Company Quick10K Filing
Brady
Price53.44 EPS3
Shares54 P/E21
MCap2,872 P/FCF18
Net Debt-244 EBIT169
TEV2,628 TEV/EBIT16
TTM 2019-10-31, in MM, except price, ratios
10-Q 2021-04-30 Filed 2021-05-20
10-Q 2021-01-31 Filed 2021-02-18
10-Q 2020-10-31 Filed 2020-11-19
10-K 2020-07-31 Filed 2020-09-16
10-Q 2020-04-30 Filed 2020-05-21
10-Q 2020-01-31 Filed 2020-02-20
10-Q 2019-10-31 Filed 2019-11-21
10-K 2019-07-31 Filed 2019-09-06
10-Q 2019-04-30 Filed 2019-05-23
10-Q 2019-01-31 Filed 2019-02-21
10-Q 2018-10-31 Filed 2018-11-15
10-K 2018-07-31 Filed 2018-09-13
10-Q 2018-04-30 Filed 2018-05-24
10-Q 2018-01-31 Filed 2018-02-22
10-Q 2017-10-31 Filed 2017-11-16
10-K 2017-07-31 Filed 2017-09-13
10-Q 2017-04-30 Filed 2017-05-25
10-Q 2017-01-31 Filed 2017-02-23
10-Q 2016-10-31 Filed 2016-11-16
10-K 2016-07-31 Filed 2016-09-15
10-Q 2016-04-30 Filed 2016-05-19
10-Q 2016-01-31 Filed 2016-02-19
10-Q 2015-10-31 Filed 2015-11-19
10-K 2015-07-31 Filed 2015-09-21
10-Q 2015-04-30 Filed 2015-05-27
10-Q 2015-01-31 Filed 2015-03-04
10-Q 2014-10-31 Filed 2014-12-02
10-K 2014-07-31 Filed 2014-09-29
10-Q 2014-04-30 Filed 2014-06-04
10-Q 2014-01-31 Filed 2014-03-05
10-Q 2013-10-31 Filed 2013-12-06
10-K 2013-07-31 Filed 2013-09-30
10-Q 2013-04-30 Filed 2013-06-06
10-Q 2013-01-31 Filed 2013-03-08
10-Q 2012-10-31 Filed 2012-12-05
10-K 2012-07-31 Filed 2012-09-27
10-Q 2012-04-30 Filed 2012-06-05
10-Q 2012-01-31 Filed 2012-03-08
10-Q 2011-10-31 Filed 2011-12-07
10-K 2011-07-31 Filed 2011-09-27
10-Q 2011-04-30 Filed 2011-06-07
10-Q 2011-01-31 Filed 2011-03-08
10-Q 2010-10-31 Filed 2010-12-07
10-K 2010-07-31 Filed 2010-09-21
10-Q 2010-04-30 Filed 2010-06-04
10-Q 2010-01-31 Filed 2010-03-05
8-K 2020-11-18
8-K 2020-09-14
8-K 2020-05-21
8-K 2020-02-20
8-K 2019-11-20
8-K 2019-09-30
8-K 2019-09-16
8-K 2019-09-04
8-K 2019-08-01
8-K 2019-05-23
8-K 2019-02-21
8-K 2019-02-07
8-K 2018-11-15
8-K 2018-09-13
8-K 2018-05-24
8-K 2018-02-22

BRC 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 brc-20191031xex311.htm
EX-31.2 brc-20191031xex312.htm
EX-32.1 brc-20191031xex321.htm
EX-32.2 brc-20191031xex322.htm

Brady Earnings 2019-10-31

Balance SheetIncome StatementCash Flow
1.81.41.10.70.40.02012201420172020
Assets, Equity
0.40.30.20.0-0.1-0.22012201420172020
Rev, G Profit, Net Income
0.20.1-0.0-0.2-0.3-0.42012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
 
FORM 10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                     to                     
Commission File Number 1-14959
 
 
 
BRADY CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Wisconsin
 
39-0178960
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
6555 West Good Hope Road,
Milwaukee,
Wisconsin
 
53223
                 (Address of principal executive offices)
 
(Zip Code)
(414) 358-6600
(Registrant’s telephone number, including area code)
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     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
 
Accelerated filer
 
Emerging growth company
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No   
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
As of November 19, 2019, there were 49,766,327 outstanding shares of Class A Nonvoting Common Stock and 3,538,628 shares of Class B Voting Common Stock. The Class B Voting Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock.



FORM 10-Q
BRADY CORPORATION
INDEX
 

2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
 
October 31, 2019
 
July 31, 2019
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
295,093

 
$
279,072

Accounts receivable—net
162,561

 
158,114

Inventories
119,612

 
120,037

Prepaid expenses and other current assets
16,642

 
16,056

Total current assets
593,908

 
573,279

Property, plant and equipment—net
112,565

 
110,048

Goodwill
411,328

 
410,987

Other intangible assets
34,860

 
36,123

Deferred income taxes
7,447

 
7,298

Operating lease assets
52,233

 

Other assets
18,881

 
19,573

Total
$
1,231,222

 
$
1,157,308

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
59,385

 
$
64,810

Accrued compensation and benefits
63,794

 
62,509

Taxes, other than income taxes
8,885

 
8,107

Accrued income taxes
6,790

 
6,557

Current operating lease liabilities
14,857

 

Other current liabilities
52,092

 
49,796

Current maturities on long-term debt
50,144

 
50,166

Total current liabilities
255,947

 
241,945

Long-term operating lease liabilities
40,124

 

Other liabilities
58,616

 
64,589

Total liabilities
354,687

 
306,534

Stockholders’ equity:
 
 
 
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 49,764,799 and 49,458,841 shares, respectively
513

 
513

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

 
35

Additional paid-in capital
327,241

 
329,969

Retained earnings
663,808

 
637,843

Treasury stock—1,496,688 and 1,802,646 shares, respectively, of Class A nonvoting common stock, at cost
(43,779
)
 
(46,332
)
Accumulated other comprehensive loss
(71,283
)
 
(71,254
)
Total stockholders’ equity
876,535

 
850,774

Total
$
1,231,222

 
$
1,157,308


See Notes to Condensed Consolidated Financial Statements.

3


BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts, Unaudited)
 
Three months ended October 31,
 
2019
 
2018
Net sales
$
286,947

 
$
293,196

Cost of goods sold
145,542

 
146,657

Gross margin
141,405

 
146,539

Operating expenses:
 
 
 
Research and development
10,967

 
11,326

Selling, general and administrative
89,547

 
94,591

Total operating expenses
100,514

 
105,917

Operating income
40,891

 
40,622

Other income (expense):
 
 
 
Investment and other income (expense)
1,380

 
(17
)
Interest expense
(701
)
 
(712
)
Income before income taxes
41,570

 
39,893

Income tax expense
4,072

 
9,256

Net income
$
37,498

 
$
30,637

Net income per Class A Nonvoting Common Share:
 
 
 
Basic
$
0.71

 
$
0.59

Diluted
$
0.70

 
$
0.58

Dividends
$
0.22

 
$
0.21

Net income per Class B Voting Common Share:
 
 
 
Basic
$
0.69

 
$
0.57

Diluted
$
0.68

 
$
0.56

Dividends
$
0.20

 
$
0.20

Weighted average common shares outstanding:
 
 
 
Basic
53,143

 
52,201

Diluted
53,736

 
52,958

See Notes to Condensed Consolidated Financial Statements.

4


BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands, Unaudited)

 
Three months ended October 31,
 
2019
 
2018
Net income
$
37,498

 
$
30,637

Other comprehensive loss:
 
 
 
Foreign currency translation adjustments
50

 
(8,790
)
 
 
 
 
Cash flow hedges:
 
 
 
Net gain (loss) recognized in other comprehensive loss
196

 
(380
)
Reclassification adjustment for gains included in net income
(381
)
 
(47
)
 
(185
)
 
(427
)
 
 
 
 
Pension and other post-retirement benefits actuarial gain amortization
(105
)
 
(155
)
 
 
 
 
Other comprehensive loss, before tax
(240
)
 
(9,372
)
Income tax benefit (expense) related to items of other comprehensive loss
211

 
(458
)
Other comprehensive loss, net of tax
(29
)
 
(9,830
)
Comprehensive income
$
37,469

 
$
20,807

See Notes to Condensed Consolidated Financial Statements.


5


BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Unaudited)
 
Three months ended October 31,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
37,498

 
$
30,637

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,634

 
5,960

Non-cash portion of stock-based compensation expense
3,618

 
4,965

Deferred income taxes
1,009

 
2,164

Other
1,533

 
218

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(4,362
)
 
(6,709
)
Inventories
249

 
(3,125
)
Prepaid expenses and other assets
(1,404
)
 
(2,197
)
Accounts payable and accrued liabilities
(5,193
)
 
(14,288
)
Income taxes
266

 
1,193

Net cash provided by operating activities
38,848

 
18,818

 
 
 
 
Investing activities:
 
 
 
Purchases of property, plant and equipment
(7,724
)
 
(6,009
)
Other
527

 
337

Net cash used in investing activities
(7,197
)
 
(5,672
)
 
 
 
 
Financing activities:
 
 
 
Payment of dividends
(11,533
)
 
(11,096
)
Proceeds from exercise of stock options
3,411

 
13,001

Payments for employee taxes withheld from stock-based awards
(7,269
)
 
(2,937
)
Proceeds from borrowing on credit facilities

 
5,737

Repayment of borrowing on credit facilities

 
(2,269
)
Other
65

 
(1,772
)
Net cash (used in) provided by financing activities
(15,326
)
 
664

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(304
)
 
(3,061
)
 
 
 
 
Net increase in cash and cash equivalents
16,021

 
10,749

Cash and cash equivalents, beginning of period
279,072

 
181,427

 
 
 
 
Cash and cash equivalents, end of period
$
295,093

 
$
192,176


See Notes to Condensed Consolidated Financial Statements

6


BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended October 31, 2019
(Unaudited)
(In thousands, except share and per share amounts)
NOTE A — Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the "Company," "Brady," "we," or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of October 31, 2019 and July 31, 2019, its results of operations and comprehensive income for the three months ended October 31, 2019 and 2018, and cash flows for the three months ended October 31, 2019 and 2018. The condensed consolidated balance sheet as of July 31, 2019 has been derived from the audited consolidated financial statements as of that date. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended July 31, 2019.
NOTE B — New Accounting Pronouncements
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.

In January 2017, the FASB issued ASU 2017-04, "Goodwill and Other, Simplifying the Test for Goodwill Impairment," which simplifies the accounting 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; however, early adoption is permitted for any impairment tests performed after January 1, 2017. The Company has not adopted this guidance, which will only impact the Company's consolidated financial statements if there is a future impairment of goodwill.
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 is currently evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASC 842"), which replaced the current 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

7


cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. ASC 842 is effective for interim periods in fiscal years beginning after December 15, 2018.
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.
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 E "Leases" for additional information and required disclosures under the new standard.
NOTE C — Additional Balance Sheet Information
Inventories
Inventories as of October 31, 2019, and July 31, 2019, consisted of the following:
 
October 31, 2019
 
July 31, 2019
Finished products
$
76,538

 
$
77,532

Work-in-process
20,696

 
20,515

Raw materials and supplies
22,378

 
21,990

Total inventories
$
119,612

 
$
120,037


Property, plant and equipment
Property, plant and equipment is presented net of accumulated depreciation in the amount of $277,055 and $273,880 as of October 31, 2019, and July 31, 2019, respectively.
NOTE D — Other Intangible Assets

Other intangible assets include customer relationships, patents, and trademarks with finite lives being amortized in accordance with the accounting guidance for other intangible assets. The Company also has unamortized indefinite-lived trademarks that are classified as other intangible assets. The net book value of these assets was as follows: 
 
October 31, 2019
 
July 31, 2019
 
Weighted
Average
Amortization
Period
(Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Weighted
Average
Amortization
Period
(Years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Amortized other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships and other
9
 
$
46,594

 
$
(30,634
)
 
$
15,960

 
9
 
$
46,595

 
$
(29,343
)
 
$
17,252

Unamortized other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
N/A
 
18,900

 

 
18,900

 
N/A
 
18,871

 

 
18,871

Total
 
 
$
65,494

 
$
(30,634
)
 
$
34,860

 
 
 
$
65,466

 
$
(29,343
)
 
$
36,123


The change in the gross carrying amount of other intangible assets as of October 31, 2019 compared to July 31, 2019 was due to the effects of currency fluctuations during the three-month period.

8


Amortization expense on intangible assets was $1,291 and $1,436 for the three months ended October 31, 2019 and 2018, respectively. Amortization expense over each of the next five fiscal years is projected to be $5,164, $5,164, $4,898, $2,025 and $0 for the fiscal years ending July 31, 2020, 2021, 2022, 2023 and 2024, respectively.
NOTE E — 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 October 31, 2019, the Company did not have any finance leases.

The Company determines if 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 a lease liability at the lease commencement date based on the present value of the future lease payments over the expected lease term. Additionally, the ROU asset 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 Company’s leases include options to extend the lease agreement. The exercise of an extension 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, which are considered to be variable lease payments. Due to the nature of the Company’s variable lease payments, they 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.

Generally, the discount rate implicit within the Company’s leases cannot be readily determined, and therefore the Company uses its incremental borrowing rate to determine the present value of the future lease payments. 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.

Operating leases are reflected in “Operating lease assets,” “Current operating lease liabilities,” and “Long-term operating lease liabilities” on the Company's condensed consolidated balance sheets.

Short-term lease expense, variable lease expenses, and sublease income was immaterial to the condensed consolidated statements of income.

The following table summarizes lease expense recognized for the three months ended October 31, 2019:
 
 
 
Three months ended
 
Condensed Consolidated Statements of Income Location
 
October 31, 2019
Operating lease cost
Cost of goods sold
 
$
4,095

Operating lease cost
Selling, general, and administrative expenses
 
1,310



The following table summarizes maturity of the Company's lease liabilities as of October 31, 2019:
Years ended July 31,
Operating Leases
Remainder of 2020
$
12,556

2021
15,599

2022
12,647

2023
9,265

2024
5,502

Thereafter
3,181

Total lease payments
$
58,750

Less interest
(3,769
)
Present value of lease liabilities
$
54,981



9


    
The weighted average remaining lease terms and discount rates for the Company's operating leases as of October 31, 2019 was as follows:
 
October 31, 2019
Weighted average remaining lease term (in years)
4.1

Weighted average discount rate
3.4
%
Supplemental cash flow information related to the Company's operating leases for the three months ended October 31, 2019, was as follows:
 
Three months ended
 
October 31, 2019
Operating cash flows from operating leases
$
4,010

Operating lease assets obtained in exchange for new operating lease liabilities
9,952


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,
Operating Leases
2020
$
18,450

2021
16,132

2022
13,439

2023
10,065

2024
5,656

Thereafter
3,502

Total lease payments
$
67,244


NOTE F – Stockholders' Equity
The following table illustrates the changes in the balances of each component of stockholders' equity for the three months ended October 31, 2019:
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total Stockholders' Equity
Balances at July 31, 2019
 
$
548

 
$
329,969

 
$
637,843

 
$
(46,332
)
 
$
(71,254
)
 
$
850,774

Net income
 

 

 
37,498

 

 

 
37,498

Other comprehensive loss, net of tax
 

 

 

 

 
(29
)
 
(29
)
Issuance of shares of Class A Common Stock under stock plan
 

 
(6,410
)
 

 
2,553

 

 
(3,857
)
Tax benefit and withholdings from deferred compensation distributions
 

 
64

 

 

 

 
64

Stock-based compensation expense
 

 
3,618

 

 

 

 
3,618

Purchase of shares of Class A Common Stock
 

 

 

 

 

 

Cash dividends on Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Class A — $0.22 per share
 

 

 
(10,822
)
 

 

 
(10,822
)
Class B — $0.20 per share
 

 

 
(711
)
 

 

 
(711
)
Balances at October 31, 2019
 
$
548

 
$
327,241

 
$
663,808

 
$
(43,779
)
 
$
(71,283
)
 
$
876,535




10


The following table illustrates the changes in the balances of each component of stockholders' equity for the three months ended October 31, 2018:
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total Stockholders' Equity
Balances at July 31, 2018
 
$
548

 
$
325,631

 
$
553,454

 
$
(71,120
)
 
$
(56,401
)
 
$
752,112

Net income
 

 

 
30,637

 

 

 
30,637

Other comprehensive loss, net of tax
 

 

 

 

 
(9,830
)
 
(9,830
)
Issuance of shares of Class A Common Stock under stock plan
 

 
(4,505
)
 

 
14,569

 

 
10,064

Tax benefit and withholdings from deferred compensation distributions
 

 
91

 

 

 

 
91

Stock-based compensation expense
 

 
4,965

 

 

 

 
4,965

Purchase of shares of Class A Common Stock
 

 

 

 
(1,863
)
 

 
(1,863
)
Cumulative adjustment for ASU 2014-09, net of tax
 

 

 
(2,137
)
 

 

 
(2,137
)
Cash dividends on Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Class A — $0.21 per share
 

 

 
(10,403
)
 

 

 
(10,403
)
Class B — $0.20 per share
 

 

 
(693
)
 

 

 
(693
)
Balances at October 31, 2018
 
$
548

 
$
326,182

 
$
570,858

 
$
(58,414
)
 
$
(66,231
)
 
$
772,943


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. The majority of the Company’s annual share-based awards are granted in the first quarter of the fiscal year.
Total stock-based compensation expense recognized by the Company during the three months ended October 31, 2019 and 2018, was $3,618 ($3,089 net of taxes) and $4,965 ($4,319 net of taxes), respectively. As of October 31, 2019, total unrecognized compensation cost related to share-based awards was $15,461 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.3 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 service 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” stock 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 three months ended October 31, 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:
 
 
Three months ended October 31,
Black-Scholes Option Valuation Assumptions
 
2019
 
2018
Expected term (in years)
 
6.20

 
6.20

Expected volatility
 
25.85
%
 
25.83
%
Expected dividend yield
 
2.63
%
 
2.71
%
Risk-free interest rate
 
1.64
%
 
3.01
%
Weighted-average market value of underlying stock at grant date
 
$
54.05

 
$
43.96

Weighted-average exercise price
 
$
54.05

 
$
43.96

Weighted-average fair value of options granted during the period
 
$
10.63

 
$
9.70



11


The following is a summary of stock option activity for the three months ended October 31, 2019:
Time-Based Options
 
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding at July 31, 2019
 
1,594,716
 
$
31.63

 
 
 
 
New grants
 
247,297
 
54.05

 
 
 
 
Exercised
 
(381,698)
 
27.05

 
 
 
 
Forfeited or expired
 
(2,221)
 
40.25

 
 
 
 
Outstanding at October 31, 2019
 
1,458,094
 
$
36.62

 
7.2
 
$
28,976

Exercisable at October 31, 2019
 
933,905
 
$
30.59

 
6.0
 
$
24,192


The total fair value of stock options vested during the three months ended October 31, 2019 and 2018, was $2,537 and $2,798, respectively. The total intrinsic value of stock options exercised during the three months ended October 31, 2019 and 2018, based upon the average market price at the time of exercise during the period, was $10,225 and $9,423, respectively.
The cash received from the exercise of stock options during the three months ended October 31, 2019 and 2018, was $3,411 and $13,001, respectively. The tax benefit from the exercise of stock options during the three months ended October 31, 2019 and 2018, was $2,541 and $2,356, respectively.
RSUs
The Company issues "time-based" and "performance-based" RSUs under the incentive stock plan. The time-based RSUs issued under the plan generally vest ratably over a three-year period and have a grant date fair value equal to the fair market value of the underlying stock at the date of grant. The performance-based RSUs issued under the plan vest at the end of a three-year service period provided specified financial performance metrics are met. The fair value of performance-based RSUs was determined by a third-party valuation involving the use of a Monte Carlo simulation.
The following tables summarize the RSU activity for the three months ended October 31, 2019:
Time-Based RSUs
 
Shares
 
Weighted Average
Grant Date
 Fair Value
Outstanding at July 31, 2019
 
188,638

 
$
38.15

New grants
 
69,328

 
54.10

Vested
 
87,002

 
36.00

Forfeited
 
(454
)
 
40.43

Outstanding at October 31, 2019
 
344,514

 
$
45.72


The time-based RSUs granted during the three months ended October 31, 2018, had a weighted-average grant date fair value of $33.16. The total fair value of time-based RSUs vested during the three months ended October 31, 2019 and 2018, was $4,615 and $4,795, respectively.
Performance-Based RSUs
 
Shares
 
Weighted Average
Grant Date
Fair Value
Outstanding at July 31, 2019
 
158,410

 
$
38.33

New grants
 
38,946

 
75.00

Vested
 
(87,928
)
 
32.03

Outstanding at October 31, 2019
 
109,428

 
$
50.79


The performance-based RSUs granted during the three months ended October 31, 2018, 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 October 31, 2019 and expected to vest was $24,748.

12


NOTE G — Accumulated Other Comprehensive Loss
Other comprehensive loss consists of foreign currency translation adjustments, unrealized gains and losses from cash flow hedges and net investment 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 three months ended October 31, 2019:
 
Unrealized gain on
cash flow hedges
 
Unamortized gain on post-retirement plans
 
Foreign currency translation adjustments
 
Accumulated other comprehensive loss
Beginning balance, July 31, 2019
$
707

 
$
2,800

 
$
(74,761
)
 
$
(71,254
)
Other comprehensive income before reclassification
136

 

 
226

 
362

Amounts reclassified from accumulated other comprehensive loss
(286
)
 
(105
)
 

 
(391
)
Ending balance, October 31, 2019
$
557

 
$
2,695

 
$
(74,535
)
 
$
(71,283
)

The change in the accumulated other comprehensive loss as of October 31, 2019, compared to July 31, 2019, was negligible primarily due to the stability of the U.S. dollar against certain other currencies. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax. Of the total $391 in amounts reclassified from accumulated other comprehensive loss, the $286 gain on cash flow hedges was reclassified into cost of goods sold and the $105 gain on post-retirement plans was reclassified into selling, general and administrative expenses ("SG&A") on the condensed consolidated statements of income for the three months ended October 31, 2019.
The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended October 31, 2018, were as follows:
 
Unrealized gain on
cash flow hedges
 
Unamortized gain on post-retirement plans
 
Foreign currency translation adjustments
 
Accumulated other comprehensive loss
Beginning balance, July 31, 2018
$
863

 
$
3,302

 
$
(60,566
)
 
$
(56,401
)
Other comprehensive loss before reclassification
(491
)
 

 
(9,149
)
 
(9,640
)
Amounts reclassified from accumulated other comprehensive loss
(35
)
 
(155
)
 

 
(190
)
Ending balance, October 31, 2018
$
337

 
$
3,147

 
$
(69,715
)
 
$
(66,231
)

The increase in accumulated other comprehensive loss as of October 31, 2018, compared to July 31, 2018, was primarily due to the appreciation of the U.S. dollar against certain other currencies. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax. Of the total $190 in amounts reclassified from accumulated other comprehensive loss, the $35 gain on cash flow hedges was reclassified into cost of goods sold and the $155 gain on post-retirement plans was reclassified into SG&A on the condensed consolidated statements of income for the three months ended October 31, 2018.
The following table illustrates the income tax expense on the components of other comprehensive loss for the three months ended October 31, 2019 and 2018:
 
Three months ended October 31,
 
2019
 
2018
Income tax benefit (expense) related to items of other comprehensive loss:
 
 
 
Cash flow hedges
$
35

 
$
(100
)
Other income tax adjustments and currency translation
176

 
(358
)
Income tax benefit (expense) related to items of other comprehensive loss
$
211

 
$
(458
)

NOTE H — Revenue Recognition
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. The Company’s revenues are primarily from the sale of identification and workplace safety products that are shipped and billed to customers. All revenue is from contracts

13


with customers and is included in “Net sales” on the condensed consolidated statements of income. See Note I “Segment Information” for the Company’s disaggregated revenue disclosure.
The Company’s contracts with customers consist of purchase orders, which in some cases are governed by master supply or distributor agreements. 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 offers extended warranty coverage that is included in the sales price of certain products, which it accounts for as service warranties. The Company accounts for the deferred revenue associated with extended service warranties as a contract liability. At the time of sale, the extended warranty transaction price is recorded as deferred revenue and is recognized on a straight-line basis over the life of the service warranty period.
The balance of contract liabilities associated with service warranty performance obligations was $2,802 and $2,782 as of October 31, 2019 and July 31, 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 condensed consolidated balance sheets. The Company recognized revenue of $315 and $308 during the three months ended October 31, 2019 and 2018, respectively, that was included in the contract liability balance at the beginning of the respective period from the amortization of extended service warranties. Of the contract liability balance outstanding at October 31, 2019, the Company expects to recognize 29% by the end of fiscal 2020, an additional 27% by the end of fiscal 2021, and the remaining balance thereafter. 
With the exception of the performance obligations related to the extended service warranties, the Company's contracts have an original expected duration of one year or less. As a result, the Company has elected to use the practical expedient to not disclose its remaining performance obligations for contracts that have an original expected length of one year or less.

NOTE I — Segment Information

The Company is organized and managed on a global basis within three operating segments, Identification Solutions, Workplace Safety, and People Identification ("PDC"), which aggregate into two reportable segments that are organized around businesses with consistent products and services: IDS and WPS. The Identification Solutions and PDC operating segments aggregate into the IDS reporting segment, while the WPS reporting segment is comprised solely of the Workplace Safety operating segment. The Company evaluates short-term segment performance based on segment profit and customer sales. Interest expense, investment and other income (expense), income taxes, and certain corporate administrative expenses are excluded when evaluating segment performance. The following is a summary of net sales by segment and geographic region for the three months ended October 31, 2019 and 2018:
 
Three months ended October 31,
 
2019
 
2018
Net sales:
 
 
 
ID Solutions
 
 
 
Americas
$
149,363

 
$
145,791

Europe
43,381

 
48,828

Asia
22,243

 
23,481

Total
$
214,987

 
$
218,100

Workplace Safety
 
 
 
Americas
$
24,303

 
$
24,751

Europe
36,026

 
37,655

Australia
11,631

 
12,690

Total
$
71,960

 
$
75,096

Total Company
 
 
 
Americas
$
173,666

 
$
170,542

Europe
79,407

 
86,483

Asia-Pacific
33,874

 
36,171

Total
$
286,947

 
$
293,196



14


Segment profit for the three months ended October 31, 2019 and 2018 was as follows:
 
Three months ended October 31,
 
2019
 
2018
Segment profit:
 
 
 
ID Solutions
$
42,443

 
$
41,562

Workplace Safety
5,157

 
5,541

Total Company
$
47,600

 
$
47,103


The following is a reconciliation of segment profit to income before income taxes for the three months ended October 31, 2019 and 2018:
 
Three months ended October 31,
 
2019
 
2018
Total profit from reportable segments
$
47,600

 
$
47,103

Unallocated amounts:
 
 
 
Administrative costs
(6,709
)
 
(6,481
)
Investment and other income (expense)
1,380

 
(17
)
Interest expense
(701
)
 
(712
)
Income before income taxes
$
41,570

 
$
39,893


NOTE J — Net Income per Common Share
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
 
Three months ended October 31,
 
2019
 
2018
Numerator (in thousands):
 
 
 
Income (Numerator for basic and diluted income per Class A Nonvoting Common Share)
$
37,498

 
$
30,637

Less:
 
 
 
Preferential dividends
(828
)
 
(815
)
Preferential dividends on dilutive stock options
(10
)
 
(13
)
Numerator for basic and diluted income per Class B Voting Common Share
$
36,660

 
$
29,809

Denominator: (in thousands)
 
 
 
Denominator for basic income per share for both Class A and Class B
53,143

 
52,201

Plus: Effect of dilutive equity awards
593

 
757

Denominator for diluted income per share for both Class A and Class B
53,736

 
52,958

Net income per Class A Nonvoting Common Share:
 
 
 
Basic
$
0.71

 
$
0.59

Diluted
$
0.70

 
$
0.58

Net income per Class B Voting Common Share:
 
 
 
Basic
$
0.69

 
$
0.57

Diluted
$
0.68

 
$
0.56


Stock-based awards to purchase 323,719 and 679,902 shares of Class A Nonvoting Common Stock for the three months ended October 31, 2019 and 2018, respectively, were not included in the computation of diluted net income per share because the grant price was greater than the average market price of the common shares and, therefore, the effect would have been anti-dilutive.
NOTE K — 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:

15


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.
The following table summarizes the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at October 31, 2019 and July 31, 2019.
 
October 31, 2019
 
July 31, 2019
 
Fair Value Hierarchy
Assets:
 
 
 
 
 
Trading securities
$
15,212

 
$
15,744

 
Level 1
Foreign exchange contracts
595

 
474

 
Level 2
Liabilities:
 
 
 
 
 
Foreign exchange contracts
12

 
5

 
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 condensed 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 L, “Derivatives and Hedging Activities,” for additional information.
There have been no transfers between fair value hierarchy levels during the three months ended October 31, 2019.
The fair values of cash and cash equivalents, accounts receivable, accounts payable, and other liabilities approximated carrying values due to their short-term nature.
The following table summarizes the estimated fair value of the Company’s long-term debt obligations, including current maturities, at October 31, 2019 and July 31, 2019, which was based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities.
 
October 31, 2019
July 31, 2019
  
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Current maturities on long-term debt
$
50,144

 
$
51,076

 
$
50,166

 
$
51,566


NOTE L — 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 on 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 currency contracts.
The Company hedges a portion of known exposures using forward exchange contracts. Main 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.

16


The U.S. dollar equivalent notional amounts of outstanding forward exchange contracts were as follows:
  
October 31, 2019
 
July 31, 2019
Designated as cash flow hedges
$
19,540

 
$
26,013

Non-designated hedges
3,385

 
3,376

Total foreign exchange contracts
$
22,925

 
$
29,389


Cash Flow Hedges
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 condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income ("OCI") and reclassified into income in the same period or periods during which the hedged transaction affects income. As of October 31, 2019 and July 31, 2019, unrealized gains of $620 and $805 have been included in OCI, respectively. These balances are expected to be reclassified from OCI to income during the next twelve months.
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 €75,000 aggregate principal amount of senior unsecured notes consisting of €30,000 aggregate principal amount of 3.71% Series 2010-A Senior Notes, which were repaid during fiscal 2017, and 45,000 aggregate principal amount of 4.24% Series 2010-A Senior Notes, due May 13, 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 foreign 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 condensed consolidated statements of comprehensive income. As of October 31, 2019 and July 31, 2019, the cumulative balance recognized in accumulated other comprehensive income were gains of $12,462 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:
 
Three months ended October 31,
  
2019
 
2018
Gains (losses) recognized in OCI:
 
 
 
Foreign exchange contracts (cash flow hedges)
$
196

 
$
(380
)
Foreign currency denominated debt (net investment hedges)
22

 
1,620

Gains reclassified from OCI into cost of goods sold:
 
 
 
Forward exchange contracts (cash flow hedges)
381

 
47


Non-Designated Hedges
The Company recognized losses of $8 and $33 for the three months ended October 31, 2019 and 2018, respectively, in “Investment and other income (expense)” on the condensed consolidated statements of income related to non-designated hedges.
Fair values of derivative instruments in the condensed consolidated balance sheets were as follows: 
 
October 31, 2019
 
July 31, 2019
  
Prepaid expenses and other current assets
 
Other current liabilities
 
Current maturities on long-term obligations
 
Prepaid expenses and other current assets
 
Other current liabilities
 
Current maturities on long-term obligations
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts (cash flow hedges)
$
591

 

 

 
$
472

 

 

Foreign currency denominated debt
(net investment hedges)