Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended JanuaryOctober 31, 20182022
OR
¨

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                     to                     
Commission File Number 1-14959
BRADY CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin39-0178960
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6555 West Good Hope Road
6555 West Good Hope Road, Milwaukee, Wisconsin53223
(Address of principal executive offices)(Zip Code)
Milwaukee, Wisconsin 53233
(Address of principal executive offices and zip code)
(414) 358-6600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Nonvoting Common Stock, par value $0.01 per shareBRCNew 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.   Yesþ☑No¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yesþ☑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 filerþ☑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.¨
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  ¨☐Noþ
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.☑
As of February 20, 2018,November 15, 2022, there were 48,208,28146,200,742 outstanding shares of Class A Nonvoting Common Stock and 3,538,628 shares of Class B Voting Common Stock. The Class B Voting Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock.


Table of Contents

FORM 10-Q
BRADY CORPORATION
INDEX
 
Page
3
Item 1. Financial Statements (Unaudited)
3
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of EarningsIncome
4
Condensed Consolidated Statements of Comprehensive Income
5
Condensed Consolidated Statements of Stockholders' Equity
6
Condensed Consolidated Statements of Cash Flows
67
Notes to Condensed Consolidated Financial Statements
78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Financial Condition
1917
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2722
Item 4. Controls and Procedures
2722
2824
Item 1A. Risk Factors
24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
24
Item 6. Exhibits
2825
Signatures
2926

2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Unaudited)
Thousands)
 January 31, 2018 July 31, 2017
ASSETS   
Current assets:   
Cash and cash equivalents$115,327
 $133,944
Accounts receivable—net164,400
 149,638
Inventories:   
Finished products72,629
 69,760
Work-in-process19,472
 18,117
Raw materials and supplies21,344
 19,147
Total inventories113,445
 107,024
Prepaid expenses and other current assets20,950
 17,208
Total current assets414,122
 407,814
Other assets:   
Goodwill443,873
 437,697
Other intangible assets50,131
 53,076
Deferred income taxes9,899
 35,456
Other18,579
 18,077
Property, plant and equipment:   
Cost:   
Land7,535
 7,470
Buildings and improvements98,256
 98,228
Machinery and equipment265,640
 261,192
Construction in progress6,176
 4,109
 377,607
 370,999
Less accumulated depreciation279,826
 272,896
Property, plant and equipment—net97,781
 98,103
Total$1,034,385
 $1,050,223
LIABILITIES AND STOCKHOLDERS’ INVESTMENT   
Current liabilities:   
Notes payable$585
 $3,228
Accounts payable64,365
 66,817
Wages and amounts withheld from employees49,679
 58,192
Taxes, other than income taxes7,997
 7,970
Accrued income taxes6,085
 7,373
Other current liabilities42,961
 43,618
Total current liabilities171,672
 187,198
Long-term obligations70,615
 104,536
Other liabilities60,125
 58,349
Total liabilities302,412
 350,083
Stockholders’ investment:   
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively, and outstanding 48,238,412 and 47,814,818 shares, respectively513
 513
Class B voting common stock—Issued and outstanding, 3,538,628 shares35
 35
Additional paid-in capital325,733
 322,608
Earnings retained in the business515,872
 507,136
Treasury stock—3,023,075 and 3,446,669 shares, respectively, of Class A nonvoting common stock, at cost(75,090) (85,470)
Accumulated other comprehensive loss(35,090) (44,682)
Total stockholders’ investment731,973
 700,140
Total$1,034,385
 $1,050,223
October 31, 2022July 31, 2022
 (Unaudited) 
ASSETS
Current assets:
Cash and cash equivalents$114,471 $114,069 
Accounts receivable, net of allowance for credit losses of $6,938 and $7,355, respectively180,183 183,233 
Inventories195,695 190,023 
Prepaid expenses and other current assets12,902 10,743 
Total current assets503,251 498,068 
Property, plant and equipment—net136,320 139,511 
Goodwill579,404 586,832 
Other intangible assets69,494 74,028 
Deferred income taxes15,061 15,881 
Operating lease assets27,244 31,293 
Other assets19,855 21,719 
Total$1,350,629 $1,367,332 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$79,604 $81,116 
Accrued compensation and benefits57,095 76,764 
Taxes, other than income taxes13,495 12,539 
Accrued income taxes13,943 8,294 
Current operating lease liabilities14,126 15,003 
Other current liabilities65,350 61,458 
Total current liabilities243,613 255,174 
Long-term debt99,000 95,000 
Long-term operating lease liabilities15,558 19,143 
Other liabilities80,733 86,717 
Total liabilities438,904 456,034 
Stockholders’ equity:
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 46,176,267 and 46,370,708 shares, respectively513 513 
Class B voting common stock—Issued and outstanding, 3,538,628 shares35 35 
Additional paid-in capital346,064 345,266 
Retained earnings920,482 892,417 
Treasury stock—5,085,220 and 4,890,779 shares, respectively, of Class A nonvoting common stock, at cost(228,855)(217,856)
Accumulated other comprehensive loss(126,514)(109,077)
Total stockholders’ equity911,725 911,298 
Total$1,350,629 $1,367,332 


See Notes to Condensed Consolidated Financial Statements.

3
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGSINCOME
(Dollars in Thousands, Except Per Share Amounts, Unaudited)
Three months ended October 31,
 20222021
Net sales$322,569 $321,475 
Cost of goods sold167,305 166,487 
    Gross margin155,264 154,988 
Operating expenses:
    Research and development13,933 13,907 
    Selling, general and administrative89,945 96,746 
Total operating expenses103,878 110,653 
Operating income51,386 44,335 
Other (expense) income:
    Investment and other (expense) income(157)543 
    Interest expense(894)(182)
Income before income taxes50,335 44,696 
Income tax expense10,894 9,650 
Net income$39,441 $35,046 
Net income per Class A Nonvoting Common Share:
    Basic$0.79 $0.67 
    Diluted$0.79 $0.67 
Net income per Class B Voting Common Share:
    Basic$0.78 $0.66 
    Diluted$0.77 $0.65 
Weighted average common shares outstanding:
 Basic49,868 51,973 
 Diluted50,090 52,436 
 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Net sales$287,780
 $268,001
 $577,931
 $548,177
Cost of products sold144,088
 133,843
 288,174
 273,661
Gross margin143,692
 134,158
 289,757
 274,516
Operating expenses:       
Research and development11,314
 9,481
 21,834
 18,627
Selling, general and administrative97,582
 94,715
 197,716
 192,719
Total operating expenses108,896
 104,196
 219,550
 211,346
Operating income34,796
 29,962
 70,207
 63,170
Other income (expense):       
Investment and other income1,056
 596
 1,272
 107
Interest expense(829) (1,458) (1,692) (3,190)
Earnings before income taxes35,023
 29,100
 69,787
 60,087
Income tax expense30,750
 3,803
 39,678
 12,237
Net earnings$4,273
 $25,297
 $30,109
 $47,850
Net earnings per Class A Nonvoting Common Share:       
Basic$0.08
 $0.50
 $0.58
 $0.94
Diluted$0.08
 $0.49
 $0.57
 $0.93
Dividends$0.21
 $0.21
 $0.42
 $0.41
Net earnings per Class B Voting Common Share:       
Basic$0.08
 $0.50
 $0.57
 $0.93
Diluted$0.08
 $0.49
 $0.56
 $0.91
Dividends$0.21
 $0.21
 $0.40
 $0.39
Weighted average common shares outstanding (in thousands):       
Basic51,698
 51,054
 51,569
 50,844
Diluted52,719
 51,954
 52,551
 51,721

See Notes to Condensed Consolidated Financial Statements.

4
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands, Unaudited)

 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Net earnings$4,273
 $25,297
 $30,109
 $47,850
Other comprehensive income (loss):       
Foreign currency translation adjustments17,846
 (2,292) 12,461
 (16,546)
        
Net investment hedge and long-term intercompany loan translation adjustments(2,005) 1,984
 (3,177) 5,169
        
Cash flow hedges:       
Net loss recognized in other comprehensive income (loss)(304) (403) (537) (106)
Reclassification adjustment for losses included in net earnings158
 10
 182
 415
 (146) (393) (355) 309
Pension and other post-retirement benefits:       
Net gain recognized in other comprehensive income (loss)592
 72
 592
 72
Actuarial gain amortization(141) (136) (271) (272)
 451
 (64) 321
 (200)
        
Other comprehensive income (loss), before tax16,146
 (765) 9,250
 (11,268)
Income tax benefit (expense) related to items of other comprehensive income (loss)827
 (535) 342
 (2,201)
Other comprehensive income (loss), net of tax16,973
 (1,300) 9,592
 (13,469)
Comprehensive income$21,246
 $23,997
 $39,701
 $34,381
Three months ended October 31,
 20222021
Net income$39,441 $35,046 
Other comprehensive loss:
Foreign currency translation adjustments(17,672)(3,918)
Cash flow hedges:
Net gain (loss) recognized in other comprehensive loss893 (26)
Reclassification adjustment for gains included in net income(581)(568)
312 (594)
Pension and other post-retirement benefits actuarial gain amortization(143)(107)
Other comprehensive loss, before tax(17,503)(4,619)
Income tax benefit (expense) related to items of other comprehensive loss66 (99)
Other comprehensive loss, net of tax(17,437)(4,718)
Comprehensive income$22,004 $30,328 

See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, Unaudited)
Three months ended October 31, 2022
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balances at July 31, 2022$548 $345,266 $892,417 $(217,856)$(109,077)$911,298 
Net income— — 39,441 — — 39,441 
Other comprehensive loss, net of tax— — — — (17,437)(17,437)
Issuance of shares of Class A Common Stock under stock plan— (2,226)— 1,071 — (1,155)
Tax benefit and withholdings from deferred compensation distributions— 66 — — — 66 
Stock-based compensation expense— 2,958 — — — 2,958 
Repurchase of shares of Class A Common Stock— — — (12,070)— (12,070)
Cash dividends on Common Stock:
Class A — $0.2300 per share— — (10,621)— — (10,621)
Class B — $0.2134 per share— — (755)— — (755)
Balances at October 31, 2022$548 $346,064 $920,482 $(228,855)$(126,514)$911,725 
Three months ended October 31, 2021
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balances at July 31, 2021$548 $339,125 $788,369 $(109,061)$(55,953)$963,028 
Net income— — 35,046 — — 35,046 
Other comprehensive loss, net of tax— — — — (4,718)(4,718)
Issuance of shares of Class A Common Stock under stock plan— (3,187)— (1)— (3,188)
Tax benefit and withholdings from deferred compensation distributions— 115 — — — 115 
Stock-based compensation expense— 4,129 — — — 4,129 
Repurchase of shares of Class A Common Stock— — — (18,924)— (18,924)
Cash dividends on Common Stock:
Class A — $0.2250 per share— — (10,858)— — (10,858)
Class B — $0.2084 per share— — (737)— — (737)
Balances at October 31, 2021$548 $340,182 $811,820 $(127,986)$(60,671)$963,893 
6
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Unaudited)
Three months ended October 31,
 20222021
Operating activities:
Net income$39,441 $35,046 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization8,665 8,509 
Stock-based compensation expense2,958 4,129 
Deferred income taxes(1,705)(625)
Other(383)(187)
Changes in operating assets and liabilities:
Accounts receivable(627)(13,302)
Inventories(9,582)(16,579)
Prepaid expenses and other assets(2,563)(655)
Accounts payable and accrued liabilities(14,150)9,499 
Income taxes5,945 1,656 
Net cash provided by operating activities27,999 27,491 
Investing activities:
Purchases of property, plant and equipment(3,861)(11,328)
Other— 2 
Net cash used in investing activities(3,861)(11,326)
Financing activities:
Payment of dividends(11,376)(11,595)
Proceeds from exercise of stock options349 151 
Payments for employee taxes withheld from stock-based awards(1,504)(3,339)
Purchase of treasury stock(12,070)(18,924)
Proceeds from borrowing on credit facilities36,000 56,200 
Repayment of borrowing on credit facilities(32,000)(27,200)
Other66 115 
Net cash used in financing activities(20,535)(4,592)
Effect of exchange rate changes on cash and cash equivalents(3,201)(1,355)
Net increase in cash and cash equivalents402 10,218 
Cash and cash equivalents, beginning of period114,069 147,335 
Cash and cash equivalents, end of period$114,471 $157,553 
 Six months ended January 31,
 2018 2017
Operating activities:   
Net earnings$30,109
 $47,850
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization12,840
 14,102
Non-cash portion of stock-based compensation expense5,897
 5,394
Deferred income taxes26,028
 (4,547)
Changes in operating assets and liabilities:   
Accounts receivable(10,945) 3,407
Inventories(4,150) 224
Prepaid expenses and other assets(3,153) 220
Accounts payable and other liabilities(12,695) (9,384)
Income taxes(1,471) (3,932)
Net cash provided by operating activities42,460
 53,334
    
Investing activities:   
Purchases of property, plant and equipment(8,469) (7,235)
Other(729) 593
Net cash used in investing activities(9,198) (6,642)
    
Financing activities:   
Payment of dividends(21,373) (20,852)
Proceeds from exercise of stock options9,948
 14,659
Proceeds from borrowing on credit facilities17,439
 144,533
Repayment of borrowing on credit facilities(57,314) (195,002)
Income tax on equity-based compensation, and other(2,342) (640)
Net cash used in financing activities(53,642) (57,302)
    
Effect of exchange rate changes on cash1,763
 (5,410)
    
Net decrease in cash and cash equivalents(18,617) (16,020)
Cash and cash equivalents, beginning of period133,944
 141,228
    
Cash and cash equivalents, end of period$115,327
 $125,208


See Notes to Condensed Consolidated Financial Statements.

7
Table of Contents
BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SixThree Months EndedJanuary October 31, 20182022
(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 JanuaryOctober 31, 20182022 and July 31, 2017,2022, its results of operations, cash flows and comprehensive income for the three and six months ended JanuaryOctober 31, 20182022 and 2017, and cash flows for the six months ended January 31, 2018 and 2017.2021. The condensed consolidated balance sheet as of July 31, 2017,2022, 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 reportAnnual Report on Form 10-K for the year ended July 31, 2017.2022.

NOTE B — GoodwillNew Accounting Pronouncements
Adopted Standards
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities (e.g. deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers” as if the acquirer had originated the contracts. The guidance is applied prospectively to acquisitions occurring on or after the effective date. The Company early adopted ASU No. 2021-08 during the quarter ended October 31, 2022. The adoption of the new standard will only have an impact on the Company's condensed consolidated financial statements in the event of future acquisitions.

NOTE C — Additional Balance Sheet Information
Inventories
Inventories as of October 31, 2022 and July 31, 2022 consisted of the following:
 October 31, 2022July 31, 2022
Finished products$111,897 $112,323 
Work-in-process30,359 29,272 
Raw materials and supplies53,439 48,428 
Total inventories$195,695 $190,023 
Property, plant and equipment
Property, plant and equipment is presented net of accumulated depreciation in the amount of $273,922 and $272,376 as of October 31, 2022 and July 31, 2022, respectively.

8
Table of Contents
NOTE D — Other Intangible Assets
Changes in the carrying amountOther intangible assets as of goodwill for the six months ended JanuaryOctober 31, 2018, were as follows:
 IDS WPS Total
Balance as of July 31, 2017$391,864
 $45,833
 $437,697
Translation adjustments4,110
 2,066
 6,176
Balance as of January 31, 2018$395,974
 $47,899
 $443,873

Goodwill at January 31, 20182022 and July 31, 2017, included $118,637 and $209,3922022 consisted of accumulated impairment losses within the Identification Solutions ("IDS") and Workplace Safety ("WPS") segments, respectively, for a total of $328,029. There were no impairment charges recorded during the six months ended January 31, 2018.following:







Other intangible assets include patents, trademarks, and customer relationships with finite lives being amortized in accordance with the accounting guidance for other intangible assets. The Company also has unamortized indefinite-lived trademarks that are classified as other intangible assets. The net book value of these assets was as follows:
January 31, 2018 July 31, 2017 October 31, 2022July 31, 2022
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
Weighted Average Amortization Period (Years)Gross Carrying AmountAccumulated AmortizationNet Book ValueWeighted Average Amortization Period (Years)Gross Carrying AmountAccumulated AmortizationNet Book Value
Amortized other intangible assets:            Amortized other intangible assets:
Patents5 $1,441
 $(697) $744
 5 $1,358
 $(471) $887
Trademarks and other9 4,654
 (4,469) 185
 9 4,528
 (4,229) 299
TradenamesTradenames3$1,728 $(1,165)$563 3$1,749 $(1,014)$735 
Customer relationships8 61,501
 (35,545) 25,956
 8 60,759
 (31,909) 28,850
Customer relationships9104,610 (51,312)53,298 9105,404 (48,428)56,976 
TechnologyTechnology59,013 (2,686)6,327 59,136 (2,241)6,895 
Unamortized other intangible assets:            Unamortized other intangible assets:
TrademarksN/A 23,246
 —
 23,246
 N/A 23,040
 —
 23,040
TradenamesTradenamesN/A9,306 — 9,306 N/A9,422 — 9,422 
Total $90,842
 $(40,711) $50,131
 $89,685
 $(36,609) $53,076
Total$124,657 $(55,163)$69,494 $125,711 $(51,683)$74,028 
The increasechange in the gross carrying amount of other intangible assets as of JanuaryOctober 31, 2018,2022 compared to July 31, 2017,2022 was due to the effect of currency fluctuations during the six-monththree-month period.
Amortization expense ofon intangible assets was $1,617$3,631 and $1,688$3,807 for the three months ended JanuaryOctober 31, 20182022 and 2017, respectively,2021, respectively.

NOTE E — Leases
The Company leases certain manufacturing facilities, warehouse and $3,310office spaces, and $3,583vehicles accounted for as operating leases. Lease terms typically range from one year to ten years. As of October 31, 2022, the Company did not have any finance leases.
Operating lease expense was $3,780 and $4,765 for the sixthree months ended JanuaryOctober 31, 20182022 and 2017, respectively. The amortization over each2021, respectively, which was recognized in either "Cost of goods sold" or "Selling, general and administrative" expenses in the condensed consolidated statements of income, based on the nature of the next five fiscal years is projectedlease. Short-term lease expense, variable lease expenses, and sublease income was immaterial to be $6,578, $6,223, $5,217, $5,174 and $5,017the condensed consolidated statements of income for the fiscal years ending Julythree months ended October 31, 20182022 and 2021.
Supplemental cash flow information related to the Company's operating leases for the three months ended October 31, 2022 and 2021, 2019, 2020, 2021was as follows:
Three months ended October 31,
20222021
Operating cash flows from operating leases$4,202 $4,999 
Operating lease assets obtained in exchange for new operating lease liabilities (1) (2)
102 (868)
(1) Includes new leases and 2022, respectively.remeasurements or modifications of existing leases.
(2) During the three months ended October 31, 2021, the Company purchased two buildings which were previously leased. This resulted in a decrease in operating lease assets obtained in exchange for lease liabilities for the period as the remaining lease assets and liabilities were removed from the condensed consolidated balance sheets.

9
Table of Contents
NOTE CF — Accumulated Other Comprehensive Loss
Other comprehensive loss consists of foreign currency translation adjustments, the unrealized gains and lossesgain from cash flow hedges and net investment hedges and the unamortized gain on post-retirement plans, net of their related tax effects.
The following table illustrates the changes in the balances of each component of accumulated other comprehensive loss, net of tax, for the sixthree months ended JanuaryOctober 31, 2018:2022:
 Unrealized gain (loss) on cash flow hedges Unamortized gain on post-retirement plans Foreign currency translation adjustments Accumulated other comprehensive loss
Beginning balance, July 31, 2017$109
 $2,620
 $(47,411) $(44,682)
Other comprehensive (loss) income before reclassification(598) 382
 9,953
 9,737
Amounts reclassified from accumulated other comprehensive loss126
 (271) —
 (145)
Ending balance, January 31, 2018$(363) $2,731
 $(37,458) $(35,090)
Unrealized gain on cash flow hedgesUnamortized gain on post-retirement plansForeign currency translation adjustmentsAccumulated other comprehensive loss
Beginning balance, July 31, 2022$954 $1,436 $(111,467)$(109,077)
Other comprehensive income (loss) before reclassification813 — (17,672)(16,859)
Amounts reclassified from accumulated other comprehensive loss(435)(143)— (578)
Ending balance, October 31, 2022$1,332 $1,293 $(129,139)$(126,514)
The decreaseincrease in accumulated other comprehensive loss as of JanuaryOctober 31, 2018,2022, compared to July 31, 2017,2022, was primarily due to the depreciationappreciation of the U.S. dollar against certain other currencies during the six-monththree-month period. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, including foreign currency translation on intercompany notes and net investment hedges, net of tax. Of the total $145 in amounts reclassified from accumulated other comprehensive loss, the $126 loss on cash flow hedges was reclassified into cost of products sold, and the $271 gain on post-retirement plans was reclassified into selling, general and administrative expenses ("SG&A") on the condensed consolidated statement of earnings for the six months ended January 31, 2018.





The changes in accumulated other comprehensive loss by component, net of tax, for the sixthree months ended JanuaryOctober 31, 2017,2021, were as follows:
 Unrealized loss on cash flow hedges Unamortized gain on post-retirement plans Foreign currency translation adjustments Accumulated other comprehensive loss
Beginning balance, July 31, 2016$(857) $2,236
 $(56,124) $(54,745)
Other comprehensive (loss) income before reclassification(80) 72
 (13,442) (13,450)
Amounts reclassified from accumulated other comprehensive loss253
 (272) —
 (19)
Ending balance, January 31, 2017$(684) $2,036
 $(69,566) $(68,214)
Unrealized gain on cash flow hedgesUnamortized gain on post-retirement plansForeign currency translation adjustmentsAccumulated other comprehensive loss
Beginning balance, July 31, 2021$729 $1,888 $(58,570)$(55,953)
Other comprehensive loss before reclassification(273)— (3,913)(4,186)
Amounts reclassified from accumulated other comprehensive loss(425)(107)— (532)
Ending balance, October 31, 2021$31 $1,781 $(62,483)$(60,671)
The increase in the accumulated other comprehensive loss as of JanuaryOctober 31, 2017,2021, compared to July 31, 2016,2021, was primarily due to the appreciation of the U.S. dollar against certain other currencies during the six-monththree-month period. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, including foreign currency translation on intercompany notes and net investment hedges, net of tax.
Of the total $19 in amounts reclassified from accumulated other comprehensive loss during the $253 lossthree months ended October 31, 2022 and 2021, unrealized gains on cash flow hedges waswere reclassified into costto "Cost of products sold,goods sold" and the $272 gainunamortized gains on post-retirement plans was reclassified into SG&A"Investment and other (expense) income" on the condensed consolidated statementstatements of earnings for the six months ended January 31, 2017.income.
The following table illustrates the income tax benefit (expense) on the components of other comprehensive income (loss) for the three and six months ended January 31, 2018 and 2017:
 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Income tax benefit (expense) related to items of other comprehensive income (loss):       
Net investment hedge translation adjustments$1,029
 $(556) $694
 $(2,125)
Cash flow hedges78
 (8) (117) (137)
Pension and other post-retirement benefits(209) —
 (209) —
Other income tax adjustments and currency translation(71) 29
 (26) 61
Income tax benefit (expense) related to items of other comprehensive income (loss)$827
 $(535) $342
 $(2,201)


NOTE D — Net Earnings per Common Share
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Numerator: (in thousands)       
Earnings (Numerator for basic and diluted Class A Nonvoting Common Share)$4,273
 $25,297
 $30,109
 $47,850
Less:       
Preferential dividends—
 —
 (799) (788)
Preferential dividends on dilutive stock options—
 —
 (16) (14)
Numerator for basic and diluted earnings per Class B Voting Common Share$4,273
 $25,297
 $29,294
 $47,048
Denominator: (in thousands)       
Denominator for basic earnings per share for both Class A and Class B51,698
 51,054
 51,569
 50,844
Plus: Effect of dilutive stock options and restricted stock units1,021
 900
 982
 877
Denominator for diluted earnings per share for both Class A and Class B52,719
 51,954
 52,551
 51,721
Net earnings per Class A Nonvoting Common Share:       
Basic$0.08
 $0.50
 $0.58
 $0.94
Diluted$0.08
 $0.49
 $0.57
 $0.93
Net earnings per Class B Voting Common Share:       
Basic$0.08
 $0.50
 $0.57
 $0.93
Diluted$0.08
 $0.49
 $0.56
 $0.91
Options to purchase 705,069 and 768,617 shares of Class A Nonvoting Common Stockloss for the three months ended JanuaryOctober 31, 20182022 and 2017, respectively,2021:
Three months ended October 31,
20222021
Income tax benefit (expense) related to items of other comprehensive loss:
Cash flow hedges$66 $(104)
Other income tax adjustments and currency translation— 5 
Income tax benefit (expense) related to items of other comprehensive loss$66 $(99)

NOTE G — 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 721,100services. The Company’s revenues are primarily from the sale of identification solutions and 770,010 sharesworkplace 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 H, “Segment Information,” for the six months ended January 31, 2018 and 2017, respectively, were notCompany’s disaggregated revenue disclosure.
The Company offers extended warranty coverage that is included in the computation of diluted net earnings per share because the option exercise price was greater than the average marketsales price of certain products, which it accounts for as service warranties. The Company accounts for the common sharesdeferred revenue associated with extended service warranties as a
10
Table of Contents
contract liability. The balance of contract liabilities associated with service warranty performance obligations was $2,727 and therefore,$2,675 as of October 31, 2022 and July 31, 2022, respectively. The current portion and non-current portion of contract liabilities are included in “Other current liabilities” and “Other liabilities," respectively, on the effect would have been anti-dilutive.condensed consolidated balance sheets. The Company recognized revenue of $306 and $289 during the three months ended October 31, 2022 and 2021, respectively, that was included in the contract liability balance at the beginning of the respective period from the amortization of extended service warranties. Of the contract liability balance outstanding at October 31, 2022, the Company expects to recognize 32% by the end of fiscal 2023, an additional 31% by the end of fiscal 2024, and the remaining balance thereafter.


NOTE EH — 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 ("PeopleID"PDC"), which aggregate into two reportable segments that are organized around businesses with consistent products and services: IDS and WPS. The Identification SolutionsIDS and PeopleIDPDC 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-termfollowing is a summary of net sales by segment performance based on segment profit and customer sales. Interest expense, investmentgeographic region for the three months ended October 31, 2022 and other income, income taxes, and certain corporate administrative expenses are excluded when evaluating segment performance.2021:
Three months ended October 31,
20222021
Net sales:
IDS
Americas$173,349 $164,910 
Europe56,643 56,889 
Asia26,364 26,818 
Total$256,356 $248,617 
WPS
Americas$18,782 $21,142 
Europe33,549 38,022 
Australia13,882 13,694 
Total$66,213 $72,858 
Total Company
Americas$192,131 $186,052 
Europe90,192 94,911 
Asia-Pacific40,246 40,512 
Total$322,569 $321,475 
The following is a summary of segment informationprofit for the three and six months ended JanuaryOctober 31, 20182022 and 2017:2021:
Three months ended October 31,
20222021
Segment profit:
IDS$51,525 $48,816 
WPS6,378 2,293 
Total Company$57,903 $51,109 
11
 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Sales to External Customers       
ID Solutions$206,432
 $190,962
 $416,137
 $392,226
Workplace Safety81,348
 77,039
 161,794
 155,951
Total Company$287,780
 $268,001
 $577,931
 $548,177
Segment Profit       
ID Solutions$34,088
 $28,961
 $69,925
 $62,035
Workplace Safety7,055
 6,059
 13,500
 12,504
Total Company$41,143
 $35,020
 $83,425
 $74,539
Table of Contents

The following is a reconciliation of segment profit to earningsincome before income taxes for the three and six months ended JanuaryOctober 31, 20182022 and 2017:2021:
Three months ended October 31,
 20222021
Total profit from reportable segments$57,903 $51,109 
Unallocated amounts:
Administrative costs(6,517)(6,774)
Investment and other (expense) income(157)543 
Interest expense(894)(182)
Income before income taxes$50,335 $44,696 
 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Total profit from reportable segments$41,143
 $35,020
 $83,425
 $74,539
Unallocated amounts:       
Administrative costs(6,347) (5,058) (13,218) (11,369)
Investment and other income1,056
 596
 1,272
 107
Interest expense(829) (1,458) (1,692) (3,190)
Earnings before income taxes$35,023
 $29,100
 $69,787
 $60,087


NOTE FI – Stock-Based Compensation
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"), performance-based restricted stock units ("PRSUs"), 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, 2022 and 2021 was $2,958 and $4,129, respectively. The total income tax benefit recognized in the condensed consolidated statements of income was $192 and $199 during the three months ended October 31, 2022 and 2021, respectively.
Stock Options
The stock options issued under the plan have an exercise price equal to the fair market valueprice of the underlyingCompany's stock at the date of the grant and generally vest ratably over a three-year service period,three years, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan, referred to herein as “service-based” stock“time-based” options, generally expire 10ten years from the date of grant.
Restricted and unrestricted shares and 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 "service-based" or "performance-based" restricted shares and RSUs. The service-based RSUs granted under the plan generally vest over a three-year service period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. The performance-based RSUs granted under the plan generally vest at the end of a three-year service period provided specified company financial performance metrics are met.
As of January 31, 2018, the Company has reserved 3,341,296 shares of Class A Nonvoting Common Stock for outstanding stock options, RSUs, and restricted shares and 4,014,866 shares of Class A Nonvoting Common Stock remain for future issuance of stock options, RSUs, and restricted and unrestricted shares under the plan. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under the plan.
The Company recognizes the compensation cost of all share-based awards at the time it is deemed probable the award will vest. This cost is recognized on a straight-line basis over the vesting period of the award. If it is determined that it is unlikely the award will vest, the expense recognized to date for the award is reversed in the period in which this is evident and the remaining expense is not recorded. Total stock-based compensation expense recognized by the Company during the three months ended January 31, 2018 and 2017, was $2,153 ($1,614 net of taxes) and $2,238 ($1,387 net of taxes), respectively. Expense recognized during the six months ended January 31, 2018 and 2017, was $5,897 ($4,423 net of taxes) and $5,394 ($3,344 net of taxes), respectively.
As of January 31, 2018, total unrecognized compensation cost related to stock-based compensation awards was $14,492 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 1.9 years.

The Company has estimated the grant date fair value of its service-based stocktime-based option awards granted during the sixthree months ended JanuaryOctober 31, 20182022 and 2017,2021, using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:
 Six months ended January 31,Three months ended October 31,
Black-Scholes Option Valuation Assumptions 2018 2017Black-Scholes Option Valuation Assumptions20222021
Expected term (in years) 6.07
 6.11
Expected term (in years)5.76.1
Expected volatility 26.52% 29.43%Expected volatility29.6 %30.0 %
Expected dividend yield 2.72% 2.70%Expected dividend yield2.0 %2.3 %
Risk-free interest rate 1.96% 1.26%Risk-free interest rate3.7 %1.0 %
Weighted-average market value of underlying stock at grant date $36.85
 $35.13
Weighted-average exercise price $36.85
 $35.13
Weighted-average fair value of options granted during the period $7.96
 $7.56
The Company uses historical data regarding stock option exercise behaviors to estimate the expected term of options granted based on the period of time that options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company’s stock. The expected dividend yieldfollowing is based on the Company’s historical dividend payments and historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for the length of time corresponding to the expected term of the option. The market value is calculated as the average of the high and the low stock price on the date of the grant.
Aa summary of stock option activity under the Company’s share-based compensation plans for the sixthree months ended JanuaryOctober 31, 2018, is presented below:2022:
Time-Based OptionsOptions OutstandingWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at July 31, 20221,591,525$41.57 
Granted147,62943.50 
Exercised(22,494)30.48 
Forfeited(10,247)45.41 
Outstanding at October 31, 20221,706,413$41.86 6.4$9,729 
Exercisable at October 31, 20221,270,763$40.67 5.4$8,851 
12
Table of Contents
Options Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding at July 31, 2017 2,879,801 $27.40
    
New grants 364,046 36.85
    
Exercised (397,402) 31.01
    
Forfeited or expired (62,125) 32.25
    
Outstanding at January 31, 2018 2,784,320 $28.01
 6.3 $28,850
Exercisable at January 31, 2018 1,962,475 $26.61
 5.3 $23,097

There were 1,962,475The weighted-average grant date fair value of options granted during the three months ended October 31, 2022 and 2,037,018 options exercisable with a weighted average exercise price of $26.612021 was $12.06 and $28.67 at January 31, 2018 and 2017,$11.29, respectively. The total intrinsic value of stock options exercised during the sixthree months ended JanuaryOctober 31, 20182022 and 2017, based upon the average market price at the time of exercise during the period,2021 was $2,935$364 and $6,719,$319, respectively. The total fair value of stock options vested during the sixthree months ended JanuaryOctober 31, 20182022 and 2017,2021 was $3,004$2,458 and $2,890,$2,446, respectively.

The cash received from the exercise of stock options during the three months ended JanuaryOctober 31, 20182022 and 2017,2021 was $6,699$349 and $5,846,$151, respectively. The cash receivedtax benefit from the exercise of stock options during the six months ended January 31, 2018, and 2017 was $9,948 and $14,659, respectively. The tax benefit on options exercised during the three months ended JanuaryOctober 31, 20182022 and 2017,2021 was $512$91 and $353,$80, respectively.
As of October 31, 2022, total unrecognized compensation cost related to stock options was $2,898 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.1 years.
RSUs
RSUs issued under the plan have a grant date fair value equal to the market price of the Company's stock at the date of grant and generally vest ratably over three years, with one-third vesting one year after the grant date and one-third additional in each of the succeeding two years.
The tax benefit on options exercised duringfollowing is a summary of RSU activity for the sixthree months ended JanuaryOctober 31, 2018 and 2017, was $895 and $1,453, respectively.2022:

The following table summarizes the RSU activity under the Company's share-based compensation plans for the six months ended January 31, 2018:
Service-Based RSUs Shares 
Weighted
Average
Grant Date Fair Value
Outstanding at July 31, 2017 517,108
 $25.61
New grants 86,032
 36.68
Vested (137,237) 24.73
Forfeited (23,423) 26.92
Outstanding at January 31, 2018 442,480
 $27.97
Number of SharesWeighted Average Grant Date Fair Value
Non-vested RSUs as of July 31, 2022173,230 $47.45 
Granted62,197 44.70 
Vested(61,316)47.50 
Forfeited(2,585)45.03 
Non-vested RSUs as of October 31, 2022171,526 $46.47 
The service-based RSUs granted during the sixthree months ended JanuaryOctober 31, 2017,2021 had a weighted-average grant date fair value of $35.12.$49.85. The total fair value of service-based RSUs vested during the sixthree months ended JanuaryOctober 31, 20182022 and 2017,2021 was $5,002$2,608 and $3,853,$3,380, respectively.
As of October 31, 2022, total unrecognized compensation cost related to RSUs was $5,029 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.2 years.
Performance-Based RSUs Shares Weighted
Average
Grant Date Fair Value
Outstanding at July 31, 2017 58,206
 $32.03
New grants 56,290
 33.12
Vested —
 —
Forfeited —
 —
Outstanding at January 31, 2018 114,496
 $32.57
PRSUs
PRSUs are contingent on the achievement of predetermined market and performance targets. The performance-based RSUsPRSUs granted under the plan vest at the end of a three-year performance period provided the specified market and performance targets are met. For the PRSUs granted during the sixthree months ended JanuaryOctober 31, 2017,2022 and 2021, the vesting criteria for 50% of the grant is based upon the Company's total shareholder return ("TSR") relative to the S&P 600 SmallCap Industrials Index over a three-year performance period, and the vesting criteria for the other 50% of the grant is based upon Company revenue targets. All other previously granted non-vested PRSUs vest based upon the Company's TSR relative to the S&P 600 SmallCap Industrials Index.
The Company calculates the fair value of each component of the applicable PRSUs individually. The fair value of the revenue target metric, which is a performance condition, is equal to the average of the high and low stock price on the grant date. The fair value of the TSR metric, which is a market condition, is determined using a Monte Carlo valuation model. The assumptions used in the Monte Carlo valuation model are reflected in the following table:
Three months ended October 31,
Monte Carlo Valuation Assumptions20222021
Expected volatility34.8 %34.7 %
Risk-free interest rate2.8 %0.3 %
13
Table of Contents
The following is a summary of PRSU activity for the three months ended October 31, 2022:
Number of SharesWeighted Average Grant Date Fair Value
Non-vested PRSUs as of July 31, 202279,134 $66.79 
Granted44,110 55.77 
Vested(18,959)75.00 
Forfeited(16,332)71.99 
Non-vested PRSUs as of October 31, 202287,953 $58.63 
The PRSUs granted during the three months ended October 31, 2021 had a weighted-average grant date fair value of $32.03.$61.76. The aggregate intrinsictotal fair value of unvested service-basedPRSUs vested during three months ended October 31, 2022 and performance-based RSUs outstanding at January2021 was $889 and $4,098, respectively.
As of October 31, 2018, and expected2022, total unrecognized compensation cost related to vestPRSUs was $21,304.$2,889 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.4 years.



NOTE GJ — Net Income per Common Share
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
Three months ended October 31,
 20222021
Numerator (in thousands):
Net income (Numerator for basic and diluted income per Class A Nonvoting Common Share)$39,441 $35,046 
Less:
Preferential dividends(769)(803)
Preferential dividends on dilutive stock options(4)(8)
Numerator for basic and diluted income per Class B Voting Common Share$38,668 $34,235 
Denominator (in thousands):
Denominator for basic income per share for both Class A and Class B49,868 51,973 
Plus: Effect of dilutive equity awards222 463 
Denominator for diluted income per share for both Class A and Class B50,090 52,436 
Net income per Class A Nonvoting Common Share:
Basic$0.79 $0.67 
Diluted$0.79 $0.67 
Net income per Class B Voting Common Share:
Basic$0.78 $0.66 
Diluted$0.77 $0.65 
Potentially dilutive securities attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted earnings per share where the combined exercise price and average unamortized fair value were greater than the average market price of the Company's Class A Nonvoting Common Stock because the effect would have been anti-dilutive. The amount of anti-dilutive shares were 583,533 and 479,602 for the three months ended October 31, 2022 and 2021, respectively.

NOTE K — Fair Value Measurements
In accordance with fair value accounting guidance, the Company’s assets and liabilities measured atCompany 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 in one ofinto the following categories:hierarchy:
Level 1 — Assets or liabilities for which fair value is based on unadjustedUnadjusted quoted prices in active markets for identical instruments that are accessible as of the reporting date.
Level 2 — Assets or liabilities for which fair value is based on otherOther significant pricing inputs that are either directly or indirectly observable.
Level 3 — Assets or liabilities for which fair value is based on significantSignificant unobservable pricing inputs, to the extent little or no market data is available, which result in the use of management's own assumptions.
14
Table of Contents
The following tables set forth by level withintable summarizes the fair value hierarchy ourCompany's financial assets and liabilities that were accounted for at fair value on a recurring basis at JanuaryOctober 31, 20182022 and July 31, 2017, according to the valuation techniques the Company used to determine their fair values.2022:
 
Inputs
Considered As
    
 
Quoted Prices in Active Markets for Identical
Assets (Level 1)
 Significant Other Observable Inputs (Level 2) Fair Values Balance Sheet Classifications
January 31, 2018       
Trading securities$14,726
 $—
 $14,726
 Other assets
Foreign exchange contracts—
 379
 379
 Prepaid expenses and other current assets
Total Assets$14,726
 $379
 $15,105
  
Foreign exchange contracts$—
 $1,054
 $1,054
 Other current liabilities
Total Liabilities$—
 $1,054
 $1,054
  
July 31, 2017       
Trading securities$13,994
 $—
 $13,994
 Other assets
Foreign exchange contracts—
 1,354
 1,354
 Prepaid expenses and other current assets
Total Assets$13,994
 $1,354
 $15,348
  
Foreign exchange contracts$—
 $1,577
 $1,577
 Other current liabilities
Total Liabilities$—
 $1,577
 $1,577
  
 October 31, 2022July 31, 2022Fair Value Hierarchy
Assets:
Deferred compensation plan assets$16,072 $18,037 Level 1
Foreign exchange contracts1,138 489 Level 2
Liabilities:
Foreign exchange contracts— 32 Level 2
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Trading securities:Deferred compensation plan assets: The Company’s deferred compensation investments consist of investments in mutual funds.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 H,L, “Derivatives and Hedging Activities,” for additional information.
There have been no transfers of assets or liabilities between the fair value hierarchy levels outlined above during the six months ended January 31, 2018. In addition, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the six months ended January 31, 2018.
The Company’s financial instruments, other than those presented in the disclosures above, includefair values of cash and cash equivalents, accounts receivable, notes payable, accounts payable, and other liabilities. The fair values of these financial instrumentsliabilities approximated carrying values because ofdue to their short-term nature.
The estimated fair value of the Company’s short-term and long-term debt obligations, excluding notes payable, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities was $74,668 and $109,303 at January 31, 2018 and July 31, 2017, respectively, as compared to the carrying value of $70,624 and $104,536 at January 31, 2018 and July 31, 2017, respectively.

NOTE HL — 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. As of January 31, 2018 and July 31, 2017, the notional amount of outstanding forward exchange contracts was $18,236 and $81,195, respectively.
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 Mexican peso.Singapore dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.
Hedge effectiveness is determined by how closely the changes in fair valueThe U.S. dollar equivalent notional amounts of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings.outstanding forward exchange contracts were as follows:
  October 31, 2022July 31, 2022
Designated as cash flow hedges$18,967 $25,276 
Non-designated hedges4,190 4,057 
Total foreign exchange contracts$23,157 $29,333 
Cash Flow Hedges
The Company has designated a portion of its forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of OCIother comprehensive income ("OCI") and reclassified into earningsincome in the same period or periods during which the hedged transaction affects earnings.income. As of JanuaryOctober 31, 20182022 and 2017,July 31, 2022, unrealized lossesgains of $856$1,352 and $451$1,040 have been included in OCI, respectively. Balances are reclassified from OCI
15
Table of Contents
The following table summarizes the amount of pre-tax gains and losses related to earnings when the hedged transactions impact earnings. For the three months ended January 31, 2018 and 2017, the Company reclassified losses of $158 and $10 from OCI into earnings, respectively. For the six months ended January 31, 2018 and 2017, the Company reclassified losses of $182 and gains of $415 from OCI into earnings, respectively. At January 31, 2018, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $15,043, including contracts to sell Euros, Canadian dollars, and U.S. dollars.
Net Investment Hedges
As of April 30, 2017, €45 million of Euro-denominated senior unsecured notes were designated as net investment hedges to hedge portions of its net investment in European operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.cash flow hedging instruments:
Non-Designated Hedges
 Three months ended October 31,
20222021
Gains (losses) recognized in OCI$893 $(26)
Gains reclassified from OCI into cost of goods sold581 568 
For the three and six months ended January 31, 2018, the Company recognized losses of $2 and gains of $20, respectively, in “Investment and other income” on the condensed consolidated statements of earnings related to non-designated hedges. For the three and six months ended January 31, 2017, the Company recognized losses of $3,313 and $5,046, respectively.

Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
 October 31, 2022July 31, 2022
  Prepaid expenses and other current assetsOther current liabilitiesPrepaid expenses and other current assetsOther current liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts (cash flow hedges)$1,135 $— $489 $30 
Derivatives not designated as hedging instruments:
Foreign exchange contracts (non-designated hedges)3 — — 2 
Total derivative instruments$1,138 $— $489 $32 
 Asset Derivatives Liability Derivatives
 January 31, 2018 July 31, 2017 January 31, 2018 July 31, 2017
  
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments               
Cash flow hedges               
Foreign exchange contractsPrepaid expenses and other current assets $377
 Prepaid expenses and other current assets $1,067
 Other current liabilities $1,046
 Other current liabilities $1,569
Net investment hedges               
Foreign currency denominated debtPrepaid expenses and other current assets —
 Prepaid expenses and other current assets —
 Long term obligations, less current maturities 55,800
 Long term obligations, less current maturities 53,280
Total derivatives designated as hedging instruments  $377
   $1,067
   $56,846
   $54,849
Derivatives not designated as hedging instruments               
Foreign exchange contractsPrepaid expenses and other current assets $2
 Prepaid expenses and other current assets $287
 Other current liabilities $8
 Other current liabilities $7
Total derivatives not designated as hedging instruments  $2
   $287
   $8
   $7


NOTE I —M – Income Taxes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Reform Act reduces the U.S. federal corporateThe income tax rate from 35.0% to 21.0%, imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries, eliminateswas 21.6% for the domestic manufacturing deductionthree months ended October 31, 2022 and moves to a partial territorial system by providing a 100% dividend received deduction on certain qualified dividends from foreign subsidiaries. As the2021. The Company has a July 31 fiscal year end, the lower corporateexpects its ongoing annual income tax rate will be phased in, resulting in a U.S. statutory federal income tax rate of 26.9% for the fiscal year ending July 31, 2018 and 21.0% for subsequent fiscal years.

As part of the transition to the partial territorial tax system, the Tax Reform Act imposes a one-time tax on the mandatory deemed repatriation of historical earnings of foreign subsidiaries. Companies can claim certain credits for foreign taxes deemed paid on foreign earnings subject to the mandatory deemed repatriation. The Company’s provisional calculations resulted in an income tax charge of $402 related to the deemed repatriation of the historical earnings of foreign subsidiaries during the three and six-month periods ended January 31, 2018. Existing foreign tax credit carryforwards can be used to offset this tax and, as a result, no cash payments will be required related to this charge.

The reduction in the U.S. federal income tax rate requires the Company to remeasure its U.S. deferred tax assets and liabilities to the income tax rate at which the deductible or taxable event is expected to be realized,approximately 20% based on its current global business mix and changes thebased on tax laws and statutory U.S. federal tax from 35.0% to 26.9% for the entire year ending July 31, 2018. Additionally, the Company established a valuation allowance for deferred tax assets related to foreign tax credits, primarily related to the impact of the Tax Reform Act on the Company's ability to generate future foreign-source income. The provisional impact of the Tax Reform Act related to the remeasurement of deferred tax assets and liabilities, the impact on the Company’s fiscal 2018 earnings from the reduced tax rate, and the establishment of the valuation allowance discussed above resultedrates currently in income tax expense of $18,832 for the three and six-month periods ended January 31, 2018.effect.


The Company continues to review the anticipated impacts of the global intangible low taxed income (“GILTI”), foreign derived intangible income ("FDII") and base erosion anti-abuse tax (“BEAT”) enacted under the Tax Reform Act, which are not effective until fiscal year 2019. The condensed consolidated financial statements for the three and six month periods ended January 31, 2018, do not include a provisional estimate associated with either GILTI, FDII or BEAT.

As a result of the Tax Reform Act, the Company expects that it will repatriate certain historical and future foreign earnings periodically, which in certain jurisdictions may be subject to withholding and income taxes. These additional withholding and income taxes are being recorded as a deferred tax liability associated with the basis difference in such jurisdictions. During the three and six-month periods ended January 31, 2018, the Company recorded a provisional income tax expense of $1,826 related to the recording of a deferred tax liability for future withholding and income taxes on the distribution of foreign earnings. The uncertainty related to the taxation of such withholding and income taxes on distributions under the Tax Reform Act and the finalization of future cash repatriation plans make the deferred tax liability a provisional amount.

The final enactment impacts of the Tax Reform Act may differ from the above estimates due to changes in interpretation, legislative action to address questions that arise, changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to information the Company has utilized to develop the estimates, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. The U.S. Securities and Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Reform Act to finalize the recording of the related tax impacts.
NOTE J — New Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), 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 and annual periods beginning after December 15, 2018, with early adoption permitted. This new guidance will require a modified retrospective adoption approach to existing hedging relationships as of the adoption date. The Company is currently evaluating the impact of this update on its consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, "Goodwill and Other, Simplifying the Test for Goodwill Impairment," which simplifies the accounting for goodwill impairment. The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods thereafter; however, early adoption is permitted for any impairment tests performed after January 1, 2017. This guidance will only impact the Company's consolidated financial statements if there is a future impairment of goodwill.

In February 2016, the FASB issued ASU 2016-02, "Leases," which replaces the current lease accounting standard. The update will require, among other items, lessees to recognize the assets and liabilities that arise from most leases on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The ASU must be adopted using a modified retrospective approach and early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principles-based approach for determining revenue recognition. The new guidance requires revenue recognition when control of the goods or services transfers to the customer, replacing the existing guidance which requires revenue recognition when the risks and rewards transfer to the customer. Under the new guidance, companies should recognize revenues in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services.

ASU 2014-09 (and related updates) is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted for annual periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the standard. The Company's efforts to evaluate the impact and to prepare for its adoption on August 1, 2018 are underway as the Company has reviewed representative forms of agreements with customers globally and is in the process of evaluating the impact of the new standard on its consolidated financial statements. The Company is also assessing its process for accumulating the required information for enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue under the new standard. The Company currently anticipates applying the modified retrospective approach when adopting this guidance.

NOTE KN — Subsequent Events
On February 20, 2018,November 14, 2022, the Company and certain of its subsidiaries entered into a Second Amendment to Credit Agreement (“Amendment No. 2”) with a group of six banks, which amends the original credit agreement dated as of August 1, 2019. Amendment No. 2 amends the credit agreement to, among other items, (a) increase the lending commitments by $100,000 for total lending commitments of $300,000 (b) extend the final maturity date to November 14, 2027, (c) increase the interest rate on certain borrowings by 0.125%, and (d) increase the available amount under the credit agreement, at the Company's option and subject to certain conditions, from $300,000 up to (i) an amount equal to the incremental borrowing necessary to bring the Company's consolidated net debt-to-EBITDA ratio to 2.5 to 1.0 plus(ii) $200,000. Borrowings under Amendment No. 2 remain unsecured and are guaranteed by certain of the Company's domestic subsidiaries. The credit agreement (as amended by Amendment No. 2) continues to contain various financial covenants, including a consolidated net debt-to-EBITDA ratio of 3.5 to 1.0 and a consolidated interest coverage ratio of 3.0 to 1.0.
On November 16, 2022, the Board of Directors declared a quarterly cash dividend to shareholders of the Company’s Class A and Class B Common Stock of $0.2075$0.23 per share payable on April 30, 2018,January 31, 2023, to shareholders of record at the close of business on April 9, 2018.January 10, 2023.

16
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Overview

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 identification and healthcare products. The WPS segment provides workplace safetymanufactures a broad range of stock and compliancecustom identification products halfand sells a broad range of which are internally manufactured and half are externally sourced. Approximately 45% of our total sales are derived outside of the United States. Foreign sales within the IDS and WPS segments are approximately 35% and 65%, respectively.resale products.
The ability to provide customers with a vast arraybroad range of proprietary, customized and diverse products for use in various applications across multiple customersindustries and geographies, along with a commitment to quality and service, have made Brady a leader in many of its markets. TheBrady's long-term sales growth and profitability of our segments will depend not only on improved demand in end markets and the overall economic environment and our ability to successfully navigate changes in the macro environment, but also on our ability to continuously improve operational excellence, focus on the customer, develop and market innovative new products, and todeliver a high level of customer service, advance our digital capabilities.capabilities, and continuously improve the efficiency of our global operations. In our IDS business, our strategy for growth includes an increased focus on key customers,certain industries and products, anda focus on improving the efficiencycustomer buying experience, and effectivenessthe development of the researchtechnologically advanced, innovative and development ("R&D") function.proprietary products. In our WPS business, our strategy for growth includes a focus on workplace safety critical industries, innovative newstreamlining our product offerings, compliance expertise, customization expertise, improving the overall customer experience, and increased investment inimproving our digital capabilities.
The Company is targeting the following are key initiatives supporting our strategy in fiscal 2018:2023:

Enhancing•Investing in organic growth by enhancing our innovationresearch and development process and the speedutilizing customer feedback and observations to deliver high-value,develop innovative new products that align with our target markets.solve customer needs and improve environmental sustainability.
Driving operational excellence and providing•Providing our customers with the highest level of customer service.
Executing•Expanding and enhancing our sales capabilities through an improved digital presence and the use of data-driven marketing automation tools.
•Maintaining profitability through pricing mechanisms to mitigate the impacts of supply chain disruptions and inflationary pressures while ensuring prices are market competitive.
•Investing in acquisitions that enhance our strategic position and accelerate long-term sales growth.
•Driving operational excellence and executing sustainable efficiency gains throughout our global operations as well aswithin our selling, general and administrative structures.
Expanding our digital presence.
Growing through focused salesstructures and marketing efforts in selected vertical markets and strategic accounts.
Enhancingwithin our global operations including insourcing of critical products and manufacturing activities while reducing our environmental footprint and managing working capital.
•Building on our culture of diversity, equity and inclusion to increase employee engagement and enhance recruitment and retention practices in order to drive differentiated performance and execute our strategy.
Impact of the COVID-19 Pandemic and other Global Geopolitical Events on Our Business
The Company has experienced, and expects to continue to experience, increased freight and input material cost inflation as a result of increased global demand, disruptions caused by COVID-19 and government-mandated actions in response to COVID-19, the conflict in the Ukraine, as well as labor shortages. The Company has taken and will continue to take actions to mitigate inflation issues, but thus far has not fully offset the impact of these trends through pricing actions. As a result, these trends have negatively impacted the Company's gross profit margin.
We believe we have the financial strength to continue to invest in organic sales growth opportunities including sales, marketing, and research and development process("R&D") and inorganic sales opportunities including acquisitions, while continuing to attractdrive sustainable efficiency gains and retain key talent.automation in our operations and selling, general and administrative ("SG&A") functions. At October 31, 2022, we had cash of $114.5 million, as well as a credit facility with $99.4 million available for future borrowing, which can be increased up to $299.4 million at the Company's option and subject to certain conditions, for total available liquidity of $413.9 million.

We believe that our financial resources and liquidity levels including the remaining undrawn amount of the credit facility and our ability to increase that credit line as necessary are sufficient to manage the continuing impact of geopolitical events which may result in reduced sales, reduced net income, and reduced cash provided by operating activities. Refer to Risk Factors, included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2022, for further discussion of the possible impact of the COVID-19 pandemic and other global geopolitical events on our business.
17
Table of Contents
Results of Operations

A comparison of results of operating income for the three and six months ended JanuaryOctober 31, 20182022 and 2017,2021 is as follows:
Three months ended January 31, Six months ended January 31,Three months ended October 31,
(Dollars in thousands)2018 % Sales 2017 % Sales 2018 % Sales 2017 % Sales(Dollars in thousands)2022% Sales2021% Sales
Net sales$287,780
   $268,001
   $577,931
   $548,177
  Net sales$322,569 $321,475 
Gross margin143,692
 49.9% 134,158
 50.1% 289,757
 50.1% 274,516
 50.1%Gross margin155,264 48.1 %154,988 48.2 %
Operating expenses:               Operating expenses:
Research and development11,314
 3.9% 9,481
 3.5% 21,834
 3.8% 18,627
 3.4% Research and development13,933 4.3 %13,907 4.3 %
Selling, general and administrative97,582
 33.9% 94,715
 35.3% 197,716
 34.2% 192,719
 35.2%Selling, general and administrative89,945 27.9 %96,746 30.1 %
Total operating expenses108,896
 37.8% 104,196
 38.9% 219,550
 38.0% 211,346
 38.6%Total operating expenses103,878 32.2 %110,653 34.4 %
Operating income$34,796
 12.1% $29,962
 11.2% $70,207
 12.1% $63,170
 11.5%Operating income$51,386 15.9 %$44,335 13.8 %
References in this Form 10-Q to “organic sales” refer to sales calculated in accordance with U.S. GAAP, excluding the impact of foreign currency translation.translation and sales recorded from acquired companies prior to the first anniversary date of their acquisition. 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.


SalesNet sales for the three months ended JanuaryOctober 31, 2018,2022, increased 7.4%0.3% to $287.8$322.6 million, compared to $268.0$321.5 million in the same period of the prior year, which consisted of organic sales growth of 3.2% and a positive currency impact of 4.2% due to the weakening of the U.S. Dollar against certain other currencies as compared to the same period in the prior year. The increase consisted of organic sales growth of 6.9% partially offset by a decrease from foreign currency translation of 6.6%. Organic sales grew 4.7%8.6% in the IDS segment and declined 0.5%grew 1.2% in the WPS segment during the three months ended JanuaryOctober 31, 2018, compared to the same period in the prior year. The IDS segment realized sales growth in the Product ID, Wire ID, and Safety and Facility ID product lines, partially offset by a decline in the Healthcare ID product line compared to the prior year. The WPS segment realized growth in the digital channel, but was offset by a decline in traditional catalog channel sales when2022, compared to the same period in the prior year.

Sales forGross margin increased 0.2% to $155.3 million in the sixthree months ended JanuaryOctober 31, 2018, increased 5.4% to $577.9 million,2022, compared to $548.2$155.0 million in the same period ofin the prior year, which consistedyear. As a percentage of organicnet sales, growth of 2.4% and a positive currency impact of 3.0%. Organic sales grew 3.8% in the IDS segment and declined 1.0% in the WPS segment during the six months ended January 31, 2018,gross margin decreased to 48.1% compared to 48.2% in the same period in the prior year. The IDS segment realized sales growthdecrease in the Product ID, Wire ID, and Safety and Facility ID product lines, partially offset by a decline in the Healthcare ID product line. Catalog channel sales in the WPS segment declined, but were partially ofsset by digital channel sales growth when compared to the same period in the prior year.

Grossgross margin for the three months ended January 31, 2018, increased 7.1% to $143.7 million, compared to $134.2 million in the same period of the prior year, and increased 5.6% to $289.8 million for the six months ended January 31, 2018, compared to $274.5 million in the same period of the prior year. Asas a percentage of net sales gross margin decreased to 49.9% for the three months ended January 31, 2018 from 50.1% in the same period of the prior year,was primarily due to an increase in the cost of materials and labor, which was partially mitigated by price reductions inincreases as well as our Workplace Safety business. As a percentage of sales, gross margin remained flat at 50.1% for the six months ended January 31, 2018, compared to the same period of the prior year. On-goingongoing efforts continue to streamline manufacturing processes and drive sustainable operational efficiencies in manufacturing facilities are offsetting increases in costs.

efficiencies.
R&D expenses forwere consistent at $13.9 million and 4.3% of sales in the three months ended JanuaryOctober 31, 2018, increased 19.3%2022 and 2021. The Company remains committed to $11.3 million, comparedinvesting in new product development to $9.5 millionincrease sales within our IDS and WPS businesses. Investments in new printing systems, materials and the same periodbuild out of a comprehensive industrial track and trace solution remain the prior year, and increased 17.2% to $21.8 millionprimary focus of R&D expenditures for the six months ended January 31, 2018, compared to $18.6 million in the same periodremainder of the prior year. The increases in both the threefiscal 2023.
SG&A expenses include selling and six month periods were primarily due to increased investments in several new software and printer updates within the IDS segment.

Selling, general and administrative expenses ("SG&A") include selling 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 increased 3.0%expenses decreased 7.0% to $97.6$89.9 million in the three months ended October 31, 2022, compared to $96.7 million in the same period in the prior year. As a percentage of sales, SG&A decreased to 27.9% for the three months ended JanuaryOctober 31, 2018,2022, compared to 30.1% in the same period in the prior year. The decrease in SG&A expenses was primarily due to foreign currency translation and 2.6% to $197.7a lesser extent, reductions in catalog advertising expenses within the WPS segment.
Operating income increased 15.9% to $51.4 million forin the sixthree months ended JanuaryOctober 31, 2018,2022, compared to $94.7 million and $192.7$44.3 million in the same periods ofperiod in the prior year, respectively. The increases in both the three and six month periods were primarily due to the impact of the weakening U.S. dollar on the translation of foreign SG&A expenses, which were partially offset by reduced SG&A expenses due to efficiency gains.
Operating income was $34.8 million during the three months ended January 31, 2018, compared to $30.0 million for the three months ended January 31, 2017, resulting in a 16.1% increase. Operating income was $70.2 million during the six months ended January 31, 2018, compared to $63.2 million for the six months ended January 31, 2017, resulting in an 11.1% increase.year. The increase in the three and six month periods were primarilyoperating income was due to increased salesan increase in the IDS segment reduced selling expenseprofit in the WPS business due to actions taken last fiscal year to reduce the cost structure along with ongoing reductions in catalog advertising expenses, as well as an increase in IDS segment and the positive impactprofit resulting from organic sales growth.
18
Table of foreign currency fluctuations; partially offset by increased R&D expenses.Contents

OPERATING INCOME TO NET EARNINGSINCOME
Three months ended January 31, Six months ended January 31,Three months ended October 31,
(Dollars in thousands)2018 % Sales 2017 % Sales 2018 % Sales 2017 % Sales(Dollars in thousands)2022% Sales2021% Sales
Operating income$34,796
 12.1 % $29,962
 11.2 % $70,207
 12.1 % $63,170
 11.5 %Operating income$51,386 15.9 %$44,335 13.8 %
Other income (expense):               
Investment and other income1,056
 0.4 % 596
 0.2 % 1,272
 0.2 % 107
 — %
Other (expense) income:Other (expense) income:
Investment and other (expense) income Investment and other (expense) income(157)0.0 %543 0.2 %
Interest expense(829) (0.3)% (1,458) (0.5)% (1,692) (0.3)% (3,190) (0.6)% Interest expense(894)(0.3)%(182)(0.1)%
Earnings before income tax35,023
 12.2 % 29,100
 10.9 % 69,787
 12.1 % 60,087
 11.0 %
Income before income taxesIncome before income taxes50,335 15.6 %44,696 13.9 %
Income tax expense30,750
 10.7 % 3,803
 1.4 % 39,678
 6.9 % 12,237
 2.2 %Income tax expense10,894 3.4 %9,650 3.0 %
Net earnings$4,273
 1.5 % $25,297
 9.4 % $30,109
 5.2 % $47,850
 8.7 %
Net incomeNet income$39,441 12.2 %$35,046 10.9 %
Investment and other incomeexpense was $1.1$0.2 million forin the three months ended JanuaryOctober 31, 2018, and was $1.3 million for the six months ended January 31, 2018,2022, compared to investment and other income of $0.6 million and $0.1$0.5 million in the same periods ofperiod in the prior year, respectively. These changes during the three and six month periods wereyear. The change was primarily due to an increasea decrease in the market value of securities held in deferred compensation plans as well as increased interest income.

Interest expense decreased to $0.8 million from $1.5 million forduring the three months ended JanuaryOctober 31, 2018, and decreased2022.
Interest expense increased to $1.7$0.9 million from $3.2 million for the six months ended January 31, 2018, compared to the same periods in the prior year. For both the three and six-month periods, the decrease in interest expense was due to the Company's declining principal balance under its outstanding debt agreements.

The Company’s income tax rate was 87.8% for the three months ended JanuaryOctober 31, 2018,2022, compared to 13.1% for$0.2 million in the same period in the prior year. The income tax rate was 56.9% for the six months ended January 31, 2018, compared to 20.4% for the same period of the prior year. The increase in the income tax rates in both the three and six-month periods ended January 31, 2018,interest expense was primarily due to an increase in interest rates in the enactment ofCompany's revolving loan agreement and partially due to an increase in outstanding borrowings on the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) which resultedCompany's revolving loan agreement compared to the same period in $21.1 million of additional tax expense. In the prior three and six-month periods ended January 31, 2017, theyear.
The Company’s income tax rate was reduced from its historical average in21.6% for the high-20% range due to foreign tax credits generated from a cash repatriation to the U.S.three months ended October 31, 2022 and 2021. Refer to Note I - Income TaxesM "Income Taxes" for additional details regardinginformation on the Company's income taxes.


tax rate.
Business Segment Operating Results

The Company is organized and managed on a global basis within three operating segments, Identification Solutions, Workplace Safety, and People Identification ("PeopleID"), which aggregate into two reportable segments that are organized around businesses with consistent products and services: IDS and WPS. The Identification Solutions and PeopleID 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 (expense) income, income tax expense, 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 JanuaryOctober 31, 2018,2022 and 2017:2021:
Three months ended October 31,
20222021
SALES GROWTH INFORMATION
IDS
Organic8.6 %13.2 %
Currency(5.5)%0.6 %
Acquisitions— %11.6 %
Total3.1 %25.4 %
WPS
Organic1.2 %(8.6)%
Currency(10.3)%0.8 %
Total(9.1)%(7.8)%
Total Company
Organic6.9 %7.0 %
Currency(6.6)%0.7 %
Acquisitions— %8.3 %
Total0.3 %16.0 %
SEGMENT PROFIT
IDS$51,525 $48,816 
WPS6,378 2,293 
Total$57,903 $51,109 
SEGMENT PROFIT AS A PERCENT OF NET SALES
IDS20.1 %19.6 %
WPS9.6 %3.1 %
Total18.0 %15.9 %
19
Table of Contents
 Three months ended January 31, Six months ended January 31,
(Dollars in thousands)2018 2017 2018 2017
SALES TO EXTERNAL CUSTOMERS       
ID Solutions$206,432
 $190,962
 $416,137
 $392,226
Workplace Safety81,348
 77,039
 161,794
 155,951
Total$287,780
 $268,001
 $577,931
 $548,177
SALES GROWTH INFORMATION       
ID Solutions       
Organic4.7 % 1.9 % 3.8 % 1.3 %
Currency3.4 % (1.3)% 2.3 % (0.9)%
Total8.1 % 0.6 % 6.1 % 0.4 %
Workplace Safety       
Organic(0.5)% (0.2)% (1.0)% (1.3)%
Currency6.1 % (2.1)% 4.7 % (1.8)%
Total5.6 % (2.3)% 3.7 % (3.1)%
Total Company       
Organic3.2 % 1.3 % 2.4 % 0.5 %
Currency4.2 % (1.5)% 3.0 % (1.1)%
Total7.4 % (0.2)% 5.4 % (0.6)%
SEGMENT PROFIT       
ID Solutions$34,088
 $28,961
 $69,925
 $62,035
Workplace Safety7,055
 6,059
 13,500
 12,504
Total$41,143
 $35,020
 $83,425
 $74,539
SEGMENT PROFIT AS A PERCENT OF SALES       
ID Solutions16.5 % 15.2 % 16.8 % 15.8 %
Workplace Safety8.7 % 7.9 % 8.3 % 8.0 %
Total14.3 % 13.1 % 14.4 % 13.6 %
IDS
The following is a reconciliation of segment profit to earnings before income taxes for the three and six months ended January 31, 2018 and 2017:

 Three months ended January 31, Six months ended January 31,
 2018 2017 2018 2017
Total profit from reportable segments$41,143
 $35,020
 $83,425
 $74,539
Unallocated amounts:       
Administrative costs(6,347) (5,058) (13,218) (11,369)
Investment and other income (expense)1,056
 596
 1,272
 107
Interest expense(829) (1,458) (1,692) (3,190)
Earnings before income taxes$35,023
 $29,100
 $69,787
 $60,087

ID Solutions

Approximately 70% ofIDS net sales in the IDS segment were generated in the Americas region, 20% in Europe and 10% in Asia. IDS sales increased 8.1%3.1% to $206.4$256.4 million forin the three months ended JanuaryOctober 31, 2018,2022, compared to $191.0$248.6 million forin the same period in the prior year, which consisted of organic sales growth of 4.7%8.6% and a positivedecrease from foreign currency impacttranslation of 3.4%5.5%. IDSOrganic sales increased 6.1% to $416.1 million forgrew in all major product lines with the six months ended January 31, 2018, compared to $392.2 million for the same periodmost significant growth in the prior year. Organic sales increased 3.8%safety and currency fluctuations increased salesfacility identification product line, followed by 2.3% duringgrowth in the six months ended January 31, 2018.


product identification, wire identification and healthcare identification product lines.
Organic sales in the Americas grewincreased in the low-singlemid-single digits, for both the three and six months ended January 31, 2018, compared to the same periodsorganic sales in Europe increased in the prior year. Organic growth in the IDS Americas region for the threemid-teens, and six-month periods was led by the Wire ID product line, the Product ID product line, and, to a lesser extent, the Safety and Facility ID product line. This organic growth was partially offset by a decline in the Healthcare ID product line due to continued pricing pressures within certain product categories resulting from the consolidation of group purchasing organizations, compared to the same periods in the prior year.

The IDS business in Europe realized high-single digit organic sales growth for the three and six months ended January 31, 2018, compared to the same periods in the prior year. The IDS Europe region realized organic sales growth in the Product ID, Wire ID, and Safety and Facility ID product lines for the three and six months ended January 31, 2018, compared to the same periods in the prior year. Organic sales growth was led by our businesses based in western Europe, in particular, increases in sales through the Company's distribution channels for both the three and six-month periods.

Organic sales in Asia grewincreased in the high-singlemid-single digits for both the three and six months ended January 31, 2018, compared to the same periods in the prior year. The IDS Asia region realized organic sales growth in the Original Equipment Manufacturer ("OEM") category, which was partially offset by decreases in the Maintenance, Repair, and Overhaul ("MRO") category driven by the weakening of the utility market in China for the three months ended JanuaryOctober 31, 2018,2022 compared to the same period in the prior year. Organic sales for the six months ended January 31, 2018, grew in both the OEM and MRO categories, compared to the same period in the prior year. Organic sales increased throughout Asia for the three and six-month periods and was led by China where sales increased in the high-single digits and double digits, respectively.

Segment profit increased 5.5% to $34.1$51.5 million forin the three months ended JanuaryOctober 31, 2018,2022, compared to $29.0$48.8 million in the same period in the prior year. As a percentage of net sales, segment profit increasedwas 20.1% compared to 16.5% from 15.2%19.6% in the same period of the prior year. Segment profit increased to $69.9 million from $62.0 million for the six months ended January 31, 2018, compared to the same period in the prior year. As a percentage of sales, segment profit increased to 16.8% from 15.8% for same period in the prior year. The increase in segment profit for both the three and six-month periods was primarily driven by sales growth and operational efficiencies in our manufacturing processes in all regions.
Workplace Safety
Approximately 50% of net sales in the WPS segment were generated in Europe, 35% in the Americas and 15% in Australia. WPS sales increased 5.6% to $81.3 million for the three months ended January 31, 2018, and 3.7% to $161.8 million for the six months ended January 31, 2018, compared to $77.0 million and $156.0 million, respectively, for the same periods in the prior year. Organic sales declined 0.5% and 1.0% in the three and six months ended January 31, 2018, respectively, compared to the same periods in the prior year. Foreign currency translation increased sales by 6.1% and 4.7% for the three and six months ended January 31, 2018, respectively, due to the weakening of the U.S. dollar against certain other major currencies as compared to the same periods in the prior year.
The WPS business in Europe realized low-single digit organic sales growth for the three and six months ended January 31, 2018, compared to the same periods in the prior year. This growth was driven primarily by our businesses in France and due to improvements in website functionality, growth in new customers, and key account management. We experienced high-single digit growth in digital sales, partially offset by a slight decline in traditional catalog channel during the three and six months ended January 31, 2018, compared to the same periods in the prior year.
Organic sales in the Americas declined in the low-single digits and mid-single digits for the three and six months ended January 31, 2018, respectively, compared to the same periods in the prior year. This decrease was primarily due to lower response rates to catalog promotions and continued pricing pressures in industrial end markets. Catalog channel sales decreased in the low-single digits and mid-single digits during the three and six months ended January 31, 2018, respectively, compared to the same periods in the prior year. Digital channel sales decreased during the three and six months ended January 31, 2018, compared to the same periods in the prior year. The decline in digital sales was caused by a transition to a new digital sales platform during the three months ended January 31, 2018, which is expected to return to sales growth in the remainder of the year.

Organic sales in Australia grew in the low-single digits for the three and six months ended January 31, 2018, compared to the same periods in the prior year. The WPS business diversified its product offering to many different industries in Australia as sales to the mining industry have become less significant over the past several years. The WPS business continues to focus on enhancing its expertise in these industries to drive sales growth, as well as addressing its cost structure to improve profitability.

Segment profit increased to $7.1 million from $6.1 million for the three months ended January 31, 2018, and to $13.5 million from $12.5 million for the six months ended January 31, 2018, compared to the same periods in the prior year. As a percentage of sales, segment profit increased to 8.7% from 7.9% for the three months ended January 31, 2018, and to 8.3% from 8.0% for

the six months ended January 31, 2018, compared to the same periods in the prior year. The increase in segment profit was primarily due to efficiency opportunities throughout our manufacturing processesincreased sales volumes in all regions and our selling, general, and administrative cost structure.all major product lines globally.
WPS
Financial Condition

Cash and cash equivalents decreased by $18.6WPS net sales declined 9.1% to $66.2 million and $16.0 million duringin the sixthree months ended JanuaryOctober 31, 20182022, compared to $72.9 million in the same period in the prior year, which consisted of an organic sales increase of 1.2% and 2017, respectively. Thea decrease from foreign currency translation of 10.3%. Organic digital sales increased by nearly 13% and organic catalog sales declined in the low-single digits in the three-month period.
Organic sales in Europe increased in the mid-single digits consisting of digital sales growth of approximately 10% and low-single digit catalog channel sales growth. Organic sales in North America declined by approximately 11% primarily due to actions taken to improve price competitiveness and simplify our product offering, which contributed to the significant changes were as follows:
 Six months ended January 31,
(Dollars in thousands)2018 2017
Net cash flow provided by (used in):   
Operating activities$42,460
 $53,334
Investing activities(9,198) (6,642)
Financing activities(53,642) (57,302)
Effect of exchange rate changes on cash1,763
 (5,410)
Net decrease in cash and cash equivalents$(18,617) $(16,020)

Net cash providedimprovement in segment profit in the three-month period. Organic sales in Australia increased by operating activities decreased to $42.5 million forapproximately 11% in the sixthree months ended JanuaryOctober 31, 2018,2022 compared to $53.3the same period in the prior year consisting of high-single digit digital sales growth and catalog channel sales growth of approximately 12%.
Segment profit increased 178.2% to $6.4 million in the three months ended October 31, 2022, compared to $2.3 million in the same period of the prior year. The decrease in cash provided by operating activitiesAs a percentage of $9.3 million was primarily duenet sales, segment profit improved to increased accounts receivable of $14.4 million resulting from the timing of higher sales throughout the current six-month period9.6% compared to the same period in the prior year.  In addition, average days sales outstanding ("DSO") increased in both the Americas and Europe regions where sales were the strongest.  Inventories increased during the current six-month period due to an increase in expected sales compared to the same period in the prior year, resulting in a cash outflow of $4.4 million. In addition, cash payments for annual incentive compensation increased in the current six-month period compared to the same period in the prior year. These decreases in cash provided by operating activities were partially offset by an increase in net earnings including non-cash items in the current six-month period compared to the same period in the prior year.

Net cash used in investing activities was $9.2 million for the six months ended January 31, 2018, compared to $6.6 million3.1% in the same period of the prior year. The increase in cash used in investing activities of $2.6 million included an increase in capital expenditures for the purchase of manufacturing equipment and facility upgrades in the United States and Europe.

Net cash used in financing activitiessegment profit was $53.6 million during the six months ended January 31, 2018, compared to $57.3 million in the same period of the prior year. The change of $3.7 million was due to lower net repayments on credit facilities primarily due to the decrease in net cash provided by operating activities in the current period.

The effect of fluctuations in exchange rates increased cash balances by $7.2 million during the six months ended January 31, 2018, primarily due to cash balances held in currencies that appreciated against the U.S. dollar.

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 repaidactions taken during fiscal 2017,2022 to reduce the cost structure as well as ongoing reductions in catalog advertising expenses.
Liquidity 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.
On September 25, 2015, the Company and certain of its subsidiaries entered into an unsecured $300 million multi-currency revolving loan agreement with a group of six banks. At the Company's option, and subject to certain conditions, the available amount under the revolving loan agreement may be increased from $300 million to $450 million. As of January 31, 2018, the outstanding balance on the credit facility was $14.9 million, and the maximum outstanding balance during the six months ended January 31, 2018, was $51.3 million. The Company also had letters of credit outstanding under the loan agreement of $3.2 million as of January 31, 2018, and there was $281.9 million available for future borrowing, which can be increased to $431.9 million at the Company's option, subject to certain conditions. The revolving loan agreement has a final maturity date of September 25, 2020. As such, the borrowing is included in "Long-term obligations" on the condensed consolidated balance sheets.
The Company’s debt agreements require it to maintain certain financial covenants, including a ratio of debt to the trailing 12 months EBITDA, as defined in the debt agreements, of not more than a 3.25 to 1.0 ratio (leverage ratio) and the trailing 12 months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of January 31, 2018, the Company

was in compliance with these financial covenants, with the leverage ratio, as defined by the agreements, equal to 0.4 to 1.0 and the interest expense coverage ratio equal to 44.0 to 1.0.

Capital Resources
The Company's cash balances are generated and held in numerous locations throughout the world. At JanuaryOctober 31, 2018,2022, approximately 87%95% of the Company's cash and cash equivalents were held outside the United States. The Company's organic and inorganic 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, scheduled debt repayments, 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
Off-Balance Sheet ArrangementsCash and cash equivalents were $114.5 million at October 31, 2022, an increase of $0.4 million from July 31, 2022. The significant changes were as follows:
 Three months ended October 31,
(Dollars in thousands)20222021
Net cash flow provided by (used in):
Operating activities$27,999 $27,491 
Investing activities(3,861)(11,326)
Financing activities(20,535)(4,592)
Effect of exchange rate changes on cash(3,201)(1,355)
Net increase in cash and cash equivalents$402 $10,218 
20
Table of Contents
Net cash provided by operating activities was $28.0 million in the three months ended October 31, 2022, compared to $27.5 million in the same period of the prior year. The Company doesuse of cash from working capital was reduced primarily due to a decrease in the amount of inventory purchases in the current quarter, which was offset by the annual cash incentive plan payment made in the current quarter compared to the second quarter of the prior year.
Net cash used in investing activities consisted of $3.9 million of capital expenditures in the three months ended October 31, 2022, compared to $11.3 million of capital expenditures in the same period of the prior year. Prior year capital expenditures were elevated due to the purchase of two facilities that were previously leased.
Net cash used in financing activities was $20.5 million in the three months ended October 31, 2022 compared to $4.6 million in the same period of the prior year. Net borrowings on the credit facility declined by $25.0 million primarily due to reduced capital expenditures and share repurchases in the three months ended October 31, 2022 compared to the same period in the prior year.
Material Cash Requirements
Our material cash requirements for known contractual obligations include capital expenditures, borrowings on credit facilities and lease obligations. We believe that net cash provided by operating activities will continue to be adequate to meet our liquidity and capital needs for these items over the short-term in the next 12 months and in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current and anticipated customer needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities. In addition, we may have liabilities for uncertain tax positions, but we do not believe that the cash requirements to meet any of these liabilities will be material.
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. 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.
On December 21, 2021, the Company and certain of its subsidiaries entered into an amendment to the revolving loan agreement, which amends the revolving loan agreement dated August 1, 2019. The amendment amends the revolving loan agreement to, among other items, (a) change the interest rate under the revolving loan agreement for borrowings (i) denominated in British Pounds from the London Inter-bank Offered Rate ("LIBOR") to a daily simple SONIA-based rate, (ii) denominated in Euro from a LIBOR-based rate to a rate based on the Euro Interbank Offered Rate and (iii) denominated in Japanese Yen from a LIBOR-based rate to a rate based on the Tokyo Interbank Offered Rate, in each of the foregoing cases subject to certain adjustments specified in the revolving loan agreement; and (b) provide mechanics relating to a transition away from U.S. dollar LIBOR (with respect to borrowings denominated in U.S. dollars) and the designated benchmarks for the other eligible currencies as benchmark interest rates and the replacement of any such benchmark by a replacement benchmark rate. The amendment to the revolving loan agreement did not have a material off-balance sheet arrangements. The Company is not aware of factors that are reasonably likely to adversely affect liquidity trends, other thanimpact on the risk factors describedinterest rate or related balances in this and other Company filings. However, the following additional information is provided to assist those reviewing the Company’sCompany's consolidated financial statements.
Operating Leases -As of October 31, 2022, the outstanding balance on the Company's revolving loan agreement was $99.0 million. The leases generally are entered into for manufacturing facilities, warehouses and office space, computer equipment and Company vehicles.
Purchase Commitments -maximum amount outstanding on the credit facility during the three months ended October 31, 2022 was $101.0 million. The borrowings bear interest at 4.09% as of October 31, 2022. The Company had letters of credit outstanding under the loan agreement of $1.6 million as of October 31, 2022 and there was $99.4 million available for future borrowing, which can be increased to $299.4 million at the Company's option, subject to certain conditions. The revolving loan agreement has purchase commitmentsa final maturity date of August 1, 2024. As such, borrowings were classified as long-term on the Condensed Consolidated Balance Sheets.
Refer to Item 1, Note N, "Subsequent Events" for materials, supplies, services, and property, plant and equipment as partinformation regarding the Company's subsequent events affecting financial condition.
Covenant Compliance
The Company's revolving loan agreement requires it to maintain certain financial covenants, including a ratio of the ordinary conduct of its business. In the aggregate, such commitments are not in excess of current market prices and are not materialdebt to the trailing twelve months EBITDA, as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio) and the trailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of October 31, 2022, the Company was in compliance with these financial positioncovenants, with a ratio of debt to EBITDA, as defined by the Company. Dueagreements, equal to 0.38 to 1.0 and the proprietary natureinterest expense coverage ratio equal to 125.1 to 1.0.
21
Table 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.Contents
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, earnings,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:

•Increased cost of raw materials, labor and freight as well as raw material shortages and supply chain disruptions
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 ourits strategy
Brady's ability•Ability to develop technologically advanced products that meet customer demands
•Ability to identify, integrate, and grow acquired companies, and to manage contingent liabilities from divested businesses
•Difficulties in protecting our websites, networks, and systems against security breaches and difficulties in preventing phishing attacks, social engineering or malicious break-ins.
Decreased demand for•Risks associated with the Company's productsloss of key employees
Brady's ability to retain large customers
•Extensive regulations by U.S. and non-U.S. governmental and self regulatoryself-regulatory entities
Brady's ability to execute facility consolidations and maintain acceptable operational service metrics
•Litigation, including product liability claims
Risks associated with the loss of key employees
Divestitures and contingent liabilities from divestitures
Brady's ability to properly identify, integrate, and grow acquired companies
•Foreign currency fluctuations
The impact•Potential write-offs of the Tax Reform Actgoodwill and any other changesintangible assets
•Changes in tax legislation and tax rates
Potential write-offs of Brady's substantial intangible assets
•Differing interests of voting and non-voting shareholders
Brady's ability to meet certain financial covenants required by our debt agreements.
•Numerous other matters of national, regional and global scale, including major public health crises and government responses thereto and those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady's U.S. Securities and Exchange Commission

filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item 1A of Part I of theBrady's Form 10-K filed withfor the SEC on September 13, 2017.

year ended July 31, 2022.
These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements except as required by law.





ITEM 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, 2017.2022. There has been no material change in this information since July 31, 2017.2022.


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.

22
Table of Contents
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.

23


Table of Contents

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

Our financial position,The Company’s business, results of operations, financial condition, and cash flows are subject to various risks. The following risk factor is an addition to the risk factors discussedrisks and uncertainties, including those described in Part I, Item 1A, Risk Factors, in our“Risk Factors” of Company’s annual report on Form 10-K for the fiscal year ended July 31, 2017.

Changes in tax legislation or tax rates could adversely affect results of operations and financial statements. Additionally, audits by taxing authorities could result in tax payments for prior periods.

We are subject to income taxes2022. There have been no material changes from the risk factors set forth in the U.S. and in many non-U.S. jurisdictions. As such, our earnings are subject to risk due to changing tax laws and tax rates around2022 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company has a share repurchase program for the world. Our tax filings are subject to audit by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in payments or assessments that differ from our reserves, our future net earningsCompany's Class A Nonvoting Common Stock. The plan may be adversely impacted.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes includedimplemented by purchasing shares in the Tax Reform Act are broadopen market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's stock-based plans and complex. The final transition impactsfor other corporate purposes. On May 24, 2022, the Company's Board of Directors authorized an increase in the Company's share repurchase program, authorizing the repurchase of up to $100.0 million of the Tax Reform Act may differ fromCompany's Class A Nonvoting Common Stock. As of October 31, 2022, there were $72.9 million worth of shares authorized to purchase remaining pursuant to the provisional estimates provided dueexisting share repurchase program.
The following table provides information with respect to changes in interpretations, any legislative action to address questions that arise, any changes in accounting standards for income taxes or related interpretations, or any updates or changes to estimates we have utilized to calculate the transition impacts. Additionally, longstanding international tax norms that determine each country’s jurisdiction to tax cross-border international trade are evolving as a result of the Base Erosion and Profit Shifting reporting requirements (“BEPS”) recommendedpurchases by the G8, G20 and Organization for Economic Cooperation and Development (“OECD”). As these and other tax laws and related regulations change, our financial results change, our financial results could be materially impacted. Given the unpredictabilityCompany of these possible changes and their potential interdependency, it is very difficult to assess whether the overall effect of such potential tax changes on our earnings and cash flow, but such changes could adversely impact our financial results.

We review the probability of the realization of our deferred tax assets quarterly based on forecasts of taxable income in both the U.S. and foreign jurisdictions. As part of this review, we utilize historical results, projected future operating results, eligible carry-forward periods, tax planning opportunities, and other relevant considerations. Adverse changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions, or changes in our geographic footprint may require changes in the valuation allowance for deferred tax assets. DuringClass A Nonvoting Common Stock during the three months ended JanuaryOctober 31, 2018, we recorded a provisional valuation allowance2022:
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced PlansApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
(Dollars in Thousands)
August 1, 2022 - August 31, 2022— $— — $85,010 
September 1, 2022 - September 30, 2022255,814 43.30 255,814 73,932 
October 1, 2022 - October 31, 202223,699 41.88 23,699 72,939 
Total279,513 $43.18 279,513 $72,939 

24
Table of $22.1 million against previously recorded foreign tax credit carryforwards as a result of the passage of the Tax Reform Act, which modifies our ability to utilize foreign tax credits in future periods. At any point in time, there are a number of tax proposals at various stages of legislation throughout the globe. While it is impossible for us to predict whether some or all of these proposals will be enacted, it likely would have an impact on our results of operations and financial statements.Contents
ITEM 6. EXHIBITS
(a)Exhibit No.Exhibits
Exhibit Description
31.110.1
Settlement Agreement between the Company and Mr. Deman dated as of October 10, 2022 (incorporated by reference to Registrant's Current report on Form 8-K filed October 11, 2022).*
10.2
Second Amendment to Credit Agreement, among the Company and the lenders listed therein, dated as of November 14, 2022 (incorporated by reference to Registrant's Current report on Form 8-K filed November 15, 2022).
31.1
31.2
32.1
32.2
101101.INSInteractive Data FileXBRL 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.SCHXBRL Taxonomy Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Presentation Label Linkbase Document
104Cover Page Inline XBRL data (contained in Exhibit 101)

*Management contract or compensatory plan or arrangement
25
SIGNATURES
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 17, 2022/s/ RUSSELL R. SHALLER
Russell R. Shaller
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 17, 2022BRADY CORPORATION
Date: February 22, 2018/s/ J. MICHAEL NAUMAN
J. Michael Nauman
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 22, 2018/s/ AARON J. PEARCE
Aaron J. Pearce
Chief Financial Officer and Treasurer
(Principal Financial Officer)


29
26