UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



6555 West Good Hope Road,
Milwaukee,	Wisconsin	53223
(Address of principal executive offices and ~~Zip Code)~~zip code)

(414) 358-6600

(~~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

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 ☑

As of ~~February 18,~~November 17, 2020, there were ~~49,811,300~~48,475,600 outstanding shares of Class A Nonvoting Common Stock and 3,538,628 shares of Class B Voting Common Stock. The Class B Voting Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock.

Table of Contents

FORM 10-Q

BRADY CORPORATION

INDEX

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)


	October 31, 2020		July 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	256,333	$	217,643
Accounts receivable, net of allowance for credit losses of $7,704 and $7,157, respectively	156,735		146,181
Inventories	120,220		135,662
Prepaid expenses and other current assets	11,489		9,962
Total current assets	544,777		509,448
Property, plant and equipment—net	119,960		115,068
Goodwill	412,718		416,034
Other intangible assets	20,910		22,334
Deferred income taxes	8,976		8,845
Operating lease assets	41,013		41,899
Other assets	27,353		28,838
Total	$	1,175,707	$	1,142,466
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	62,907	$	62,547
Accrued compensation and benefits	55,410		41,546
Taxes, other than income taxes	8,497		8,057
Accrued income taxes	10,707		8,652
Current operating lease liabilities	16,097		15,304
Other current liabilities	51,343		49,782
Total current liabilities	204,961		185,888
Long-term operating lease liabilities	29,951		31,982
Other liabilities	60,394		61,524
Total liabilities	295,306		279,394
Stockholders’ equity:
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 48,497,649 and 48,456,954 shares, respectively	513		513
Class B voting common stock—Issued and outstanding, 3,538,628 shares	35		35
Additional paid-in capital	332,121		331,761
Retained earnings	726,546		704,456
Treasury stock—2,763,838 and 2,804,533 shares, respectively, of Class A nonvoting common stock, at cost	(109,146)		(107,216)
Accumulated other comprehensive loss	(69,668)		(66,477)
Total stockholders’ equity	880,401		863,072
Total	$	1,175,707	$	1,142,466

January 31, 2020 July 31, 2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 289,803
$ 279,072
Accounts receivable—net 151,511
158,114
Inventories 120,788
120,037
Prepaid expenses and other current assets 18,889
16,056
Total current assets 580,991
573,279
Property, plant and equipment—net 112,782
110,048
Goodwill 410,455
410,987
Other intangible assets 33,580
36,123
Deferred income taxes 7,120
7,298
Operating lease assets 49,117
—
Other assets 21,753
19,573
Total $ 1,215,798
$ 1,157,308
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 51,233
$ 64,810
Accrued compensation and benefits 38,561
62,509
Taxes, other than income taxes 7,703
8,107
Accrued income taxes 6,075
6,557
Current operating lease liabilities 14,901
—
Other current liabilities 48,590
49,796
Current maturities on long-term debt 49,627
50,166
Total current liabilities 216,690
241,945
Long-term operating lease liabilities 36,993
—
Other liabilities 62,191
64,589
Total liabilities 315,874
306,534
Stockholders’ equity:
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 49,810,101 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 329,263
329,969
Retained earnings 685,758
637,843
Treasury stock—1,451,386 and 1,802,646 shares, respectively, of Class A nonvoting common stock, at cost (43,155 ) (46,332 )
Accumulated other comprehensive loss (72,490 ) (71,254 )
Total stockholders’ equity 899,924
850,774
Total $ 1,215,798
$ 1,157,308

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Amounts, Unaudited)


	Three months ended October 31,
	2020		2019
Net sales	$	277,227	$	286,947
Cost of goods sold	141,799		145,542
Gross margin	135,428		141,405
Operating expenses:
Research and development	10,203		10,967
Selling, general and administrative	83,037		89,547
Total operating expenses	93,240		100,514
Operating income	42,188		40,891
Other income (expense):
Investment and other income	155		1,380
Interest expense	(106)		(701)
Income before income taxes and losses of unconsolidated affiliate	42,237		41,570
Income tax expense	8,582		4,072
Income before losses of unconsolidated affiliate	33,655		37,498
Equity in losses of unconsolidated affiliate	(174)		0
Net income	$	33,481	$	37,498
Net income per Class A Nonvoting Common Share:
Basic	$	0.64	$	0.71
Diluted	$	0.64	$	0.70
Dividends	$	0.22	$	0.22
Net income per Class B Voting Common Share:
Basic	$	0.63	$	0.69
Diluted	$	0.62	$	0.68
Dividends	$	0.20	$	0.20
Weighted average common shares outstanding:
Basic	52,021		53,143
Diluted	52,292		53,736

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Net sales $ 276,665
$ 282,426
$ 563,612
$ 575,622
Cost of goods sold 137,538
142,616
283,080
289,273
Gross margin 139,127
139,810
280,532
286,349
Operating expenses:
Research and development 10,517
11,074
21,484
22,400
Selling, general and administrative 87,366
92,706
176,913
187,297
Total operating expenses 97,883
103,780
198,397
209,697
Operating income 41,244
36,030
82,135
76,652
Other income (expense):
Investment and other income 1,760
1,377
3,140
1,360
Interest expense (647 ) (717 ) (1,348 ) (1,429 )
Income before income taxes 42,357
36,690
83,927
76,583
Income tax expense 8,804
7,463
12,876
16,719
Net income $ 33,553
$ 29,227
$ 71,051
$ 59,864
Net income per Class A Nonvoting Common Share:
Basic $ 0.63
$ 0.56
$ 1.33
$ 1.14
Diluted $ 0.62
$ 0.55
$ 1.32
$ 1.13
Dividends $ 0.22
$ 0.21
$ 0.44
$ 0.43
Net income per Class B Voting Common Share:
Basic $ 0.63
$ 0.56
$ 1.32
$ 1.13
Diluted $ 0.62
$ 0.55
$ 1.31
$ 1.11
Dividends $ 0.22
$ 0.21
$ 0.42
$ 0.41
Weighted average common shares outstanding:
Basic 53,320
52,532
53,232
52,366
Diluted 53,827
53,206
53,781
53,082

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands, Unaudited)


	Three months ended October 31,
	2020		2019
Net income	$	33,481	$	37,498
Other comprehensive loss:
Foreign currency translation adjustments	(4,192)		50

Cash flow hedges:
Net gain recognized in other comprehensive loss	697		196
Reclassification adjustment for losses (gains) included in net income	211		(381)
	908		(185)

Pension and other post-retirement benefits actuarial gain amortization	(106)		(105)

Other comprehensive loss, before tax	(3,390)		(240)
Income tax benefit related to items of other comprehensive loss	199		211
Other comprehensive loss, net of tax	(3,191)		(29)
Comprehensive income	$	30,290	$	37,469

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Net income $ 33,553
$ 29,227
$ 71,051
$ 59,864
Other comprehensive (loss) income:
Foreign currency translation adjustments (1,009 ) 5,486
(959 ) (3,304 )

Cash flow hedges:
Net gain recognized in other comprehensive (loss) income 363
537
559
157
Reclassification adjustment for gains included in net income (105 ) (240 ) (486 ) (287 )
258
297
73
(130 )
Pension and other post-retirement benefits:
Net loss recognized in other comprehensive (loss) income (309 ) (169 ) (309 ) (169 )
Actuarial gain amortization (105 ) (144 ) (210 ) (299 )
(414 ) (313 ) (519 ) (468 )

Other comprehensive (loss) income, before tax (1,165 ) 5,470
(1,405 ) (3,902 )
Income tax (expense) benefit related to items of other comprehensive (loss) income (42 ) 196
169
(262 )
Other comprehensive (loss) income, net of tax (1,207 ) 5,666
(1,236 ) (4,164 )
Comprehensive income $ 32,346
$ 34,893
$ 69,815
$ 55,700

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands, Unaudited)


	Three months ended October 31,
	2020		2019
Operating activities:
Net income	$	33,481	$	37,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,635		5,634
Stock-based compensation expense	3,574		3,618
Deferred income taxes	(1,175)		1,009
Equity in losses of unconsolidated affiliate	174		0
Other	(266)		1,533
Changes in operating assets and liabilities:
Accounts receivable	(11,371)		(4,362)
Inventories	14,758		249
Prepaid expenses and other assets	(1,398)		(1,404)
Accounts payable and accrued liabilities	17,363		(5,193)
Income taxes	2,063		266
Net cash provided by operating activities	62,838		38,848

Investing activities:
Purchases of property, plant and equipment	(9,321)		(7,724)
Other	119		527
Net cash used in investing activities	(9,202)		(7,197)

Financing activities:
Payment of dividends	(11,391)		(11,533)
Proceeds from exercise of stock options	160		3,411
Payments for employee taxes withheld from stock-based awards	(2,617)		(7,269)
Purchase of treasury stock	(2,720)		0
Other	17		65
Net cash used in financing activities	(16,551)		(15,326)

Effect of exchange rate changes on cash and cash equivalents	1,605		(304)

Net increase in cash and cash equivalents	38,690		16,021
Cash and cash equivalents, beginning of period	217,643		279,072

Cash and cash equivalents, end of period	$	256,333	$	295,093

Six months ended January 31,
2020 2019
Operating activities:
Net income $ 71,051
$ 59,864
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,672
11,909
Stock-based compensation expense 5,384
7,805
Deferred income taxes 1,272
4,423
Other 1,664
1,279
Changes in operating assets and liabilities:
Accounts receivable 6,209
2,562
Inventories (1,311 ) (6,602 )
Prepaid expenses and other assets (2,621 ) (2,310 )
Accounts payable and accrued liabilities (39,777 ) (35,334 )
Income taxes (436 ) 592
Net cash provided by operating activities 53,107
44,188

Investing activities:
Purchases of property, plant and equipment (13,100 ) (12,127 )
Other (3,406 ) (452 )
Net cash used in investing activities (16,506 ) (12,579 )

Financing activities:
Payment of dividends (23,136 ) (22,263 )
Proceeds from exercise of stock options 4,686
18,498
Payments for employee taxes withheld from stock-based awards (7,733 ) (3,362 )
Proceeds from borrowing on credit facilities —
5,737
Repayment of borrowing on credit facilities —
(5,688 )
Other 134
(2,973 )
Net cash used in financing activities (26,049 ) (10,051 )

Effect of exchange rate changes on cash 179
(776 )

Net increase in cash and cash equivalents 10,731
20,782
Cash and cash equivalents, beginning of period 279,072
181,427

Cash and cash equivalents, end of period $ 289,803
$ 202,209

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Six~~Three Months Ended~~January~~ October 31, 2020

(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 ~~January~~October 31, 2020 and July 31, ~~2019,~~2020, its results of operations and comprehensive income for the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019, and cash flows for the ~~six~~three months ended ~~January~~October 31, 2020 and 2019. The condensed consolidated balance sheet as of July 31, ~~2019,~~2020, 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~~Annual Report on Form 10-K for the year ended July 31, ~~2019.~~2020.

NOTE B — New Accounting Pronouncements

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. 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.

~~In August 2017, the Financial Accounting~~Adopted 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~~Prior guidance ~~requires~~required the recognition of credit losses based on an incurred loss impairment methodology that ~~reflects~~reflected losses once the losses ~~are~~were probable. Under ASU 2016-13, the Company ~~will be~~is required to use a current expected credit loss model ("CECL") that ~~will~~ immediately ~~recognize~~recognizes 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~~The guidance ~~becomes~~is effective for interim periods in fiscal years beginning after December 15, 2019. The Company ~~is currently evaluating the~~adopted ASU 2016-13 effective August 1, 2020, which did not have a material impact ~~that the adoption of this ASU will have~~ on ~~the~~its consolidated financial ~~statements and related disclosures.~~

statements.

In January 2017, the FASB issued ASU 2017-04, "Goodwill and Other, Simplifying the Test for Goodwill ~~Impairment,~~Impairment." ~~which simplifies the accounting for goodwill impairment.~~ The new guidance removes Step 2 of the goodwill impairment test, which ~~requires~~required a hypothetical purchase price allocation. A goodwill impairment ~~will~~is 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~~remains largely unchanged. ~~This~~The guidance is effective for ~~annual~~interim periods in fiscal years beginning after December 15, ~~2019, and interim periods thereafter; however, early adoption is permitted for any impairment tests performed after January 1, 2017.~~2019. The Company ~~has not~~ adopted ~~this~~ASC 2017-04 effective August 1, 2020. This guidance ~~which will~~ only ~~impact~~impacts the Company's consolidated financial statements if there is a future impairment of goodwill.

Standards not yet adopted

In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740),." ~~which simplifies the accounting for income taxes.~~ 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~~December 15, 2020, and interim periods ~~thereafter; however, early~~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.

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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.

NOTE C — Additional Balance Sheet Information

Inventories

Inventories as of ~~January~~October 31, 2020, and July 31, ~~2019,~~2020, consisted of the following:

January 31, 2020 July 31, 2019
Finished products $ 77,951
$ 77,532
Work-in-process 21,477
20,515
Raw materials and supplies 21,360
21,990
Total inventories $ 120,788
$ 120,037


	October 31, 2020		July 31, 2020
Finished products	$	74,933	$	85,547
Work-in-process	20,815		24,044
Raw materials and supplies	24,472		26,071
Total inventories	$	120,220	$	135,662

Property, plant and equipment

Property, plant and equipment is presented net of accumulated depreciation in the amount of ~~$280,961~~$269,510 and ~~$273,880~~$276,248 as of ~~January~~October 31, 2020, and July 31, ~~2019,~~2020, respectively.

NOTE D — Other Intangible Assets

Other intangible assets ~~include customer relationships, patents,~~as of October 31, 2020, and ~~trademarks with finite lives being amortized in accordance with~~July 31, 2020, consisted of 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:following:

January 31, 2020 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 $ 46,561
$ (31,897 ) $ 14,664
9 $ 46,595
$ (29,343 ) $ 17,252
Unamortized other intangible assets:
Trademarks N/A 18,916
—
18,916
N/A 18,871
—
18,871
Total $ 65,477
$ (31,897 ) $ 33,580
$ 65,466
$ (29,343 ) $ 36,123


	October 31, 2020							July 31, 2020
	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
Definite-lived other intangible assets:
Customer relationships and tradenames	9	$	45,346	$	(33,986)	$	11,360	9	$	45,385	$	(32,670)	$	12,715
Indefinite-lived other intangible assets:
Tradenames	N/A	9,550		—		9,550		N/A	9,619		—		9,619
Total		$	54,896	$	(33,986)	$	20,910		$	55,004	$	(32,670)	$	22,334

The change in the gross carrying amount of other intangible assets as of ~~January~~October 31, 2020 compared to July 31, ~~2019~~2020 was due to the ~~effects~~effect of currency fluctuations during the ~~six-month~~three-month period.

Amortization expense ofon intangible assets was ~~$1,291~~$1,351 and ~~$1,434~~$1,291 for the three months ended ~~January 31, 2020 and 2019, respectively, and $2,582 and $2,870 for the six months ended January~~October 31, 2020 and 2019, respectively. ~~The amortization~~Amortization expense over each of the next five fiscal years is projected to be $~~5,163, $5,163, $4,894, $2,025~~$5,404, $5,116, and $0$2,191 for the fiscal years ending July 31, ~~2020~~, 2021,, 2022,, ~~2023~~ and 2023, respectively. No amortization expense for intangible assets is projected after July 31, 2023.

~~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~~ten years. As of ~~January~~October 31, 2020, the Company did not have any finance leases.

Table of Contents

~~The Company determines whether an arrangement contains a~~Operating lease ~~at contract inception. The contract is considered to contain a lease if it provides~~expense was $4,073 and $5,405 for the ~~Company with~~three months ended October 31, 2020 and 2019, respectively, which was recognized in either "Cost of goods sold" or "Selling, general and administrative expenses" in the ~~right to direct the use~~condensed consolidated statements 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 dateincome, 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.

lease. Short-term lease expense, variable lease expenses, and sublease income was immaterial to the condensed consolidated statements of income for the three ~~and six~~ months ended ~~January 31, 2020.~~

~~The following table summarizes lease expense recognized for the three and six months ended January 31, 2020:~~

Three months ended Six months ended
Condensed Consolidated Statements of Income Location January 31, 2020 January 31, 2020
Operating lease cost Cost of goods sold $ 2,092
$ 4,962
Operating lease cost Selling, general, and administrative expenses 2,182
4,716

~~The following table summarizes the maturity of the Company's lease liabilities as of January 31, 2020:~~

Years ended July 31, Operating Leases
Remainder of 2020 $ 8,426
2021 15,780
2022 12,797
2023 9,427
2024 5,580
Thereafter 3,268
Total lease payments $ 55,278
Less interest (3,384 )
Present value of lease liabilities $ 51,894

~~The weighted average remaining lease terms and discount rates for the Company's operating leases as of January~~October 31, 2020 ~~were as follows:~~



	~~January 31, 2020~~
~~Weighted average remaining lease term (in years)~~	~~3.9~~
~~Weighted average discount rate~~	~~3.4~~	%

and 2019.

Supplemental cash flow information related to the Company's operating leases for the ~~six~~three months ended ~~January~~October 31, 2020 and 2019, ~~were~~was as follows:


	Three months ended October 31,
	2020		2019
Operating cash flows from operating leases	$	4,297	$	4,010
Operating lease assets obtained in exchange for new operating lease liabilities	2,936		9,952

Six months ended
January 31, 2020
Operating cash outflows from operating leases $ 8,216
Operating lease assets obtained in exchange for new operating lease liabilities 10,637

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 ~~January~~October 31, 2020:

Common
Stock Additional
Paid-In
Capital Retained Earnings Treasury
Stock Accumulated Other
Comprehensive Loss Total Stockholders' Equity
Balances at October 31, 2019 $ 548
$ 327,241
$ 663,808
$ (43,779 ) $ (71,283 ) $ 876,535
Net income —
—
33,553
—
—
33,553
Other comprehensive loss, net of tax —
—
—
—
(1,207 ) (1,207 )
Issuance of shares of Class A Common Stock under stock plan —
187
—
624
—
811
Tax benefit and withholdings from deferred compensation distributions —
69
—
—
—
69
Stock-based compensation expense —
1,766
—
—
—
1,766
Cash dividends on Common Stock
Class A — $0.22 per share —
—
(10,833 ) —
—
(10,833 )
Class B — $0.22 per share —
—
(770 ) —
—
(770 )
Balances at January 31, 2020 $ 548
$ 329,263
$ 685,758
$ (43,155 ) $ (72,490 ) $ 899,924

~~The following table illustrates the changes in the balances of each component of stockholders' equity for the six months ended January 31, 2020:~~

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 —
—
71,051
—
—
71,051
Other comprehensive loss, net of tax —
—
—
—
(1,236 ) (1,236 )
Issuance of shares of Class A Common Stock under stock plan —
(6,223 ) —
3,177
—
(3,046 )
Tax benefit and withholdings from deferred compensation distributions —
133
—
—
—
133
Stock-based compensation expense —
5,384
—
—
—
5,384
Cash dividends on Common Stock
Class A — $0.44 per share —
—
(21,655 ) —
—
(21,655 )
Class B — $0.42 per share —
—
(1,481 ) —
—
(1,481 )
Balances at January 31, 2020 $ 548
$ 329,263
$ 685,758
$ (43,155 ) $ (72,490 ) $ 899,924


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
Balances at July 31, 2020	$	548	$	331,761	$	704,456	$	(107,216)	$	(66,477)	$	863,072
Net income	—		—		33,481		—		—		33,481
Other comprehensive loss, net of tax	—		—		—		—		(3,191)		(3,191)
Issuance of shares of Class A Common Stock under stock plan	—		(3,246)		—		790		—		(2,456)
Tax benefit and withholdings from deferred compensation distributions	—		32		—		—		—		32
Stock-based compensation expense	—		3,574		—		—		—		3,574
Repurchase of shares of Class A Common Stock	—		—		—		(2,720)		—		(2,720)
Cash dividends on Common Stock:
Class A — $0.22 per share	—		—		(10,671)		—		—		(10,671)
Class B — $0.20 per share	—		—		(720)		—		—		(720)
Balances at October 31, 2020	$	548	$	332,121	$	726,546	$	(109,146)	$	(69,668)	$	880,401

The following table illustrates the changes in the balances of each component of stockholders' equity for the three months ended ~~January~~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
Repurchase of shares of Class A Common Stock	—		—		—		0		—		0
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

Common
Stock Additional
Paid-In
Capital Retained Earnings Treasury
Stock
Accumulated Other
Comprehensive Loss
Total Stockholders' Equity
Balances at October 31, 2018 $ 548
$ 326,182
$ 570,858
$ (58,414 ) $ (66,231 ) $ 772,943
Net income —
—
29,227
—
—
29,227
Other comprehensive loss, net of tax —
—
—
—
5,666
5,666
Issuance of shares of Class A Common Stock under stock plan —
(162 ) —
5,235
—
5,073
Tax benefit and withholdings from deferred compensation distributions —
118
—
—
—
118
Stock-based compensation expense —
2,840
—
—
—
2,840
Purchase of shares of Class A Common Stock —
—
—
(1,319 ) —
(1,319 )
Cash dividends on Common Stock
Class A — $0.21 per share —
—
(10,415 ) —
—
(10,415 )
Class B — $0.21 per share —
—
(752 ) —
—
(752 )
Balances at January 31, 2019 $ 548
$ 328,978
$ 588,918
$ (54,498 ) $ (60,565 ) $ 803,381

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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 during the three months ended October 31, 2020 and 2019, was $3,574 ($3,300 net of taxes) and $3,618 ($3,089 net of taxes), respectively. As of October 31, 2020, total unrecognized compensation cost related to share-based awards was $14,460 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.2 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 option awards granted during the three months ended October 31, 2020 and 2019, 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	2020			2019
Expected term (in years)	6.21			6.20
Expected volatility	30.71		%	25.85		%
Expected dividend yield	2.49		%	2.63		%
Risk-free interest rate	0.38		%	1.64		%
Weighted-average market value of underlying stock at grant date	$	39.92		$	54.05
Weighted-average exercise price	$	39.92		$	54.05
Weighted-average fair value of options granted during the period	$	8.65		$	10.63

The following ~~table illustrates the changes in the balances~~is a summary of ~~each component of stockholders' equity~~stock option activity for the ~~six~~three months ended ~~January~~October 31, ~~2019:~~2020:


Time-Based Options	Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at July 31, 2020	1,273,382	$	37.84
New grants	303,052	39.92
Exercised	(22,300)	29.10
Forfeited or expired	0	0
Outstanding at October 31, 2020	1,554,134	$	38.37	7.2	$	5,410
Exercisable at October 31, 2020	1,004,641	$	34.88	6.1	$	5,410

The total fair value of stock options vested during the three months ended October 31, 2020 and 2019, was $2,371 and $2,537, respectively. The total intrinsic value of stock options exercised during the three months ended October 31, 2020 and 2019, based upon the average market price at the time of exercise during the period, was $373 and $10,225, respectively.

The cash received from the exercise of stock options during the three months ended October 31, 2020 and 2019, was $160 and $3,411, respectively. The tax benefit from the exercise of stock options during the three months ended October 31, 2020 and 2019, was $93 and $2,541, 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 vesting one year after the grant date

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 —
—
59,864
—
—
59,864
Other comprehensive loss, net of tax —
—
—
—
(4,164 ) (4,164 )
Issuance of shares of Class A Common Stock under stock plan —
(4,667 ) —
19,804
—
15,137
Tax benefit and withholdings from deferred compensation distributions —
209
—
—
—
209
Stock-based compensation expense —
7,805
—
—
—
7,805
Purchase of shares of Class A Common Stock —
—
—
(3,182 ) —
(3,182 )
Adoption of ASU 2014-09, "Revenue from Contracts with Customers" —
—
(2,137 ) —
—
(2,137 )
Cash dividends on Common Stock
Class A — $0.43 per share —
—
(20,818 ) —
—
(20,818 )
Class B — $0.41 per share —
—
(1,445 ) —
—
(1,445 )
Balances at January 31, 2019 $ 548
$ 328,978
$ 588,918
$ (54,498 ) $ (60,565 ) $ 803,381

Table of Contents

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 three months ended October 31, 2020:


Time-Based RSUs	Shares	Weighted Average Grant Date Fair Value
Outstanding at July 31, 2020	154,960	$	47.39
New grants	75,352	39.92
Vested	(63,339)	44.85
Forfeited	0	0
Outstanding at October 31, 2020	166,973	$	44.98

The time-based RSUs granted during the three months ended October 31, 2019, had a weighted-average grant date fair value of $54.10.


Performance-Based RSUs	Shares	Weighted Average Grant Date Fair Value
Outstanding at July 31, 2020	126,060	$	50.61
New grants (1)	64,634	60.73
Vested (1)	(71,413)	33.12
Forfeited	0	0
Outstanding at October 31, 2020	119,281	$	61.05

(1) Includes 23,805 shares granted and vested during the three months ended October 31, 2020, 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 three months ended October 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 three months ended October 31, 2019, had a weighted-average grant date fair value of $75.00.

The aggregate intrinsic value of time-based and performance-based RSUs vested during the three months ended October 31, 2020 and 2019, was $5,844 and $8,708, respectively.

NOTE G — Accumulated Other Comprehensive Loss

Other comprehensive loss consists of foreign currency translation adjustments which includes the settlements of 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 ~~six~~three months ended ~~January~~October 31, 2020:

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 (loss) before reclassification 468
(216 ) (913 ) (661 )
Amounts reclassified from accumulated other comprehensive loss (365 ) (210 ) —
(575 )
Ending balance, January 31, 2020 $ 810
$ 2,374
$ (75,674 ) $ (72,490 )


	Unrealized (loss) gain on cash flow hedges		Unamortized gain on post-retirement plans		Foreign currency translation adjustments		Accumulated other comprehensive loss
Beginning balance, July 31, 2020	$	(200)	$	2,181	$	(68,458)	$	(66,477)
Other comprehensive income (loss) before reclassification	701		—		(4,185)		(3,484)
Amounts reclassified from accumulated other comprehensive loss	159		134		—		293
Ending balance, October 31, 2020	$	660	$	2,315	$	(72,643)	$	(69,668)

The increase in accumulated other comprehensive loss as of ~~January~~October 31, 2020, compared to July 31, ~~2019,~~2020, was primarily due to the appreciation of the U.S. dollar against certain other currencies during the ~~six-month~~three-month period. ~~The foreign currency translation adjustments column in the table above includes the impact~~

Table of foreign currency translation and the settlements of net investment hedges, net of tax. Of the total $575 in amounts reclassified from accumulated other comprehensive loss, the $365 gain on cash flow hedges was reclassified into cost of goods sold, and the $210 gain on post-retirement plans was reclassified into investment and other income on the condensed consolidated statements of income for the six months ended January 31, 2020.Contents

The changes in accumulated other comprehensive loss by component, net of tax, for the ~~six~~three months ended ~~January~~October 31, 2019, 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 income (loss) before reclassification 47
(169 ) (3,528 ) (3,650 )
Amounts reclassified from accumulated other comprehensive loss (215 ) (299 ) —
(514 )
Ending balance, January 31, 2019 $ 695
$ 2,834
$ (64,094 ) $ (60,565 )


	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 increase in the accumulated other comprehensive loss as of ~~January~~October 31, 2019, compared to July 31, ~~2018,~~2019, was negligible primarily due to the ~~appreciation~~stability of the U.S. dollar against certain other currencies during the ~~six-month~~three-month period. 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 $514 in~~ amounts reclassified from accumulated other comprehensive loss during the ~~$215 gain~~three months ended October 31, 2020 and 2019, unrealized (losses) gains on cash flow hedges ~~was~~were reclassified ~~into cost~~to "Cost of goods ~~sold,~~sold" and ~~the $299 gain~~unamortized gains on post-retirement plans was reclassified into ~~“Investment~~"Investment and other ~~income”~~income" on the condensed consolidated statements of ~~income for the six months ended January 31, 2019.~~income.

The following table illustrates the income tax ~~expense~~benefit on the components of other comprehensive loss for the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019:


	Three months ended October 31,
	2020		2019
Income tax benefit related to items of other comprehensive loss:
Cash flow hedges	$	(48)	$	35
Pension and other post-retirement benefits	240		—
Other income tax adjustments and currency translation	7		176
Income tax benefit related to items of other comprehensive loss	$	199	$	211

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Income tax (expense) benefit related to items of other comprehensive (loss) income:
Cash flow hedges $ (5 ) $ 61
$ 30
$ (38 )
Pension and other post-retirement benefits 93
—
93
—
Other income tax adjustments and currency translation (130 ) 135
46
(224 )
Income tax (expense) benefit related to items of other comprehensive (loss) income $ (42 ) $ 196
$ 169
$ (262 )

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 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 condensed consolidated statements of income. See Note I, “Segment ~~Information”~~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 ~~$2,797~~$2,552 and ~~$2,782~~$2,559 as of ~~January~~October 31, 2020 and July 31, ~~2019,~~2020, 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 ~~$316~~$297 and ~~$631~~$315 during the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019, 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 ~~January~~October 31, 2020, the Company expects to recognize ~~22% by the end of fiscal 2020, an additional 34%~~32% by the end of fiscal 2021, an additional 31% by the end of fiscal 2022, and the remaining balance thereafter.

NOTE I — 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 ~~Identification Solutions~~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. The Company evaluates short-term segment performance based on segment profit and customer sales. Interest expense, investment and other income, 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 ~~and six~~ months ended ~~January~~October 31, 2020 and ~~2019~~2019:


	Three months ended October 31,
	2020		2019
Net sales:
ID Solutions
Americas	$	133,267	$	149,363
Europe	42,582		43,381
Asia	22,343		22,243
Total	$	198,192	$	214,987
Workplace Safety
Americas	$	24,031	$	24,303
Europe	41,266		36,026
Australia	13,738		11,631
Total	$	79,035	$	71,960
Total Company
Americas	$	157,298	$	173,666
Europe	83,848		79,407
Asia-Pacific	36,081		33,874
Total	$	277,227	$	286,947

The following is ~~as follows:~~

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Net sales:
ID Solutions
Americas $ 137,909
$ 138,324
$ 287,271
$ 284,114
Europe 45,319
47,282
88,701
96,110
Asia 22,134
23,599
44,377
47,080
Total $ 205,362
$ 209,205
$ 420,349
$ 427,304
Workplace Safety
Americas $ 23,636
$ 24,332
$ 47,939
$ 49,083
Europe 37,002
37,788
73,027
75,444
Australia 10,665
11,101
22,297
23,791
Total $ 71,303
$ 73,221
$ 143,263
$ 148,318
Total Company
Americas $ 161,545
$ 162,656
$ 335,210
$ 333,197
Europe 82,321
85,070
161,728
171,554
Asia-Pacific 32,799
34,700
66,674
70,871
Total $ 276,665
$ 282,426
$ 563,612
$ 575,622

~~Segment~~a summary of segment profit for the three ~~and six~~ months ended ~~January~~October 31, 2020 and ~~2019 is as follows:~~2019:

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Segment profit:
ID Solutions $ 40,655
$ 37,857
$ 83,098
$ 79,419
Workplace Safety 5,455
4,661
10,612
10,202
Total Company $ 46,110
$ 42,518
$ 93,710
$ 89,621


	Three months ended October 31,
	2020		2019
Segment profit:
ID Solutions	$	40,279	$	42,443
Workplace Safety	7,988		5,157
Total Company	$	48,267	$	47,600

The following is a reconciliation of segment profit to income before income taxes and losses of unconsolidated affiliate for the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019:


	Three months ended October 31,
	2020		2019
Total profit from reportable segments	$	48,267	$	47,600
Unallocated amounts:
Administrative costs	(6,079)		(6,709)
Investment and other income	155		1,380
Interest expense	(106)		(701)
Income before income taxes and losses of unconsolidated affiliate	$	42,237	$	41,570

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Total profit from reportable segments $ 46,110
$ 42,518
$ 93,710
$ 89,621
Unallocated amounts:
Administrative costs (4,866 ) (6,488 ) (11,575 ) (12,969 )
Investment and other income 1,760
1,377
3,140
1,360
Interest expense (647 ) (717 ) (1,348 ) (1,429 )
Income before income taxes $ 42,357
$ 36,690
$ 83,927
$ 76,583

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 January 31, Six months ended January 31,
2020 2019 2020 2019
Numerator (in thousands):
Income (Numerator for basic and diluted income per
Class A Nonvoting Common Share)
$ 33,553
$ 29,227
$ 71,051
$ 59,864
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
$ 33,553
$ 29,227
$ 70,213
$ 59,036
Denominator: (in thousands)
Denominator for basic income per share for both
Class A and Class B
53,320
52,532
53,232
52,366
Plus: Effect of dilutive equity awards 507
674
549
716
Denominator for diluted income per share for both
Class A and Class B
53,827
53,206
53,781
53,082
Net income per Class A Nonvoting Common Share:
Basic $ 0.63
$ 0.56
$ 1.33
$ 1.14
Diluted $ 0.62
$ 0.55
$ 1.32
$ 1.13
Net income per Class B Voting Common Share:
Basic $ 0.63
$ 0.56
$ 1.32
$ 1.13
Diluted $ 0.62
$ 0.55
$ 1.31
$ 1.11


	Three months ended October 31,
	2020		2019
Numerator (in thousands):
Net income (Numerator for basic and diluted income per Class A Nonvoting Common Share)	$	33,481	$	37,498
Less:
Preferential dividends	(808)		(828)
Preferential dividends on dilutive stock options	(4)		(10)
Numerator for basic and diluted income per Class B Voting Common Share	$	32,669	$	36,660
Denominator: (in thousands)
Denominator for basic income per share for both Class A and Class B	52,021		53,143
Plus: Effect of dilutive equity awards	271		593
Denominator for diluted income per share for both Class A and Class B	52,292		53,736
Net income per Class A Nonvoting Common Share:
Basic	$	0.64	$	0.71
Diluted	$	0.64	$	0.70
Net income per Class B Voting Common Share:
Basic	$	0.63	$	0.69
Diluted	$	0.62	$	0.68

~~Stock-based awards~~Potentially dilutive securities attributable to ~~purchase 248,604~~outstanding stock options and ~~272,922 shares~~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 for the three months ended January 31, 2020 and 2019, respectively, and 286,161 and 476,412 shares for the six months ended January 31, 2020 and 2019, respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. The amount of anti-dilutive shares were 740,745 and 323,719 for the three months ended October 31, 2020 and 2019, respectively.

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:

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 ~~January~~October 31, 2020 and July 31, ~~2019, according to the valuation techniques the Company used to determine their fair values.~~2020:

January 31, 2020 July 31, 2019 Fair Value Hierarchy
Assets:
Trading securities $ 18,143
$ 15,744
Level 1
Foreign exchange contracts 740
474
Level 2
Liabilities:
Foreign exchange contracts 33
5
Level 2


	October 31, 2020		July 31, 2020		Fair Value Hierarchy
Assets:
Trading securities	$	17,434	$	18,606	Level 1
Foreign exchange contracts	1,017		594		Level 2
Liabilities:
Foreign exchange contracts	449		777		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 six months ended January 31, 2020.~~

The fair values of cash and cash equivalents, accounts receivable, ~~inventories,~~ 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 current maturities on its long-term debt obligations, at January 31, 2020 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.

January 31, 2020 July 31, 2019
Carrying Value Fair Value Carrying Value Fair Value
Current maturities on long-term debt $ 49,627
$ 50,127
$ 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 aton 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 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:

January 31, 2020 July 31, 2019
Designated as cash flow hedges $ 13,046
$ 26,013
Non-designated hedges 3,483
3,376
Total foreign exchange contracts $ 16,529
$ 29,389


	October 31, 2020		July 31, 2020
Designated as cash flow hedges	$	19,247	$	24,600
Non-designated hedges	3,242		3,107
Total foreign exchange contracts	$	22,489	$	27,707

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 ~~January~~October 31, 2020 and July 31, ~~2019,~~2020, unrealized gains of ~~$878~~$523 and ~~$805~~losses of $385 have been included in OCI, respectively.

~~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 January 31, 2020 and July 31, 2019, the cumulative balance recognized in accumulated other comprehensive income were gains of $12,994 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~~foreign exchange contracts designated as cash flow hedging instruments:

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
Gains (losses) recognized in OCI:
Foreign exchange contracts (cash flow hedges) $ 363
$ 537
$ 559
$ 157
Foreign currency denominated debt (net investment hedges) 531
(598 ) 553
1,022
Gains reclassified from OCI into cost of goods sold:
Forward exchange contracts (cash flow hedges) 105
240
486
287

~~Non-Designated Hedges~~

The Company recognized losses of $20 and $28 for the three and six months ended January 31, 2020, respectively, and losses of $10 and $43 for the three and six months ended January 31, 2019, respectively, in “Investment and other income” on the condensed consolidated statements of income related to non-designated hedges.


	Three months ended October 31,
	2020		2019
Gains recognized in OCI	$	697	$	196
(Losses) gains reclassified from OCI into cost of goods sold	(211)		381

Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:

Current maturities on

long-term obligations

Current maturities on

long-term obligations

NOTE M —– Income Taxes

The effective income tax rate for the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019 was ~~20.8%~~20.3% and ~~15.3%~~9.8%, respectively. The Company expects its ongoing annual effective income tax rate to be approximately 20% based on its current global business mix. The effective income tax rate for the ~~six~~three months ended ~~January~~October 31, ~~2020,~~2019 was lower than the expected income tax rate due to the favorable settlement of a domestic income tax audit and tax benefits from stock-based compensation.

~~The effective income tax rate for the three and six months ended January 31, 2019, was 20.3% and 21.8%, respectively.~~

NOTE N — Subsequent Events

On ~~February 19,~~November 17, 2020, the Board of Directors declared a quarterly cash dividend to shareholders of the Company’s Class A and Class B Common Stock of ~~$0.2175~~$0.22 per share payable on ~~April 30, 2020,~~January 29, 2021, to shareholders of record at the close of business on ~~April 9,~~January 8, 2020.

Brady Corporation is 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 safety, identification and healthcare products. The WPS segment provides workplace safety, identification and compliance products, approximately half of which are internally manufactured and half of which are externally sourced.

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 ~~operational excellence, focus on~~ 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 ~~Identification Solutions ("ID Solutions" or "IDS")~~IDS business, our strategy for growth includes an increased focus on certain industries and products, a focus on improving the customer buying experience, and ~~investing in research~~the development of technologically advanced, innovative and ~~development ("R&D") to develop new~~proprietary products. In our ~~Workplace Safety ("WPS")~~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 are key initiatives supporting ~~the~~our strategy in fiscal ~~2020:~~2021:

•Providing our customers with the highest level of customer service.

•Expanding and enhancing our sales capabilities through an improved digital presence and the use of data-driven marketing automation tools.

•Driving operational excellence and executing sustainable efficiency gains within our global operations and within our selling, general and administrative structures.

~~Expanding~~•Building on our culture of diversity and ~~enhancing~~inclusion to increase employee engagement and enhance recruitment and retention practices.

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, ~~capabilities through~~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 ~~improved digital presence~~essential business under the majority of local government orders. Our products support first responders, healthcare workers, food processing companies, and many other critical industries. During the quarter ended October 31, 2020, our facilities were operating globally with enhanced safety protocols designed to protect the health and safety 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 research and development ("R&D"), while continuing to drive sustainable efficiencies and automation in our operations and selling, general and administrative expenses ("SG&A") functions. At October 31, 2020, we had cash of $256.3 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 $3.5 million, for total available liquidity of approximately $653 million.

Due to the speed with which the COVID-19 pandemic 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 debt-free status, 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, ~~resources.~~reduced net income, and reduced cash provided by operating activities. Refer to Risk Factors, included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2020, for further discussion of the possible impact of the COVID-19 pandemic on our business.

~~Growing through focused actions in selected vertical markets and strategic accounts.~~

~~Enhancing our employee development process to create an engaged workforce and to attract and retain key talent.~~

Table of Contents

Results of Operations

A comparison of results of operating income for the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019 is as follows:

Three months ended January 31, Six months ended January 31,
(Dollars in thousands) 2020 % Sales 2019 % Sales 2020 % Sales 2019 % Sales
Net sales $ 276,665
$ 282,426
$ 563,612
$ 575,622

Gross margin 139,127
50.3 % 139,810
49.5 % 280,532
49.8 % 286,349
49.7 %
Operating expenses:
Research and development 10,517
3.8 % 11,074
3.9 % 21,484
3.8 % 22,400
3.9 %
Selling, general and administrative 87,366
31.6 % 92,706
32.8 % 176,913
31.4 % 187,297
32.5 %
Total operating expenses 97,883
35.4 % 103,780
36.7 % 198,397
35.2 % 209,697
36.4 %
Operating income $ 41,244
14.9 % $ 36,030
12.8 % $ 82,135
14.6 % $ 76,652
13.3 %


	Three months ended October 31,
(Dollars in thousands)	2020		% Sales		2019		% Sales
Net sales	$	277,227			$	286,947
Gross margin	135,428		48.9	%	141,405		49.3	%
Operating expenses:
Research and development	10,203		3.7	%	10,967		3.8	%
Selling, general and administrative	83,037		30.0	%	89,547		31.2	%
Total operating expenses	93,240		33.6	%	100,514		35.0	%
Operating income	$	42,188	15.2	%	$	40,891	14.3	%

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

~~Sales~~Net sales for the three months ended ~~January~~October 31, 2020, decreased ~~2.0%~~3.4% to ~~$276.7~~$277.2 million, compared to ~~$282.4~~$286.9 million in the same period ofin the prior year. The decrease consisted of an organic sales decline of ~~1.2%~~4.9% and ~~a decrease~~an increase from foreign currency translation of ~~0.8%~~1.5%. Organic sales declined ~~1.3%~~8.4% in the IDS segment and ~~declined 1.0%~~grew 5.5% in the WPS segment during the three months ended ~~January~~October 31, 2020, compared to the same period in the prior year.

The COVID-19 pandemic had a significant impact on organic sales during the three months ended October 31, 2020, with the impact varying between the IDS and WPS segments. The IDS segment realized reduced demand across all major product lines, while the WPS segment realized increased demand globally for personal protective equipment and other pandemic-related safety and identification products during this same period.

~~Sales~~Gross margin for the ~~six~~three months ended ~~January~~October 31, 2020, decreased ~~2.1%~~4.2% to ~~$563.6~~$135.4 million, compared to ~~$575.6~~$141.4 million in the same period ~~of the prior year. The decrease consisted of an organic sales decline of 0.8% and a decrease from foreign currency translation of 1.3%. Organic sales declined 0.7%~~ in ~~the IDS segment and declined 0.9% in the WPS segment during the six months ended January 31, 2020, compared to the same period in the prior year.~~

Gross margin decreased 0.5% to $139.1 million and decreased 2.0% to $280.5 million for the three and six months ended January 31, 2020, respectively, compared to $139.8 million and $286.3 million in the same periods of the prior year. As a percentage of net sales, gross margin ~~increased~~decreased to ~~50.3% and 49.8%~~48.9% for the three ~~and six~~ months ended ~~January~~October 31, 2020, ~~respectively, compared to 49.5% and 49.7%~~from 49.3% in the same ~~periods of~~period in the prior year. The ~~increase~~decrease in gross margin as a percentage of net sales was primarily due to the decline in sales volumes in the IDS segment resulting from the economic slowdown caused by the COVID-19 pandemic as well as product mix in our WPS segment, which was partially mitigated by our ongoing efforts to streamline manufacturing processes and drive sustainable operational ~~efficiencies, including increased automation in our manufacturing facilities, which were partially offset by increased input costs such as personnel and freight costs, along with reduced sales volume.~~

efficiencies.

R&D expenses ~~decreased 5.0% to $10.5 million and decreased 4.1% to $21.5 million~~ for the three ~~and six~~ months ended ~~January~~October 31, 2020, ~~respectively,~~declined 7.0% to $10.2 million, compared to ~~$11.1 million and $22.4~~$11.0 million in the same ~~periods of~~period in the prior year. As a percentage of sales, R&D expenses ~~remained consistent~~declined slightly to 3.7% for the three ~~and six~~ months ended ~~January~~October 31, 2020, compared to 3.8% in the same ~~periods of~~period in the prior year. The decrease in R&D spending ~~for both the three and six-month periods~~ was ~~primarily~~ due to a decrease in headcount, improved efficiency, and the timing of expenditures related to ongoing new product development ~~projects.~~costs compared to the same period in the prior year. 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.

~~Selling, general and administrative~~SG&A expenses ~~("SG&A")~~ 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 ~~decreased 5.8%~~expenses declined 7.3% to ~~$87.4 million and decreased 5.5% to $176.9~~$83.0 million for the three ~~and six~~ months ended ~~January~~October 31, 2020, ~~respectively,~~ compared to ~~$92.7 million and $187.3~~$89.5 million in the same ~~periods of~~period in the prior year. As a percentage of sales, SG&A was ~~31.6% and 31.4%~~30.0% for the three ~~and six~~ months ended ~~January~~October 31, 2020, ~~respectively,~~ compared to ~~32.8% and 32.5%~~31.2% in the same ~~periods~~period in the prior year. The decrease in both SG&A expenses and SG&A expenses as a percentage of net sales from the same period of the prior ~~year. Approximately one-fourth of~~year was primarily due to ongoing efficiency gains, a reduction in the ~~decrease~~SG&A cost structure, along with a reduction in ~~both the three and six-month periods~~discretionary spend, including travel for our sales people, which was ~~due to~~partially offset by the impact of foreign currency ~~translation, and the remainder was due to ongoing efficiency gains and lower compensation expense.~~translation.

Operating income increased ~~14.5%~~3.2% to ~~$41.2~~$42.2 million for three months ended October 31, 2020, compared to $40.9 million in the same period in the prior year. The increase in operating income was primarily due to increased segment profit in the WPS segment as a result of organic sales growth as well as a reduction in the SG&A cost structure in both segments.

Table of Contents

OPERATING INCOME TO NET INCOME


	Three months ended October 31,
(Dollars in thousands)	2020		% Sales		2019		% Sales
Operating income	$	42,188	15.2	%	$	40,891	14.3	%
Other income (expense):
Investment and other income	155		0.1	%	1,380		0.5	%
Interest expense	(106)		—	%	(701)		(0.2)	%
Income before income tax and losses of unconsolidated affiliate	42,237		15.2	%	41,570		14.5	%
Income tax expense	8,582		3.1	%	4,072		1.4	%
Income before losses of unconsolidated affiliate	33,655		12.1	%	37,498		13.1	%
Equity in losses of unconsolidated affiliate	(174)		(0.1)	%	—		—	%
Net income	$	33,481	12.1	%	$	37,498	13.1	%

Investment and other income was $0.2 million for the three months ended ~~January 31, 2020, and 7.2% to $82.1 million for the six months ended January~~October 31, 2020, compared to $36.0 million and $76.7 million in the same periods of the prior year, respectively. The increases in both the three and six-month periods were primarily due to increased segment profit within both the IDS and WPS businesses along with reduced corporate administrative expenses.

~~OPERATING INCOME TO NET INCOME~~

Three months ended January 31, Six months ended January 31,
(Dollars in thousands) 2020 % Sales 2019 % Sales 2020 % Sales 2019 % Sales
Operating income $ 41,244
14.9 % $ 36,030
12.8 % $ 82,135
14.6 % $ 76,652
13.3 %
Other income (expense):
Investment and other income 1,760
0.6 % 1,377
0.5 % 3,140
0.6 % 1,360
0.2 %
Interest expense (647 ) (0.2 )% (717 ) (0.3 )% (1,348 ) (0.2 )% (1,429 ) (0.2 )%
Income before income tax 42,357
15.3 % 36,690
13.0 % 83,927
14.9 % 76,583
13.3 %
Income tax expense 8,804
3.2 % 7,463
2.6 % 12,876
2.3 % 16,719
2.9 %
Net income $ 33,553
12.1 % $ 29,227
10.3 % $ 71,051
12.6 % $ 59,864
10.4 %

~~Investment and other income was $1.8 million and $3.1 million for the three and six months ended January 31, 2020, respectively, compared to~~ $1.4 million in each of the same periods of the prior year. The increases in both the three and six-month periods were primarily due to an increase in the market value of securities held in deferred compensation plans and an increase in interest income when compared to the same periods in the prior year.

Interest expense remained essentially flat at $0.6 million and $1.3 million for the three and six months ended January 31, 2020, respectively, compared to $0.7 million and $1.4 million in the same periods of the prior year, as there was minimal change in the Company's principal balance under its outstanding debt agreements.

~~The Company's income tax rate was 20.8% for the three months ended January 31, 2020, compared to 20.3%~~ for the same period in the prior year. The decrease was primarily due to reduced interest income as a result of the decline in interest rates.

Interest expense decreased to $0.1 million for the three months ended October 31, 2020, compared to $0.7 million for the same period in the prior year. 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 fourth quarter of the fiscal year ended July 31, 2020.

The Company’s income tax rate was ~~15.3%~~20.3% for the ~~six~~three months ended ~~January~~October 31, 2020, compared to ~~21.8% for~~9.8% in the same period in the prior year. Refer to Note M ~~- Income Taxes~~"Income Taxes" for additional information on the Company's effective income tax rate.

Equity in losses of unconsolidated affiliate of $0.2 million for the three months ended October 31, 2020 represented the Company's proportionate share of the loss in its 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. 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.

The following is a summary of segment information for the three ~~and six~~ months ended ~~January~~October 31, 2020 and 2019:


	Three months ended October 31,
	2020		2019
SALES GROWTH INFORMATION
ID Solutions
Organic	(8.4)	%	(0.2)	%
Currency	0.6	%	(1.2)	%
Total	(7.8)	%	(1.4)	%
Workplace Safety
Organic	5.5	%	(0.8)	%
Currency	4.3	%	(3.4)	%
Total	9.8	%	(4.2)	%
Total Company
Organic	(4.9)	%	(0.4)	%
Currency	1.5	%	(1.7)	%
Total	(3.4)	%	(2.1)	%
SEGMENT PROFIT AS A PERCENT OF NET SALES
ID Solutions	20.3	%	19.7	%
Workplace Safety	10.1	%	7.2	%
Total	17.4	%	16.6	%

Three months ended January 31, Six months ended January 31,
2020 2019 2020 2019
SALES GROWTH INFORMATION
ID Solutions
Organic (1.3 )% 3.6 % (0.7 )% 4.6 %
Currency (0.5 )% (2.3 )% (0.9 )% (1.9 )%
Total (1.8 )% 1.3 % (1.6 )% 2.7 %
Workplace Safety
Organic (1.0 )% (0.9 )% (0.9 )% 0.6 %
Currency (1.6 )% (3.3 )% (2.5 )% (2.9 )%
Divestitures — % (5.8 )% — % (6.0 )%
Total (2.6 )% (10.0 )% (3.4 )% (8.3 )%
Total Company
Organic (1.2 )% 2.3 % (0.8 )% 3.5 %
Currency (0.8 )% (2.6 )% (1.3 )% (2.2 )%
Divestitures — % (1.6 )% — % (1.7 )%
Total (2.0 )% (1.9 )% (2.1 )% (0.4 )%
SEGMENT PROFIT AS A PERCENT OF NET SALES
ID Solutions 19.8 % 18.1 % 19.8 % 18.6 %
Workplace Safety 7.7 % 6.4 % 7.4 % 6.9 %
Total 16.7 % 15.1 % 16.6 % 15.6 %

Table of Contents

ID Solutions

IDS net sales decreased ~~1.8% in~~7.8% for the three months ended ~~January~~October 31, 2020, compared to the same period in the prior year, which consisted of an organic sales decline of ~~1.3%~~8.4% and ~~a decrease~~an increase from foreign currency translation of ~~0.5%~~0.6%. The economic slowdown caused by the COVID-19 pandemic had a significant impact on organic sales during the quarter, which resulted in organic sales declines across all major product lines for the three months ended October 31, 2020.

Organic sales in the ~~three-month period were essentially flat~~Americas declined in the ~~Safety and Facility ID and Product ID product lines while~~high-single digits for the ~~Healthcare ID and Wire ID product lines declined~~three months ended October 31, 2020, compared to the same period in the prior year. ~~IDS~~Organic sales declined across all major product lines due to the economic slowdown caused by the COVID-19 pandemic. Organic sales declined by approximately 10% in the United States and declined in the low-single digits in remainder of the Americas region.

Organic sales in Europe declined in the mid-single digits for the three months ended October 31, 2020, as compared to the same period in the prior year. Organic sales declined across all major product lines due to the economic slowdown caused by the COVID-19 pandemic. The organic sales decline was broad-based throughout Western Europe, which was partially offset by mid-single digit organic sales growth for certain businesses based in emerging geographies.

Organic sales in Asia declined in the low-single digits for the three months ended October 31, 2020, as compared to the same period in the prior year. Organic sales growth in the safety and facility identification and wire identification product lines was offset by an organic sales decline in the product identification product line. The low-single digit decline was broad-based throughout Asia.

Segment profit decreased 5.1% to $40.3 million for the three months ended October 31, 2020, compared to $42.4 million in the same period in the prior year. As a percentage of net sales, ~~decreased 1.6%~~segment profit was 20.3% for the three months ended October 31, 2020, compared to 19.7% in the ~~six~~same period in the prior year. The increase in segment profit as a percentage of sales was primarily driven by the reduced cost structure throughout the IDS segment and a reduction in discretionary spending in response to the decline in revenue from the impact of the COVID-19 pandemic.

Workplace Safety

WPS net sales increased 9.8% for the three months ended ~~January~~October 31, 2020, compared to the same period in the prior year, which consisted of an organic sales ~~decline~~growth of ~~0.7%~~5.5% and ~~a decrease~~an increase from foreign currency translation of ~~0.9%~~4.3%. ~~Organic sales~~Sales through the digital channel increased in the ~~six-month period grew~~mid-teens and sales through the traditional catalog channel increased in the ~~Safety~~low-single digits. The WPS business realized increased demand globally for personal protective equipment, social distancing signage and ~~Facility ID product line, remained essentially flat in the Product ID product line,~~floor markings, and ~~declined in the Healthcare ID and Wire ID product lines compared to the same period in the prior year.~~

other COVID-19 pandemic-related products.

Organic sales in Europe increased in the ~~Americas decreased slightly in~~high-single digits for the three months ended ~~January~~October 31, 2020, compared to the same period in the prior year. Sales through the digital channel increased in the mid-teens, which was driven by digital marketing campaigns emphasizing personal protective equipment and other COVID-19 pandemic-related products. Sales through the traditional catalog channel increased in the mid-single digits. Organic sales growth in Europe was led by businesses in France followed by growth in Norway and the U.K., which was partially offset by a decline in organic sales in Germany.

Organic sales in ~~the three-month period were essentially flat in the Safety and Facility ID and Product ID product lines while the Healthcare ID and Wire ID product lines~~North America declined compared to the same period in the prior year due to reduced demand in end markets. Organic sales were flat in the United States and declined in the low-single digits in the rest of the Americas in the three-month period. Organic sales in the Americas increased in the low-single digits for the ~~six~~three months ended ~~January~~October 31, 2020, compared to the same period in the prior year. ~~Organic~~This decrease was driven by a low-single digit decline in traditional catalog sales, which was partially offset by low-single digit growth in sales through the ~~six-month period grew~~digital channel. The increase in the Safety and Facility ID product line, remained essentially flat in the Product ID product line, and declined in the Healthcare ID and Wire ID product lines compared to the same period in the prior yeardigital sales was primarily due to ~~reduced demand in end markets. Organic~~increased sales ~~grew in the low-single digits in the United States~~of personal protective equipment, social distancing signage and ~~declined in the low-single digits in the rest of the Americas in the six-month period.~~

floor markings, and other COVID-19 pandemic-related products.

Organic sales in ~~Europe decreased in the low-single digits in~~Australia increased just over 10% for the three months ended ~~January~~October 31, 2020, compared to the same period inof the prior year. ~~Slight organic~~Digital channel sales growth in the Safety and Facility ID product line was more than offset by declines in the Product ID and Wire ID product lines in the three-month period. The organic sales decline in the three-month period was driven by certain businesses based in Western Europe due to a decline in economic activity. Organic sales in Europe decreased in the mid-single digits for the six months ended January 31, 2020, compared togrew approximately 40% over the same period in the prior year, which was driven by ~~a decline in all product lines. The organic sales decline in~~digital marketing campaigns emphasizing personal protective equipment along with floor markings and signage related to social distancing and personal hygiene. Sales through the ~~six-month period was driven by certain businesses based in emerging geographies and in Western Europe due to a decline in economic activity.~~

~~Organic sales in Asia decreased~~traditional catalog channel increased in the mid-single ~~digits~~digits. Our Australian business generated increased sales in ~~both~~a variety of product categories related to mitigating the ~~three~~COVID-19 pandemic, including various types of personal protective equipment and six months ended January 31, 2020, compared to the same periods in the prior year. Organic sales growth in the Wire ID product line was more than offset by declines in the Safety and Facility ID and Product ID product lines in both the three and six-month periods. Organic sales within China declined approximately 10% and declined in the high-single digits in the three and six-month periods, respectively, partially due to the direct and indirect impact of tariffs and overall economic weakness. Organic sales were essentially flat and declined slightly in the rest of Asia in the three and six-month periods, respectively.

other healthcare supplies.

Segment profit increased to ~~$40.7 million and $83.1~~$8.0 million for the three ~~and six~~ months ended ~~January~~October 31, 2020, ~~respectively,~~ compared to ~~$37.9~~$5.2 million ~~and $79.4 million for~~in the same ~~periods in~~period of the prior year. As a percentage of net sales, segment profit increased to ~~19.8%~~10.1% for ~~both~~ the three ~~and six~~ months ended ~~January~~October 31, 2020, ~~from 18.1% and 18.6% for~~compared to 7.2% in the same ~~periods in~~period of the prior year. The increase in segment profit ~~for both the three and six-month periods~~ was primarily driven by ~~efficiency gains throughout~~increased organic sales volumes combined with the reduced SG&A ~~in all regions.~~

~~Workplace Safety~~

~~WPS net sales decreased 2.6% in the three months ended January 31, 2020, compared to the same period in the prior year, which consisted of an organic sales decline of 1.0%~~cost structure, and a decrease from foreign currency translation of 1.6%. WPS net sales decreased 3.4% in the six months ended January 31, 2020, compared to the same period in the prior year, which consisted of an organic sales decline of 0.9% and a decrease from foreign currency translation of 2.5%. Sales through the digital channel grew in the mid-single digits while sales through the catalog channel declined in the low-single digits in both the three and six-month periods.

Organic sales in Europe were effectively flat in the three months and increased modestly in the six months ended January 31, 2020, compared to the same periods in the prior year. Organic sales growth in France was largely offset by a decline in sales in Germany due to reduced demand for industrial products. Sales through the digital channel grew approximately 10% while sales through the catalog channel declined in the low-single digits in both the three and six-month periods.

Organic sales in the Americas decreased in the low-single digits in both the three and six months ended January 31, 2020, respectively, compared to the same periods in the prior year. Catalog channel sales declined in the low-single digits due to lower response rates to catalog promotions in both the three and six-month periods. Digital sales declined in the low-single digits in both the three and six-month periods. This business continued to experience a negative impact on sales from a digital platform that was implemented toward the end of fiscal 2018. In order to address this decline, the business transitioned to a new digital platform mid-way through fiscal 2019. The functionality of the new digital platform has improved compared to the former digital platform. However, sales have not yet returned to the level experienced prior to the initial platform change in fiscal 2018.

Organic sales in Australia were effectively flat in the three months ended January 31, 2020, compared to the same period in the prior year. Digital channel sales increased nearly 12% during the three-month period ended January 31, 2020, which was largely offset by a low-single digit decline in catalog channel sales. Organic sales decreased in the low-single digits in the six months ended January 31, 2020, compared to the same period in the prior year. Low-single digit organic growth in digital sales was offset by a low-single digit decline in catalog sales in the six-month period. We continue to experience reduced demand in primary end markets, which include non-residential construction and industrial manufacturing.

Segment profit increased to $5.5 million and $10.6 million for the three and six months ended January 31, 2020, respectively, compared to $4.7 million and $10.2 million for the same periods in the prior year. As a percentage of net sales, segment profit increased to 7.7% and 7.4% for the three and six months ended January 31, 2020, respectively, compared to 6.4% and 6.9% for the same periods in the prior year. The increases in segment profit were due to efficiency gains throughout SG&A, which were partially offset by the decrease in organic sales andlesser extent foreign currency translation.

~~Financial Condition~~

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Liquidity and Capital Resources

The Company's cash balances are generated and held in numerous locations throughout the world. At October 31, 2020, approximately 66% 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.

Cash Flows

Cash and cash equivalents were ~~$289.8~~$256.3 million at ~~January~~October 31, 2020, an increase of ~~$10.7~~$38.7 million from July 31, ~~2019.~~2020. The significant changes were as follows:

Six months ended January 31,
(Dollars in thousands) 2020 2019
Net cash flow provided by (used in):
Operating activities $ 53,107
$ 44,188
Investing activities (16,506 ) (12,579 )
Financing activities (26,049 ) (10,051 )
Effect of exchange rate changes on cash 179
(776 )
Net increase in cash and cash equivalents $ 10,731
$ 20,782


	Three months ended October 31,
(Dollars in thousands)	2020		2019
Net cash flow provided by (used in):
Operating activities	$	62,838	$	38,848
Investing activities	(9,202)		(7,197)
Financing activities	(16,551)		(15,326)
Effect of exchange rate changes on cash	1,605		(304)
Net increase in cash and cash equivalents	$	38,690	$	16,021

Net cash provided by operating activities was ~~$53.1~~$62.8 million for the ~~six~~three months ended ~~January~~October 31, 2020, compared to ~~$44.2~~$38.8 million in the same period of the prior year. The increase was primarily ~~driven by~~due to an increase in ~~net income adjusted for non-cash items as well as~~cash provided by working capital. Inventory levels were reduced which resulted in the majority of the increase in cash provided by operating activities, which was due to a planned reduction in inventory following a period of increased balances to reduce the risk of supply chain disruption resulting from the COVID-19 pandemic. In addition, the timing of accounts payable and other compensation-related withholding increased cash provided by working capital, which was partially offset by a decrease in cash ~~used for working capital.~~

provided by accounts receivable due to increasing sequential sales during the quarter.

Net cash used in investing activities was ~~$16.5~~$9.2 million for the ~~six~~three months ended ~~January~~October 31, 2020, compared to ~~$12.6~~$7.2 million used in the same period of the prior year. The increase in cash used in investing activities was primarily driven by ~~investment purchases to fund deferred compensation plans, and to a lesser extent by~~ an increase in capital expenditures for the purchase of facility upgrades and manufacturing equipment ~~and facility upgrades~~ in Europe, the United States, and Mexico.

Net cash used in financing activities was ~~$26.0~~$16.6 million during the ~~six~~three months ended ~~January~~October 31, 2020, compared to ~~$10.1~~$15.3 million used in the same period of the prior year. The ~~change~~increase in cash used in financing activities was primarily ~~due to~~driven by $2.7 million of share repurchases and a decrease in cash proceeds from the exercise of stock options, ~~and an increase~~which was largely offset by a decrease in cash payments for employee taxes withheld from stock-based ~~awards in the current six-month period.~~awards.

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, due May 13, 2020, with interest payable on the notes semiannually. This private placement was exempt from the registration requirements of the Securities Act of 1933. The notes have been fully and unconditionally guaranteed on an unsecured basis by the Company’s domestic subsidiaries.Credit Facilities

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 ~~one-half of 1% or~~0.5%, the prime rate of the Bank of Montreal plus a margin based on the Company’s consolidated net leverage ~~ratio),~~ratio, or the Eurocurrency ~~interest~~base rate ~~(at~~at the LIBOR rate plus a margin based on the Company’s consolidated net leverage ~~ratio)~~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 three months ended October 31, 2020 was $10.6 million. As of ~~January~~October 31, 2020, there were no borrowings outstanding on the credit ~~facility, and there was no outstanding balances during the six months ended January 31, 2020.~~facility. The Company had letters of credit outstanding under the loan agreement of ~~$3.3~~$3.5 million as of ~~January~~October 31, 2020 and there was ~~$196.7~~$196.5 million available for future borrowing, which can be increased to ~~$396.7~~$396.5 million at the Company's option, subject to

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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 condensed consolidated balance sheets.

Covenant Compliance

The ~~Company’s debt agreements require~~Company's revolving loan agreement requires it to maintain certain financial covenants, including a ratio of debt to the trailing 12twelve months EBITDA, as defined in the debt agreements, of not more than a ~~3.25~~3.5 to 1.0 ratio (leverage ratio) and the trailing 12twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of ~~January~~October 31, 2020, the Company was in compliance with these financial ~~covenants, with the leverage ratio, as defined by the agreements, equal to 0.0 to 1.0 and the interest expense coverage ratio equal to 75.7 to 1.0.~~covenants.

The Company's cash balances are generated and held in numerous locations throughout the world. At January 31, 2020, approximately 47% 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, common stock repurchases, scheduled debt repayments, and dividend payments for the next 12 months.

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.

Forward-Looking Statements

In this quarterly report on Form 10-Q, 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” or “plan” or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady's control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from:

~~Brady's ability~~•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

~~Brady's ability~~•Ability to develop technologically advanced products that meet customer demands

•Raw material and other cost increases

•Difficulties in protecting websites, networks, and systems against security breaches

~~Decreased demand for the Company's products~~

~~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

•Divestitures, contingent liabilities from divestitures and the failure to identify, integrate, and grow acquired companies

•Litigation, including product liability claims

•Foreign currency fluctuations

•Potential write-offs of goodwill and other intangible assets

•Changes in tax legislation and tax rates

~~Potential write-offs~~•Differing interests of ~~Brady's substantial intangible assets~~voting and non-voting shareholders

•Numerous other matters of national, regional and global scale, including major public health ~~issues~~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 Brady's Form 10-K for the year ended July 31, ~~2019.~~

2020.

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to the Company’s annual report on Form 10-K for the year ended July 31, ~~2019.~~2020. There has been no material change in this information since July 31, ~~2019.~~2020.

ITEM 4. CONTROLS AND PROCEDURES

Brady Corporation maintains a set of 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.

There were no ~~significant~~ 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.

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

The Company’s business, results of operations, financial condition, and cash flows are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” of Brady's Annual Report on Form 10-K for the year ended July 31, 2020. Other than as set forth below, there have been no material changes from the risk factors set forth in the 2020 Form 10-K.

Our results of operations have been and will 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 the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be predicted at this time. Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, disruption to our operations resulting from employee illnesses, the development and availability of effective treatment or vaccines, the extent and duration of the impact on the U.S. or global economy, including the pace and extent of recovery when the pandemic subsides, and the actions that have been and may be taken by various governmental authorities in response to the outbreak, including mandatory facility closures of non-essential businesses, stay-at-home orders, or similar restrictions, all of which may continue to effect our customers and customers' demand for our services and products, reduce demand for healthcare services, impact our suppliers or cause disruptions in the global supply chain, and impact our ability to sell and manufacture our products. Certain jurisdictions have begun lifting stay-at-home orders only to impose further restrictions in the wake of increases in new COVID-19 cases. As such, there is considerable uncertainty regarding how current and future health and safety measures implemented in response to the COVID-19 pandemic will impact our business. 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 our 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.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 October 31, 2020, 369,142 shares remained 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 October 31, 2020:


Period	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
August 1, 2020 - August 31, 2020	—	$	—	—	461,796
September 1, 2020 - September 30, 2020	62,364	39.11		62,364	399,432
October 1, 2020 - October 31, 2020	30,290	38.10		30,290	369,142
Total	92,654	$	38.78	92,654	369,142

ITEM 6. EXHIBITS


Exhibit No.		Exhibit Description

~~Exhibit No.~~31.1		~~Exhibit Description~~

~~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.INS		XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.)

101.SCH		XBRL Taxonomy Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Presentation Label Linkbase Document

104		Cover Page Inline XBRL data (contained in Exhibit 101)

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SIGNATURES

BRADY CORPORATION

Date: November 19, 2020

/s/ J. MICHAEL NAUMAN

J. Michael Nauman

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 19, 2020

~~BRADY CORPORATION~~

~~Date: February 20, 2020~~

~~/s/ J. MICHAEL NAUMAN~~

~~J. Michael Nauman~~

~~President and Chief Executive Officer~~

~~(Principal Executive Officer)~~

~~Date: February 20, 2020~~

/s/ AARON J. PEARCE

Aaron J. Pearce

Chief Financial Officer and Treasurer

(Principal Financial Officer)



Wisconsin						39-0178960
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)




	Page
PART I. Financial Information		3
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Income		4
Condensed Consolidated Statements of Comprehensive Income		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		1917
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2423
Item 4. Controls and Procedures		2523
PART II. Other Information		2624
Item ~~6. Exhibits~~1A. Risk Factors		2624
~~Signatures~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2725
Item 6. Exhibits		25
Signatures		26



☑			QUARTERLY 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



	January 31, 2020			July 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	289,803		$	279,072
Accounts receivable—net	151,511			158,114
Inventories	120,788			120,037
Prepaid expenses and other current assets	18,889			16,056
Total current assets	580,991			573,279
Property, plant and equipment—net	112,782			110,048
Goodwill	410,455			410,987
Other intangible assets	33,580			36,123
Deferred income taxes	7,120			7,298
Operating lease assets	49,117			—
Other assets	21,753			19,573
Total	$	1,215,798		$	1,157,308
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	51,233		$	64,810
Accrued compensation and benefits	38,561			62,509
Taxes, other than income taxes	7,703			8,107
Accrued income taxes	6,075			6,557
Current operating lease liabilities	14,901			—
Other current liabilities	48,590			49,796
Current maturities on long-term debt	49,627			50,166
Total current liabilities	216,690			241,945
Long-term operating lease liabilities	36,993			—
Other liabilities	62,191			64,589
Total liabilities	315,874			306,534
Stockholders’ equity:
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 49,810,101 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	329,263			329,969
Retained earnings	685,758			637,843
Treasury stock—1,451,386 and 1,802,646 shares, respectively, of Class A nonvoting common stock, at cost	(43,155		)	(46,332		)
Accumulated other comprehensive loss	(72,490		)	(71,254		)
Total stockholders’ equity	899,924			850,774
Total	$	1,215,798		$	1,157,308



	Three months ended January 31,						Six months ended January 31,
	2020			2019			2020			2019
Net sales	$	276,665		$	282,426		$	563,612		$	575,622
Cost of goods sold	137,538			142,616			283,080			289,273
Gross margin	139,127			139,810			280,532			286,349
Operating expenses:
Research and development	10,517			11,074			21,484			22,400
Selling, general and administrative	87,366			92,706			176,913			187,297
Total operating expenses	97,883			103,780			198,397			209,697
Operating income	41,244			36,030			82,135			76,652
Other income (expense):
Investment and other income	1,760			1,377			3,140			1,360
Interest expense	(647		)	(717		)	(1,348		)	(1,429		)
Income before income taxes	42,357			36,690			83,927			76,583
Income tax expense	8,804			7,463			12,876			16,719
Net income	$	33,553		$	29,227		$	71,051		$	59,864
Net income per Class A Nonvoting Common Share:
Basic	$	0.63		$	0.56		$	1.33		$	1.14
Diluted	$	0.62		$	0.55		$	1.32		$	1.13
Dividends	$	0.22		$	0.21		$	0.44		$	0.43
Net income per Class B Voting Common Share:
Basic	$	0.63		$	0.56		$	1.32		$	1.13
Diluted	$	0.62		$	0.55		$	1.31		$	1.11
Dividends	$	0.22		$	0.21		$	0.42		$	0.41
Weighted average common shares outstanding:
Basic	53,320			52,532			53,232			52,366
Diluted	53,827			53,206			53,781			53,082



	January 31, 2020								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	$	46,561	$	(31,897	)	$	14,664	9	$	46,595	$	(29,343	)	$	17,252
Unamortized other intangible assets:
Trademarks	N/A	18,916		—			18,916		N/A	18,871		—			18,871
Total		$	65,477	$	(31,897	)	$	33,580		$	65,466	$	(29,343	)	$	36,123



		Three months ended		Six months ended
	Condensed Consolidated Statements of Income Location	January 31, 2020		January 31, 2020
Operating lease cost	Cost of goods sold	$	2,092	$	4,962
Operating lease cost	Selling, general, and administrative expenses	2,182		4,716



Years ended July 31,	Operating Leases
Remainder of 2020	$	8,426
2021	15,780
2022	12,797
2023	9,427
2024	5,580
Thereafter	3,268
Total lease payments	$	55,278
Less interest	(3,384		)
Present value of lease liabilities	$	51,894



	Six months ended
	January 31, 2020
Operating cash outflows from operating leases	$	8,216
Operating lease assets obtained in exchange for new operating lease liabilities	10,637



	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balances at October 31, 2019	$	548	$	327,241	$	663,808		$	(43,779	)	$	(71,283	)	$	876,535
Net income	—		—		33,553			—			—			33,553
Other comprehensive loss, net of tax	—		—		—			—			(1,207		)	(1,207		)
Issuance of shares of Class A Common Stock under stock plan	—		187		—			624			—			811
Tax benefit and withholdings from deferred compensation distributions	—		69		—			—			—			69
Stock-based compensation expense	—		1,766		—			—			—			1,766
Cash dividends on Common Stock
Class A — $0.22 per share	—		—		(10,833		)	—			—			(10,833		)
Class B — $0.22 per share	—		—		(770		)	—			—			(770		)
Balances at January 31, 2020	$	548	$	329,263	$	685,758		$	(43,155	)	$	(72,490	)	$	899,924



	January 31, 2020				July 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Current maturities on long-term debt	$	49,627	$	50,127	$	50,166	$	51,566