Stockholder's Investment

12 Months Ended

Jul. 31, 2011

6. Stockholders’ Investment

Information as to the Company’s capital stock at July 31, 2011 and 2010 is as follows:


	July 31, 2011						July 31, 2010
	Shares		Shares		(thousands)		Shares		Shares		(thousands)
	Authorized		Issued		Amount		Authorized		Issued		Amount
Preferred Stock, $.01 par value		5,000,000						5,000,000
Cumulative Preferred Stock: 6% Cumulative		5,000						5,000
1972 Series		10,000						10,000
1979 Series		30,000						30,000
Common Stock, $.01 par value:
Class A Nonvoting		100,000,000		51,261,487	$	513		100,000,000		51,261,487	$	513
Class B Voting		10,000,000		3,538,628		35		10,000,000		3,538,628		35

					$	548					$	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 $.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.

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 $.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 Cumulative Preferred Stock, holders of the Class A Common Stock are entitled to receive the sum of $0.835 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 $0.835 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.

During fiscal 2008 and fiscal 2009, the Company’s Board of Directors authorized share repurchase plans for the Company’s Class A Nonvoting Common Stock. The share repurchase plans were implemented by purchasing shares in the open market or privately negotiated transaction, with repurchased shares available for use in connection with the Company’s stock-based plans and for other corporate purposes. The Company reacquired approximately 102,067, 1,345,000 and 1,349,000 shares of its Class A Common Stock for $2.5 million, $40.3 million and $42.2 million in fiscal 2010, 2009 and 2008, respectively, in connection with its stock repurchase plans. The Company did not reacquire any shares in fiscal 2011. As of July 31, 2011, there remained 204,133 shares to purchase in connection with this share repurchase plan.

The following is a summary of other activity in stockholders’ investment for the years ended July 31, 2011, 2010, and 2009:


	Unearned						Shares Held
	Restricted			Deferred			in Rabbi
	Stock			Compensation			Trust, at cost			Total
Balances at July 31, 2008	$	(6,182	)	$	13,643		$	(12,956	)	$	(5,495	)

Shares at July 31, 2008					690,539			690,539

Sale of shares at cost		—			(1,655	)		1,223			(432	)
Purchase of shares at cost		—			1,294			(1,294	)		—
Amortization of restricted stock		1,435			—			—			1,435

Balances at July 31, 2009	$	(4,747	)	$	13,282		$	(13,027	)	$	(4,492	)

Shares at July 31, 2009					671,650			671,650

Sale of shares at cost		—			(1,247	)		1,536			289
Purchase of shares at cost		—			813			(813	)		—
Amortization of restricted stock		1,374			—			—			1,374

Balances at July 31, 2010	$	(3,373	)	$	12,848		$	(12,304	)	$	(2,829	)

Shares at July 31, 2010					614,988			614,988

Sale of shares at cost		—			(1,421	)		1,375			(46	)
Purchase of shares at cost		—			666			(666	)		—
Issuance of restricted stock		(2,835	)		—			—			(2,835	)
Amortization of restricted stock		846			—			—			846

Balances at July 31, 2011	$	(5,362	)	$	12,093		$	(11,595	)	$	(4,864	)

Shares at July 31, 2011					560,078			560,078

Prior to 2002, all Brady Corporation deferred compensation was invested in the Company’s Class A Nonvoting Common Stock. In 2002, the Company adopted a new deferred compensation plan which allowed investing in other investment funds in addition to the Company’s Class A Nonvoting Common Stock. Under this plan, participants were allowed to transfer funds between the Company’s Class A Nonvoting Common Stock and the other investment funds. On May 1, 2006 the plan was amended with the provision that deferrals into the Company’s Class A Nonvoting Common Stock must remain in the Company’s Class A Nonvoting Common Stock and be distributed in shares of the Company’s Class A Nonvoting Common Stock. At July 31, 2011, the deferred compensation balance in stockholders’ investment represents the investment at the original cost of shares held in the Company’s Class A Nonvoting Common Stock for the deferred compensation plan prior to 2002 and the investment at the cost of shares held in the Company’s Class A Nonvoting Common Stock for the plan subsequent to 2002, adjusted for the plan amendment on May 1, 2006. 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.

The Company’s Employee Monthly Stock Investment Plan (the “Investment Plan”) provides that eligible employees may authorize a fixed dollar amount between $20 and $500 per month to be deducted from their pay. The funds deducted are forwarded to the Investment Plan administrator and are used to purchase the Company’s Class A Nonvoting Common Stock at the market price. As part of the Investment Plan, Brady pays all brokerage fees for stock purchases and dividend reinvestments.

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

As of July 31, 2011, the Company has reserved 5,799,017 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 737,000 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the various plans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.

Changes in the options are as follows:


						Weighted
						Average
			Options			Exercise
	Option Price		Outstanding			Price
Balance, July 31, 2008	$	9.59 – $40.37		3,985,205		$	29.43

Options granted		17.23 – 35.42		614,000			21.26
Options exercised		9.59 – 38.19		(138,934	)		15.75
Options cancelled		20.95 – 38.31		(479,665	)		35.02

Balance, July 31, 2009	$	13.31-$40.37		3,980,606		$	27.96

Options granted		24.78 – 33.28		1,446,500			29.08
Options exercised		14.16 – 31.54		(241,403	)		18.16
Options cancelled		15.28 – 38.31		(76,967	)		31.91

Balance, July 31, 2010	$	13.31-$40.37		5,108,736		$	28.69

Options granted		28.35 – 37.95		1,365,500			28.86
Options exercised		14.16 – 29.78		(417,888	)		19.62
Options cancelled		16.39 – 38.31		(330,331	)		31.37

Balance, July 31, 2011	$	13.31 – $40.37		5,726,017		$	29.24

The total fair value of options vested during the fiscal years ended July 31, 2011, 2010, and 2009 was $6,822, $5,548, and $6,559, respectively. The total intrinsic value of options exercised during the fiscal years ended July 31, 2011, 2010, and 2009 was $5,701, $3,004, and $2,156, respectively.

There were 3,316,815, 3,100,955, and 2,831,311 options exercisable with a weighted average exercise price of $29.83, $28.85, and $27.46 at July 31, 2011, 2010, and 2009, respectively. The cash received from the exercise of options during the fiscal years ended July 31, 2011, 2010, and 2009 was $8,193, $3,717, and $1,683, respectively. The tax benefit on options exercised during the fiscal years ended July 31, 2011, 2010, and 2009 was $682, $866, and $779, respectively.

The following table summarizes information about stock options outstanding at July 31, 2011:


							Options Outstanding and
	Options Outstanding						Exercisable
			Weighted Average		Weighted		Shares		Weighted
	Number of Shares		Remaining		Average		Exercisable		Average
Range of	Outstanding at		Contractual Life		Exercise		at July 31,		Exercise
Exercise Prices	July 31, 2011		(in years)		Price		2011		Price
Up to $14.99		200,000		1.6	$	13.31		200,000	$	13.31
$15.00 to $29.99		3,900,515		7.2		26.68		1,516,313		24.07
$30.00 and up		1,625,502		5.0		37.33		1,600,502		37.34

Total		5,726,017		6.4		29.24		3,316,815		29.83

As of July 31, 2011, 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 $14,864 and $11,727, respectively.

Effective July 20, 2011, the Compensation Committee of the Board of Directors of the Company approved an amendment to the fiscal 2008 performance-based restricted shares to provide for an additional two year vesting period. These awards originally vested five years from the grant date upon meeting certain financial performance and service conditions. This modification resulted in a one-time,$1.2 million reduction in share-based compensation expense to align the expense recognition with the amended vesting terms. The Company’s Chief Executive Officer, Chief Financial Officer, and the other three named executive officers currently have the following performance-based restricted shares affected by this amendment: Frank M. Jaehnert, 50,000 shares; Thomas J. Felmer, 35,000 shares; Peter C. Sephton, 35,000 shares; Matthew O. Williamson, 35,000 shares; and Robert L. Tatterson, 20,000 shares.

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

The Company granted 465,000 performance-based stock options during fiscal 2011, with a weighted average exercise price of $28.35 and a weighted average fair value of $9.87. The Company also granted 900,500 service-based stock options during fiscal 2011, with a weighted average exercise price of $29.13 and a weighted average fair value of $9.59.

- Definition

Disclosures related to accounts comprising shareholders' equity, including other comprehensive income. Includes: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables; effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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