiscal year objective component, and the individual performance multiplier
were not applicable.
The threshold, target, maximum and actual cash incentive award earned for Messrs. Nauman, Pearce and Ms. Nelligan were as follows:
Performance Measure (weighting)
Organic Sales (35%)(millions)
Income Before Income Taxes (55%)
(millions)
Fiscal Year Objectives (10%)
Individual Performance Multiplier
Fiscal 2020 Annual Cash Incentive
Award:
J.M. Nauman
A.J. Pearce
H.R. Nelligan
Mr. Shaller
Threshold
$1,158.3
Target
$1,193.4
Maximum
$1,216.2 or more
$165.3
0 %
0 %
$177.2
100 %
100 %
$191.8 or more
125 %
150 %
Fiscal 2020 Actual Results
Achievement ($)
$1,095.9
$143.5
Achievement (%)
— %
— %
N/A
N/A
Threshold
Target
Maximum
(% of Base Salary)
Actual Payout
(% of Target)
0 %
0 %
0 %
100 %
65 %
50 %
289 %
188 %
144 %
0 %
0 %
0 %
Actual Payout
(% of Base Salary)
0 %
Actual Payout
($)
0 %
0 %
$0
$0
$0
The cash incentive payable to Mr. Shaller for fiscal 2020 was based on achievement of IDS division organic sales, IDS division operating income, and
the achievement of fiscal year objectives. For fiscal 2020, no bonus was payable for Mr. Shaller as the IDS division operating income threshold was not
achieved. As a result, the IDS division organic sales performance measure, the fiscal year objective component, and the individual performance multiplier
were not applicable.
The threshold, target, maximum and actual payout amounts for Mr. Shaller were as follows:
Performance Measure (weighting)
IDS Division Organic Sales (35%)
(millions)
IDS Division Operating Income (55%)
(millions)
Fiscal Year Objectives (10%)
Individual Performance Multiplier
Fiscal 2020 Annual Cash Incentive
Award:
Threshold
Target
Maximum
Achievement ($)
Achievement (%)
Fiscal 2020 Actual Results
$634.0
$656.2
$672.1 or more
$158.7
0 %
0 %
$172.4
100 %
100 %
$179.4 or more
125 %
150 %
Threshold
Target
Maximum
(% of Base Salary)
Actual Payout
(% of Target)
$596.5
$156.7
— %
— %
N/A
N/A
Actual Payout
(% of Base Salary)
0 %
Actual Payout
($)
$0
R.R. Shaller
0 %
60 %
173 %
0 %
Mr. Deman
The cash incentive payable to Mr. Deman for fiscal 2020 was based on achievement of WPS division organic sales, WPS division operating income,
and the achievement of fiscal year objectives. For fiscal 2020, an annual cash incentive was funded for the achievement of WPS division organic sales,
WPS division operating income, and for the achievement of certain fiscal year objectives. The multiplier for individual performance was applied to the
achievement of the three components to arrive at the final cash incentive award achieved.
70
Table of Contents
The threshold, target, maximum and actual payout amounts for Mr. Deman were as follows:
Performance Measure (weighting)
WPS Division Organic Sales (35%)
(millions)
WPS Division Operating Income
(55%)(millions)
Fiscal Year Objectives (10%)
Individual Performance Multiplier
Fiscal 2020 Annual Cash
Incentive Award:
P. Deman
P. Deman
Threshold
Target
Maximum
Achievement ($)
Achievement (%)
Fiscal 2020 Actual Results
$295.1
$301.0
$303.9 or more
$32.1
0 %
0 %
$34.0
100 %
100 %
$36.9 or more
125 %
150 %
$301.7
$33.6
124 %
83 %
104 %
150 %
Threshold
Target
Maximum
(% of Base Salary)
Actual Payout
(% of Target)
0 %
0 %
35 %
50 %
101 %
144 %
147 %
147 %
Actual Payout
(% of Base Salary)
52 %
74 %
Actual Payout
($)(1)
$53,507
$122,859
(1) Mr. Deman's compensation is denominated in Euros. The amount shown in U.S. dollars in the table above was converted from Euro at the average
exchange rate for fiscal 2020: 1 EUR = 1.1073 USD. As a result of Mr. Deman's executive officer appointment effective January 3, 2020, his
bonus target was increased from 35% to 50%. Therefore, Mr. Deman's fiscal 2020 annual incentive compensation payout was calculated on a pro-
rata basis using the bonus target in effect for the respective portions of the fiscal year prior to and subsequent to his appointment date.
Mr. Deman's individual performance multiplier was the result of his contribution to several fiscal year objectives and individual annual goals as
follows:
• WPS organic sales growth - The objective focused on accelerating organic sales growth and and enhancing sales capabilities through an improved
digital presence in the WPS division. Despite challenging global economic conditions resulting from the COVID-19 pandemic, organic sales
within the WPS segment increased by 2.3% in fiscal 2020, compared to an organic sales decline of 0.7% in fiscal 2019.
•
•
Product Insourcing - The objective was successfully executed and focused on enhancing our manufacturing capabilities to improve quality,
delivery, speed, and reduce the cost of our core product offerings.
Competitor Insights - The objective was successfully executed and focused on positioning the Company for sustainable long-term growth by
understanding our competitor and the competitive landscape, and using that knowledge to develop and implement effective competitive strategies.
After review of Mr. Deman's performance, the Committee determined that Mr. Deman's resulting performance level was 150% for his individual
performance multiplier.
The Committee regularly evaluates the impact of unusual events on a case-by-case basis along with compensation policies and practices in light of
ongoing developments and best practices in compensation. For fiscal 2020, an adjustment was made to WPS Division Operating Income to exclude the
financial impact of accelerated expense recognized during the current year for certain previously capitalized catalog costs, which impacted the annual cash
incentive for Mr. Deman. No other adjustments were made to the financial results for unusual and unforeseen events that would have an impact on the
Company's fiscal 2020 annual cash incentive for its NEOs.
Long-Term Equity Incentive Awards
For fiscal 2020, the Committee reviewed historical award sizes and median levels of equity awarded to similar positions at our peer companies and
other relevant market data. The Committee then approved fiscal 2020 awards consisting of a combination of time-based stock options, time-based RSUs
and performance-based RSUs. The Committee uses its discretion in combination with peer group data, analysis of actual pay and performance, and advice
from its independent compensation consultant to determine the size and type of equity awards granted to the chief executive officer. For all other
executives, the Committee also considers the input from the chief executive officer when determining the size and type of annual equity awards.
Time-based Stock Options: Stock options generally vest one-third annually for three years and have a ten-year term. The Committee has the ability to
vary both the term and vesting schedule for new stock option grants in accordance with the terms of the plan. All stock options are granted to the NEOs
during the first quarter of each fiscal year following the Committee's
71
Table of Contents
approval, with an exercise price equal to the average of the high and low stock price on the grant date. No dividends are paid or accrued prior to the
issuance of shares.
Time-based RSUs: RSUs generally vest one-third annually for three years. The Committee has the ability to vary both the term and vesting schedule for
new RSU grants in accordance with the terms of the plan. All RSUs are granted following the Committee's approval, with a fair value equal to the average
of the high and low stock price on the grant date.
Performance-based RSUs: PRSUs granted in fiscal year 2018 vest based upon the combined achievement of average organic revenue growth and
average operating income growth over a three-year performance period. Organic revenue growth and operating income growth exclude certain unusual or
non-recurring events affecting the Company. The organic revenue and operating income growth metrics are based on consideration of the Company's
overall strategy and stretch goals in order to emphasize the importance of long-term decision-making to both the financial success of the Company and to
improve shareholder value. The PRSUs have a fair value equal to the average of the high and low stock price on the date of grant, and will vest between
40% and 200% of target if the combination of average organic sales growth and average operating income growth over the three-year performance period
are met. If the minimum vesting threshold of 40% is not achieved, then the PRSUs will be forfeited.
Performance-based RSUs granted in fiscal 2019 and fiscal 2020 ("TSR PRSUs") vest based upon the Company’s total shareholder return ("TSR")
relative to the S&P 600 SmallCap Industrials Index over a three-year performance period. The TSR PRSUs have a fair value determined by a third-party
valuation involving a Monte Carlo simulation. The TSR PRSUs will vest between 25% and 200% of target depending on the relative three-year TSR
performance. If the minimum vesting threshold of 25% is not achieved, then the TSR PRSUs will be forfeited.
No dividends are paid or accrued on the performance-based or time-based RSUs prior to the issuance of shares.
The following is a summary of long-term equity incentive awards granted during fiscal 2020:
Fiscal 2020 Annual Equity Awards
Named Officers
J.M. Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
L.T. Bolognini
T.J. Felmer
Total Grant Date
Fair Value
Time-Based Stock Options
Grant Date
Fair Value
Performance-based RSUs (at
target)
Grant Date Fair Value
Time-Based RSUs
Grant Date Fair Value
$
3,447,084 $
1,000,001 $
1,447,050 $
1,000,033
1,011,225
140,087
344,801
1,246,954
373,539
495,899
293,342
32,501
100,004
216,676
108,344
121,289
424,500
—
144,750
313,575
156,825
217,125
293,383
107,586
100,047
716,703
108,370
157,485
Performance-based RSUs Earned for the Fiscal 2018 - 2020 Performance Period: The performance metrics for the PRSUs granted in fiscal 2018 are
described above. Target payout of 100% could be achieved through one of the following seven combinations of average annual organic sales growth and
average annual operating income growth:
Average annual organic sales
growth
3.0%
Average annual operating
income growth
4.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
72
Table of Contents
The table below outlines the performance metrics, performance levels and actual performance achievement for the fiscal 2018 - 2020 PRSU cycle:
Performance Metric
Average annual organic sales growth
Average annual operating income growth
Threshold (40%)
Maximum (200%)
Actual Performance
% Payout Achieved
0.0%
4.0 %
3.5 %
12.0 %
1.9%(1)
11.0%(1)
150 %
150 %
(1) Average annual organic sales growth and average annual operating income growth are adjusted for unusual or nonrecurring events affecting the
Company or the consolidated financial statements of the Company. Accordingly, average annual organic sales growth and average annual
operating income growth were adjusted by excluding the financial impact of the COVID-19 pandemic in fiscal 2020. Actual performance of the
fiscal 2018 - 2020 performance-based RSU performance reflects the Company's financial results excluding the financial impact of the COVID-19
pandemic in fiscal 2020.
Other Elements of Compensation
Health and Welfare Benefits: We provide subsidized health and welfare benefits which include medical, dental, life and disability insurance and paid time
off. Executive officers are entitled to participate in our health and welfare plans on generally the same terms and conditions as other employees, subject to
limitations under applicable law. In addition, the Company maintains a supplemental disability policy for its U.S. executives. The supplemental disability
policy provides for an additional 15% of compensation, up to a maximum additional benefit of $5,000 per month. Brady Corporation pays the premiums
for these benefits; therefore, these benefits represent taxable benefits to the executive.
Retirement Benefits: Brady employees (including NEOs) in the United States and certain expatriate employees working for its international subsidiaries
are eligible to participate in the Brady Corporation Matched 401(k) Plan (the “Matched 401(k) Plan”). NEOs in the United States and employees at certain
United States locations are also eligible to participate in the Brady Corporation Funded Retirement Plan (“Funded Retirement Plan”). In addition, certain
Brady international employees (including NEOs) are eligible to participate in Company sponsored statutory and supplementary defined benefit pension
plans that are primarily unfunded and provide an income benefit upon termination or retirement. Mr. Deman is the only NEO who participates in a defined
benefit pension plan.
The Funded Retirement Plan is a defined contribution plan through which the Company contributes 4% of the annual wages of each eligible
participant. In addition, participants may elect to defer up to 5% of their annual wages into the Matched 401(k) Plan, which is matched up to an additional
4% contribution from the Company. Participants may elect to contribute an additional 45% of their eligible earnings to their Matched 401(k) Plan account
without an additional matching contribution from the Company, which is subject to specified maximum limits allowed by the Internal Revenue Service
("IRS"). The assets of the Matched 401(k) Plan and Funded Retirement Plan credited to each participant are invested by the trustee of the Plans as directed
by each plan participant in a variety of investment funds as permitted by the Plans. Participants in the Matched 401(k) Plan become fully vested in
employer contributions over a two-year period of continuous service. Employer contributions to the Funded Retirement Plan become fully vested over a
six-year period of continuous service.
Benefits are generally payable upon the death, disability, or retirement of the participant, or upon termination of employment before retirement,
although benefits may be withdrawn from the Matched 401(k) Plan and paid to the participant in certain circumstances. Under certain specified
circumstances, the Matched 401(k) Plan allows a participant to withdraw loans on their account.
Deferred Compensation Arrangements: The Company has two deferred compensation plans, the Executive Deferred Compensation Plan and the Director
Deferred Compensation Plan that allow for compensation to be deferred into either the Company’s Class A Nonvoting Common Stock or in other
investment funds. Both the Director Deferred Compensation and the Executive Deferred Compensation Plans disallow transfers from other investment
funds into the Company’s Class A Nonvoting Stock, and both disallow transfers from the Company’s Class A Nonvoting Stock into other investment
funds. The assets in both deferred compensation plans are held in a Rabbi Trust and are invested by the trustee as directed by the participant. Executives
and Directors may elect whether to receive their account balance following termination of employment in a single lump sum payment or by means of
distribution under an annual installment method. Distributions of the Company’s Class A Nonvoting Common Stock are made in-kind; distributions of
mutual funds are in cash.
Executives are eligible to participate in the Brady Restoration Plan, which is a non-qualified deferred compensation plan that allows an equivalent
benefit to the Matched 401(k) Plan and the Funded Retirement Plan for executives' income exceeding the IRS limits of participation in a qualified 401(k)
plan.
73
Table of Contents
Perquisites: Brady generally provides executives with the following perquisites:
•
•
•
•
•
Financial planning and tax preparation;
Company car or car allowance;
Physical examination;
Long-term care insurance; and
Personal liability insurance.
Stock Ownership Requirements
In order to encourage our executive officers and directors to acquire and retain ownership of a significant number of shares of the Company's stock,
stock ownership requirements have been established.
The Board of Directors has established the following stock ownership requirements for our NEOs:
J.M. Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
L.T. Bolognini
T.J. Felmer
5 times base salary
3 times base salary
2 times base salary
2 times base salary
3 times base salary
2 times base salary
3 times base salary
Our NEOs are expected to meet their ownership requirement within five years of becoming an executive officer and may not sell shares, other than to
cover tax withholding requirements associated with the vesting or exercise of an equity award, until such time as they meet the requirements. All NEOs
were in compliance with their respective ownership requirements as of July 31, 2020. If an executive does not meet his or her ownership requirement
within five years, the Committee may direct that the executive's after-tax payout on any incentive plans will be in Class A Nonvoting Common Stock in
order to satisfy the executive’s ownership requirement.
Actual stock ownership of each NEO is reviewed on an annual basis to ensure the guidelines are met. The following equity balances are included for
purposes of determining whether an executive meets his or her ownership requirements: the fair market values of Company stock owned, Company stock
held in the Executive Deferred Compensation Plan, Company stock held in the Matched 401(k) Plan, time-based RSUs, and the value of vested and “in the
money” stock options. The fair market value of performance-based RSUs are excluded from the determination of executive ownership levels.
Insider Trading Policy
The Company's Insider Trading Policy prohibits hedging and other monetization transactions in Company securities by officers, directors and
employees. The prohibition of hedging transactions includes financial instruments such as prepaid variable forwards, equity swaps, collars and exchange
funds. The Insider Trading Policy also prohibits the pledging of Company stock as collateral for loans or holding Company securities in a margin account
by officers, directors or employees.
Employment and Change of Control Agreements
In fiscal 2020, the Company did not enter into any new employment agreements with our executives. On January 7, 2020, the Company entered into an
amendment to the employment agreement dated September 4, 2014 with Mr. Deman, which was effective as of January 3, 2020. Mr. Deman's employment
agreement, including the amendment thereto, does not contain any provisions related to specified payments upon termination of employment. The
employment agreement does contain 12-month non-competition and non-solicitation provisions, standard confidentiality, waiver and non-disparagement
provisions.
The offer letter entered into with Mr. Nauman on August 1, 2014, provides that he is deemed an at-will employee, but will receive a severance benefit
equal to two times the sum of his base salary and target annual cash incentive in the event his employment is terminated without cause or he resigns for
good reason as described therein. The offer letter also contains 24-month non-competition and non-solicitation provisions, as well as standard
confidentiality, waiver and non-disparagement provisions. The offer letter entered into with Mr. Shaller on June 22, 2015, provides that he is deemed an at-
will employee, but will receive a severance benefit equal to his base salary plus target annual cash incentive in the event his employment is terminated
without cause or he resigns for good reason as described therein.
74
Table of Contents
The Board of Directors of Brady Corporation approved change of control agreements for all of the NEOs of the Company. The agreements applicable
to the NEOs, other than Mr. Nauman, provide a payment of an amount equal to two times their annual base salary and two times the average annual cash
incentive payment received in the three years immediately prior to the date the change of control occurs in the event of termination or resignation for good
cause (as defined in the change of control agreement) upon a change of control. Under the terms of the change of control agreement with Mr. Nauman, in
the event of a qualifying termination within 24 months following a change of control (as such events are defined in the change of control agreement),
Mr. Nauman will receive two times his annual base salary, two times his target annual cash incentive, and the amount of his target annual cash incentive
prorated based on when the termination occurs. All of the NEO's agreements provide for up to $25,000 of attorney fees to enforce the executive's rights
under the agreement. Payments under the agreement will be spread over two years.
Under the terms of the 2012 and 2017 Omnibus Incentive Stock Plans, in the event of (a) the merger or consolidation of the Company with or into
another corporation or corporations in which the Company is not the surviving corporation, (b) the adoption of any plan for the dissolution of the Company,
or (c) the sale or exchange of all or substantially all the assets of the Company for cash or for shares of stock or other securities of another corporation, all
then-unexercised stock options become fully exercisable and all restrictions placed on restricted stock, and performance-based and time-based restricted
stock units will lapse. If any stock option is canceled subsequent to the events described above, the Company or the corporation assuming the obligations of
the Company, shall pay an amount of cash or stock equal to the in-the-money value of the canceled stock options. The awards granted under the 2017
Omnibus Incentive Plan provide for either accelerated or continuation of vesting of stock options and RSUs upon termination due to retirement, for which
the eligibility criteria is 60 years of age and 5 years of service.
Non-Compete/Non-Solicitation/Confidentiality
Equity awards under the Company's 2012 Omnibus Incentive Stock and 2017 Omnibus Incentive Plans contain non-competition, non-solicitation and
confidential information covenants applicable to the award recipients. The confidential information covenant prohibits the use, disclosure, copying or
duplication of the Company's confidential information other than in the course of authorized activities conducted in the course of the recipient's
employment with the Company. The other covenants prohibit the NEOs for 12 months after termination of employment with the Company, from (i)
performing duties for or as a competitor of the Company which are the same or similar to those performed by the recipient in the 24 months prior to
termination of employment with the Company, (ii) soliciting customers for the sale of competitive products, (iii) soliciting employees to join a competitor
or otherwise terminate their relationship with the Company, or (iv) interfering in the Company's relationships with its vendors and suppliers.
The amendment to the employment agreement entered into with Mr. Deman on January 7, 2020, contains a 12-month non-compete clause. Under the
clause, Mr. Deman agrees not to directly or indirectly carry out any activity that would compete with that of the Company and, in particular, any activity
related to manufacturing or marketing of solutions that identify and protect people, products and places for a period of 12 months following termination of
his employment agreement. In the event that the non-compete clause is enforced, Mr. Deman would receive monthly compensation during the non-compete
period equal to 30% of the monthly gross average base salary paid to him during the last 12 months prior to the termination of his employment agreement.
The Company reserves the right to waive the non-compete clause under the agreement, at which point no non-compete compensation would be owed to Mr.
Deman.
Tax Considerations
Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to publicly traded companies for compensation in
excess of $1 million per year paid to certain executive officers and, beginning in 2018, certain former executive officers. Historically, the $1 million
deduction limit generally has not applied to compensation that satisfies IRS requirements for qualified performance-based compensation. Effective for tax
years beginning after July 31, 2018, the exemption for qualified performance-based compensation from the deduction limitation of Code Section 162(m)
has been repealed, unless transition relief for certain compensation arrangements in place as of November 2, 2017 is available.
The Committee's intent is to preserve the deductibility of executive compensation to the extent reasonably practicable and to the extent consistent with
its other compensation objectives. However, the Committee believes Section 162(m) is only one of several relevant considerations in establishing executive
compensation and believes Section 162(m) implications should not compromise its ability to design and maintain executive compensation arrangements
intended to, among other things, attract, motivate and help retain a highly qualified and successful management team to lead the Company. As a result, the
Committee retains the flexibility to provide compensation it determines to be in the best interests of the Company and its shareholders even if that
compensation ultimately is not deductible for tax purposes. Moreover, even if we have in the past intended to grant qualifying performance-based
compensation for purposes of Section 162(m), we cannot guarantee that such compensation will so qualify or ultimately will be deductible by us.
75
Table of Contents
Accounting Considerations
When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan, management and the Committee
review and consider the accounting implications of a compensation arrangement, including the estimated expense and other accounting and disclosure
requirements. With consideration of the accounting treatment associated with an incentive plan design, management and the Committee may alter or
modify the incentive award if the award and the related accounting consequences were to adversely affect our financial performance.
Management Development and Compensation Committee Interlocks and Insider Participation
During fiscal 2020, the Board's Management Development and Compensation Committee was composed of Messrs. Balkema, Bem, Harris, and Mses.
Gioia and Williams. None of these persons has at any time been an employee of the Company or any of its subsidiaries. There are no relationships among
the Company's executive officers, members of the Committee or entities whose executives serve on the Board that require disclosure under applicable SEC
regulations.
Management Development and Compensation Committee Report
The Committee has reviewed and discussed the Compensation Discussion and Analysis with management; based on the review and discussions, the
Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's annual report on Form
10-K.
Gary Balkema, Chairman
David Bem
Nancy Gioia
Frank Harris
Michelle Williams
Compensation Policies and Practices
The Company believes that its compensation policies, practices, and procedures for executive officers and all other employees are designed to avoid
incentives that create unnecessary or excessive risks that are reasonably likely to have a material adverse effect on the Company. The Company's
compensation programs are weighted towards offering long-term incentives that reward sustainable performance; do not offer significant short-term
incentives that might drive high-risk investments at the expense of long-term Company value; and are set at reasonable and sustainable levels, as
determined by a review of the Company's economic position, as well as the compensation offered by comparable companies. Under the oversight of its
Audit and Management Development and Compensation Committees, the Company reviewed its executive compensation policies, practices and
procedures for all employees to evaluate and ensure that they did not foster risk-taking beyond that deemed acceptable within the Company's business
model.
76
Table of Contents
Summary Compensation Table
The following table sets forth compensation awarded to, earned by, or paid to the NEOs, who served as executive officers during the fiscal year ended
July 31, 2020, for services rendered as an executive officer to the Company and its subsidiaries during the fiscal years ended July 31, 2020, July 31, 2019
and July 31, 2018.
Name and Principal Position
J.M. Nauman, President, CEO &
Director
A.J. Pearce, CFO & Treasurer
P. Deman, Vice President and
General Manager, Workplace
Safety (1)
H.R. Nelligan, Senior VP, Human
Resources
R.R. Shaller, Senior VP &
President - Identification
Solutions
L.T. Bolognini, Former Senior
VP, General Counsel and
Secretary
T.J. Felmer, Former Senior Vice
President and President -
Workplace Safety (2)
Fiscal
Year
2020
2019
2018
2020
2019
2018
2020
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
Time-based and
Performance-
based RSUs
($)(3)
Option
Awards
($)(4)
Non-Equity
Incentive Plan
Compensation
($)(5)
Salary
($)
All Other
Compensation
($)(6)
Total
($)
$
852,810
$
2,447,083
$
1,000,001
$
—
$
212,049
$
4,511,943
794,077
759,616
2,039,917
1,666,728
869,998
833,340
1,290,375
1,712,933
246,562
202,808
5,240,929
5,175,425
$
423,871
$
717,883
$
293,342
$
—
$
85,399
$
1,520,495
387,810
360,923
687,810
586,707
293,336
293,338
327,699
488,329
96,023
97,767
1,792,678
1,827,064
$
$
$
$
271,153
335,185
313,815
306,729
$
$
107,586
244,797
634,480
200,033
$
$
32,501
100,004
100,000
100,001
$
$
176,366
—
203,980
138,335
$
$
66,510
71,132
71,199
84,631
654,116
751,118
1,323,474
829,729
$
407,380
$
1,030,278
$
216,676
$
—
$
88,036
$
1,742,370
371,991
355,548
508,088
366,718
216,675
183,341
337,582
539,722
114,333
113,141
1,548,669
1,558,470
$
266,547
$
265,195
$
108,344
$
—
$
85,770
$
725,856
346,991
340,432
254,066
216,675
108,338
108,335
$
190,112
$
374,610
$
121,289
$
395,617
389,319
429,886
366,718
183,335
183,341
338,316
368,484
$
—
—
688,315
95,724
90,113
1,143,435
1,124,039
238,980
$
924,991
125,323
69,355
1,134,161
1,697,048
(1) Mr. Deman's compensation is denominated in Euros. The amounts shown in U.S. dollars in the table above were converted from Euro at the
average exchange rate for fiscal 2020: 1 EUR = 1.1073 USD.
(2) The total compensation for Mr. Felmer in fiscal 2020 includes severance amounts paid and expense recognized in accordance with accounting
guidance for the modification of certain equity awards under the written retirement agreement the Company entered into with Mr. Felmer on
October 15, 2020. Incremental expense of $121,289 and $57,438 associated with the modification of vesting conditions for certain outstanding
equity awards has been included in this table under columns Time-based and Performance-based RSUs and Option Awards, respectively.
Severance payments of $189,583 have been included in the amounts shown in column All Other Compensation in this table.
(3) Represents the grant date fair value computed in accordance with accounting guidance for equity grants made or modified in the applicable year
for time-based RSUs and performance-based RSUs. The grant date fair value is calculated based on the number of shares of Class A Common
Stock underlying the time-based RSUs and fiscal year 2018 performance-based RSUs (at target), times the average of the high and low stock price
of Class A Common Stock on the date of grant. The grant date fair value for fiscal year 2019 and 2020 performance-based RSUs is calculated
based on the number of shares of Class A Common Stock underlying the performance-based RSUs (at
77
Table of Contents
target), times a fair value per unit derived from a third-party valuation using a Monte Carlo simulation due to the presence of a market condition in
the award. The actual value of a RSU will depend on the market value of the Class A Common Stock on the date the stock is sold. The table
reflects the grant date fair value at target level of performance-based RSUs (100%).
(4) Represents the grant date fair value computed in accordance with accounting guidance for equity grants made or modified in the applicable year
for time-based stock options. The assumptions used to determine the value of the awards, including the use of the Black-Scholes method of
valuation by the Company, are discussed in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K, for
the fiscal year ended July 31, 2020. The actual value, if any, which an option holder will realize upon the exercise of an option will depend on the
excess of the market value of the Class A Common Stock over the exercise price on the date the option is exercised.
(5) Represents annual cash incentive earned during the listed fiscal years, which was paid during the next fiscal year.
(6) The amounts in this column for Messrs. Nauman, Pearce, Shaller, Bolognini, Felmer, and Ms. Nelligan include: matching contributions to the
Company’s Matched 401(k) Plan, Funded Retirement Plan and Restoration Plan, the cost of group term life insurance, car allowance, the cost of
long-term care insurance, the cost of disability insurance and other perquisites. The amounts in this column for Mr. Deman include: contributions
to the Company's French pension plan, the cost of group term life insurance, the cost of long-term care insurance, use of a company-leased vehicle
and associated expenses. The perquisites may include relocation assistance, annual allowances for financial and tax planning, and the cost of
personal liability insurance. Refer to the table below.
Name
J.M. Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
L.T. Bolognini
T.J. Felmer
Fiscal
Year
2020
2019
2018
2020
2019
2018
2020
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
$
$
$
$
$
$
$
Retirement
Plan
Contributions
($)
Company
Car
($)
Group Term
Life
Insurance
($)
Long-term
Care
Insurance
($)
Long-term
Disability
Insurance
($)
Relocation ($)
Other
($)
Total All Other
Compensation
($)
167,984
$
18,692
$
1,958
$
4,860
$
4,946
$
202,230
159,522
18,000
18,000
1,799
1,728
4,860
4,860
4,946
5,212
57,909
$
18,692
$
1,110
$
2,893
$
3,848
$
69,833
61,988
33,197
41,127
34,766
45,464
$
$
18,000
18,000
9,375
18,692
18,000
18,000
941
810
$
$
22,285
1,003
$
$
863
666
2,893
2,893
378
2,491
2,491
2,491
$
$
3,673
3,618
—
3,779
3,697
3,595
$
$
57,811
$
18,692
$
1,110
$
3,427
$
5,321
$
72,465
62,092
18,000
18,000
54,864
$
13,154
$
54,983
49,748
18,000
18,000
24,776
$
8,308
$
86,510
31,044
18,000
18,000
3,427
3,427
5,321
5,363
2,959
$
4,061
$
3,946
3,946
5,325
5,343
1,557
$
1,526
$
3,737
3,737
3,690
3,387
940
813
817
897
747
308
768
847
$
$
78
—
—
—
—
—
—
—
—
—
—
—
—
7,257
$
13,609
$
$
$
$
14,727
13,486
947
683
10,458
1,275
4,040
11,382
14,415
$
$
$
$
1,675
$
14,180
16,189
—
—
—
—
—
—
$
9,915
$
12,573
12,329
$ 202,505
$
12,618
12,340
212,049
246,562
202,808
85,399
96,023
97,767
66,510
71,132
71,199
84,631
88,036
114,333
113,141
85,770
95,724
90,113
238,980
125,323
69,355
Table of Contents
Grants of Plan-Based Awards for 2020
The following table summarizes grants of plan-based awards made during fiscal 2020 to the NEOs.
Estimated Future Payouts Under Non-
Equity
Incentive Plan Awards (1)
Estimated Future Payouts Under
Equity Incentive Plan Awards (2)
Name
Grant Date
J.M. Nauman
Compensation
Committee
Approval Date
Threshold
($)
Target ($) Maximum ($) Threshold (#) Target (#) Maximum (#)
$
—
$ 852,810
$
2,462,490
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#) (3)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base Price
of
Stock or
Option
Awards
($) (4)
Grant Date
Fair Value of
Stock and
Option
Awards
($)
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
L.T. Bolognini
T.J. Felmer
8/1/2019
9/20/2019
9/20/2019
8/1/2019
9/20/2019
9/20/2019
9/20/2019
9/20/2019
1/3/2020
8/1/2019
9/20/2019
9/20/2019
8/1/2019
9/20/2019
9/20/2019
9/20/2019
8/1/2019
9/20/2019
9/20/2019
8/1/2019
9/20/2019
10/15/2019
10/15/2019
10/15/2019
10/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
11/20/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
7/15/2019
9/11/2019
9/11/2019
9/11/2019
9/11/2019
4,824
19,294
38,588
$
75.00
$
1,447,050
—
275,516
795,553
1,415
5,660
11,320
—
135,577
391,477
—
167,592
483,923
483
1,930
3,860
—
244,428
705,785
1,045
4,181
8,362
—
159,928
461,793
483
1,930
3,860
—
152,090
439,160
724
2,895
5,790
18,502
5,428
602
1,307 (5)
1,851
9,251 (5)
4,009
2,005
1,851
1,658 (6)
2,779 (6)
92,936
27,262
3,122
9,294
20,137
10,069
7,098 (6)
12,416 (6)
54.05
54.05
75.00
54.05
54.05
54.05
54.05
57.42
75.00
54.05
54.05
75.00
54.05
54.05
54.05
75.00
54.05
54.05
75.00
54.05
36.85
43.98
36.85
43.98
1,000,033
1,000,001
424,500
293,383
293,342
32,538
32,501
75,048
144,750
100,047
100,004
313,575
500,017
216,686
216,676
156,825
108,370
108,344
217,125
100,047
28,862
28,576
64,568
56,721
(1) At its May 2019 meeting, the Management Development and Compensation Committee approved the values of the annual cash incentive award
under the Company's annual cash incentive plan. The structure of the plan is described in the Compensation Discussion and Analysis above and
was set prior to the beginning of the fiscal year.
(2) This award represents performance-based restricted stock units awarded on August 1, 2019, as part of the annual fiscal 2020 equity grant. Payout
opportunities will range from 0% to 200% of the target award. Target payout is set at 100% of award value, with threshold and maximum payouts
set at 25% and 200% of target award value, respectively.
(3) The time-based RSU awards vest equally over three years.
(4) The exercise price or base price for awards granted on August 1, 2019, is based on a third-party valuation involving the use of a Monte Carlo
simulation. The remaining awards' exercise price or base price is the average of the high and
79
Table of Contents
low prices of the Company’s Class A Common Stock as reported by the New York Stock Exchange on the date of the grant.
(5) Time-based RSUs granted to Messrs. Deman and Shaller during fiscal 2020 for retention purposes vest in installments of 10%, 20%, 30%, and
40% on the first, second, third, and fourth anniversaries of the grant date.
(6) The written retirement agreement the Company entered into with Mr. Felmer on October 15, 2020 provided for the modification of vesting
conditions for certain of Mr. Felmer's outstanding equity awards. Under the agreement, unvested stock options and restricted stock units granted
on September 22, 2017 and September 25, 2018 would vest 100% and 50%, respectively, effective on the retirement date.
80
Table of Contents
Outstanding Equity Awards at July 31, 2020
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
100,000
100,017
64,528
29,461
—
—
—
32,264 (1)
58,922 (2)
92,936 (3)
$
$
Option
Exercise
Price
($)
19.96
35.14
36.85
43.98
54.05
Option
Expiration Date
9/25/2025
9/23/2026
9/22/2027
9/25/2028
9/20/2029
19.96
35.14
36.85
43.98
54.05
9/25/2025
9/23/2026
9/22/2027
9/25/2028
9/20/2029
Number of
Units of Stock
That Have Not
Vested
(#)
Market
Value of Units of
Stock That
Have Not Vested
($)
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units, or Other
Rights That Have
Not Vested
(#)
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units Or Other
Rights That Have Not
Vested
($)
7,538 (4)
$
13,188 (5)
18,502 (6)
346,522
606,252
850,537
25,162 (7)
$
23,077 (8)
19,294 (9)
1,156,697
1,060,850
886,945
2,653 (4)
$
4,446 (5)
5,428 (6)
121,958
204,383
249,525
8,857 (7)
$
7,781 (8)
5,660 (9)
407,156
357,693
260,190
—
—
11,357 (1)
19,866 (2)
27,262 (3)
Name
J.M. Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
51,375
37,721
22,714
9,934
—
1,473
1,508
1,150
—
12,860
7,744
3,387
—
—
$
1,508 (1)
2,299 (2)
3,122 (3)
35.14
36.85
43.98
54.05
9/23/2026
9/22/2027
9/25/2028
9/20/2029
—
$
3,871 (1)
6,772 (2)
9,294 (3)
35.14
36.85
43.98
54.05
9/23/2026
9/22/2027
9/25/2028
9/20/2029
81
$
294 (4)
492 (5)
602 (6)
1,307 (10)
13,515
22,617
27,674
60,083
904 (4)
$
7,170 (11)
1,516 (5)
1,851 (6)
41,557
329,605
69,691
85,090
Table of Contents
R.R. Shaller
23,576
14,197
7,338
—
—
$
7,098 (1)
14,674 (2)
20,137 (3)
35.14
36.85
43.98
54.05
9/23/2026
9/22/2027
9/25/2028
9/20/2029
3,020 (7)
$
2,653 (8)
1,930 (9)
138,829
121,958
88,722
5,536 (7)
$
5,748 (8)
4,181 (9)
254,490
264,236
192,201
1,658 (4)
$
3,284 (5)
4,009 (6)
9,251 (12)
76,218
150,965
184,294
425,268
L.T. Bolognini
12,583
3,669
—
— (1)
$
7,337 (2)
10,069 (3)
36.85
43.98
54.05
9/22/2027
9/25/2028
9/20/2029
1,642 (5)
$
2,005 (6)
75,483
92,170
3,271 (7)
$
1,916 (8)
150,368
88,079
T.J. Felmer (13)
(1) The remaining options vest on September 22, 2020.
(2) One-half of the options vest on September 25, 2020 and the remaining options vest on September 25, 2021.
(3) One-third of the options vest on September 20, 2020, one-third of the options vest on September 20, 2021, and one-third of the options vest on
September 20, 2022.
(4) This award represents time-based restricted stock units awarded on September 22, 2017, as part of the annual fiscal 2018 equity grant. The
remaining units vest on September 22, 2020.
(5) This award represents time-based restricted stock units awarded on September 25, 2018, as part of the annual fiscal 2019 equity grant. One-half of
the units vest on September 25, 2020, and the remaining units vest on September 25, 2021.
(6) This award represents time-based restricted stock units awarded on September 20, 2019, as part of the annual fiscal 2020 equity grant. One-third
of the units vest on September 20, 2020, one-third of the units vest on September 20, 2021, and one-third of the units vest on September 20, 2022.
(7) This award represents performance-based RSUs awarded on August 1, 2017, as part of the annual fiscal 2018 equity grant. These performance-
based RSUs have a three-year performance period with the number of shares issued at vesting determined by the Company's achievement of
organic revenue and operating income growth goals over the three-year performance period. Payout opportunities will range from 0% to 200% of
the target award. The amounts listed above are based on the target value of each award (100%).
(8) This award represents performance-based RSUs awarded on August 1, 2018, as part of the annual fiscal 2019 equity grant. These performance-
based RSUs have a three-year performance period with the number of shares issued at vesting determined by the Company's TSR relative to the
S&P 600 SmallCap Industrials Index. Payout opportunities will range from 0% to 200% of the target award. The amounts listed above are based
on the target value of each award (100%).
(9) This award represents performance-based RSUs awarded on August 1, 2019, as part of the annual fiscal 2020 equity grant. These performance-
based RSUs have a three-year performance period with the number of shares issued at vesting determined by the Company's TSR relative to the
S&P 600 SmallCap Industrials Index. Payout opportunities will range from 0% to 200% of the target award. The amounts listed above are based
on the target value of each award (100%).
82
Table of Contents
(10)Effective January 3, 2020, Mr. Deman was awarded 1,307 shares of time-based restricted stock units for retention purposes. The restricted stock
units vest in increments of 10%, 20%, 30%, and 40% upon the first, second, third and fourth anniversaries of the grant date.
(11)Effective September 20, 2018, Ms. Nelligan was awarded 8,963 shares of time-based restricted stock units for retention purposes. The restricted
stock units vest in increments of 20%, 30%, and 50% upon the first, second and third anniversaries of the grant date.
(12)Effective September 20, 2019, Mr. Shaller was awarded 9,251 shares of time-based restricted stock units for retention purposes. The restricted
stock units vest in increments of 10%, 20%, 30%, and 40% upon the first, second, third and fourth anniversaries of the grant date.
(13)Mr. Felmer had no outstanding option awards or stock awards outstanding as of July 31, 2020.
Option Exercises and Stock Vested for Fiscal 2020
The following table summarizes option exercises and the vesting of restricted stock during fiscal 2020 to the NEOs.
Name
J.M. Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
L.T. Bolognini
T.J. Felmer
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise (#)
Value Realized
on Exercise ($)
Number of Shares
Acquired on Vesting (#)
Value Realized
on Vesting ($)
80,839 $
48,348
4,456
—
—
4,463
240,322
2,744,493
1,445,813
66,087
—
—
68,763
6,214,208
81,555 $
22,315
849
9,401
18,398
9,222
22,179
4,032,170
1,093,444
45,581
469,703
894,838
449,491
1,159,082
Pension Benefits at July 31, 2020
Mr. Deman is a participant in the Brady Corporation Belgium Pension Plan, which is a closed insured defined benefit pension plan that provides
benefits for certain employees residing in Belgium hired prior to October 31, 2005. The benefits earned under the plan are payable at normal retirement age
in the form of a single lump sum.
At retirement, the lump sum is equal to the sum of 4.875% of the most recent five-year average annual base salary up to the Social Security ceiling
plus 22.75% of the most recent five-year average annual base salary in excess of the Social Security ceiling, multiplied by the years of pensionable service.
Years of pensionable service include all years and complete months of service from the date of hire through October 31, 2005, up to a maximum of 40
years. Normal retirement age for participants is age 65. Participants who are age 60-64 may elect to retire early and receive a 5% reduction in benefits per
year of early retirement.
The following table summarizes the actuarial present value of the pension benefit accumulated by Mr. Deman under the Brady Corporation Belgium
Pension Plan as of July 31, 2020.
Name
P. Deman
Plan Name
Number of Years
Credited Service
(#)
Present Value of
Accumulated Benefit
($)(1)(2)
Payments During Last
Fiscal Year
($)
Brady Corporation Belgium Pension Plan
6.25 $
52,429 $
—
(1) The accumulated benefit in this table for Mr. Deman will be paid to him in Euros. The amount shown in U.S. dollars was converted from Euro at
the exchange rate as of July 31, 2020: 1 EUR= 1.1846 USD.
(2) The present value of accumulated pension benefit was calculated using the following assumptions: A calculation date of July 31, 2020, a 1.5%
discount rate, retirement occurring at normal retirement age of 65, and Belgium MR-5/FR-5 Mortality Tables. The valuation method used to determine the
present value of the accumulated benefit is the same as the method used for financial reporting purposes as of July 31, 2020. The value of the pension
benefit Mr. Deman will ultimately receive will differ to the extent facts and circumstances vary from what this calculation assumes.
The aggregate change in the present value of Mr. Deman's accumulated pension benefit under the Brady Corporation Belgium Defined Benefit Pension
Plan during fiscal 2020 was negligible and therefore was not included in the Summary Compensation Table.
83
Table of Contents
Non-Qualified Deferred Compensation for Fiscal 2020
The following table summarizes the activity within the Executive Deferred Compensation Plan and the Brady Restoration Plan during fiscal 2020 for
the NEOs.
Name
J.M. Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
L.T. Bolognini
T.J. Felmer
Executive
Contribution in Fiscal
2020
($)
Company
Contributions in
Fiscal 2020
($)
Aggregate
Earnings in
Fiscal 2020
($)
Aggregate
Withdrawals/
Distributions
($)
Aggregate
Balance at
July 31, 2020
($)
$
847,275 $
145,384 $
128,539 $
234,408
—
282,680
17,493
59,453
4,745
35,589
—
19,291
34,986
32,720
9,490
(33,169)
—
7,207
(1,139)
27,337
716,082
$
—
—
—
—
—
—
—
2,718,252
1,383,953
—
428,490
224,279
337,812
5,757,249
The executive contribution amounts included in this table are derived from the Salary and Non-Equity Incentive Plan Compensation columns of the
Summary Compensation Table. The registrant contribution amounts included in this table are reported in the All Other Compensation columns of the
Summary Compensation Table, and amounts reported in the aggregate balance at July 31, 2020, previously were reported as compensation to the NEO in
the Summary Compensation Table for previous years. See discussion of the Company's non-qualified deferred compensation plan in the Compensation
Discussion and Analysis.
Potential Payments Upon Termination or Change in Control
As described in the Employment and Change of Control Agreements section of the Compensation Discussion and Analysis above, the Company has
entered into separate severance agreements, employment agreements, and change of control agreements with certain NEOs.
The terms of severance arrangements with Messrs. Nauman and Shaller are triggered if (i) the executive’s employment with the Company is
involuntarily terminated by the Company without cause or (ii) the executive’s employment with the Company is voluntarily terminated by the executive
subsequent to (a) a material reduction in the total of the executive’s annual base salary and target annual cash incentive without the prior written agreement
of the executive, (b) a significant diminution in the authority, duties or responsibilities of the executive without the executive’s prior written agreement, or
(c) the relocation of the executive’s position to a principal work location more than 50 miles from Milwaukee, Wisconsin or from the executive’s principal
place of residence, without the executive’s prior written agreement. The other NEOs are not covered by severance arrangements.
The terms of the non-compete clause under the employment agreement with Mr. Deman are triggered if his employment agreement is terminated and
the Company chooses to enforce the terms of the 12-month non-compete clause. The Company reserves the right to waive the non-compete clause under
the agreement, at which point no non-compete compensation would be owed to Mr. Deman. Should Mr. Deman's employment contract be terminated, he
would receive a statutory severance payment equal to 6 months of the average monthly compensation, inclusive of base salary and bonus, paid to him
during the last 12 months of his employment.
The terms of the change of control agreement are triggered if, within a 24-month period beginning with the date a change of control occurs, (i) the
executive’s employment with the Company is involuntarily terminated other than by reason of death, disability or cause or (ii) the executive’s employment
with the Company is voluntarily terminated by the executive subsequent to (a) any reduction in the total of the executive’s annual base salary, exclusive of
fringe benefits, and the executive’s target annual cash incentive in comparison with the executive’s annual base salary and target annual cash incentive
immediately prior to the date the change of control occurs, (b) a significant diminution in the responsibilities or authority of the executive in comparison
with the executive’s responsibility and authority immediately prior to the date the change of control occurs, or (c) the imposition of a requirement by the
Company that the executive relocate to a principal work location more than 50 miles from the executive’s principal work location immediately prior to the
date the change of control occurs.
Following termination due to a change in control, executives shall be paid a multiplier of their annual base salary in effect immediately prior to the
date the change of control occurs, plus a multiplier of their average annual cash incentive payment
84
Table of Contents
received over a three-year period prior to the date the change of control occurs. For Mr. Nauman, a multiplier of the target annual cash incentive amount in
effect immediately prior to the date the change of control applies instead of the average annual cash incentive payment received over the prior three-year
period. If the payments upon termination due to change of control result in any excise tax incurred by Messrs. Nauman, Pearce, Shaller, and Ms. Nelligan
as a result of Section 280(g) of the Internal Revenue Code, the officer will be solely responsible for such excise tax. The Company will also reimburse a
maximum of $25,000 of legal fees incurred by the executives in order to enforce the change of control agreement, in which the executive prevails.
The following information and tables set forth the amount of payments to each NEO in the event of termination of employment as a result of a change
of control. See the section entitled "Retirement of Thomas J. Felmer" above in the Compensation Discussion and Analysis section for a description of the
severance benefits paid to Mr. Felmer upon his retirement. No other employment agreements providing specified payments upon termination have been
entered into between the Company and any of the NEOs in fiscal year 2020.
Assumptions and General Principles
The following assumptions and general principles apply with respect to the tables that follow in this section.
•
•
The amounts detailed in the tables assume that each NEO terminated employment on July 31, 2020. Accordingly, the tables reflect amounts earned
as of July 31, 2020, and include estimates of amounts that would be paid to the NEO upon the termination or occurrence of a change in control.
The actual amounts that would be paid to an NEO can only be determined at the time of termination.
The tables below include amounts the Company is obligated to pay the NEO as a result of the severance agreement and executed change in control
agreement. The tables do not include benefits that are paid generally to all salaried employees or a broad group of salaried employees. Therefore,
the NEOs would receive benefits in addition to those set forth in the tables.
• An NEO is entitled to receive base salary earned during their term of employment regardless of the manner in which the named executive officer’s
employment is terminated. As such, this amount is not disclosed in the tables.
J. Michael Nauman
The following table details the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2020, and the
NEO was required to legally enforce the terms of the agreement.
Base Salary ($) (1)
Annual Cash
Incentive ($) (2)
Restricted Stock
Unit Acceleration
Gain ($) (3)
Stock Option
Acceleration
Gain ($) (4)
Legal Fee
Reimbursement
($) (5)
Total ($)
$
1,660,360 $
1,660,360 $
5,486,152 $
411,502 $
25,000 $
9,243,374
(1) Represents two times the base salary in effect at July 31, 2020.
(2) Represents two times the target annual cash incentive amount in effect at July 31, 2020.
(3) Represents the closing market price of $45.97 on 119,342 unvested time-based and performance-based RSUs that would vest due to the change in
control.
(4) Represents the difference between the closing market price of $45.97 and the exercise price on 91,186 unvested, in-the-money stock options that
would vest due to change in control.
(5) Represents the maximum reimbursement of legal fees allowed.
The following table details the amount payable assuming that the severance terms of Mr. Nauman's offer letter were triggered on July 31, 2020, and the
NEO was required to legally enforce the severance terms of the agreement.
Base Salary ($) (1)
Annual Cash Incentive ($) (2)
Total ($)
$
1,660,360 $
1,660,360 $
3,320,720
(1) Represents two times the base salary in effect at July 31, 2020.
(2) Represents two times the target annual cash incentive amount in effect at July 31, 2020.
85
Table of Contents
Aaron J. Pearce
The following table details the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2020, and the
NEO was required to legally enforce the terms of the agreement.
Base Salary ($) (1)
Annual Cash
Incentive ($) (2)
Restricted Stock
Unit Acceleration
Gain ($) (3)
Stock Option
Acceleration
Gain ($) (4)
Legal Fee
Reimbursement
($) (5)
Total ($)
$
830,146 $
822,560 $
1,804,506 $
143,109 $
25,000 $
3,625,321
(1) Represents two times the base salary in effect at July 31, 2020.
(2) Represents two times the average annual cash incentive payment received in the last three fiscal years ended July 31, 2020, 2019 and 2018.
(3) Represents the closing market price of $45.97 on 39,254 unvested time-based and performance-based RSUs that would vest due to the change in
control.
(4) Represents the difference between the closing market price of $45.97 and the exercise price on 31,223 unvested, in-the-money stock options that
would vest due to change in control.
(5) Represents the maximum reimbursement of legal fees allowed.
Pascal Deman
The following table details the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2020, and the
NEO was required to legally enforce the terms of the agreement.
Base Salary ($) (1)
Annual Cash
Incentive ($) (2)
Restricted Stock
Unit Acceleration
Gain ($) (3)
Stock Option
Acceleration
Gain ($) (4)
Legal Fee
Reimbursement
($) (5)
Total ($)(6)
$
565,941 $
156,645 $
123,889 $
18,328 $
25,000 $
889,803
(1) Represents two times the base salary in effect at July 31, 2020.
(2) Represents two times the average annual cash incentive payment received in the last three fiscal years ended July 31, 2020, 2019 and 2018.
(3) Represents the closing market price of $45.97 on 2,401 unvested time-based and performance-based RSUs that would vest due to the change in
control.
(4) Represents the difference between the closing market price of $45.97 and the exercise price on 3,807 unvested, in-the-money stock options that
would vest due to change in control.
(5) Represents the maximum reimbursement of legal fees allowed.
(6) The amounts shown in this table for Mr. Deman would be payable to him in Euros. The amounts shown in U.S. dollars were converted from Euro
at the exchange rate as of July 31, 2020: 1 EUR= 1.1846 USD.
The amount payable assuming that the terms of the non-compete clause of Mr. Deman's employment agreement were triggered on July 31, 2020, and
the NEO was required to legally enforce the terms of the agreement, would be $104,581. This amount would be payable to him in Euros and has been
translated at the exchange rate as of July 31, 2020 noted above.
Helena R. Nelligan
The following table details the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2020, and the
NEO was required to legally enforce the terms of the agreement.
Base Salary ($) (1)
Annual Cash
Incentive ($) (2)
Restricted Stock
Unit Acceleration
Gain ($) (3)
Stock Option
Acceleration
Gain ($) (4)
Legal Fee
Reimbursement
($) (5)
Total ($)
$
652,580 $
403,909 $
944,867 $
48,780 $
25,000 $
2,075,136
(1) Represents two times the base salary in effect at July 31, 2020.
(2) Represents two times the average annual cash incentive payment received in the last three fiscal years ended July 31, 2020, 2019 and 2018.
(3) Represents the closing market price of $45.97 on 20,554 unvested time-based and performance-based RSUs that would vest due to the change in
control.
(4) Represents the difference between the closing market price of $45.97 and the exercise price on 10,643 unvested, in-the-money stock options that
would vest due to change in control.
(5) Represents the maximum reimbursement of legal fees allowed.
86
Table of Contents
Russell R. Shaller
The following table details the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2020, and the
NEO was required to legally enforce the terms of the agreement.
Base Salary ($) (1)
Annual Cash
Incentive ($) (2)
Restricted Stock
Unit Acceleration
Gain ($) (3)
Stock Option
Acceleration
Gain ($) (4)
Legal Fee
Reimbursement
($) (5)
Total ($)
$
800,302 $
868,295 $
1,674,917 $
93,935 $
25,000 $
3,462,449
(1) Represents two times the base salary in effect at July 31, 2020.
(2) Represents two times the average annual cash incentive payment received in the last three fiscal years ended July 31, 2020, 2019 and 2018.
(3) Represents the closing market price of $45.97 on 36,435 unvested time-based and performance-based RSUs that would vest due to the change in
control.
(4) Represents the difference between the closing market price of $45.97 and the exercise price on 21,772 unvested, in-the-money stock options that
would vest due to change in control.
(5) Represents the maximum reimbursement of legal fees allowed.
The following table details the amount payable assuming that the severance terms of Mr. Shaller's offer letter were triggered on July 31, 2020, and the
NEO was required to legally enforce the severance terms of the agreement.
Base Salary ($) (1)
Annual Cash Incentive ($) (2)
Total ($)
$
400,151 $
244,428 $
644,579
(1) Represents one times the base salary in effect at July 31, 2020.
(2) Represents one times the target annual cash incentive amount in effect at July 31, 2020.
Potential Payments Upon Termination Due to Death or Disability
In the event of termination due to death or disability, all unexercised, unexpired stock options would immediately vest and all restricted stock unit
awards would immediately become unrestricted and fully vested. The following table shows the amount payable to the NEOs should this event occur on
July 31, 2020.
Name
J. Michael Nauman
A.J. Pearce
P. Deman
H.R. Nelligan
R.R. Shaller
Unvested Restricted
Stock Units as of
July 31, 2020
Restricted Stock
Unit Acceleration
Gain $ (1)
Unvested, In-the-Money
Stock Options
as of
July 31, 2020
Stock Option
Acceleration
Gain $ (2)
119,342 $
39,254
2,401
20,554
36,435
5,486,152
1,804,506
123,889
944,867
1,674,917
91,186 $
31,223
3,807
10,643
21,772
411,502
143,109
18,328
48,780
93,935
(1) Represents the closing market price of $45.97 on unvested awards that would vest due to death or disability.
(2) Represents the difference between the closing market price of $45.97 and the exercise price on unvested, in-the-money stock options that would
vest due to death or disability.
CEO Pay Ratio Disclosure
Summarized below is the ratio of the total compensation of Michael Nauman, our CEO, to the total compensation of our median employee.
Pay Ratio Methodology
The median employee was first determined for fiscal 2018 for purposes of determining our CEO pay ratio by identifying the employee whose
compensation was at the median of our employee population (other than the CEO). The applicable SEC rules require us to identify a “median employee” at
least once every three years, as long as there have been no material changes in our employee population or employee compensation arrangements that we
reasonably believe would result in a significant change to our CEO pay ratio disclosure. As of July 31, 2020, the median employee used during the original
fiscal 2018 analysis was no longer employed by the Company.
87
Table of Contents
In the case where the median employee is no longer employed and there has not been a significant change in compensation or employee demographics
another employee may be used as the median employee as long as the newly selected employee has compensation which is substantially similar to the
original median employee, based on the compensation measure used to select the original median employee. Therefore, a median employee substantially
similar to the median employee used in the original fiscal 2018 analysis was used for the fiscal 2020 calculation.
We elected to use an employee substantially similar to the median employee from the original analysis performed during fiscal 2018, updated with the
compensation earned by the employee in fiscal 2020, for our 2020 CEO Pay Ratio, as there have not been any material changes in our employee population
or employee compensation arrangements that we believe would significantly impact the Company’s CEO pay ratio disclosure.
The Company used the following methodology and material assumptions to identify the median employee of its workforce:
• A measurement date of May 31, 2018 was used, which is within three months of the Company's fiscal year end, to identify the median employee.
On this date, the Company's employee population consisted of 6,212 individuals; 1,778 in the United States and 4,434 outside of the United States.
The Company considered annual total cash compensation earned by our employees, as compiled from our payroll records. This reflects the
principal forms of compensation delivered to all of our employees and this information is readily available in each country.
•
• Our median employee's total compensation was calculated in the same manner as we calculated total compensation for each of the NEOs in the
Summary Compensation Table and also includes contributions to health and welfare benefits.
• We annualized the compensation of employees to cover the full fiscal year ending July 31, 2018.
• We applied the “de minimis” exemption to exclude 308 employees from the following countries: Brazil (126), Malaysia (167), Philippines (4), and
Turkey (11).
Pay Ratio
For fiscal 2020, the median of the annual total compensation of all employees, except the CEO, was $39,654. The annual total compensation of the
CEO, as reported in the Summary Compensation Table, was $4,511,943. Accordingly, the ratio of the annual total compensation of our CEO to the median
of the annual total compensation of all other employees was 114:1.
Compensation of Directors
To ensure competitive compensation for the Directors, compensation is reviewed annually and surveys prepared by various consulting firms and the
National Association of Corporate Directors are reviewed by the Corporate Governance Committee and the Management Development and Compensation
Committee, and they confer with the Board’s independent compensation consultant, Meridian Compensation Partners, in making recommendations to the
Board of Directors regarding Director compensation. Directors who are employees of the Company receive no additional compensation for service on the
Board or on any committee of the Board. Compensation of Directors was reviewed during fiscal 2020, and no changes to Director compensation were
made to retainers or meeting fees from fiscal 2019 levels.
In fiscal 2020, the annual cash retainer paid to non-management Directors was $60,000. Each member of the Audit Committee received an annual
retainer of $15,000, and an additional annual retainer of $15,000 was paid to the Chair; each member of the Management Development and Compensation
Committee received an annual retainer of $12,000, and an additional annual retainer of $12,000 was paid to the Chair; and each member of the Corporate
Governance, Finance and Technology Committees received an annual retainer of $10,000, and an additional annual retainer of $10,000 was paid to each
committee Chair. Non-management Directors do not receive meeting fees. Non-management Directors are eligible to receive compensation of up to $1,000
per day for special assignments required by management or the Board of Directors, so long as the compensation does not impair independence and is
approved as required by the Board. No such special assignment fees were paid in fiscal year 2020.
In fiscal 2020, the Chair of the Board was paid an annual fee of $60,000. Mr. Goodkind served as Chair of the Board in fiscal 2020.
The Board has established stock ownership requirements for Directors. The ownership requirement for each director is five times the annual Board
retainer. Directors have five years to achieve their stock ownership requirements. All Directors, except Dr. Bem and Dr. Williams, who were each elected to
the Board in February 2019, have achieved their stock ownership requirements.
Under the terms of the Brady Corporation 2017 Omnibus Incentive Stock Plan, 5,000,000 shares of the Company's Class A Common Stock have been
authorized for issuance to Directors and employees. The Board has full and final authority to
88
Table of Contents
designate the non-management Directors to whom awards will be granted, the date on which awards will be granted and the number of shares of stock
covered by each grant.
On September 4, 2019, the Board approved an annual stock-based compensation award of $109,000 in unrestricted shares of Class A Common Stock
(having a grant date fair value of $54.05 per share), for each non-management Director, effective September 20, 2019.
Directors are also eligible to defer portions of their fees into the Brady Corporation Director Deferred Compensation Plan (“Director Deferred
Compensation Plan”), the value of which is measured by the fair value of the underlying investments. The assets of the Director Deferred Compensation
Plan are held in a Rabbi Trust and are invested by the trustee as directed by the participant in several investment funds as permitted by the Director
Deferred Compensation Plan. The investment funds available in the Director Deferred Compensation Plan include Brady Corporation Class A Nonvoting
Common Stock and various mutual funds that are provided in the employee Matched 401(k) Plan. A Director may elect whether to receive his/her account
balance following termination in a single lump sum payment or by means of distribution under an annual installment method. Distributions of the Company
Class A Nonvoting Common Stock are made in-kind; distributions of mutual funds are in cash.
Director Compensation Table — Fiscal 2020
Name
Patrick W. Allender
Gary S. Balkema
David S. Bem
Elizabeth P. Bruno
Nancy L. Gioia
Conrad G. Goodkind
Frank W. Harris
Bradley C. Richardson
Michelle E. Williams
Fees Earned
or Paid in
Cash ($)
Option Awards ($)
(1)
Stock
Awards ($) (2)
Total ($)
$
105,000 $
— $
109,019 $
99,000
80,400
97,333
92,000
156,333
82,000
110,267
80,400
—
—
—
—
—
—
—
—
109,019
109,019
109,019
109,019
109,019
109,019
109,019
109,019
214,019
208,019
189,419
206,352
201,019
265,352
191,019
219,286
189,419
(1) No stock options were awarded to non-management Directors in fiscal 2020. Outstanding option awards at July 31, 2020, for each individual who
served as Director in fiscal 2020 include the following: Mr. Allender, 25,400; Mr. Balkema, 17,000; Ms. Bruno, 17,000; Ms. Gioia, 8,500; Mr.
Goodkind, 25,400; and Mr. Harris, 17,000. The actual value, if any, which an option holder will realize upon the exercise of an option will depend
on the excess of the market value of the Company's common stock over the exercise price on the date the option is exercised.
(2) Represents the fair value of shares of Brady Corporation Class A Non-Voting Common Stock granted in fiscal 2020 as compensation for their
services. The shares of unrestricted stock granted to the non-management directors were valued at the average of the high and low market price of
$54.05 on September 20, 2019, for those non-management directors on the board as of that grant date.
89
Table of Contents
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth the current beneficial ownership of shareholders who are known by the Company to own more than five percent (5%) of
any class of the Company’s voting shares on July 31, 2020. As of that date, nearly all of the voting stock of the Company was held by two trusts controlled
by direct descendants of the Company’s founder, William H. Brady, as follows:
Title of Class
Class B Common Stock
Name and Address of Beneficial Owner
EBL GST Non-Exempt Stock B Trust(1) c/o Elizabeth P.
Bruno 2002 S. Hawick Ct. Chapel Hill, NC 27516
William H. Brady III Living Trust dated November 1,
2013 (3)
c/o William H. Brady III
249 Rosemont Ave.
Pasadena, CA 91103
Amount of Beneficial
Ownership
Percent of
Ownership(2)
1,769,304
1,769,304
50 %
50 %
(1) The trustee is Elizabeth P. Bruno, who has sole voting and dispositive power and who is the remainder beneficiary. Elizabeth Bruno is the great-
granddaughter of William H. Brady and currently serves on the Company’s Board of Directors.
(2) An additional 20 shares are owned by a third trust with different trustees.
(3) William H. Brady III is grantor of this revocable trust and shares voting and dispositive powers with respect to these shares with his co-trustee.
William H. Brady III is the grandson of William H. Brady.
(b) Security Ownership of Management
The following table sets forth the current beneficial ownership of each class of equity securities of the Company by each Director and NEO
individually and by all Directors and Officers of the Company as a group as of July 31, 2020. Unless otherwise noted, the address for each of the listed
persons is c/o Brady Corporation, 6555 West Good Hope Road, Milwaukee, Wisconsin 53223. Except as otherwise indicated, all shares are owned directly.
Title of Class
Name of Beneficial Owner & Nature of Beneficial Ownership
Class A Common Stock
Elizabeth P. Bruno (1)
J. Michael Nauman
Aaron J. Pearce
Conrad G. Goodkind
Patrick W. Allender (2)
Russell R. Shaller
Gary S. Balkema
Helena R. Nelligan
Bradley C. Richardson
Frank W. Harris
Louis T. Bolognini (3)
Nancy L. Gioia
Thomas J. Felmer (4)
Pascal Deman
Michelle E. Williams
David S. Bem
All Officers and Directors as a Group (17 persons)
Class B Common Stock
Elizabeth P. Bruno (1)
*
Indicates less than one-tenth of one percent.
90
Amount of
Beneficial
Ownership(5)(6)(7)
Percent of
Ownership
1,152,329
547,912
237,568
168,933
129,834
110,090
66,723
55,106
54,172
50,260
29,675
26,614
13,172
9,420
6,943
4,358
2,665,929
1,769,304
2.4 %
1.1 %
0.5 %
0.3 %
0.3 %
0.2 %
0.1 %
0.1 %
0.1 %
0.1 %
0.1 %
0.1 %
*
*
*
*
5.5 %
50.0 %
Table of Contents
(1) Ms. Bruno’s holdings of Class A Common Stock include 806,296 shares owned by a trust for which she is a trustee and has sole dispositive and
voting authority and 34,530 shares owned by trusts in which she is a co-trustee. Ms. Bruno’s holdings of Class B Common Stock include
1,769,304 shares owned by a trust over which she has sole dispositive and voting authority.
(2) Mr. Allender's holdings of Class A Common Stock include 20,000 shares owned by the Patrick and Deborah Allender Irrevocable Trust.
(3) The amount shown in this table for Mr. Bolognini includes options to acquire 23,278 shares of Class A Common Stock, which are currently
exercisable or will be exercisable within 60 days of July 31, 2020, and unvested restricted stock units to acquire 6,397 shares of Class A Common
stock, which will vest within 60 days of July 31, 2020.
(4) The amount shown in this table for Mr. Felmer includes 13,172 shares of Class A Common Stock owned in deferred compensation plans.
(5) The amount shown for all officers and directors individually and as a group (17 persons) includes options to acquire a total of 818,531 shares of
Class A Common Stock, which are currently exercisable or will be exercisable within 60 days of July 31, 2020, including the following: Ms.
Bruno, 25,400 shares; Mr. Nauman, 386,710 shares; Mr. Pearce, 152,122 shares; Mr. Goodkind, 25,400 shares; Mr. Allender, 33,800 shares; Mr.
Shaller, 66,259 shares; Mr. Balkema, 35,400 shares; Ms. Nelligan, 33,346 shares; Mr. Richardson, 0 shares; Mr. Harris, 25,400 shares; Ms. Gioia,
8,500 shares; Mr. Deman, 7,830 shares; Dr. Williams, 0 shares; and Dr. Bem, 0 shares. It does not include other options for Class A Common
Stock which have been granted at later dates and are not exercisable within 60 days of July 31, 2020.
(6) The amount shown for all officers and directors individually and as a group (17 persons) includes unvested restricted stock units to acquire
106,886 shares of Class A Common stock, which will vest within 60 days of July 31, 2020, including the following: Mr. Nauman, 58,403 units;
Mr. Pearce, 19,972 units; Mr. Shaller, 13,867 units; Ms. Nelligan, 9,489 units; and Mr. Deman, 741 units. No unvested restricted stock units were
held by directors which will vest within 60 days of July 31, 2020. It does not include unvested restricted stock awards or restricted stock units to
acquire Class A Common Stock which have been granted at later dates and will not vest within 60 days of July 31, 2020.
(7) The amount shown for all officers and directors individually and as a group (17 persons) includes Class A Common Stock owned in deferred
compensation plans totaling 244,260 shares of Class A Common Stock, including the following: Ms. Bruno, 2,684 shares; Mr. Nauman, 0 shares;
Mr. Pearce, 3,763 shares; Mr. Goodkind, 80,598 shares; Mr. Allender, 68,644 shares; Mr. Shaller, 0 shares; Mr. Balkema, 20,009 shares; Ms.
Nelligan, 0 shares; Mr. Richardson, 54,172 shares; Mr. Harris, 0 shares; Ms. Gioia, 7,318 shares; Mr. Deman, 0 shares; Dr. Williams, 6,943 shares;
and Dr. Bem, 0 shares.
(c) Changes in Control
No arrangements are known to the Company, which may, at a subsequent date, result in a change in control of the Company.
(d) Equity Compensation Plan Information
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
As of July 31, 2020
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for future
issuance under equity compensation
plans (excluding securities reflected
in column (a))
(c)
1,554,402
$
None
1,554,402
$
39.82
None
39.82
3,348,834
None
3,348,834
The Company’s equity compensation plan allows the granting of stock options, restricted stock, RSUs, and unrestricted stock to various officers,
directors and other employees of the Company at prices equal to fair market value at the date of grant. The Company has reserved 5,000,000 shares of
Class A Nonvoting Common Stock for issuance under the Brady Corporation 2017 Omnibus Incentive Stock Plan. Generally, options will not be
exercisable until one year after the date of grant, and will be exercisable thereafter, to the extent of one-third per year and have a maximum term of ten
years. Generally, RSUs vest one-third per year for the first three years.
91
Table of Contents
Item 13. Certain Relationships, Related Transactions, and Director Independence
The Company annually solicits information from its Directors in order to ensure there are no conflicts of interest. The information gathered annually is
reviewed by the Company and if any transactions are not in accordance with the rules of the New York Stock Exchange or are potentially in violation of the
Company’s Corporate Governance Principles, the transactions are referred to the Corporate Governance Committee for approval, ratification, or other
action. Further, potential affiliated party transactions would be reported as a part of the Company’s quarterly disclosure process. In addition, pursuant to its
charter, the Company’s Audit Committee periodically reviews reports and disclosures of insider and affiliated party transaction with the Company, if any.
Furthermore, the Company’s Directors are expected to be mindful of their fiduciary obligations to the Company and to report any potential conflicts to the
Corporate Governance Committee for review. Based on the Company’s consideration of all relevant facts and circumstances, the Corporate Governance
Committee will decide whether or not to approve such transactions and will approve only those transactions that are in the best interest of the Company.
Additionally, the Company has processes in place to educate executives and employees about affiliated transactions. The Company maintains an
anonymous hotline by which employees may report potential conflicts of interest such as affiliated party transactions.
In undertaking its review of potential related party transactions, the Board considered the commercial relationships of the Company, if any, with those
entities that have employed the Company’s Directors. The commercial relationships, which involved the purchase and sale of products on customary terms,
did not exceed the maximum amounts proscribed by the director independence rules of the NYSE. Furthermore, the compensation paid to the Company’s
Directors by their employers, was not linked in any way to the commercial relationships their employers had with the Company in fiscal 2020. After
consideration of these factors, the Board concluded that none of the Directors whose employers had a commercial relationship with the Company had a
material interest in the transactions and the commercial relationships were not material to the Company. Based on these factors, the Company has
determined that it does not have material related party transactions that affect the results of operations, cash flow or financial condition. The Company has
also determined that no transactions occurred in fiscal 2020, or are currently proposed, that would require disclosure under Item 404 (a) of Regulation S-K.
See Item 10 above for a discussion of Director independence.
Item 14. Principal Accountant Fees and Services
The following table presents the aggregate fees incurred for professional services by Deloitte & Touche LLP and Deloitte Tax LLP during the years
ended July 31, 2020 and 2019. Other than as set forth below, no professional services were rendered or fees billed by Deloitte & Touche LLP or Deloitte
Tax LLP during the years ended July 31, 2020 and 2019.
Audit, audit-related and tax compliance
Audit fees(1)
Tax fees — compliance
Subtotal audit, audit-related and tax compliance fees
Non-audit related
Tax fees — planning and advice
Subtotal non-audit related fees
Total fees
2020
2019
(Dollars in thousands)
$
$
1,313 $
472
1,785
373
373
2,158 $
1,227
466
1,693
286
286
1,979
(1) Audit fees consist of professional services rendered for the audit of the Company’s annual financial statements, attestation of management’s
assessment of internal control, reviews of the quarterly financial statements and statutory reporting compliance.
Ratio of Tax Planning and Advice Fees to Audit Fees, Audit-Related Fees and Tax Compliance Fees
2020
2019
0.2 to 1
0.2 to 1
Pre-Approval Policy — The services performed by the Independent Registered Public Accounting Firm (“Independent Auditors”) in fiscal 2020 were
pre-approved in accordance with the pre-approval policy and procedures adopted by the Audit Committee. The policy requires the Audit Committee to pre-
approve the audit and non-audit services performed by the Independent Auditors in order to assure that the provision of such services does not impair the
auditor’s independence. All services performed for the Company by the Independent Auditor must be approved in advance by the Audit Committee. Any
proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
92
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 15 (a) — The following documents are filed as part of this report:
1) & 2) Consolidated Financial Statement Schedule -
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted as they are not required, or the required information is shown in the consolidated financial statements or notes
thereto.
3) Exhibits — See Exhibit Index at page 94 of this Form 10-K.
93
Table of Contents
Exhibit
Number
EXHIBIT INDEX
Description
2.1 Agreement and Plan of Merger, dated as of December 28, 2012, by and among Brady Corporation, BC I Merger Sub
Corporation, Precision Dynamics Corporation, and Precision Dynamics Holding LLC (29)
2.2 Share and Asset Purchase Agreement, dated as of February 24, 2014, by and among Brady Corporation and LTI Flexible
Products, Inc. (d/b/a Boyd Corporation) (6)
3.1 Restated Articles of Incorporation of Brady Corporation (1)
3.2 By-Laws of Brady Corporation, as amended September 14, 2020 (23)
4.1 Description of Brady Corporation securities (3)
*10.1 Change of Control Agreement, dated as of January 7, 2020, with Pascal Deman
*10.2 Brady Corporation BradyGold Plan, as amended (2)
*10.3 Executive Additional Compensation Plan, as amended (2)
*10.4 Executive Deferred Compensation Plan, as amended (37)
*10.5 Directors’ Deferred Compensation Plan, as amended (37)
*10.6 Forms of Nonqualified Employee Stock Option Agreement, Director Nonqualified Stock Option Agreement, and Employee
Performance Stock Option Agreement under the Brady Corporation 2006 Omnibus Incentive Stock Plan (10)
*10.7 Brady Corporation 2017 Omnibus Incentive Plan (27)
*10.8 Form of Nonqualified Stock Option Agreement under the Brady Corporation 2017 Omnibus Incentive Plan for awards granted
prior to Fiscal 2019 (33)
10.9 Brady Corporation Automatic Dividend Reinvestment Plan (4)
*10.10 Retirement Agreement, dated as of October 15, 2019, with Thomas J. Felmer
*10.11 Form of Fiscal 2021 Performance-Based Restricted Stock Unit Agreement under the Brady Corporation 2017 Omnibus
Incentive Plan
*10.12 Form of Restricted Stock Unit Agreement under the Brady Corporation 2017 Omnibus Incentive Plan for awards granted prior
to Fiscal 2019 (33)
*10.13 Form of Fiscal 2020 and Fiscal 2021 Nonqualified Employee Stock Option Agreement under the Brady Corporation 2017
Omnibus Incentive Plan (3)
*10.14 Form of Fiscal 2019 and Fiscal 2020 Performance-Based Restricted Stock Unit Agreement under the Brady Corporation 2017
Omnibus Incentive Plan (37)
*10.15 Brady Corporation 2006 Omnibus Incentive Stock Plan, as amended (10)
*10.16 Form of Fiscal 2020 and Fiscal 2021 Restricted Stock Unit Agreement under the Brady Corporation 2017 Omnibus Incentive
Plan (3)
*10.17 Change of Control Agreement, dated as of August 28, 2015, with Russell R. Shaller (21)
*10.18 Change of Control Agreement, dated as of September 11, 2015, with Aaron J. Pearce (21)
*10.19 Form of Fiscal 2019 Nonqualified Employee Stock Option Agreement under the Brady Corporation 2017 Omnibus Incentive
Plan (37)
*10.20 Form of Fiscal 2015 Employee Restricted Stock Unit Agreement under the Brady Corporation 2012 Omnibus Incentive Plan
(21)
*10.21 Restated Brady Corporation Restoration Plan, as amended (37)
94
Table of Contents
*10.22 Change of Control Agreement, dated as of March 3, 2014, with Helena R. Nelligan (13)
*10.23 Form of Performance-Based Restricted Stock Unit Agreement under the Brady Corporation 2017 Omnibus Incentive Plan for
awards granted prior to Fiscal 2019 (33)
*10.24 Employment Offer Letter, dated as of June 2, 2015, with Russell Shaller (28)
*10.25 Restricted Stock Unit Agreement, dated as of July 15, 2015, with Aaron J. Pearce (34)
10.26 Note Purchase Agreement, dated May 13, 2010, by and among Brady Corporation, Brady Worldwide, Inc., Tricor Direct, Inc.,
and certain Purchasers (19)
*10.27 Form of Fiscal 2019 Restricted Stock Unit Agreement under the Brady Corporation 2017 Omnibus Incentive Plan (37)
*10.28 Brady Corporation 2010 Omnibus Incentive Stock Plan, as amended (22)
*10.29 Brady Corporation 2010 Nonqualified Stock Option Plan for Non-Employee Directors (17)
*10.30 Form of Employee Nonqualified Stock Option Agreement and Employee Performance Stock Option Agreement under the
Brady Corporation 2010 Omnibus Incentive Stock Plan (17)
*10.31 Form of Director Nonqualified Stock Option Agreement under the Brady Corporation 2010 Nonqualified Stock Option Plan for
Non-Employee Directors (17)
*10.32 Form of Fiscal 2015 Employee Retention Restricted Stock Unit Agreement under 2012 Omnibus Incentive Plan (21)
*10.33 Change of Control Agreement, dated as of March 3, 2014, with Bentley N. Curran (13)
*10.34 Restricted Stock Unit Agreement, dated as of June 22, 2015, with Russell R. Shaller (21)
*10.35 Addendum to the 2017 General Stock Option Incentive Plan of Brady Corporation for Participants in France
*10.36 Addendum to the 2017 General Restricted Stock Unit Incentive Plan of Brady Corporation for Participants in France
*10.37 Form of Fiscal 2012 Performance Stock Option under the Brady Corporation 2010 Omnibus Incentive Stock Plan (26)
*10.38 Brady Corporation 2012 Omnibus Incentive Stock Plan (26)
*10.39 Form of Nonqualified Employee Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive Stock Plan
(26)
*10.40 Form of Nonqualified Employee Performance Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (26)
*10.41 Form of Director Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive Stock Plan (26)
*10.42 Form of Fiscal 2013 Nonqualified Employee Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (31)
*10.43 Form of Fiscal 2013 Director Nonqualified Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (31)
10.44 Credit Agreement, dated as of August 1, 2019, by and among Brady Corporation and certain of its subsidiaries, the lenders
listed therein and BMO Harris Bank, N.A., as administrative agent and L/C issuer (38)
*10.45 Employment Offer Letter, dated as of August 1, 2014, with J. Michael Nauman (35)
*10.46 Restricted Stock Unit Agreement, dated as of August 4, 2014, with J. Michael Nauman (35)
*10.47 Change of Control Agreement, dated as of August 4, 2014, with J. Michael Nauman (35)
*10.48 Form of Fiscal 2014 Nonqualified Employee Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (32)
*10.49 Form of Fiscal 2014 Director Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive Stock Plan (32)
95
Table of Contents
*10.50 Form of Fiscal 2014 Restricted Stock Unit Agreement under the Brady Corporation 2012 Omnibus Incentive Stock Plan (32)
*10.51 Form of Fiscal 2016 Nonqualified Employee Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (21)
*10.52 Form of Fiscal 2016 Restricted Stock Unit Agreement under the Brady Corporation 2012 Omnibus Incentive Stock Plan (21)
*10.53 Form of Fiscal 2015 Nonqualified Employee Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (9)
*10.54 Form of Fiscal 2015 Director Nonqualified Stock Option Agreement under the Brady Corporation 2012 Omnibus Incentive
Stock Plan (9)
*10.55 Form of Fiscal 2015 Restricted Stock Unit Agreement under the Brady Corporation 2012 Omnibus Incentive Stock Plan (9)
*10.56 Employment Agreement, dated as of September 4, 2014, with Pascal Deman
*10.57 Amendment to the Employment Agreement, dated January 7, 2020, with Pascal Deman
21 Subsidiaries of Brady Corporation
23 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
31.1 Rule 13a-14(a)/15d-14(a) Certification of J. Michael Nauman
31.2 Rule 13a-14(a)/15d-14(a) Certification of Aaron J. Pearce
32.1 Section 1350 Certification of J. Michael Nauman
32.2 Section 1350 Certification of Aaron J. Pearce
101 Interactive Data File
104 Cover Page Inline XBRL data (Contained in Exhibit 101)
*
Management contract or compensatory plan or arrangement
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11) Reserved
(12) Reserved
(13)
(14) Reserved
(15) Reserved
(16)
(17)
(18) Reserved
(19)
(20) Reserved
(21)
(22)
(23)
Incorporated by reference to Registrant’s Registration Statement No. 333-04155 on Form S-3
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1989
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2019
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1992
Reserved
Incorporated by reference to Registrant’s Current Report on Form 8-K filed February 25, 2014
Reserved
Reserved
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2014
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2008
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2014
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009
Incorporated by reference to Registrant’s Current Report on Form 8-K filed May 14, 2010
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2015
Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 27, 2010
Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 16, 2020
96
Table of Contents
(24) Reserved
(25)
(26)
(27)
(28)
(29)
(30) Reserved
(31)
(32)
(33)
(34)
(35)
(36) Reserved
(37)
(38)
Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2017
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2011
Incorporated by reference to Registrant’s Current Report on Form 8-K filed May 27, 2016
Incorporated by reference to Registrant’s Current Report on Form 8-K filed June 5, 2015
Incorporated by reference to Registrant's Current Report on Form 8-K filed December 31, 2012
Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 2012
Incorporated by reference to Registrants Annual Report on Form 10-K for the fiscal year ended July 31, 2013
Incorporated by reference to Registrant's Current Report on Form 8-K filed July 14, 2016
Incorporated by reference to Registrant's Current Report on Form 8-K filed July 16, 2015
Incorporated by reference to Registrant's Current Report on Form 8-K filed August 4, 2014
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018
Incorporated by reference to Registrant’s Current Report on Form 8-K filed August 1, 2019
Item 16. Form 10-K Summary
None.
Description
BRADY CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Valuation accounts deducted in balance sheet from assets to which they apply — Accounts
receivable — allowance for doubtful accounts:
Balances at beginning of period
Additions — Charged to expense
Deductions — Bad debts written off, net of recoveries
Balances at end of period
Inventory — Reserve for slow-moving inventory:
Balances at beginning of period
Additions — Charged to expense
Deductions — Inventory write-offs
Balances at end of period
Valuation allowances against deferred tax assets:
Balances at beginning of period
Additions during year
Deductions — Valuation allowances reversed/utilized
Balances at end of period
$
$
$
$
$
$
97
Year ended July 31,
2020
2019
2018
(Dollars in thousands)
5,005
$
2,495
(343)
7,157
$
4,471
$
587
(53)
5,005
$
13,404
$
12,582
$
5,722
(2,817)
3,168
(2,346)
16,309
$
13,404
$
60,073
$
56,866
$
6,204
(7,468)
5,981
(2,774)
58,809
$
60,073
$
4,629
752
(910)
4,471
14,322
2,797
(4,537)
12,582
38,563
24,184
(5,881)
56,866
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
SIGNATURES
its behalf by the undersigned, thereunto duly authorized this 16th day of September 2020.
BRADY CORPORATION
By:
/s/ AARON J. PEARCE
Aaron J. Pearce
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.*
Signature
/s/ J. MICHAEL NAUMAN
J. Michael Nauman
/s/ ANN E. THORNTON
Ann E. Thornton
/s/ PATRICK W. ALLENDER
Patrick W. Allender
/s/ GARY S. BALKEMA
Gary S. Balkema
/s/ DAVID S. BEM
David S. Bem
/s/ ELIZABETH P. BRUNO
Elizabeth P. Bruno
/s/ NANCY L. GIOIA
Nancy L. Gioia
/s/ CONRAD G. GOODKIND
Conrad G. Goodkind
/s/ FRANK W. HARRIS
Frank W. Harris
/s/ BRADLEY C. RICHARDSON
Bradley C. Richardson
/s/ MICHELLE E. WILLIAMS
Michelle E. Williams
*
Each of the above signatures is affixed as of September 16, 2020.
Title
President and Chief Executive Officer; Director
(Principal Executive Officer)
Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
98
BRADY CORPORATION
CHANGE OF CONTROL AGREEMENT
EXHIBIT 10.1
AGREEMENT, made as of January 7, 2020, between Brady Corporation, a Wisconsin corporation, (“Corporation”) and Pascal Deman
(“Executive”).
WHEREAS, the Executive is now serving as an executive of the Corporation in a position of importance and responsibility; and
WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the Corporation and its policies, markets and financial and
human resources, and the Executive has acquired certain confidential information and data with respect to the Corporation; and
WHEREAS, the Corporation wishes to continue to receive the benefit of the Executive’s knowledge and experience and, as an inducement for
continued service, is willing to offer the Executive certain payments due to severance as a result of change of control as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Executive and Corporation agree as follows:
SECTION 1. DEFINITIONS.
(a) Change of Control. For purposes of this Agreement, a “Change of Control” shall occur if and when any person or group of persons (as
defined in Section 13(d)(3) of the Securities and Exchange Act of 1934) other than the members of the family of William H. Brady, Jr. and their
descendants, or trusts for their benefit, and the William H. Brady, Jr. Family Trust, collectively, directly or indirectly controls in excess of 50% of the voting
common stock of the Corporation.
(b) Termination Due to Change of Control. A “Termination Due to Change of Control” shall occur if within the 24-month period
beginning with the date a Change of Control occurs (i) the Executive’s employment with the Corporation is involuntarily terminated (other than by reason
of death, disability or Cause) or (ii) the Executive’s employment with the Corporation is voluntarily terminated by the Executive subsequent to (A) any
reduction in the total of the Executive’s annual base salary (exclusive of fringe benefits) and the Executive’s target bonus in comparison with the
Executive’s annual base salary and target bonus immediately prior to the date the Change of Control occurs, (B) a significant diminution in the
responsibilities or authority of the Executive in comparison with the Executive’s responsibility and authority immediately prior to the date the Change of
Control occurs, or (C) the imposition of a requirement by the Corporation that the Executive relocate to a principal work location more than 50 miles from
the Executive’s principal work location immediately prior to the date the Change of Control occurs.
(c) “Cause” means (i) the Executive’s willful and continued failure to substantially perform the Executive’s duties with the Corporation
(other than any such failure resulting from physical or mental incapacity) after written demand for performance is given to the Executive by the
Corporation which specifically identifies the manner in which the Corporation believes the Executive has not substantially performed and a reasonable time
to cure has transpired, (ii) the Executive’s conviction of (or plea of nolo contendere for the commission of) a felony, or (iii) the Executive’s commission of
an act of dishonesty or of any willful act of misconduct which results in or could reasonably be expected to result in significant injury (monetarily or
otherwise) to the Corporation, as determined in good faith by the Board of Directors of the Corporation.
(d) “Beneficiary” means any one or more primary or secondary beneficiaries designated in writing by the Executive on a form provided
by the Corporation to receive any benefits which may become payable under this Agreement on or after the Executive’s death. The Executive shall have
the right to name, change or revoke the Executive’s designation of a Beneficiary on a form provided by the Corporation. The designation on file with the
Corporation at the time of the Executive’s death shall be controlling. Should the Executive fail to make a valid Beneficiary designation or leave no named
Beneficiary surviving, any benefits due shall be paid to the Executive’s spouse, if living; or if not living, then to the Executive’s estate.
(e) “Code” means the Internal Revenue Code of 1986, as amended.
SECTION 2. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL.
(a) Following Termination Due to Change of Control, the Executive shall be paid an amount equal to two times the annual base salary
paid the Executive by the Corporation in effect immediately prior to the date the Change of Control occurs, and the average bonus payment received in the
three years immediately prior to the date the Change of Control occurs. Such amount shall be paid in 24 monthly installments beginning on the 15th day of
the month following the month in which the Executive’s employment with the Corporation terminates.
(b) If the scheduled payments under paragraph (a) above would result in disallowance of any portion of the Corporation’s deduction
therefore under Section 162(m) of the Code, the payments called for under paragraph (a) shall be limited to the amount which is deductible, with the
balance to be paid during the first taxable year in which the Corporation reasonably anticipates that the deduction of such payment is not barred by Section
162(m). However, in such event, the Corporation shall pay the Executive on a quarterly basis an amount of interest based on the prime rate recomputed
each quarter on the unpaid scheduled payments.
(c) It is intended that (A) each payment or installment of payments provided under this Section 2 is a separate “payment” for purposes of
Code Section 409A and (B) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A, including
those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two year
exception), and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding anything to the contrary in this Agreement, if the
Corporation determines that on the Termination Due to Change of Control the Executive is a “specified employee” (as such term is defined under Treasury
Regulation 1.409A-1(i)(1)) of the Corporation and that any payments to be provided to Executive are or may become subject to the additional tax under
Code Section 409A(a)(1)(B) or any other taxes or penalties imposed under Code Section 409A (“Section 409A Taxes”), then such payments shall be
delayed until the date that is six (6) months after the Termination Due to Change of Control. Any delayed payments shall be made in a lump sum on the
first day of the seventh month following the Termination Due to Change of Control, or such earlier date that, as determined by the Corporation, is sufficient
to avoid the imposition of any Section 409A Taxes on Executive.
SECTION 3. EXCISE TAX, ATTORNEY FEES.
(a) If the payments under Section 2 in combination with any other payments which the Executive has the right to receive from the
Corporation (the “Total Payments”) would result in the Executive incurring an excise tax as a result of Section 280(G) of the Code, the Executive will be
solely responsible for such excise tax.
(b) If the Executive is required to file a lawsuit to enforce the Executive’s rights under this Agreement and the Executive prevails in such
lawsuit, the Corporation will reimburse the Executive for attorney fees incurred up to a maximum of $25,000.00.
SECTION 4. DEATH AFTER THE EXECUTIVE HAS BEGUN RECEIVING PAYMENTS.
Should the Executive die after Termination Due to Change of Control, but before receiving all payments due the Executive hereunder, any
remaining payments due shall be made to the Executive’s Beneficiary.
SECTION 5. CONFIDENTIAL INFORMATION AGREEMENT.
The Executive has obligations under one or more separate confidential information agreements which continue beyond the Executive’s
termination of employment. The payments to be made hereunder are conditioned upon the Executive’s compliance with the terms of such confidential
information agreements. The payments made hereunder shall be reduced by any payments the Corporation makes to the Executive under any confidential
information agreement. In the event the Executive violates the provisions of a confidential information agreement, no further payments shall be due
hereunder and the Executive shall be obligated to repay all previous payments received hereunder.
SECTION 6. MISCELLANEOUS.
(a) Non-Assignability. This Agreement is personal to the Executive and, without the prior written consent of the Corporation, shall not be
assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors and assigns as well as its parents, subsidiaries, and affiliates, and shall also be enforceable by the Executive’s legal
representatives.
(b) This Agreement will apply only if the Executive is still Vice President and General Manager, WPS on the date of Termination Due To
Change of Control.
(c) Successors. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Corporation expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would have been required to perform it if no such succession had taken place. As used in this Agreement,
“Corporation” shall mean both the Corporation as defined above and any such successor that assumes and agrees to perform this Agreement, by operation
of law or otherwise.
(d) Governing Law and Forum. This Agreement shall be governed by, and construed in accordance with, the laws of the State of
Wisconsin, without reference to principles of conflict of laws, to the extent not preempted by federal law. Any and all disputes between the parties
regarding this Agreement shall be resolved solely by and exclusively in the state or federal courts of Wisconsin and the parties hereby consent to
jurisdiction in that forum.
(e) Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Corporation:
Pascal Deman
Brady Groupe S.A.S
45 Avenue de L’Europe, BP132
59436 Roncq Cedex
France
Brady Corporation
6555 West Good Hope Road
Milwaukee, Wisconsin 53223
Attention: CEO
or to such other address as either party furnishes to the other in writing in accordance with this paragraph. Notices and communications shall be effective
when actually received by the addressee.
(f) Construction. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent
consistent with law. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.
(g) No Guarantee of Employment. Nothing contained in this Agreement shall give the Executive the right to be retained in the
employment of the Corporation or affect the right of the Corporation to dismiss the Executive.No Guarantee of Employment. Nothing contained in this
Agreement shall give the Executive the right to be retained in the employment of the Corporation or affect the right of the Corporation to dismiss the
Executive.
(h) Amendment; Entire Agreement. This Agreement may not be amended or modified except by a written agreement executed by the
parties hereto or their respective successors and legal representatives. This Agreement contains the entire agreement between the parties on the subjects
covered and replaces all prior writings, proposals, specifications or other oral or written materials relating thereto.
(i) Impact on Other Plans. No amounts paid to the Executive under this Agreement will be taken into account as “wages”, “salary”, “base
pay” or any other type of compensation when determining the amount of any payment or allocation, or for any other purpose, under any other qualified or
nonqualified plan or agreement of the Corporation, except as otherwise may be specifically provided by such plan or agreement.
(j) Other Agreements. This Agreement supersedes any other severance arrangement or Change of Control Agreement between the
Corporation and the Executive. This Agreement does not confer any payments or benefits other than the payments described in Sections 2 and 3 hereof.
(k) Withholding. To the extent required by law, the Corporation shall withhold any taxes required to be withheld with respect to this
Agreement by the federal, state or local government from payments made hereunder or from other amounts paid to the Executive by the Corporation.
(l) Facility of Payment. If the Executive or, if applicable, the Executive’s Beneficiary, is under legal disability, the Corporation may direct
that payments be made to a relative of such person for the benefit of such person, without the intervention of any legal guardian or conservator, or to any
legal guardian or conservator of such person. Any such distribution shall constitute a full discharge with respect to the Corporation and the Corporation
shall not be required to see to the application of any distribution so made.
SECTION 7. CLAIMS PROCEDURE.
(a) Claim Review. If the Executive or the Executive’s Beneficiary (a “Claimant”) believes that he or she has been denied all or a portion
of a benefit under this Agreement, he or she may file a written claim for benefits with the Corporation. The Corporation shall review the claim and notify
the Claimant of the Corporation’s decision within 60 days of receipt of such claim, unless the Claimant receives written notice prior to the end of the 60-
day period stating that special circumstances require an extension of the time for decision. The Corporation’s decision shall be in writing, sent by mail to
the Claimant’s last known address, and if a denial of the claim, must contain the specific reasons for the denial, reference to pertinent provisions of this
Agreement on which the denial is based, a designation of any additional material necessary to perfect the claim, and an explanation of the claim review
procedure.
(b) Appeal Procedure to the Board. A Claimant is entitled to request a review of any denial by the full Board by written request to the
Chair of the Board within 60 days of receipt of the denial. Absent a request for review within the 60-day period, the claim will be deemed to be
conclusively denied. The Board shall afford the Claimant the opportunity to review all pertinent documents and submit issues and comments in writing and
shall render a review decision in writing, all within 60 days after receipt of a request for review (provided that, in special circumstances the Board may
extend the time for decision by not more than 60 days upon written notice to the Claimant.) The Board’s review decision shall contain specific reasons for
the decision and reference to the pertinent provisions of this Agreement.
IN WITNESS WHEREOF, the Executive has signed this Agreement and, pursuant to the authorization of the Board, the Corporation has caused
this Agreement to be signed, all as of the date first set forth above.
/s/ PASCAL DEMAN
Executive — Pascal Deman
Vice President and General Manager, Workplace Safety
Brady Corporation
By: /s/ J. MICHAEL NAUMAN
J. Michael Nauman
President and Chief Executive Officer
COMPLETE AND PERMANENT RELEASE AND RETIREMENT AGREEMENT
EXHIBIT 10.10
Effective on this 15th day of October, 2019 (“Effective Date”), Thomas Felmer (“Mr. Felmer” or “You”) and Brady Corporation (the “Company”)
hereby enter into this Complete and Permanent Release and Retirement Agreement (this “Agreement”) to resolve all matters relating to Mr. Felmer’s
employment with and retirement from the Company. Mr. Felmer and the Company hereby agree as follows:
1. Retirement.
Effective as of 12:01 a.m. on January 2, 2020 (the “Separation Date”), Mr. Felmer does hereby resign (a) from his position as Senior Vice
President, Brady Corporation and President – Workplace Safety, and (b) from all officer and director positions of all legal entities of the Company. From
the Effective Date to the Separation Date, Mr. Felmer will remain employed by the Company and receive his current salary and fringe benefits. For a period
of six months following the Separation Date (the “Transition Period”), at the request of the Company, Mr. Felmer will assist in the transition of duties to his
successor, be available to consult on other issues and provide support to the Company in connection with the Avionos dispute and any other litigation or
dispute (including providing testimony). Mr. Felmer agrees that during the period from the Effective Date to the Separation Date, he shall perform his
duties with the same level of care, skill, and professionalism as he has applied in the performance of his job prior to the Effective Date. Following the
Transition Period, Mr. Felmer will continue to provide support to the Company, upon the request of the Company, in connection with the Avionos dispute
and any other litigation or dispute (including providing testimony).
The Separation Date shall be deemed to be the “Qualifying Event” for insurance continuation and benefit plan purposes under state and federal
law. As of the Effective Date, Mr. Felmer shall no longer be entitled to participate in any and all cash bonus or equity award programs with the Company,
except as described in this Agreement.
Any Company property over which Mr. Felmer has any control, is in Mr. Felmer’s possession or which was in Mr. Felmer’s possession or was
otherwise entrusted to Mr. Felmer for use in his employment must and will be turned over and must either remain on Company premises or be turned over
to the Company on the Separation Date. Notwithstanding the foregoing, the Company agrees that Mr. Felmer shall be entitled to retain his cell phone
number. Mr. Felmer agrees to provide all codes, passwords, usernames, or other identification or information necessary to access any of the Company’s
computer files, e-mail accounts, or voicemail systems and agrees to cooperate with the Company in an effort to transfer any files, data, systems, or other
information to the Company or its designated agent or employee. Mr. Felmer also agrees that, as of the date of Separation Date, he will not access or
attempt to access any computer, e-mail, voicemail, or other system of the Company.
2. Retirement Plan; Equity Agreements.
All of Mr. Felmer’s balances, including Company stock, within any Company retirement plan will be paid out in accordance with the provisions of
each plan and Mr. Felmer’s instructions under such plans. Except as provided in Section 3 below, Mr. Felmer shall have all of his preexisting rights with
respect to stock options, performance restricted stock units and restricted stock units in accordance with the equity plans and granting agreements
governing such equity.
3. Severance Pay.
Assuming Mr. Felmer accepts and does not revoke this Agreement, Mr. Felmer will be provided cash severance payments totaling $650,000.00,
less required withholding, payable in equal installments over 24 months following the Separation Date in accordance with the Company’s normal payroll
practices, with the first such payment to be made on the first pay date occurring after the Separation Date. Each severance installment payable under this
Section 3 shall constitute a separate “payment” within the meaning of Treasury Regulation Section 1.409A-2(b)(2). Mr. Felmer will also receive payment
for his accrued and unused vacation as of the Separation Date.
Mr. Felmer will also be provided with the following: healthcare benefits under COBRA in accordance with the Company’s healthcare plans and
applicable law, with the first 12 months of COBRA benefits provided at active employee rates and the remaining period of COBRA benefits will be at
regular COBRA rates. In addition, Mr. Felmer will continue to receive financial and tax planning services through Ayco at the Company's expense through
December 31, 2020.
Attached hereto as Exhibit A is a list of Mr. Felmer’s outstanding stock options, performance restricted stock units and restricted stock units. Mr.
Felmer agrees that Exhibit A is a correct and complete list of his outstanding equity awards as of the date of this Agreement (the “Existing Equity
Awards”).
No changes shall be made to the terms of the Existing Equity Awards set forth in the applicable award agreement except as follows:
(i) Effective on the Separation Date, (a) one hundred percent (100%) of Mr. Felmer’s then unvested stock options in
his award granted on September 22, 2017 will vest; (b) fifty percent (50%) of Mr. Felmer’s then unvested stock
options in his award granted on September 25, 2018 will vest; (c) one hundred percent (100%) of Mr. Felmer’s
then unvested restricted stock units in his award granted on September 22, 2017 will vest; and (d) fifty percent
(50%) of Mr. Felmer’s then unvested restricted stock units in his award granted on September 25, 2018 will vest.
(ii) All other unvested equity awards are forfeited as of the Separation Date.
Mr. Felmer acknowledges that previously granted equity awards, including but not limited to the Existing Equity Awards, also contain restrictions
that are applicable following the Separation Date, and a breach of those provisions provides the Company with, among other things, the ability to recover
the value of those awards.
In the event that Mr. Felmer resigns from his position prior to the Separation Date, it shall constititue a material breach of this Agreement, and the
Company shall be entitled to seek all relief and recover all damages available to it under any legal theory, and for its damages the Company shall have, in
addition to other allowable damages, the right to be relieved of any of its obligations set forth in this Section 3.
4. Adequate Consideration.
Mr. Felmer acknowledges that the Company is under no pre-existing obligation to treat his equity awards in the manner described in Section 3
above and pay him any of the cash severance payments and other benefits described in Section 3 above, that no amounts are due and owing Mr. Felmer
other than vested benefits to which he is otherwise entitled (“vested benefits”), and that the foregoing benefits are adequate consideration for Mr. Felmer’s
commitments in this Agreement. The parties agree that the foregoing constitute all of the payments and benefits to be provided to Mr. Felmer under this
Agreement, and that they are in full settlement of all payments and benefits, including but not limited to, claims for wages, vacation pay, sick pay, bonuses,
incentive plans, commissions, relocation costs, severance payments, stock options, or any other compensation.
5. Release of All Claims; Covenant Not to Sue.
(a) In consideration of the payments and benefits described above, and to the fullest extent allowed by law, Mr. Felmer, for himself, his
agents, spouse, heirs, successors and assigns (“Felmer Releasors”), hereby releases and forever discharges the Company, its shareholders, direct and
indirect subsidiaries, related entities, predecessors, assigns, parents, successors, affiliates, Company benefit plans, Company fiduciaries, Company
administrators and its and their directors, officers, employees (current and former), attorneys, agents, and all other representatives (“Company Releasees”),
from any and all charges, claims, suits and expenses (including attorneys’ fees and costs), whether known or unknown, including, but not limited to, claims
of age or other discrimination, breach of contract, wrongful discharge, constructive discharge, claims under the Wisconsin Fair Employment Act, § 111.31,
et. seq. Wis. Stats.; Title VII of The Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et. seq .; the Age Discrimination in Employment Act, 29
U.S.C. § 621 et. seq.; the common law of Wisconsin, or any other federal, state or local law relating to employment (“Released Claims”). The Released
Claims include any and all matters in connection with or relating in any way to Mr. Felmer’s employment with the Company and his retirement from the
Company, provided, however, that nothing herein shall release, diminish, or otherwise affect Mr. Felmer’s vested benefits. Notwithstanding the foregoing,
this release and waiver of claims does not waive, release or discharge: (i) claims arising after the execution of this Agreement; (ii) any right to file an
administrative charge or complaint with the Equal Employment Opportunity Commission or other administrative agency, although he waives any right to
monetary relief related to such a charge or administrative complaint; (iii) claims which cannot be waived by law, such as claims for workers’ compensation;
(iv) claims to enforce the terms of this Agreement; (v) claims for indemnification Mr. Felmer may have pursuant to the Company’s Bylaws, Articles of
Incorporation or applicable laws; or (vi) claims to enforce rights to vested benefits, such as pension or retirement benefits (“Non-Released Claims”).
(b) The Felmer Releasors hereby covenant not to sue and hereby release and discharge and agree to defend and indemnify the Company
Releasees from any and all statutory and common law claims that they have or may have against the Company Releasees arising prior to or on the Effective
Date of this Agreement, including, without limitation, any actual or potential claims relating to any actual or alleged violation by the Company Releasees
of any federal, state or local statutes, any actual or potential claim of any type under Wisconsin law, any actual or potential claim for economic damages,
intentional and/or negligent infliction of emotional distress, intentional and/or negligent misrepresentation, breach of contract, breach of the covenant of
good faith and fair dealing, any actual or potential claim for unpaid wages, severance pay, bonus, sick leave, overtime wages, holiday pay, vacation pay, life
insurance, health and medical insurance, or any other fringe benefit, and/or any actual or potential claim for attorneys’ fees, costs, disbursements and/or the
like; provided, however, Non-Released Claims are excluded from this Section 5(b). You further agree that if you or any of the Felmer Releasors breach this
Section 5(b), the Company shall be entitled to seek all relief and recover all damages available to it under any legal theory, including, but not limited to, the
recovery of the value of all amounts paid as of the time of such breach, as well as the right to cease making further payments pursuant to this Agreement.
However, the prior two sentences shall not apply to any action You may bring challenging the validity of this Release under the ADEA, which you may do
without penalty. You further agree that notwithstanding any breach of this Section 5(b), you are and shall continue to be bound by the remaining provisions
of this Agreement, including the non-disparagement, confidentiality, non-solicitation and non-competition clauses.
6. Non-Admission.
Mr. Felmer and the Company agree that this Complete and Permanent Release and Retirement Agreement shall not constitute an admission by the
Company that it has acted wrongfully with respect to Mr. Felmer or that it has discriminated against him or against any other individual.
7. Confidential Agreement.
Except as permitted below, Mr. Felmer hereby agrees to keep the terms of this Complete and Permanent Release and Retirement Agreement
confidential, and he agrees that he shall neither directly nor indirectly disclose the terms of this Agreement to any other person or entity except to his
attorneys, tax preparers or financial advisors, and immediate family members, but only on the condition that they agree to abide by the terms of this
confidentiality clause, unless compelled by law or until such time as it has been publicly disclosed by the Company.
8. Non-Disparagement and Social Media.
Mr. Felmer agrees not to disparage the Company or any of its products, services, officers, directors, or employees on social media, on any public
platform, or to persons internal or external to the Company when such comments have the potential to harm the Company (i.e., making disparaging
comments about the Company to employees, distributors, customers, suppliers, etc.). For its part, the Company agrees that its officers and directors will at
no time make or publish any communication (whether written or oral), or instigate, assist or participate in the making or publication of any communication
(whether or not such communication legally constitutes libel or slander), which would disparage or harm Mr. Felmer in his business reputation. The
foregoing is agreed, however, not to limit Mr. Felmer’s or the Company’s respective obligations to testify honestly and accurately in any legal proceeding.
You expressly understand and agree that any breach of this paragraph by You shall constitute a material breach of this Agreement, which shall cause
irreparable harm to the Company and, therefore, in the event of a breach of this Section 8, the Company shall be entitled to seek all relief and recover all
damages available to it under any legal theory, including, but not limited to, the recovery of the value of all amounts paid as of the time of such breach, as
well as the right to cease making further payments pursuant to this Agreement. Mr. Felmer further agrees that notwithstanding any breach on his part of this
Section 8 at any time during the course of this Agreement, he is and shall continue to be bound the provisions of this Section 8 governing non-
disparagement and all other provisions of this Agreement, including, without limitation, the confidentiality, non-solicitation and non-competition clauses
under Section 9.
9. Confidentiality, Non-Solicitation and Non-Compete.
Mr. Felmer and the Company specifically agree that the treatment of his equity agreements and the payments under Section 3 above shall be
deemed to fully satisfy any obligation the Company may have to provide salary payments to Mr. Felmer under any Confidential Information or Non-
Compete Agreement he may have signed. For purposes of this Section 9, references to the Company shall include the Company and its affiliates. In
addition, and as further consideration for this Agreement, Mr. Felmer agrees to, understands and acknowledges the following:
(a) During Mr. Felmer’s employment with the Company, the Company has, and will continue to provide Mr. Felmer with Confidential
Information relating to the Company, its business and clients, the disclosure or misuse of which would cause severe and irreparable harm to the Company.
During Mr. Felmer’s employment with the Company, and for a two (2)-year period thereafter, Mr. Felmer agrees not to use or disclose the Company’s
Confidential Information except as necessary in executing Mr. Felmer’s duties for the Company. Mr. Felmer shall keep Confidential Information
constituting a trade secret under applicable law confidential for so long as such information constitutes a trade secret (i.e., protection as to trade secrets
shall not necessarily expire at the end of the two (2)-year period). Upon the termination of Mr. Felmer’s employment with the Company for any reason, Mr.
Felmer shall immediately return to the Company all documents and materials that contain or constitute Confidential Information, in any form whatsoever,
including but not limited to, all copies, abstracts, electronic versions, and summaries thereof. As to any electronically stored copies of Confidential
Information, Mr. Felmer shall contact his supervisor or the Company’s General Counsel to discuss the proper method for returning such items.
Mr. Felmer hereby consents and agrees that the Company may access any of Mr. Felmer’s personal computers and other electronic storage devices
(including personal phones) and any electronic storage accounts (such as dropbox) so as to allow the Company to ascertain the presence of the Company’s
Confidential Information and how such information has been used by Mr. Felmer and to remove any such items from such devices and accounts. Mr.
Felmer further agrees that without the written consent of the Chief Executive Officer of the Company that Mr. Felmer will not disclose, use, copy or
duplicate, or otherwise permit the use, disclosure, copying or duplication of any Confidential Information of the Company, other than in connection with
the authorized activities conducted under this Agreement or in the course of Mr. Felmer’s employment with the Company. Mr. Felmer agrees to take all
reasonable steps and precautions to prevent any unauthorized disclosure, use, copying or duplication of Confidential Information. For purposes of this
Agreement, Confidential Information means any and all financial, technical, commercial or other information concerning the business and affairs of the
Company that is confidential and proprietary to the Company, including without limitation,
(i) information relating to the Company’s past and existing customers and vendors and development of prospective
customers and vendors, including specific customer product requirements, pricing arrangements, payments terms,
customer lists and other similar information;
(ii) inventions, designs, methods, discoveries, works of authorship, creations, improvements or ideas developed or
otherwise produced, acquired or used by the Company;
(iii) the Company’s proprietary programs, processes or software, consisting of but not limited to, computer programs in
source or object code and all related documentation and training materials, including all upgrades, updates,
improvements, derivatives and modifications thereof and including programs and documentation in incomplete
stages of design or research and development;
(iv) the subject matter of the Company’s patents, design patents, copyrights, trade secrets, trademarks, service marks,
trade names, trade dress, manuals, operating instructions, training materials, and other industrial property,
including such information in incomplete stages of design or research and development;
(v) other confidential and proprietary information or documents relating to the Company’s products, business and
marketing plans and techniques, sales and distribution networks and any other information or documents which the
Company reasonably regards as being confidential; and
(vi) Confidential Information does not include information which: (i) is already available to the public without
wrongful act or breach by Mr. Felmer; (ii) becomes available to the public through no fault of Mr. Felmer; or (iii)
is required to be disclosed pursuant to a court order or order of government authority, provided that Mr. Felmer
promptly notifies the Company of such request so the Company may seek a protective order.
(b) Post-Employment Customer Non-Solicitation Agreement. For two (2) years following the Separation Date, Mr. Felmer will not
contact—or support others in contacting—customers of Company with whom Mr. Felmer had business contact during the last two (2) years of Mr. Felmer’s
employment with the Company or is knowledgeable, either by virtue of having supervised or managed, directly or indirectly, at any time during the two (2)
years preceding the Separation Date, the person or persons with responsibility for the customer, for the purpose of selling or providing products or services
competitive with those offered by Company (“Competitive Products”). “Competitive Products” shall mean products and services competitive with those
products and services for which Mr. Felmer was responsible during the last two (2) years of Mr. Felmer’s employment with Company.
(c) Post-Separation Employment by Customers. For two (2) years following the Separation Date, Mr. Felmer will not accept employment
with, or advise or consult to or with, any customers of the Company with whom Mr. Felmer had business contact during the last two (2) years of Mr.
Felmer’s employment with the Company or is knowledgeable, either by virtue of having supervised or managed, directly or indirectly, at any time during
the two (2) years preceding the Separation Date, the person or persons with responsibility for the customer.
(d) Post-Employment Non-Compete Agreement. For two (2) years following the Separation Date, Mr. Felmer will not, directly or
indirectly provide services similar to any of those Mr. Felmer provided to the Company during the last two (2) years of Mr. Felmer’s employment with
Company to a competitor of Company or a person or entity preparing to compete with Company.
(e) Post-Employment Restriction on Working With Competitive Products. For two (2) years following the Separation Date, Mr. Felmer
will not work in the sale, marketing, development, design, modification, improvement, or creation of products or services competitive with any products or
services with which Mr. Felmer was involved in the sale, marketing, development, design, modification, improvement or creation for the Company during
the last two (2) years of Mr. Felmer’s employment.
(f) Post-Employment Restriction on Advising Investors. For two (2) years following the Separation Date, Mr. Felmer will not, directly or
indirectly, advise a broker, investment bank, private equity firm or other investor regarding buying, investing in, or divesting from the Company or any of
its competitors.
(g) Post-Employment Restriction on Soliciting Key Employees. For two (2) years following the Separation Date, Mr. Felmer will not
solicit or encourage Key Employees of the Company to provide services to a competitor of the Company or to otherwise terminate their relationship with
the Company. “Key Employees” are employees or contractors whom Mr. Felmer supervised, who supervised Mr. Felmer, or with whom Mr. Felmer had
significant business contact during Mr. Felmer’s last two (2) years of employment with the Company.
(h) Fiduciary Duties and Related Obligations. Mr. Felmer acknowledges and agrees that Mr. Felmer owes the Company fiduciary duties
while employed by the Company. During Mr. Felmer’s employment with the Company, Mr. Felmer agrees not to take action that will harm the Company,
such as, encouraging employees, vendors, suppliers, contractors, or customers to terminate their relationships with the Company, usurping a business
opportunity from Company, engaging in conduct that would injure the Company’s reputation, providing services or assistance to a competitive enterprise,
or otherwise competing with the Company.
(i) Other Business Relationships. Mr. Felmer agrees, for a two (2)-year period following the Separation Date, not to encourage or advise
any vendors, suppliers, or others possessing a business relationship with Company to terminate that relationship or to otherwise modify that relationship to
the Company’s detriment.
(j) Post-Employment Restriction on Soliciting Other Employees. For two (2) years following the Separation Date, Mr. Felmer will not
solicit or encourage any employees of the Company, the identity and position of which Mr. Felmer was made aware of due to his job responsibilities at the
Company, to provide services to a competitor of the Company or to otherwise terminate their relationship with the Company.
(k) Notice of Offers. Mr. Felmer agrees that if he receives an employment, consulting, directorship or similar offer during the 24 months
following the Separation Date, then before commencing such employment, consulting, directorship or similar arrangement, Mr. Felmer shall provide
written notice to the Chief Executive Officer of the Company of the offer and sufficient details to permit the Company to determine whether the proposed
arrangement would be a violation of this Agreement. The Company will then notify Mr. Felmer within seven (7) business days of receipt of such
information whether the Company considers the proposed arrangement to be a breach of this Agreement. The provisions set forth in the sentences above
shall also apply to each specific project or engagement in circumstances where Mr. Felmer is performing services for a broker, investment bank, private
equity firm or other investment related entity during the 24 months following the Separation Date.
(l) Breach.
(i) Mr. Felmer acknowledges and agrees that compliance with this Section 9 is necessary to protect the legitimate
business interests of the Company. You expressly understand and agree that any breach of Section 9 by You shall
constitute a material breach of this Agreement, which shall cause irreparable harm to the Company for which there
will be no adequate remedy at law. In the event of a breach of Section 9, or any part thereof, the Company, and its
successors and assigns, shall be entitled to institute and prosecute proceedings in any Court of competent
jurisdiction for injunctive relief to enjoin Mr. Felmer from performing services in breach of Section 9, and for other
and further relief as is proper under the circumstances. Mr. Felmer hereby agrees to submit to the jurisdiction of
any Court of competent jurisdiction in any disputes that arise under this Agreement.
(ii) In the event of a breach of Section 9, the Company shall be entitled to seek all relief and recover all damages
available to it under any legal theory, and for its damages the Company shall have, in addition to other allowable
damages, the right to: (i) recover from Mr. Felmer all or part of the severance payments made to Mr. Felmer during
the period of time in which Mr. Felmer was in breach of Section 9; (ii) be relieved of any future obligations to pay
any additional severance payments pursuant to Section 3; and (iii) recover all or part of any equity awards (or the
value of such awards) that became vested as a result of this Agreement. The Company shall also retain all rights to
the injunctive relief provided for in subsection (i) above. In the event that Mr. Felmer should successfully pursue
an argument that any provision in this Agreement is unreasonable and unenforceable, then the remaining
provisions shall remain in full force and effect and the Company shall be entitled to recover from Mr. Felmer the
value of the equity awards that became vested as a result of this Agreement and all severance payments made by
the Company to Mr. Felmer and cease making further severance payments because, as Mr. Felmer acknowledges
and agrees, the Company would never have agreed to make those severance payments to him if he had not agreed
to all the terms, conditions and restrictions set forth in this Agreement, which he again acknowledges to be
reasonable and necessary for the protection of the Company’s legitimate business interests. Finally, in the event of
a breach of Section 9, the 24 month post-termination restriction period will be extended by a period of time equal
to the period of time during which Mr. Felmer was in breach of Section 9.
(iii) Mr. Felmer further agrees that notwithstanding any breach on his part of any portion of this Section 9 at any time
during the course of this Agreement, he is and shall continue to be bound by the remaining provisions of this
Section 9 governing confidentiality, non-solicitation and non-competition and all other provisions of this
Agreement, including the non-disparagement clause under Section 8.
(iv) Employee agrees that the terms of this Section 9 shall survive the termination of Employee’s employment with the
Company.
(v) MR. FELMER HAS READ THIS ENTIRE SECTION 9 AND AGREES THAT THE CONSIDERATION
PROVIDED BY THE COMPANY IS FAIR AND REASONABLE AND FURTHER AGREES THAT GIVEN
THE IMPORTANCE TO THE COMPANY OF ITS CONFIDENTIAL AND PROPRIETARY INFORMATION,
THE FOREGOING RESTRICTIONS ON HIS ACTIVITIES ARE LIKEWISE FAIR AND REASONABLE.
10. Assignment; Non-Waiver; Cumulation of Remedies and Attorney’s Fees and Costs.
If Mr. Felmer should die while any amounts are still payable to him pursuant to this Agreement, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to Mr. Felmer’s devisee, legatee, or other designee, or if there be no such designee, to
his estate. Mr. Felmer hereby informs the Company that such designee shall be the spouse of Mr. Felmer at Mr. Felmer’s time of death. The failure by the
Company at any time to enforce any of the provisions of this Agreement or any right or remedy available hereunder or at law or in equity will not
constitute a waiver of such provision, right, or remedy, or affect the validity of this Agreement. The waiver of any default will not be deemed a continuing
waiver. Except as expressly provided herein, all remedies available to the Company for breach of this Agreement or at law or in equity are cumulative and
may be exercised concurrently or separately. In addition, the Company shall be entitled to recover all reasonable attorney’s fees and costs it incurs in
enforcing any of its rights under this Agreement. Mr. Felmer agrees that the Company has a right to set off against any future severance payments any sums
which the Company is entitled to recover due to Mr. Felmer’s breach of this Agreement.
11. Section 409A.
The intent of the parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A of the Internal
Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder (collectively, “Section 409A”) and, accordingly, to the
maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. If Mr. Felmer or the Company believes, at any time, that any
payment pursuant to this Agreement is subject to taxation under Section 409A of the Code, then (i) it shall advise the other and (ii) to the extent such
correction is possible to avoid taxation under Section 409A without any material diminution in the value of the payments or benefits to Mr. Felmer, the
Company and Mr. Felmer shall reasonably cooperate in good faith to take such steps as necessary, including amending (and, as required, consenting to the
amendment of) the terms of any plan or program under which such payments are to be made, in the least restrictive manner necessary in order to comply
with the provisions of Section 409A and the Section 409A Regulations in order to avoid taxation under Section 409A.
Notwithstanding anything contained herein to the contrary, if at Mr. Felmer’s separation from service, (a) he is a specified employee as defined in
Section 409A and (b) any of the payments or benefits provided hereunder constitute deferred compensation under Section 409A, then, and only to the
extent required by such provisions, the date of payment of such payments or benefits otherwise provided shall be delayed for a period of six months
following the separation from service.
12. Advice of Counsel and Review of Agreement.
Mr. Felmer acknowledges that this Agreement constitutes a voluntary waiver and release of all of his rights and claims under the Age
Discrimination in Employment Act (“ADEA”), as amended, and its implementing regulations, and pursuant to the Older Workers Benefit Protection Act of
1990 (“OWBPA”), and he is executing this Agreement, including the waiver and release, in exchange for good and valuable consideration stated herein.
Mr. Felmer is hereby advised to review this Agreement with legal counsel of his choice prior to signing it and by signing below acknowledges he has done
so or waived his right to do so. Mr. Felmer is further advised that he has twenty-one (21) days during which to consider the provisions of this Agreement,
although he may sign and return it sooner. He is further hereby advised that he has the right to revoke this Agreement for a period of seven (7) days after its
execution by providing written notice of revocation to the Company. Mr. Felmer understands that this Agreement shall not become effective or enforceable
until the eighth (8th) day following his execution of this Agreement.
13. Entire Agreement; Severability; Counterparts; Law.
This Complete and Permanent Release and Retirement Agreement sets forth the entire agreement between the parties and fully supersedes any and
all prior agreements or understandings between Mr. Felmer and the Company. In the event that any clause, provision or paragraph of this Agreement is
found to be void, invalid or unenforceable, such finding shall have no effect on the remainder of this Agreement, which shall continue to be in full force
and effect. Each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. This Agreement may be executed in one or
more counterparts or duplicate originals, all of which, taken together, shall constitute one and the same instrument. Facsimile or electronic signatures shall
be equally binding as originals. This Agreement shall be governed and construed in accordance with the laws of the State of Wisconsin, and shall be
binding upon the parties hereto and their respective successors and assigns.
Date: October 15, 2019
/s/ THOMAS FELMER
Thomas Felmer
BRADY CORPORATION
By: /s/ J. MICHAEL NAUMAN
Its Authorized Representative
Exhibit A
Schedule of Outstanding Equity Awards
Type
Grant Date
Exercise Price Original Award
Option
Option
RSU
RSU
RSU
Perf. RSU
Perf. RSU
Perf. RSU
9/22/2017
9/25/2018
9/22/2017
9/25/2018
9/20/2019
2018-2020 perf.
period
2019-2021 perf.
period
2020-2022 perf.
period
Amount
(Number of
Shares/Options)
21,295
18,625
4,976
4,169
1,851
5,536
At target
4,863
At target
2,895
At target
$36.85
$43.98
N/A
N/A
N/A
N/A
N/A
N/A
Options
Previously
Exercised
Number of
RSUs
Previously
Vested
Number Vested
at Separation
Date
Exercisable for
90 days post
Separation Date
Forfeit on
Separation Date
14,197
6,209
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3,318
1,390
0
0
0
0
7,098
6,208
1,658
1,390
1,851
0
0
0
Yes
Yes
N/A
N/A
N/A
N/A
N/A
N/A
0
6,208
0
1,389
0
5,536
4,863
2,895
BRADY CORPORATION
PERFORMANCE-BASED RESTRICTED STOCK UNITS
EXHIBIT 10.11
In accordance with the terms of the Brady Corporation 2017 Omnibus Incentive Plan (the "Plan"), the Management
Development and Compensation Committee (the “Committee”) of the Brady Corporation Board of Directors hereby grants to
you, _______________ (“Employee”), an award of Performance-Based Restricted Stock Units involving the number of such
Units set forth in the table below. Brady Corporation’s (the “Corporation”) records shall be the official record of the grant
described herein and, in the event of any conflict between this description and the Corporation’s records, the Corporation’s
records shall control.
The terms and conditions of this Award are set forth in this Agreement, the attached Exhibit A, Exhibit B and in the
Plan document, a copy of which has been provided to you.
Number of Performance-based Restricted Stock Units
Granted at Target (the “Units”):
Grant Date:
Scheduled Vesting Date:
Performance Period:
Performance Goals:
August 1, 2020
The date described in Section 2(a) of the
Agreement
The performance period will commence
on August 1, 2020 and will end on July
31, 2023.
See Exhibit A
All terms, provisions and conditions applicable to Performance-based Restricted Stock Unit Awards set forth in the Plan and
not set forth in this Agreement are incorporated by reference into this Agreement.
1.
Award of Performance Restricted Stock Units
The Corporation hereby confirms the grant to you, as of the Grant Date and subject to the terms and conditions of this
Agreement and the Plan, of the number of Performance Restricted Stock Units identified in the table above (the
"Units"). Each Unit represents the right to receive one Share of the Corporation’s Class A Nonvoting Common Stock of
the Corporation, $.01 par value. The Units granted to you will be credited to an account in your name maintained by the
Corporation. This account shall be unfunded and maintained for bookkeeping purposes only, with the Units simply
representing an unfunded and unsecured obligation of the Corporation until they become vested or have been forfeited.
2.
Vesting and Forfeiture of Units
The Units shall vest at the earliest of the following times and to the degree specified. For purposes of this Section 2, use
of the terms “employment” and “employed” refers to providing services to the Corporation and its Affiliates in the
capacity of an Employee.
(a)
(b)
(c)
(d)
Scheduled Vesting. The number of Units that have been earned during the Performance Period shall be eligible to
vest on the Scheduled Vesting Date, so long as the Employee’s employment has been continuous since the Grant
Date. The actual number of earned Units that will vest on the Scheduled Vesting Date will be determined by the
Committee as provided in Exhibit A. For these purposes, the “Scheduled Vesting Date” means the date the
Committee certifies (i) the degree to which the applicable performance goals for the Performance Period have
been satisfied, and (ii) the number of Units that have been earned during the Performance Period as provided in
Exhibit A, which certification shall occur no later than October 15 of the fiscal year immediately following the
fiscal year during which the Performance Period ended.
Retirement. If employment is terminated as a result of the Employee’s retirement (after age 60 with five years of
employment with the Corporation or a Subsidiary) and after the Employee has been employed for at least one
year after the Grant Date, the Employee will receive a pro rata portion of the Units that would otherwise have
been determined to vest on the Scheduled Vesting Date in accordance with Exhibit A if the Employee had
remained continuously employed until the Scheduled Vesting Date. The pro rata portion shall be determined as
follows: (a) if Employee is employed for at least one year, but less than two years after the Grant Date, the
Employee shall earn 2/3 of the number of Units that would otherwise have been determined to vest and (b) if
Employee is employed for at least two years after the Grant Date, the Employee shall earn 100% of the Units that
would otherwise have been determined to vest.
Death. If employment is terminated by the death of the Employee prior to the last day of the Performance Period,
the Units granted hereunder to the Employee shall be 100% vested at target. If employment is terminated by
death on or after the last day of the Performance Period, the number of Units determined to have been earned as
of the end of the Performance Period in accordance with Exhibit A shall vest. Vested Units shall be payable to the
Employee’s personal representative or to the person to whom the Units are transferred under the Employee’s last
will and testament or the applicable laws of descent and distribution within 60 days of the Employee's death.
Disability. If employment is terminated as a result of the Disability of the Employee prior to the last day of the
Performance Period, the Units granted hereunder to the Employee shall be 100% vested at target and payable
within 60 days of the Employee's Disability. If employment is terminated by Disability on or after the last day of
the Performance Period, the number of Units determined to have been earned as of the end of the Performance
Period in accordance with Exhibit A shall vest.
(e)
Change in Control. If a Change in Control occurs while the Employee continues to be employed, then the Units
shall vest as of the Date of the Change in Control to the extent provided below:
(i)
If the Change in Control occurs on or after the last day of the Performance Period, the number of Units
determined to have been earned as of the end of the Performance Period in accordance with Exhibit A
shall vest.
(ii)
(iii)
In the event of a Change in Control prior to the end of the Performance Period, the Units shall become
100% vested at target and the conditions described under Section 2 and Exhibit A shall cease to apply.
For purposes of this Award, the term "Change in Control" shall have the meaning set forth in Exhibit B.
No event described in Section 13.05 of the Plan shall cause the Units to become vested unless such event
is a Change in Control.
(f)
Forfeiture of Unvested Units. If employment is terminated prior to the Scheduled Vesting Date under
circumstances other than as set forth in Sections 2(a) through (e), all unvested Units shall immediately be
forfeited.
3.
Settlement of Units
After any Units vest pursuant to Appendix A or Section 2 of this Agreement, the Corporation shall, as soon as
practicable (but no later than October 15 of the year following the fiscal year in which such Units vest), cause to be
issued and delivered to the Employee, or to the Employee’s designated beneficiary or estate in the event of death, one
Share in payment and settlement of each vested Unit. Delivery of the Shares shall be effected by the electronic delivery
of the Shares to a designated brokerage account, shall be subject to satisfaction of withholding tax obligations as
provided in Section 4 and compliance with all applicable legal requirements as provided in Section 13.03 of the Plan, and
shall be in complete satisfaction and settlement of such vested Units. The Corporation will pay any original issue or
transfer taxes with respect to the issuance and delivery of the Shares to the Employee, and all fees and expenses incurred
by it in connection therewith.
4.
Withholding Taxes
The Corporation may require, as a condition to the issuance of a stock certificate, that the Employee concurrently pay to
the Corporation (either in cash or, at the request of Employee, but subject to such rules and regulations as the
Administrator may adopt from time to time, in Shares of Delivered Stock) the entire amount or a portion of any taxes
which the Corporation is required to withhold by reason of the vesting or settlement of the Units, in such amount as the
Administrator or the Corporation in its discretion may determine. If and to the extent that withholding of any federal,
state or local tax is required in connection with the vesting or settlement of the Units, the Employee may, subject to such
rules and regulations as the Corporation may adopt from time to time, elect to have the Corporation hold back from the
Shares to be issued upon the vesting or settlement of the Units, Shares, the Fair Market Value of which is to be applied to
the Employee's withholding obligations; provided that the Shares withheld may not have a Fair Market Value exceeding
the maximum statutory tax rates in the Employee’s applicable jurisdictions.
5.
No Dividends
No dividends will be paid or accrued on any Performance-based Restricted Stock Units prior to the issuance of Shares.
6.
No Shareholder Rights
The Units subject to this Award do not entitle the Employee to any rights of a shareholder of the Corporation’s Class A
Nonvoting Common Stock. The Employee will not have any of the rights of a shareholder of the Corporation in
connection with the grant of Units subject to this Agreement unless and until Shares are issued to the Employee upon
settlement of the Units as provided in Section 3.
7.
Transfer Restrictions
This Award is non-transferable and may not be assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the
Award shall immediately become null and void and the Performance-based Restricted Stock Units shall be forfeited.
8.
Confidentiality, Non-Solicitation and Non-Compete
As consideration for the grant of this Award, Employee agrees to, understands and acknowledges the following:
(a)
During Employee's employment with the Corporation and its Affiliates (the "Company"), the Company will
provide Employee with Confidential Information relating to the Company, its business and clients, the disclosure
or misuse of which would cause severe and irreparable harm to the Company. During Employee’s employment
with Company, and for a two (2)-year period thereafter, Employee agrees not to use or disclose Company’s
Confidential Information except as necessary in executing Employee’s duties for Company. Employee shall keep
Confidential Information constituting a trade secret under applicable law confidential for so long as such
information constitutes a trade secret (i.e., protection as to trade secrets shall not necessarily expire at the end of
the two (2)-year period). Upon the termination of Employee's employment with the Company for any reason,
Employee shall immediately return to the Company all documents and materials that contain or constitute
Confidential Information, in any form whatsoever, including but not limited to, all copies, abstracts, electronic
versions, and summaries thereof. As to any electronically stored copies of Confidential Information, Employee
shall contact their supervisor or Company’s General Counsel to discuss the proper method for returning such
items. Employee hereby consents and agrees that Company may access any of Employee’s personal computers
and other electronic storage devices (including personal phones) and any electronic storage accounts (such as
dropbox) so as to allow Company to ascertain the presence of Company’s Confidential Information and how such
information has been used by Employee and to remove any such items from such devices and accounts.
Employee further agrees that, without the written consent of the Chief Executive Officer of the Corporation or, in
the case of the Chief Executive Officer of the Corporation, without the written approval of the Board of Directors
of the Corporation, Employee will not disclose, use, copy or duplicate, or otherwise permit the use, disclosure,
copying or duplication of any Confidential Information of the Company, other than in connection with the
authorized activities conducted in the course of
Employee's employment with the Company. Employee agrees to take all reasonable steps and precautions to
prevent any unauthorized disclosure, use, copying or duplication of Confidential Information. For purposes of
this Agreement, Confidential Information means any and all financial, technical, commercial or other information
concerning the business and affairs of the Company that is confidential and proprietary to the Company,
including without limitation,
(i)
(ii)
(iii)
(iv)
(v)
(vi)
information relating to the Company’s past and existing customers and vendors and development of
prospective customers and vendors, including specific customer product requirements, pricing
arrangements, payments terms, customer lists and other similar information;
inventions, designs, methods, discoveries, works of authorship, creations, improvements or ideas
developed or otherwise produced, acquired or used by the Company;
the Company’s proprietary programs, processes or software, consisting of but not limited to, computer
programs in source or object code and all related documentation and training materials, including all
upgrades, updates, improvements, derivatives and modifications thereof and including programs and
documentation in incomplete stages of design or research and development;
the subject matter of the Company’s patents, design patents, copyrights, trade secrets, trademarks, service
marks, trade names, trade dress, manuals, operating instructions, training materials, and other industrial
property, including such information in incomplete stages of design or research and development; and
other confidential and proprietary information or documents relating to the Company’s products, business
and marketing plans and techniques, sales and distribution networks and any other information or
documents which the Company reasonably regards as being confidential.
Confidential Information does not include information which: (i) is already available to the public without
wrongful act or breach by Employee; (ii) becomes available to the public through no fault of Employee;
or (iii) is required to be disclosed pursuant to a court order or order of government authority, provided that
Employee promptly notifies Company of such request so Company may seek a protective order.
(b)
Post-Employment Customer Non-Solicitation Agreement. For one (1) year following Employee’s separation from
Company, Employee will not contact—or support others in contacting—customers of Company with whom
Employee had business contact during the last two (2) years of Employee’s employment with Company, for the
purpose of selling or providing products or services competitive with those offered by Company (“Competitive
Products”). “Competitive Products” shall mean products and services competitive with those products and
services for which Employee was responsible during the last two (2) years of Employee’s employment with
Company.
(c)
(d)
(e)
(f)
(g)
(h)
Post-Employment Non-Solicitation Agreement Based Upon Customer Knowledge. For one (1) year following
Employee’s separation from Company, Employee will not contact—or support others in contacting—customers
of Company about whom Employee possesses Confidential Information or for whom Employee supervised
others in serving during the last two (2) years of Employee’s employment with Company, for the purpose of
selling or providing products or services competitive with those offered by Company (“Competitive Products”).
“Competitive Products” shall mean products and services competitive with those products and services for which
Employee was responsible during the last two (2) years of Employee’s employment with Company.
Post-Employment Non-Compete Agreement. For one (1) year following Employee’s separation from Company,
Employee will not, directly or indirectly, within the United States, provide services similar to any of those
Employee provided to Company during the last two (2) years of Employee’s employment with Company to a
competitor of Company or a person or entity preparing to compete with Company. If Employee’s services to
Company at all times during their last two (2) years of employment were limited to particular subsidiaries or
affiliates (Tricor Direct, Inc., Precision Dynamics Corporation, etc.) or divisions (WPS, IDS, PDC, etc.), then the
term “competitor” as used in this paragraph will be limited to competitors of all such subsidiaries, affiliates, and
divisions.
Post-Employment Restriction on Working With Competitive Products. For one (1) year following Employee’s
separation from Company, Employee will not, work in the development, design, modification, improvement, or
creation of products or services competitive with any products or services with which Employee was involved in
the development, design, modification, improvement or creation for Company during the last two (2) years of
Employee’s employment.
Post-Employment Restriction on Advising Investors. For one (1) year following Employee’s separation from
Company, Employee will not, directly or indirectly, advise a private equity firm or other investor regarding
buying, investing in, or divesting from Company or any of its competitors.
Post-Employment Restriction on Soliciting Employees. For one (1) year following Employee’s separation from
Company, Employee will not solicit or encourage Key Employees of Company to provide services to a
competitor of Company or to otherwise terminate their relationship with Company. “Key Employees” are
employees or contractors whom Employee supervised, who supervised Employee, or with whom Employee had
significant business contact during Employee’s last year of employment with Company and who work for or
serve Company as an engineer, manager, executive, sales employee, professional, or director.
Duty of Loyalty and Related Obligations. Employee acknowledges and agrees that Employee owes Company a
duty of loyalty while employed by Company. During Employee’s employment with Company, Employee agrees
not to take action that will harm Company, such as, encouraging employees, vendors, suppliers, contractors, or
customers to terminate their relationships with Company, usurping a business opportunity from Company,
engaging in conduct that would injure Company’s reputation, providing services or assistance to a competitive
enterprise, or otherwise competing with Company.
(i)
(j)
(k)
(l)
(m)
(n)
Non-Disparagement and Social Media. Employee agrees not to disparage Company or any of its officers,
directors, or employees on social media, on any public platform, or to persons external to Company when such
comments have the potential to harm Company (i.e., making disparaging comments about Company to
distributors, customers, suppliers, etc.).
Other Business Relationships. Employee agrees, for a one (1)-year period following Employee’s separation from
Company, not to encourage or advise any vendors, suppliers, or others possessing a business relationship with
Company to terminate that relationship or to otherwise modify that relationship to Company’s detriment.
Employee acknowledges and agrees that compliance with this Section 8 is necessary to protect the Company, and
that a breach of any of this Section 8 will result in irreparable and continuing damage to the Company for which
there will be no adequate remedy at law. In the event of a breach of this Section 8, or any part thereof, the
Company, and its successors and assigns, shall be entitled to injunctive relief and to such other and further relief
as is proper under the circumstances. The Company shall institute and prosecute proceedings in any Court of
competent jurisdiction either in law or in equity to obtain damages for any such breach of this Section 8, or to
enjoin Employee from performing services in breach of Section 8(b) during the term of employment and for a
period of 12 months following the termination of employment. Employee hereby agrees to submit to the
jurisdiction of any Court of competent jurisdiction in any disputes that arise under this Agreement.
Employee further agrees that, in the event of a breach of this Section 8, the Corporation may elect to recover all
or any part of the value of any amounts previously paid or payable or any Shares (or the value of any Shares)
delivered or deliverable to Employee pursuant to any Company bonus program, this Agreement, and any other
Company plan or arrangement.
Employee agrees that the terms of this Section 8 shall survive the termination of Employee's employment with
the Company.
EMPLOYEE HAS READ THIS SECTION 8 AND AGREES THAT THE CONSIDERATION PROVIDED BY
THE CORPORATION IS FAIR AND REASONABLE AND FURTHER AGREES THAT GIVEN THE
IMPORTANCE TO THE COMPANY OF ITS CONFIDENTIAL AND PROPRIETARY INFORMATION, THE
POST-EMPLOYMENT RESTRICTIONS ON EMPLOYEE'S ACTIVITIES ARE LIKEWISE FAIR AND
REASONABLE.
9.
Clawback
This Award is subject to the terms of the Corporation's recoupment, clawback or similar policy as it may be in effect
from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances
require repayment or forfeiture of Awards or any Shares or other cash or property received with respect to the Awards
(including any value received from a disposition of the Shares acquired upon payment of the Awards).
10.
Binding Effect
This Agreement will be binding in all respects on heirs, representatives, successors and assigns of the Employee, and on
the successors and assigns of the Corporation.
11.
Provisions of Plan Controlling
This Award is subject in all respects to the provisions of the Plan. In the event of any conflict between any provisions of
this Award and the provisions of the Plan, the provisions of the Plan shall control, except to the extent the Plan permits
the Committee to modify the terms of an Award grant and has done so herein. Terms defined in the Plan where used
herein shall have the meanings as so defined. Employee acknowledges receipt of a copy of the Plan.
12. Wisconsin Contract
This Award has been granted in Wisconsin and shall be construed under the laws of that state.
13.
Severability
Wherever possible, each provision of this Award will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision will
be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or
the remaining provisions hereof. A court of competent jurisdiction is expressly authorized to modify overbroad
provisions so as to make them enforceable to the maximum extent permitted by law and is further authorized to strike
whole provisions that cannot be so modified.
14.
No Contract
Nothing in this Agreement is intended to change Employee’s status as an at-will employee. Employee understands that
Employee is an at-will employee and that Employee’s employment can be terminated at any time, with or without notice
or cause, by either Employee or Corporation.
15.
Notice of Immunity
In accordance with the Defend Trade Secrets Act, Employee is hereby advised that:
An individual shall not be held criminally or civilly liable under any federal or state trade secret law for the
disclosure of a trade secret that is made in confidence to a federal, state, or local government official or to an
attorney solely for the purpose of reporting or investigating a suspected violation of law. An individual shall
not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade
secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is
made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected
violation of law may disclose
the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if
the individual files any document containing the trade secret under seal; and does not disclose the trade secret,
except pursuant to court order.
IN WITNESS WHEREOF, the Corporation has granted this Award as of the day and year first above written.
BRADY CORPORATION
By: J. MICHAEL NAUMAN
Name: J. Michael Nauman
Its: President and Chief Executive Officer
EXHIBIT A
Performance Goals
EXHIBIT B
Change in Control Definition
A “Change in Control” means the occurrence of any one of the following events:
(a)
A direct or indirect acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)
(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of voting securities of the Company where such acquisition causes any such
Person to own more than 50% of the combined voting power of the Company’s voting securities entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following shall not be deemed
to result in a Change in Control, (i) any acquisition or holding by the members of the family of William H. Brady Jr. and their
descendants or trusts for their benefit, and the William H. Brady III Living Trust, (ii) any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself
acquired directly from the Company, (iii) any acquisition by the Company or a wholly owned Subsidiary, (iv) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company,
(v) any underwriter temporarily holding securities pursuant to an offering of such securities, or (vi) any acquisition by any entity
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or
(b) A change in the composition of the Board such that the individuals who, as of August 1, 2016, constitute the
Board (the “Incumbent Board”) cease for any reason to constitute a majority of the Board; provided, however, that any
individual who becomes a member of the Board subsequent to August 1, 2016, whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of a majority of those individuals then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the
Board shall not be so considered as a member of the Incumbent Board; provided, further, however, that a director who has been
approved by members of the family of William H. Brady Jr. and their descendants or trusts for their benefit, and the William H.
Brady III Living Trust while they beneficially own collectively more than 50% of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the election of directors shall be deemed to be an
Incumbent Director; or
(c)
Approval by the shareholders of the Company and the subsequent consummation of a reorganization, merger or
consolidation (a “Business Combination”), in each case, unless, following such Business Combination: (i) all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of the total number of outstanding shares of both
Class A Common Stock and Class B Common Stock (the “Outstanding Company Common Stock”) and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns
the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries); (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly,
fifty percent (50%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for such Business Combination, or
(d) Approval by the shareholders of the Company and the subsequent consummation of
(i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets
of the Company, unless the sale or other disposition is to a corporation, with respect to which following such sale or other
disposition, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the total
number of outstanding shares of both Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition beneficially own, directly or indirectly, more than fifty percent (50%) of,
respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of such other corporation, (B) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation) beneficially owns, directly or indirectly, fifty percent (50%)
or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the sale or other
disposition, and (C) at least a majority of the members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or
other disposition of assets of the Company or were elected, appointed or nominated by the Board.
Notwithstanding the foregoing, for purposes of any Award subject to Section 409A of the Code, no Change in Control
shall deemed to have occurred upon an event described in this definition unless the event constitutes a change in ownership of
the Company, a change in effective control of the Company, a change in ownership of a substantial portion of the Company’s
assets, each under Section 409A of the Code or otherwise constitutes a change on control within the meaning of Section 409A of
the Code; provided, however, if the Company treats an event as a Change in Control that does not meet the requirements of
Section 409A of the Code, such Award shall be paid when it would otherwise have been paid but for the Change in Control.
BRADY CORPORATION
ADDENDUM TO THE BRADY CORPORATION 2017 OMNIBUS INCENTIVE PLAN
FOR PARTICIPANTS IN FRANCE
STOCK OPTIONS
EXHIBIT 10.35
SECTION I. INTRODUCTION
This Addendum contains the terms of Stock Options granted under the Brady Corporation 2017 Omnibus Incentive Plan (“the Plan”) to Eligible
Participants in France.
The rules contained in the Plan will apply to Options granted under this Addendum unless specifically stated otherwise.
This Addendum applies to Awards made to Eligible Participants who are working in France or are a French tax resident as defined by French tax legislation
at Grant Date. Nevertheless, the Administrator may also consider applying the Addendum to Awards made to mobile employees moving to France after the
Grant Date.
The French Addendum contains the terms of “Nonqualified Stock Option Awards” or “Incentive Stock Options” which refer to Award of Stock Options
granted in accordance with the Plan as amended and restated in the Addendum.
For the avoidance of doubt, these rules have been set in order to comply with the meaning of:
– Articles L 225-177 to L 225-186-1 of the French Commercial Code for legal purposes;
– Article 80 bis of the French General Tax Code for tax purposes;
– Articles L242-1, II, 6° and L.137-13 of the French Social Security Code for social security purposes.
Consequently, the terms “Stock Options”, “Options”, “Nonqualified Stock Options”, “Incentive Stock Options” and “Awards” herein shall be construed
and interpreted accordingly.
The present French Addendum is not applicable to Restricted Stock Units, Restricted Stock, Stock Appreciation Rights, Unrestricted Stock and Cash
Incentive Awards.
Rules governing Restricted Stock Units are subject to a different Addendum governing Free Shares Awards made to Participants in France.
The terms and conditions of this Addendum are identical to the Plan except as provided below. They have to be read in conjunction with the Plan rules. In
the event of any conflict between the terms and conditions of this Addendum and the Plan, the provisions of this Addendum shall prevail for the grants
made hereunder.
SECTION II. DEFINITIONS
1. “Award”, notwithstanding any other provision of the plan, the following provision is added in Section II, 2.04 of the Plan:
Notwithstanding any provision of the Plan, “Award” means a grant of Stock Options subject to the restrictions stated in the Plan rules for Options as
amended by this Addendum. Awards made under this Addendum cannot therefore take the form of Stock Appreciation Right, Restricted Stock, Restricted
Stock Units, Unrestricted Stock, or Cash incentive Awards.
2. “Eligible Individual”, notwithstanding any other provision of the plan, the following provisions are added in Section II, 2.13 and Paragraph 5.01
of the Plan:
Notwithstanding any provision of the Plan, the “Eligible Participants” in France to whom Stock Options may be granted according to Section VI of the
Plan are defined as follows:
a. Stock Options may only be granted to employees or Corporate Officers in the US and to the following Corporate Officers in France: “Président du
Conseil d’Administration”, “Directeur Général”, “Directeurs Généraux délégués”,
Members of the “Directoire”, “Gérant” of the “Société par Actions”, “Président d’une Société par Actions simplifiée” of the granting Corporation
or of any Parent or Subsidiary of the granting Corporation.
Participants who are eligible to be granted Stock Options shall consist exclusively of employees with a valid employment contract (“contrat de travail”) at
Grant Date, and/or Corporate Officers with or without an employment contract.
No Stock Options can be granted under this Addendum to non-employee members of the Board, consultants and advisors.
b. The Eligible Participants to receive Stock Options must be employed / appointed by the Corporation or within the group, i.e.:
–
–
–
Those companies in which the Corporation holds at least 10% of the voting rights and/or equity directly or indirectly;
Those companies which hold at least 10% of the voting rights and/or equity directly or indirectly in the Corporation;
Those companies in which 50% of the equity or voting rights are held, directly or indirectly, by a Corporation which itself holds at least
50% of the Corporation.
c. Stock Options may not be granted to employees or Corporate Officers holding more than 10% of the issued share capital of the Corporation or any
holder who, after having received Shares under this Addendum, would hold more than 10% of the issued share capital in the Corporation.
3. “Stock Options”, notwithstanding any other provision of the plan, the following provision is added in Section II, 2.33 of the Plan:
Notwithstanding any provision of the Plan, Stock Options granted to employee and/or Corporate Officers in France are also governed by a specific
Addendum. Options granted under Section 2, 2.33 of the Plan shall be designated as Qualifying Stock Options in France, within the meaning of the
conditions set forth in the French commercial code (articles L 225-177 to L 225-186-1 of the French Commercial Code).
The purpose of this Addendum is to ensure that Awards of Stock Options over the Common Stock of Brady Corporation are in conformity with the
applicable legislation.
SECTION III. SHARES SUBJECT TO AWARD
1. “Shares subject to Stock Options”, notwithstanding any other provision of the plan, the following provisions are added in Paragraph 3.01 of the
Plan:
Notwithstanding any provision of the Plan, shares delivered upon exercise of the Options in accordance with the Addendum are existing shares purchased
or newly issued shares by the Corporation.
In the case of Stock Options to purchase previously issued Shares, the Corporation shall procure sufficient Shares available for transfer to satisfy the
exercise of such Stock Options, at least one day prior to the beneficiary having the right to Exercise the Stock Options.
The shares should be held in an identifiable account.
2. “Award limitations“, notwithstanding any other provision of the plan, the following provisions are added in Paragraph 3.01 of the Plan:
Notwithstanding any provision of the Plan, under French legal provisions, two situations shall be distinguished with respect to options:
– Options granted over market repurchased shares: the total number of options granted giving the right to purchase existing shares shall not exceed
10 % of the Corporation’s issued share capital upon Grant Date. Outstanding Awards shall be treated as Shares in order to determine the threshold
of 10% of the granting Company’s share capital. In addition, existing shares shall be purchased by the Company at least one day before the
applicable vesting date.
– Options granted over newly issued shares: the number of options granted giving the right to subscribe newly issued shares shall not exceed one
third of the Corporation’s issued share capital upon grant date taking into account options resulting from past grants which have not been
exercised.
3. “Fixed option price”, notwithstanding any other provision of the plan, the following provisions are added in Paragraph 3.02 of the Plan:
Notwithstanding any provision of the Plan and except for adjustments made pursuant to §4 below, the Option Exercise Price under any outstanding Option
granted under the Plan may not be decreased after the Date of Grant nor may any outstanding Option granted under the Plan be surrendered to the
Corporation as consideration for the grant of a new Option with a lower Exercise Price.
4. “Changes in Shares”, notwithstanding any other provision of the plan, the following provisions are added in Paragraph 3.02 of the Plan:
a) Equity Restructuring - Notwithstanding any provision of the Plan, this Section applies to French Eligible Participants only in accordance with the
dispositions of article L 225-181 of the French Commercial Code.
Where the Corporation is subject to an operation, and such operation results in a Share exchange without cash payment, against the Shares of another
Corporation, upon discretionary decision of the Committee, Shares obtained upon exercise of Options will be entirely exchanged for new shares, and the
period of time since Option Grant on new shares will be considered as since Option Grant on original shares. The operations referred above are the
followings:
a.
b.
c.
d.
e.
public offer (with the exception of the Take Over Bid)
a merger,
a spin-off,
the regrouping or division,
an employee buy-out further to article 220 of the French Tax Code.
The preceding dispositions are nevertheless, in the cases of mergers or spin-offs, subject to the decision of the Extraordinary Shareholders meeting or
meetings deciding upon the merger or the spin-off, who must approve the Share exchange, either directly or through the merger or spin-off plan.
(b) Variation of Share Capital - The Option Exercise Price is determined by the Committee at the time of grant and cannot be adjusted during the Stock
Option life.
However, if the Corporation realizes one of the capital operations described in article L 225-181 of the French Commercial Code, the Committee adjusts
the number and/or the price of the Stock Options granted to the beneficiaries, so that their economic rights are maintained. The transactions defined in
articles L 225-181 of the French commercial code are the following:
a. A capital write-off or reduction,
b. A change to the appropriation of profits,
c. A modification of the dividing up of profits,
d. A free allotment of share,
e. A capitalization by incorporation of reserves, earnings or share premiums;
f. A distribution of reserves in cash or in shares;
g. Any issue of capital securities or securities giving entitlement to an allotment of capital securities conferring a subscription right reserved for
shareholders.
In these specific circumstances, the Committee must adjust the exercise price or the number of Shares that the total exercise price remains constant (in
value) throughout the entire life of the Options.
Plan Adjustment of Shares:
Accordingly, the Corporation can temporarily suspend the right to exercise Options in order to adjust the Option Exercise Price and/or number of Options
in order to ensure that the total of Option Exercise Price remains constant and so that the benefit provided at the time of Option Grant remains entirely
constant (in value) throughout the life of the Option.
Upon deciding to proceed to such adjustment, the Committee shall take all the necessary steps to determine the impact of such adjustment on the income
tax and social security treatment of Awards made to French Participants and whenever possible, to maintain the tax neutrality of the operation on the
treatment of the Award. The Committee shall accordingly inform the Participant concerned.
SECTION IV. ADMINISTRATION
This Addendum does not amend this Section.
SECTION V. PARTICIPATION
“Eligibility”, in Paragraph 5.01 of the Plan:
An amendment to this Section is included in Section II Paragraph 2 of this addendum.
SECTION VI. STOCK OPTION
1. “Grant Price”, notwithstanding any other provision of the plan, the following provisions are added in Paragraph 6.03 of the Plan:
Notwithstanding any provision of the Plan, the Option Exercise Price or the Exercise Price means the amount payable by the Participant upon the date of
exercise. In accordance with articles L.225-177 and L.225-179 of the French Commercial Code, the Exercise Price payable per Option upon the exercise
date shall be fixed by the Committee on the Date of Grant. In no event shall the exercise price per Option be less than the greatest of:
– With respect to Options granted over market repurchased shares/treasury shares: the higher of either 80% of the average opening price of the
shares of Common Stock during the twenty (20) trading days preceding the grant date or 80% of the average purchase price paid by the Company
for such shares of Common Stock (if such shares are already held at grant).
– With respect to Options granted over newly issued shares: 80% of the average opening price of the shares of Common Stock during the twenty
(20) trading days preceding the date of grant.
This Exercise Price cannot be adjusted during the Stock Options life.
2. “Time restrictions for the Award of Options”, notwithstanding any other provision of the plan, the following provisions are added in Paragraph
6.04 of the Plan:
Notwithstanding any provision of the Plan, no Stock Options Awards can be granted under the present Addendum (also called “frozen windows”):
– Before the end of a period of twenty (20) trading days following a distribution of dividend (being the date equivalent to the detachment of a
coupon giving right to a dividend / i.e. record date) or the agreement to an increase in issued share capital by the shareholders of the Company;
– Within ten trading days preceding the date on which the annual and interim consolidated financial statements or, failing that, the annual and half-
yearly financial statements are made public, as well as the date of publication;
– Within the period between the date on which the company's corporate bodies become aware of inside information and the date on which this
information is made public.
The strict observance of French Grant Date restrictions may not be required where the domestic legislation applicable to the Corporation, and/or the
Corporation internal rules provide similar restriction periods relating to grant of Options and consequently, offer equivalent guarantees as the French
Commercial Code provisions.
SECTION VII. STOCK APPRECIATION RIGHTS
This Addendum cancels this Section.
SECTION VIII. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
This Addendum cancels this Section.
SECTION IX. UNRESTRICTED STOCK
This Addendum cancels this Section.
SECTION X. CASH INCENTIVE AWARDS
This Addendum cancels this Section.
SECTION XI. PERFORMANCE-BASED AWARDS
This Addendum cancels this Section.
SECTION XII. WITHHOLDING TAXES
“Withholding taxes”, notwithstanding any other provision of the plan, it is added in Paragraph 12.01 of the Plan:
(a) “Mandatory social charges due on Awards. Notwithstanding any provision of the Plan, the French employer or any other entity of the
group or the plan administrator shall be responsible for withholding employee’s social security charges and remit both employer’s and
employee’s social security contribution, when due in accordance with the provisions of the French Social Security Code, based on the
applicable legislation at date of sale of shares.
However, in such event, the Participant remains responsible for bearing employee social charges exclusively and accepts any
corresponding withholding from his/her proceeds and/or any further settlement required by the employer in this respect.
The Employer remains responsible for bearing the Employer mandatory social security charges.
(b) Mandatory French income tax withholding. Subject to a change of legislation and/or regulations:
–
–
The Participant shall bear income tax, employee social charges or any employee taxes which are due,
The Participant expressly and irrevocably agrees:
•
•
to communicate any personal information necessary to comply with the reporting requirements, related to
income tax or social charges pursuant to the law,
that a withholding of Employee social security contributions or income tax at source be withheld on the Share
sale proceeds, if necessary.
Failing that and on the express request of the Company or one of its Subsidiaries, the Participant can also be required to pay the
amount of employee’s contributions and/or income tax and/or any other tax of any kind owed to the Company or to the Subsidiary
concerned, which the Participant expressly undertakes to do.
The Participant expressly and irrevocably agrees that a fraction of vested shares may be sold by the company or one of its subsidiary
to cover employee income tax or social tax liabilities or that any other method be implemented in case a withholding would be due,
such as withdrawing of shares.
If the Participant has exercised a professional activity in France prior to the date of exercise, a withholding tax will be assessed on the
portion of the exercise gain related to the French source activity realized by the non-French tax resident Participant, following of
Article 182A of the French tax code.”
As from January 1, 2019, a withholding tax at source is implemented in France for French tax resident beneficiaries. Since the Stock-
options granted under the French addendum to the Brady Corporation 2017 Omnibus Incentive Plan are qualified, the stock-option
exercise gain should be out of the scope of this withholding tax. However, in case the stock-options would become disqualifying, the
employer will be required to withhold income tax on the stock-option exercise gain via the employee payslip and remit it over to the
French Tax Authorities.”
SECTION XIII. GENERAL
1. “Participant’s Death”, notwithstanding any other provision of the plan, it is added in Paragraph 13.04 (a & b) of the Plan:
Notwithstanding any provision of the Plan, if an Eligible Participant dies while an Employee by the Corporation, then the Eligible Participant’s personal
representative in accordance with the laws of decent shall have the right to exercise the unexercised Stock Options and to transfer of underlying shares in
the period of six months following the death of an Eligible Participant.
2. “Restrictions for Corporate Officers”, notwithstanding any other provision of the plan, it is added in Paragraph 13.04 (d) of the Plan:
Notwithstanding any provision of the Plan, the Committee upon Grant of Awards governed by this Addendum to, Eligible Participants, due in respect of
their capacity of Corporate Officers of Brady Corporation, may either decide:
–
–
that no Option can be exercised during their mandate prior to their removal from office (“révocation en qualité de mandataire social”); or,
to determine the amount/percentage of Shares of Common Stock acquired upon Option’s exercise which has to be held by the corporate officers
until removal from office (“révocation en qualité de mandataire social”) and cannot consequently be sold for the duration of their mandate.
The renewal of mandate does not constitute a “removal from office” (“révocation en qualité de mandataire social”). A removal from office must be valid
pursuant to French laws and regulations.
In case of Participant’s death
Notwithstanding any provision of the Plan and the present Addendum to the contrary, in the event of the Participant’s death, the heirs shall not be subject to
the Restriction for Corporate Officers. His/her heirs may request, within a period of time not exceeding six (6) months from the date of death, the exercise
of all options and the transfer of underlying shares.
3. Clawback, notwithstanding any other provision of the plan, it is added in Section 13.15 of the Plan:
Notwithstanding the provisions Section XIII, 13.15 of the Plan, the Clawback clause shall not apply to Vested French Qualified Awards, unless
subsequently permitted under French Labor Law and the rules of the Plan will be construed accordingly.
4. “Collection, Treatment and Storage of Data” is added in Section 13.16 of the Plan:
Each Participant must expressly authorize the collection, treatment and storage of personal data provided by them to any Group entity or third party service
provider, for any purpose related to the implementation of the French Addendum, in accordance with the European General Data Protection Regulation
("GDPR"), which came into force on May 25, 2018. This includes, but is not limited to:
– Management and maintenance of the Participant’s account;
– Communication of information to Group entities, registrars holders, financial intermediaries or third party administrators of the Plan; and,
– Communication of information to future owners of any member of Group or a business thereof in which the Participant works.
BRADY CORPORATION
ADDENDUM TO THE BRADY CORPORATION 2017 OMNIBUS INCENTIVE PLAN
FOR PARTICIPANTS IN FRANCE
QUALIFIED RESTRICTED STOCK UNITS
EXHIBIT 10.36
SECTION I. INTRODUCTION
This Addendum modifies the terms and conditions of the Brady Corporation 2017 Omnibus Incentive (the “Plan”) with respect to the Awards which are
intended to be Qualified Restricted Stocks Units and are designated as such in the Restricted Stocks Units Agreements.
The purpose of this Addendum is to ensure that Qualified Restricted Stocks Units Awards are in compliance with the applicable legislation.
The terms and conditions of this Addendum are identical to the Plan except as provided below. They have to be read in conjunction with the Plan rules. In
the event of any conflict between the terms and conditions of this Addendum and the Plan, the provisions of this Addendum shall prevail for the grants
made hereunder.
This Addendum applies to awards granted to Eligible Participants who are working in France or French tax resident as defined by French tax legislation at
Grant Date. Nevertheless, the Administrator may also consider applying the Addendum to Awards made to mobile employees moving to France after Grant
Date.
SECTION II. DEFINITIONS
2.1 “Award”, notwithstanding any other provision of the plan, the following provision is added in Section 2, (2.04) of the Plan:
Notwithstanding any provision of the Plan, “Award” means a grant of Qualified Restricted Stock Units subject to the restrictions stated in the Plan rules for
Restricted Stock Units as amended by this Addendum. Awards made under this Addendum cannot therefore take the form of Stock Option, Stock
Appreciation Right, Restricted Stock, Unrestricted Stock or Cash incentive Awards.
2.2 “Eligible Individual”, notwithstanding any other provision of the plan, the following provisions are added in Section 2 (2.13) and Paragraph
5.01 of the Plan:
Notwithstanding any provision of the Plan, the Eligible Participants in France to whom Qualified Restricted Stock Units may be granted according to
Section 2 Paragraph 2.13 and Section V Paragraph 5.01 of the Plan are defined, in articles L.225-197-1 to L.225-197-6 of the French Commercial Code, as
follows:
a. Qualified Restricted Stock Units may only be granted to employees or Corporate Officers in the US and to the following corporate officers in
France: “Président du Conseil d’Administration”, “Directeur Général”, “Directeurs Généraux délégués”, Members of the “Directoire”, “Gérant” of
the “Société par actions”, President of a Simplified Joint Stock Company (“Président d’une Société par Actions Simplifiée”) of the granting
Corporation or of any Parent or Subsidiary of the granting Corporation.
b. The Eligible Participants to receive Qualified Restricted Stock Units must be employed/appointed by the Corporation or within the group, i.e.:
–
–
Those companies in which the Corporation holds at least 10% of the voting rights and/or equity directly or indirectly;
Those companies which hold at least 10% of the voting rights and/or equity directly or indirectly in the Corporation;
–
at least 50% of the Corporation.
Those companies in which 50% of the equity or voting rights are held, directly or indirectly, by a Corporation which itself holds
c. Qualified Restricted Stock Units may not be granted to employees or officers holding more than 10% of the issued share capital of the Corporation
or any holder who, after having received shares under this Addendum, would hold more than 10% of the issued share capital in the Corporation.
2.3 “Restricted Stock Unit”: notwithstanding any other provision of the plan, the following provision is added in Section II (2.30) of the Plan:
This Restricted Stock Unit consists in a conditional right to receive Shares (newly issued or market purchased or Treasury Shares) at no cost to the
Participant, which is designated as a French Qualified Award.
Notwithstanding any provision of the Plan to the contrary, Awards made under this French Addendum must be exclusively settled in Shares.
2.4 “Date of Grant”: notwithstanding any other provision of the plan, the following provision is added in Section 2 of the Plan (2.17):
Date of Grant means the date upon which the Board or the duly appointed Committee approves the grant to an Eligible Participant of Qualified Share Units
and specifies the exact terms and conditions of such awards.
2.5 In Section 2 of the Plan, the following definitions have been added:
Qualified Restricted Share Units mean a qualified restricted share units award within the meaning of:
• Articles L.225-197-1 to L.225-197-6 of the French Commercial Code for legal purposes;
• Article 80 quaterdecies and 200 A 3. of the French General Tax Code for tax purposes; and,
• Articles L.242-1, II, 6°, L.137-13 and L.137-14 of the French Social Security Code for social security purposes.
Those Restricted Stocks Units will be granted in conformity with the Addendum and the French legislation. It is a conditional right to receive Shares in the
future, subject to satisfaction of continued employment, and granted pursuant to the Plan.
That means that the Participant has no shareholder rights, including the right to vote or to receive dividends, until the Restricted Stocks Unit is duly vested
and the legal ownership of shares is transferred to the Participant.
2.6 In Section 2 of the Plan, the following definition has been added:
“Date of vesting” has the meaning contained in section VIII. 1 of the present addendum.
SECTION III. SHARES SUBJECT TO AWARDS
“Available Shares”, notwithstanding any other provision of the plan, the following provisions are added in Paragraph 3.01 of the Plan:
Shares of the Corporation to be delivered under the Plan may be market repurchased shares (already existing shares) or newly issued shares.
For award granted over already existing shares, corresponding shares shall be repurchased by the Corporation at least one day before the applicable Vesting
Date.
No qualified restricted shares units shall be granted pursuant to this Addendum, which would result in the total number of shares of common stock to be
delivered to exceed ten percent (10%) of Corporation’s issued share capital upon each Grant Date.
Respect to this limit shall be appreciated on each Grant date. Both units that have not lapsed prior the end of the vesting period and shares that are no longer
subject to holding period are excluded when calculating this limit.
SECTION IV. ADMINISTRATION
This Addendum does not amend this section in Paragraph 4.01 of the Plan “Administration”:
For purposes of the power to grant Awards to directors, the Administrator shall consist of the entire Board, which may delegate any or all of its authority to
a committee of the Board.
SECTION V. PARTICIPATION
“Eligibility”, in Paragraph 5.01 of the Plan:
An amendment to this Section is included in Section II Paragraph 2.2 of this addendum.
SECTION VI. STOCK OPTIONS
This Addendum cancels this Section.
SECTION VII. STOCK APPRECIATION RIGHTS
This Addendum cancels this Section.
SECTION VIII. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
1. “Vesting schedule of Restricted Stock Units”, notwithstanding any other provision of the plan, it is added in Section 8.01 of the Plan:
Upon Vesting Date the Participant’s Award becomes unconditional and units are converted into shares. The original vesting schedule contained in section
VIII. 8.01 is maintained:
Years After Date of Grant
Less than 1
At least 1 but less than 2
At least 2 but less than 3
3 or more
Cumulative Percentage of Shares
0%
33-1/3%
66-2/3%
100%
In accordance with French legislation L 225-197-1 a share sale restriction is created for:
–
–
units vested at least 1 but but less than 2 years after Date of Grant;
any units, that should not have vested prior the 2 years after Date of Grant, that would vest prior the 2 years due to exceptional Board decision.
This share sale restriction applies from the date of vesting and expires at the latest on the 2nd year after the Date of Grant.
2. “Form and timing of payment of Restricted Stock Units”, notwithstanding any other provision of the plan, it is added in Section 8.03 of the
Plan:
Shares acquired pursuant to a Qualified Restricted Stock Units Awards shall not be sold during the following periods:
– within 30 calendar days before the announcement of an interim financial report or year-end report that the Company is required to make public;
–
For members of the Board of Directors or Supervisory Board, members of the Management Board or acting as Chief Executive Officer or Deputy
Chief Executive Officer and employees with knowledge of inside information that has not been made public.
SECTION IX. UNRESTRICTED STOCK
This Addendum cancels this Section.
SECTION X. CASH INCENTIVE AWARDS
This Addendum cancels this Section.
SECTION XI. PERFORMANCE-BASED AWARDS
This Addendum cancels this Section.
SECTION XII. WITHHOLDING TAXES
“Withholding taxes”, notwithstanding any other provision of the plan, it is added in Paragraph 12.01 of the Plan:
(a) “Mandatory social charges due on Awards. Notwithstanding any provision of the Plan, the French employer or any other entity of the
group or the plan administrator shall be responsible for withholding employee’s social security charges and remit both employer’s and
employee’s social security contribution, when due in accordance with the provisions of the French Social Security Code, based on the
applicable legislation at date of sale of shares.
However, in such event, the Participant remains responsible for bearing employee social charges exclusively and accepts any
corresponding withholding from his/her proceeds and/or any further settlement required by the employer in this respect.
The Employer remains responsible for bearing the Employer mandatory social security charges.
(b) Mandatory French income tax withholding. Subject to a change of legislation and/or regulations:
–
–
The Participant shall bear income tax, employee social charges or any employee taxes which are due,
The Participant expressly and irrevocably agrees:
•
•
to communicate any personal information necessary to comply with the reporting requirements, related to
income tax or social charges pursuant to the law,
that a withholding of Employee social security contributions or income tax at source be withheld on the Share
sale proceeds, if necessary.
Failing that and on the express request of the Company or one of its Subsidiaries, the Participant can also be required to pay the
amount of employee’s contributions and/or income tax and/or any other tax of any kind owed to the Company or to the Subsidiary
concerned, which the Participant expressly undertakes to do.
The Participant expressly and irrevocably agrees that a fraction of vested shares may be sold by the company or one of its subsidiary
to cover employee income tax or social tax liabilities or that any other method be implemented in case a withholding would be due,
such as withdrawing of shares.
If the Participant has exercised a professional activity in France prior to the date of exercise, a withholding tax will be assessed on the
portion of the exercise gain related to the French source activity realized by the non-French tax resident Participant, following of
Article 182A of the French tax code.
As from January 1, 2019, a withholding tax at source is implemented in France for French tax resident beneficiaries. Since the Stock-
options granted under the French addendum to the Brady Corporation 2017 Omnibus Incentive Plan are qualified, the stock-option
exercise gain should be out of the scope of this withholding tax. However, in case the stock-options would become disqualifying, the
employer will be required to withhold income tax on the stock-option exercise gain via the employee payslip and remit it over to the
French Tax Authorities.
SECTION XIII. GENERAL
1. “Participant’s Death” and “disability”, notwithstanding any other provision of the plan, it is added in Paragraph 13.04 (f) of the Plan:
Notwithstanding any provision of the Plan, if an Eligible Participant dies while an Employee by the Corporation, then the Eligible Participant’s personal
representative in accordance with the laws of decent shall have the right to request ownership of the Restricted stock Units within 6 months following this
event. They can sell the shares immediately.
If a share sale restriction period is provided, in case of disability of the participant corresponding to the 2nd and 3rd categories of article L.341-4 of the
French Social Security Code, immediate sale of shares is possible without losing the benefit of the qualified treatment.
2. “Restrictions for Corporate Officers”, notwithstanding any other provision of the plan, it is added in Paragraph 13.04 (d) of the Plan:
Notwithstanding any provision of the Plan, the Committee upon Grant of Awards governed by this Addendum to, Eligible Participants, due in respect of
their capacity of Corporate Officers of Brady Corporation, may either decide:
–
–
that no shares shall be sold by the Corporate officers during their mandate prior to their removal from office (“révocation en qualité de mandataire
social”); or,
to determine the amount/percentage of Shares of Common Stock which have to be held by the corporate officers until removal from office
(“révocation en qualité de mandataire social”) and cannot consequently be sold for the duration of their mandate.
These restrictions are not applicable for Restricted Stocks Units made to corporate officers of any French Affiliates of the issuing parent Company. In the
reverse, these restrictions are applicable to the Corporate officers of the issuing parent Company.
The renewal of mandate does not constitute a “removal from office” (“révocation en qualité de mandataire social”). A removal from office must be valid
pursuant to French laws and regulations.
Notwithstanding any provision of the Plan, in the event of the Participant’s death, the heirs shall not be subject to the Restriction for Corporate Officers.
His/her heirs may request, within a period of time not exceeding six (6) months from the date of death, the vesting and the transfer of all shares.
3. “Merger, Consolidation, or Reorganization” notwithstanding any other provision of the plan, it is added in Section 13.05 of the Plan:
Notwithstanding any provision of the Plan, the compensation Committee, duly authorized by the Board on its own discretion, shall determine whether
exchange of Awards for new Restricted Stocks Units / Free shares Awards to eligible beneficiaries/participants is appropriate.
In the event of the exchange of shares without cash payment resulting from a merger occurring before the acquisition/ vesting date and in the event of share
exchange resulting from a public offer, a division or regrouping of shares during the share sale restriction period, the provisions relating to
acquisition/vesting, the share sale restriction, if any, shall remain applicable.
4. “Claw-back”, notwithstanding any other provision of the plan, it is added in Section 13.15 of the Plan:
Notwithstanding the provisions of Section XIII, 13.15, the Clawback clause shall not apply to Vested French Qualified Awards, unless subsequently
permitted under French Labor Law and the rules of the Plan will be construed accordingly.
5. “Collection, Treatment and Storage of Data” is added in Section 13.16 of the Plan:
Each Participant must expressly authorize the collection, treatment and storage of personal data provided by them to any Group entity or third party service
provider, for any purpose related to the implementation of the French Addendum, in accordance with the European General Data Protection Regulation
("GDPR"), which came into force on May 25, 2018. This includes, but is not limited to:
– Management and maintenance of the Participant’s account;
– Communication of information to Group entities, registrars holders, financial intermediaries or third party administrators of the Plan; and,
– Communication of information to future owners of any member of Group or a business thereof in which the Participant works.
EMPLOYMENT CONTRACT
TO UNDETERMINED DURATION
EXHIBIT 10.56
ENTER
BRADY GROUPE S.A.S., a public limited company, registered in the Trade and Companies Register of Roubaix - Tourcoing whose head office is located
in RONCQ (59436), represented by Mr. Thomas FELMER, in his capacity as Senior VP & CFO, Brady Corporation, (Hereinafter referred to as the
"Company"), firstly,
AND
Mr. Pascal DEMAN, born May 09, 1965 in Oostende (Belgium), of Belgium nationality.
(Hereinafter called "the Employee")
On the other hand.
It is previously recalled that this employment contract, like any employment contract, must favor the permanent adaptation of the needs of the
entrepreneurial aspirations of its collaborators.
It is for this reason that particular care is taken in this agreement to define the substantive clauses and the naturally evolving provisions.
It is specified that this contract is governed by French law.
BEFORE IT HAS BEEN EXPOSED, IT IS AGREED AS FOLLOWS:
Article 1: Object
From September 4, 2014, Mr. Pascal Deman will exercise the functions of Vice President Marketing EMEA, Executive status, level X, step 1.
The employment contract is concluded for an indefinite period.
The Employment Contract will be subject to the provisions of the Collective Agreement applicable to the Company, that is, on the date of signature of these
presents, the National Collective Agreement Wholesale stores.
The employee declares to be free of any commitment and specifies in particular that he is not subject to any non-competition clause resulting from a
previous contract, such as to hinder presented.
Article 2 - Powers and Functions
In his capacity as Vice President Marketing EMEA, the employee will be responsible for the missions entrusted to him by the managers of the Brady
Group, to whom he will have to report on his activity.
The detail of the functions of the Salary necessarily evolving because related to the subjects of the company, will be specified to him as much as necessary
by his hierarchical superior.
These functions may be subject to any modifications deemed useful by the General Management, which will be notified to it by any means of
communication, while respecting the substantial nature of the qualification and the function.
Article 3 - Place of Work and Mobility
1. The usual place of work of the Employee is fixed at the following address:
BRADY GROUPE S.A.S., 45 Avenue de l'Europe, 59436 RONCQ Cedex, France
In the event of needs justified in particular by the nature of its functions, the evolution of its activities or its organization and more generally for the good
running of the company, the Company reserves the right to temporarily or definitively transfer the Employee:
In any of its current or future establishments located in France; Inside the Europe geographic perimeter.
In the event of implementation of this clause, the employee will be informed twelve weeks before his effective assignment in his new place of work.
It is also expressly agreed that such a modification of the workplace does not constitute a modification of his employment contract.
The nature of the Salary's duties implies the need for national and international travel.
2. More particularly, the parties acknowledge that the possibility of transferring the employee to Belgium is more likely, as these have already provided for
contractual modifications as a result.
For this reason, the parties agree that the annexed beige law contract (Arbeidsovereenkomst van onbepaalde duur voor bedienden) to this contract
constitutes mutual commitment for any contractual relationship resulting from a transfer within an entity of the Brady group in Belgium.
Article 4 - Trial Period and Seniority
This contract will not give rise to any trial period.
Indeed, he specifies that the Employee having already exerted many years within Brady SAS, his seniority will be resumed from the date of his first hiring,
namely January 8, 1998. The parties agree, however, that the period from July 31, 2012 to February 1, 2014 during which the employee was in the service
of another employer will be excluded from this seniority.
Article 5 - Duration of Work
Article 2 of Title 2 of the agreement of January 30, 2006 relating to the reduction of the working time (RTT) of the Executives provides, for the
professional category of the Employee whose working time cannot be fixed with precision, the calculation hours of work according to an annual lump sum
agreement expressed in days, that is to say 218 days without a timetable reference.
Consequently, the Employee will benefit from 11 days of RTT rest per full calendar year of activity.
Within this annual fixed rate, the Employee will have control over the organization of his time at work to exercise his function in consideration of the
responsibilities entrusted to him. The employee also undertakes to respect a daily rest of at least 11 consecutive hours.
RTT days cannot be repeated and accumulated from one year to the next.
Article 6 - Remuneration
In return for his salaried activity, the Employee will receive a fixed annual gross fixed remuneration of €178,613.
In addition to the fixed compensation referred to above, Mr. Pascal Deman may receive variable compensation in an amount corresponding to 50% of his
annual compensation (hereinafter called “Remuneration Variable”) calculated as follows:
RV = P1 - PL
OR:
RV = the Variable Remuneration;
P1 = a maximum bonus of 50% of the gross annual remuneration fixed according to the performance of the Brady group during the reference year,
calculated according to the Bonus Plan applicable to the Employee.
PL = the legal participation of Mr. Pascal Deman for the reference exercise.
It is agreed that the bonus corresponding to P1 may be reviewed and modified each year unilaterally by the Company.
The Variable Remuneration of Mr. Pascal Deman cannot be negative, even if P1 is zero.
In the event of departure during the year, Mr. Pascal Deman may not claim any pro rata temporis payment of the premium referred to above (P1).
Article 7 - Reimbursement of Professional Expenses
The expenses occasioned by the travels of the Employee (travel expenses, subsistence expenses) will be reimbursed to him monthly by the Company on
presentation of expense reports, on the express conditions that these are accompanied by supporting documents and corresponding activity reports and that
these costs remain within the limits defined by the officers of the Company.
These reimbursements of costs cannot in any case be considered as a fraction of the salary of the employee.
Article 8 - Paid Leave
The employee will benefit from annual paid vacation in accordance with the legal and contractual provisions in force.
The period of paid leave will be determined in agreement with the Company, taking into account the needs of the Company.
Holidays cannot be carried over and accumulated from one year to the next.
Article 9 - Illness or Accident
Absences resulting from an illness or accident must be justified by sending the Company a medical certificate by the Employee within 48 hours of his
absence, except in cases of force majeure. This justification must be renewed, within the same terms and conditions, if the doctor decides to extend the
absence.
It is specified that the employer reserves the right to have a counter-visit carried out by a doctor of his choice.
Article 10 - Obligations of the Employee
The Employee undertakes to comply with the instructions emanating from the leaders of the Company and its hierarchical superiors and to comply with the
internal discipline of the Company.
To constantly maintain the professional qualification of the Employee at a level adequate to his duties, the Company may ask him to perform, at the head
office of the Company or any other place, internships and / or technical and / or commercial training. The costs of these internships and / or training will be
borne by the Company.
The Employee undertakes to observe the internal regulations of the Company which were given to it at the same time as these, and of which the Employee
acknowledges having read.
The Employee must inform the Company without delay of any changes which would occur in the information that he communicated when he was hired
(address, marital status, etc.).
The employee undertakes to provide all the elements necessary to constitute his file, in particular copies of diplomas.
The employee also undertakes to undergo the medical visits to which he will be summoned.
It is also recalled that the employee is bound to respect the internal rules of the company.
Article 11 - Exclusivity
The Employee undertakes to devote all of its working time and all of its efforts to the exclusive benefit of the Company. He may not therefore exercise any
other professional activity during the term of the Employment Contract, unless by prior, express and written agreement of the Company.
Article 12 - Confidentiality
The employee is held to the strictest application of professional secrecy both within the Company and with regard to all third parties.
During the execution of the Employment Contract and for a period of three years from the effective termination of the Employment Contract, and for
whatever reason, The Worker is bound, regardless of an obligation of general reserve and professional secrecy, to absolute discretion on all the facts tooth
he could have knowledge, because of his functions or his membership in the Company and which relate so much to the management, the patrimony of the
Company and the functioning of the latter, as its situation, its relations with customers and all its projects.
The Employee may not, during the duration of the Employment Contract, give, procure and / or supply, in any way whatsoever, to a natural or legal person,
the name or the contact details of any of the Company's business partners and / or customers of the Company, as well as any professional secrets and / or
confidential information concerning the activities of the Company, its customers and / or members of its staff, except with the prior, express and written
authorization of the officers of the Company.
Article 13 - Compulsory Social Security and Mutual Insurance
Throughout the duration of the Employment Contract, the Employee will benefit from the collective social cover of the Company and Group Insurance
which it considers applicable.
Article 14 - Tax Assistance
The employee will benefit from assistance with these tax declarations until December 31, 2015.
Article 15 - Return of Company Property
In the event of breach or suspension of this contract for any reason whatsoever (resignation, dismissal, retirement, sick leave, etc.), the employee will remit
to the Company, no later than the day of its effective departure and whatever the duration of this contract, all objects and documents, which could have
been given to it during the exercise of its functions.
This contract has been drawn up in two copies and one has been given to the employee.
Executed in Roncq, September 4, 2014.
/s/ PASCAL DEMAN
Pascal Deman
BRADY CORPORATION
/s/ THOMAS FELMER
Its Authorized Representative
EXHIBIT 10.57
AVENANT AU
CONTRAT DE TRAVAIL
AMENDMENT TO THE EMPLOYMENT CONTRACT
ENTRE
BETWEEN
La Société BRADY GROUPE S.A.S., société anonyme, immatriculée au
Registre du Commerce et des Sociétés de Roubaix-Tourcoing sous le numéro
383 064 557 00036, dont le siège social est situé à RONCQ (59436),
représentée par Monsieur J Michael Nauman, en sa qualité de Président de
Brady Groupe S.A.S
BRADY GROUPE S.A.S., a French public limited company, registered
with the trade registry of Roubaix-Tourcoing, whose head office is at
RONCQ (59436), represented by Mr. J Michael Nauman, as President of
Brady Groupe S.A.S.
(Ci-après dénommée la « Société »)
(Hereinafter “the Company”)
D’une part,
ET
On the one hand,
AND
Monsieur Pascal DEMAN, né le 09 mai 1965 à Oostende (Belgique), de
nationalité Belge.
Mr. Pascal DEMAN, born on 9 May 1965 at Oostende (Belgique),
Belgium National.
(Ci-après dénommé « Le Salarié »)
(Hereinafter “the Employee”)
D’autre part.
On the other hand.
La Société et Pascal Deman seront ci-après dénommés collectivement les «
Parties » et individuellement une « Partie ».
The Company and Pascal Deman will hereinafter be referred to collectively
as the "Parties" and individually as a "Party".
IL A PREALABLEMENT ETE RAPPELE CE QUI SUIT :
Le Salarié a été embauché par la Société le 1e février 2014, et un contrat de
travail à durée indéterminée a été conclu par les Parties à cette occasion (ci-
après le « Contrat »).
THE FOLLOWING IS REMINDED :
The Employee was hired by the Company on February 1, 2014, and an
employment contract for an indefinite term was entered into by the Parties
on this occasion (hereinafter the "Contract").
Les Parties entendent modifier le Contrat du Salarié par la signature du
présent avenant.
The Parties intend to amend the Employee's Contract by signing this
amendment.
CECI AYANT ETE EXPOSE, IL EST CONVENU CE QUI SUIT :
THIS HAVING BEEN STATED, IT IS AGREED AS FOLLOWS:
Article 1 - Attributions et fonctions
Article 1 - Duties and functions
A compter du 3 janvier 2020, le Salarié exercera les fonctions de « Vice
President and General Manager, WPS ».
As of January 3, 2020, the Employee will act as Vice President and
General Manager, WPS.
Les fonctions confiées au Salarié sont par nature évolutives et pourront
évoluées en fonction des nécessités de fonctionnement de la Société.
The functions entrusted to the Employee are by nature evolving and may
change according to the Company's operating requirements.
Elles lui seront précisées autant que de besoin par son supérieur hiérarchique.
They will be specified to him as necessary by his supervisor.
Article 2 – Rémunération
Article 2 – Remuneration
En contrepartie de son activité, le Salarié recevra une rémunération annuelle
brute fixe forfaitaire de 255.550 euros (deux-cent cinquante cinq mille cinq-
cents cinquante Euros).
In return for his or her activity, the Employee will receive a gross fixed
annual remuneration of EUR 255,550 (two hundred fifty-five thousand,
five hundred fifty euros).
En plus de la rémunération fixe visée ci-dessus, le Salarié pourra percevoir
une rémunération variable d’un montant correspondant à 50% de sa
rémunération annuelle brute fixe (ci-après dénommée la « Rémunération
Variable ») calculée de la façon suivante:
In addition to the fixed annual remuneration referred to above, the
Employee may receive variable compensation in an amount corresponding
to 50% of his gross fixed annual remuneration (hereinafter referred to as
the "Variable Remuneration") calculated as follows:
RV = P1 - PL
Où :
RV = P1 – PL
Where:
• RV = la Rémunération Variable ;
• RV = Variable Remuneration;
•
•
P1 = une prime de 50% de la rémunération brute annuelle fixe en
fonction des performances du groupe Brady pendant l’exercice de
référence, calculée en fonction du Bonus Plan applicable au Salarié.
•
P1 = a bonus of 50% of the gross annual fixed remuneration based
on the Brady Group's performance during the reference year,
calculated according to the Bonus Plan applicable to the
Employee.
PL = la participation légale du Salarié au titre de l’exercice de
référence.
•
PL = The legal profit-sharing for the reference year.
Il est entendu que le bonus correspondant à P1 pourra être revu et modifié
chaque année de manière unilatérale par la Société.
It is understood that the bonus corresponding to P1 may be unilaterally
reviewed and modified each year by the Company.
Article 3 – Autres avantages
Article 3 – Other Benefits
Le Salarié bénéficiera d’avantages dit « equity benefits » dans des conditions
précisées par une lettre d’attribution. Les conditions de ces « equity benefits »
seront définis unilatéralement et pourront être modifiés à la seule discrétion de
la Société et du Groupe auquel elle appartient. Le Salarié n’a aucun droit
acquis à bénéficier de ces « equity benefits ».
The Employee will benefit from so-called "equity benefits" under
conditions specified by a letter of attribution. The conditions of these equity
benefits will be defined unilaterally and may be modified at the sole
discretion of the Company and the Group to which it belongs. The
Employee has no acquired right to benefit from these equity benefits.
Le Salarié est admissible au programme de santé réservé aux cadres du
groupe Brady offert par la Clinique Mayo. Le Salarié se verra remboursé sur
présentation des justificatifs.
The Employee is eligible for the Brady Group Executive Health Program
offered by the Mayo Clinic. The Employee will be reimbursed upon
presentation of the supporting documents.
Le Salarié pourra bénéficié d’un remboursement de services de planification
financière personnelle et de préparation des déclarations de revenus dans une
limite de 10. 000 euros par an (dix mille euros). Il est à noter que la
planification successorale, les frais d'avocat, les frais de placement ou de
courtage sont exclus de ce remboursement
The Employee will be eligible to be reimbursed for personal financial
planning and tax preparation services with an annual reimbursement of up
to EUR 10,000 (ten thousand euros). Note that estate planning, attorney
fees, investment or brokerage fees are excluded from this reimbursement.
L'employé recevra une prime de fidélité le 3 janvier 2020. Elle prendra la
forme d'une attribution d'actions (one-time equity grant) de 75 000 dollars US
(soixante-quinze mille dollars US).
The Employee will receive a retention award on January 3, 2020. It will
take the form of a one-time equity grant of USD $75,000 (seventy five
thousand US dollars).
Ces avantages sont liées au poste de « Vice President and General
Manager, WPS ». Ils cesseront de s’appliquer immédiatement dès lors que le
Salarié n’occupera plus ce poste.
These benefits are related to the position of Vice President and General
Manager, WPS. They will cease to apply immediately as soon as the
Employee no longer occupies this position.
Article 4 – Participation à l’actionnariat
Le Salarié aura l’obligation, au plus tard à la date du 5ème anniversaire du
présent avenant, de détenir une participation en capital de Brady Corporation
dont la valeur devra au moins être égale à l’équivalent de 2 fois le salaire
annuel brut de base du Salarié
Article 4 – Shareholding
The Employee will be required, no later than on the 5th anniversary of this
amendment, to hold an equity interest in Brady Corporation, the value of
which shall be at least equal to the equivalent of twice the Employee's
annual gross base salary.
Article 5 – Modification des fonction
Article 5 – Modification of position
Si le Salarié devait changer de poste à son initiative ou à la demande la
Société, le Salarié accepte négocier avec la Société une rémunération et des
avantages (de quelque nature qu’ils soient) alignés avec son nouveau poste.
Cela implique que la rémunération et les avantages (de quelque nature qu’ils
soient) pourraient être d’un niveau inférieur à ceux dont il bénéficie sur son
poste de « Vice President and General Manager, WPS »
Should the Employee change his position at his own initiative or at the
request of the Company, the Employee agrees to negotiate with the
Company remuneration and benefits (of any kind) in line with his new
position. This implies that the remuneration and benefits (of whatever
nature) may be at a lower level than those enjoyed in the position of Vice
President and General Manager, WPS.
Article 6 – Non-sollicitation
Article 6 – Non-solicitation
Le Salarié s’engage, pendant toute la durée de son Contrat et pendant une
durée de 12 mois à compter de la date de son départ effectif de la Société :
For the whole term of his Contract and for a term of 12 months as from the
date of his actual departure from the Company, the Employee agrees:
- à ne pas offrir de poste à toute personne ayant travaillé pour la Société au
cours des 12 mois précédant son départ, et à ne pas tenter, de quelque manière
que ce soit, directement ou indirectement, de convaincre ou d'inciter l'une de
ces personnes à accepter un autre poste et/ou à quitter la Société ;
- not to offer any employment whatsoever to any person who, during the
period of 12 months preceding such departure, was an employee of the
Company, or to attempt, through any means whatsoever, whether directly or
indirectly, to persuade or to encourage such person to accept other
employment and/or to leave the Company; and
- à ne pas recruter, ou faire recruter par un tiers avec lequel le Salarié
entretient des relations d'affaires, une personne ayant travaillé pour la Société
au cours d'une période de 12 mois précédant ce départ.
- not to hire, or to have a third party with whom the Employee has business
dealings hire, any person who, during the period of 12 months preceding
such departure, was an employee of the Company.
Article 7 – Non-Concurrence
Article 7 – Non-compete
tenu de
Compte
la nature des fonctions du Salarié ainsi que des
responsabilités qui lui sont confiées, les Parties conviennent d’une obligation
de non-concurrence qui a vocation à prendre effet à l’issue de la relation de
travail, c’est-à-dire à la date de cessation des fonctions du Salarié au sein de la
Société.
Considering the nature of the Employee’s duties, and the responsibilities he
will have, the Parties agree that a non-compete obligation will be effective
at the end of the employment relationship, i.e. on the date of termination of
the Employee’s duties at the Company.
A l’issue du présent Contrat, et afin de protéger les intérêts légitimes de la
Société, les Parties conviennent que le Salarié s’interdit d’exercer, directement
ou indirectement, une activité concurrente à celle de la Société et plus
particulièrement toute activité liée à la fabrication ou à la commercialisation
de solutions qui identifient et protègent les personnes, les produits et les lieux.
After this employment Contract has terminated, and in order to protect the
legitimate interests of the Company, the Parties agree that the Employee
undertakes not to directly or indirectly carry out any activity that would
compete with that of the Company and, in particular, any activity related to
manufacturing or marketing of solutions that identify and protect people,
products and places.
L’interdiction de concurrence restera contraignante pour une durée de 12 mois
à compter de la date de cessation des fonctions de l’Employé dans la Société.
Cette interdiction de non-concurrence porte sur les territoires suivants :
Belgium and France.
The prohibition on competition will remain binding for a period of 12
months, starting on the date of termination of the Employee’s duties at the
Company.
Le Salarié reconnaît que les conditions d’application de l’obligation de non-
concurrence telles qu’exposées ci-dessus ne l’empêchent pas d’exercer une
activité conforme à son expérience et à sa formation et ne portent pas atteinte
à sa liberté de travail.
En cas d’application de la clause de non-concurrence, le Salarié percevra une
indemnité mensuelle d’un montant brut correspondant à 30% de la
rémunération mensuelle brute fixe moyenne versée au Salarié au titre des
douze derniers mois précédant la rupture du Contrat. Cette indemnité inclue
l’indemnité compensatrice de congés payés.
La Société se réserve le droit de renoncer à l’application de la présente clause
et le Salarié ne pourra plus prétendre au versement de l’indemnité de non-
concurrence. La Société en informera le Salarié par lettre recommandée avec
demande d’avis de réception dans les 15 jours ouvrables à compter de la
notification de la rupture du Contrat.
Toute violation des dispositions de la présente clause par le Salarié libère la
Société du versement de l’indemnité de non-concurrence et rend le Salarié
redevable des sommes reçues à ce titre.
Par ailleurs, en cas de violation de cette interdiction, le Salarié s’expose au
paiement d’une indemnité forfaitaire égale à la rémunération de ses six (6)
derniers mois d’activité sans préjudice du droit pour la Société de faire cesser
ladite violation par tout moyen et de demander réparation de l’entier préjudice
subi.
This non-compete duty shall apply to the following territories: Belgium and
France.
The Employee acknowledges that the conditions in which the above non-
compete duty applies will not prevent him from carrying out an activity that
corresponds to his training and experience, and will not impact his freedom
to work.
In the event that the non-compete clause is implemented, the Employee
shall receive a gross monthly compensation amounting to 30% of the
monthly gross average base salary paid to the Employee for the last 12
months prior to the termination of the Contract. This compensation includes
compensation in lieu of paid leave.
The Company reserves the right to waive this clause and the Employee
would no longer be entitled to claim for the payment of the non-compete
compensation. The Employee will receive written notice thereof by
registered letter with acknowledgement of receipt, within 15 working days
following the notice of termination of the Contract.
In the event that the Employee breaches this clause, the Company would be
released from paying the non-compete compensation and the Employee
would be liable for any sums paid in this respect.
Furthermore, in the event of a breach, the Employee would be liable for the
payment of an all-inclusive contractual compensation equal to the
remuneration for his last six (6) months of activity, subject to the
Company’s right to obtain the cessation of the breach by all available
means, and to fully remedy any loss suffered.
Article 8 – Absence de modification des autres dispositions du Contrat
Article 8 – Absence of modification of the other provisions of the
Contract
Les autres clauses du Contrat demeurent inchangées.
The other clauses of the Contract remain unchanged.
Le présent avenant a été établi en deux exemplaires originaux dont un a été
remis au Salarié.
This amendment has been drawn up in two original copies, one of which
has been given to the Employee.
Article 9 – Divers
Article 9 – Miscellaneous
Le présent avenant au Contrat a été établi en français et en anglais.
This amendment to the Contract has been drawn up in English and French.
En cas de contradiction entre la version française et la version anglaise de
l’avenant au Contrat, la version française fera foi.
In the event of any contradiction between the French and English versions
of the amendment to the Contract, the French version shall prevail.
L’avenant au Contrat est régi par le droit français.
The amendment to the Contract shall be governed by French law.
Executed in Roncq, January 7, 2020.
/s/ PASCAL DEMAN
Pascal Deman
/s/ J. MICHAEL NAUMAN
J. Michael Nauman
President of Brady Groupe S.A.S.
SCHEDULE OF SUBSIDIARIES OF BRADY CORPORATION
July 31, 2020
EXHIBIT 21
Percentage of Voting
Securities Owned
Parent
100%
100%
100%
100%
100%
100%
100%
State (Country)
of Incorporation
Wisconsin
Delaware
Delaware
Delaware
Delaware
Pennsylvania
Wisconsin
Wisconsin
California
100%
Vermont
Australia
Australia
Australia
Australia
Belgium
Belgium
Belgium
Brazil
Canada
Canada
China
China
China
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Name of Company
Brady Corporation
Tricor Direct, Inc.
Doing Business As:
Champion Americas
Emedco
Seton
Worldmark of Wisconsin Inc.
AIO Acquisition Inc.
Doing Business As:
All-On-One Products
Personnel Concepts
Brady Holdings Mexico LLC
Clement Communications, Incorporated
Brady International Co.
Brady Worldwide, Inc.
Doing Business As:
Electromark
Sorbent Products Company
TISCOR
Precision Dynamics Corporation
Doing Business As:
Brady People ID
Dual Core
IDenticard
PDC IDenticard
Pharmex
PromoVision
TimeMed Labeling Systems
Idem Indemnity, Inc.
Brady Australia Holdings Pty. Ltd.
Brady Australia Pty. Ltd.
Doing Business As:
Scafflag Australia
Seton Australia
Trafalgar First Aid
Carroll Australasia Pty. Ltd.
ID Warehouse Pty. Ltd.
Precision Dynamics Europe Sprl
Transposafe Systems Belgium NV/SA
W.H. Brady N.V.
W.H.B. do Brasil Ltda.
BRC Financial
W.H.B. Identification Solutions Inc.
Doing Business As:
Brady
Electromark
IDenticard
Seton
Brady (Beijing) Co. Ltd.
Brady (Xiamen) Co., Ltd.
Brady Investment Management (Shanghai) Co., Ltd.
Brady Printing (Shenzhen) Co., Ltd.
Brady Technology (Wuxi) Co. Ltd.
Brady A/S
Braton Europe S.A.R.L.
Brady Groupe S.A.S.
Doing Business As:
BIG/PDC
Seton
Signals
Securimed S.A.S.
Brady GmbH
Doing Business As:
Seton
Transposafe
Bakee Metal Manufactory Company Limited
Brady Corporation Hong Kong Limited
Brady Company India Private Limited
Brady Italia, S.r.l.
Nippon Brady K.K.
Brady Finance Luxembourg S.à.r.l.
Brady Luxembourg S.à.r.l.
Brady S.à.r.l.
Brady Technology SDN. BHD.
Brady Mexico, S. de R.L. de C.V.
W.H. Brady S. de R.L. de C.V.
Brady B.V.
Brady Finance B.V.
Transposafe Systems Holland B.V.
Brady AS
Pervaco AS
Brady Philippines Direct Marketing Inc.
Transposafe Systems Polska Sp. Z.o.o.
Brady ID Solutions SRL
Brady LLC
Brady Asia Holding Pte. Ltd.
Brady Asia Pacific Pte. Ltd.
Brady Corporation Asia Pte. Ltd.
Brady s.r.o.
Grafo Wiremarkers Pty. Ltd.
Wiremarkers Africa Pty. Ltd.
Brady IDS Korea LLC
Brady Identificación S.L.U.
Brady AB
Brady Sweden Holding AB
Brady (Thailand) Co., Ltd.
Brady Etiket ve Isaretleme Ticaret Ltd. Sirketi
Brady Middle East FZE
B.I. (UK) Limited
Brady Corporation Limited
Brady European Holdings Limited
China
China
Denmark
France
France
France
Germany
Hong Kong
Hong Kong
India
Italy
Japan
Luxembourg
Luxembourg
Luxembourg
Malaysia
Mexico
Mexico
Netherlands
Netherlands
Netherlands
Norway
Norway
Philippines
Poland
Romania
Russia
Singapore
Singapore
Singapore
Slovakia
South Africa
South Africa
South Korea
Spain
Sweden
Sweden
Thailand
Turkey
United Arab Emirates
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-38857, 333-92417, 333-134503, 333-137686, 333-141402, 333-162538,
333-177039 and 333-212625 on Form S-8 and Registration Statement No. 333-220442 on Form S-3 of our reports dated September 16, 2020, relating to
the consolidated financial statements and financial statement schedule of Brady Corporation and the effectiveness of Brady Corporation’s internal control
over financial reporting, appearing in this Annual Report on Form 10-K of Brady Corporation for the year ended July 31, 2020.
EXHIBIT 23
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 16, 2020
EXHIBIT 31.1
I, J. Michael Nauman, certify that:
(1) I have reviewed this annual report on Form 10-K of Brady Corporation;
RULE 13a-14(a)/15d-14(a) CERTIFICATION
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: September 16, 2020
/s/ J. MICHAEL NAUMAN
J. Michael Nauman
President and Chief Executive Officer
EXHIBIT 31.2
I, Aaron J. Pearce, certify that:
(1) I have reviewed this annual report on Form 10-K of Brady Corporation;
RULE 13a-14(a)/15d-14(a) CERTIFICATION
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material act necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: September 16, 2020
/s/ AARON J. PEARCE
Aaron J. Pearce
Chief Financial Officer and Treasurer
SECTION 1350 CERTIFICATION
EXHIBIT 32.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Brady
Corporation (the “Company”) certifies to his knowledge that:
(1) The Annual Report on Form 10-K of the Company for the year ended July 31, 2020 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the
Company.
Date: September 16, 2020
/s/ J. MICHAEL NAUMAN
J. Michael Nauman
President and Chief Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and
will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies this
report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.
SECTION 1350 CERTIFICATION
EXHIBIT 32.2
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Brady
Corporation (the “Company”) certifies to his knowledge that:
(1) The Annual Report on Form 10-K of the Company for the year ended July 31, 2020 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the
Company.
Date: September 16, 2020
/s/ AARON J. PEARCE
Aaron J. Pearce
Chief Financial Officer and Treasurer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and
will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies this
report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.