QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
☑ | 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. | ☐ |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Page | |
October 31, 2019 | July 31, 2019 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable—net | |||||||
Inventories | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment—net | |||||||
Goodwill | |||||||
Other intangible assets | |||||||
Deferred income taxes | |||||||
Operating lease assets | |||||||
Other assets | |||||||
Total | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | $ | |||||
Accrued compensation and benefits | |||||||
Taxes, other than income taxes | |||||||
Accrued income taxes | |||||||
Current operating lease liabilities | |||||||
Other current liabilities | |||||||
Current maturities on long-term debt | |||||||
Total current liabilities | |||||||
Long-term operating lease liabilities | |||||||
Other liabilities | |||||||
Total liabilities | |||||||
Stockholders’ equity: | |||||||
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 49,764,799 and 49,458,841 shares, respectively | |||||||
Class B voting common stock—Issued and outstanding, 3,538,628 shares | |||||||
Additional paid-in capital | |||||||
Retained earnings | |||||||
Treasury stock—1,496,688 and 1,802,646 shares, respectively, of Class A nonvoting common stock, at cost | ( | ) | ( | ) | |||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Total stockholders’ equity | |||||||
Total | $ | $ |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Net sales | $ | $ | |||||
Cost of goods sold | |||||||
Gross margin | |||||||
Operating expenses: | |||||||
Research and development | |||||||
Selling, general and administrative | |||||||
Total operating expenses | |||||||
Operating income | |||||||
Other income (expense): | |||||||
Investment and other income (expense) | ( | ) | |||||
Interest expense | ( | ) | ( | ) | |||
Income before income taxes | |||||||
Income tax expense | |||||||
Net income | $ | $ | |||||
Net income per Class A Nonvoting Common Share: | |||||||
Basic | $ | $ | |||||
Diluted | $ | $ | |||||
Dividends | $ | $ | |||||
Net income per Class B Voting Common Share: | |||||||
Basic | $ | $ | |||||
Diluted | $ | $ | |||||
Dividends | $ | $ | |||||
Weighted average common shares outstanding: | |||||||
Basic | |||||||
Diluted |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Net income | $ | $ | |||||
Other comprehensive loss: | |||||||
Foreign currency translation adjustments | ( | ) | |||||
Cash flow hedges: | |||||||
Net gain (loss) recognized in other comprehensive loss | ( | ) | |||||
Reclassification adjustment for gains included in net income | ( | ) | ( | ) | |||
( | ) | ( | ) | ||||
Pension and other post-retirement benefits actuarial gain amortization | ( | ) | ( | ) | |||
Other comprehensive loss, before tax | ( | ) | ( | ) | |||
Income tax benefit (expense) related to items of other comprehensive loss | ( | ) | |||||
Other comprehensive loss, net of tax | ( | ) | ( | ) | |||
Comprehensive income | $ | $ |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Non-cash portion of stock-based compensation expense | |||||||
Deferred income taxes | |||||||
Other | |||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | ( | ) | ( | ) | |||
Inventories | ( | ) | |||||
Prepaid expenses and other assets | ( | ) | ( | ) | |||
Accounts payable and accrued liabilities | ( | ) | ( | ) | |||
Income taxes | |||||||
Net cash provided by operating activities | |||||||
Investing activities: | |||||||
Purchases of property, plant and equipment | ( | ) | ( | ) | |||
Other | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Financing activities: | |||||||
Payment of dividends | ( | ) | ( | ) | |||
Proceeds from exercise of stock options | |||||||
Payments for employee taxes withheld from stock-based awards | ( | ) | ( | ) | |||
Proceeds from borrowing on credit facilities | |||||||
Repayment of borrowing on credit facilities | ( | ) | |||||
Other | ( | ) | |||||
Net cash (used in) provided by financing activities | ( | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | |||
Net increase in cash and cash equivalents | |||||||
Cash and cash equivalents, beginning of period | |||||||
Cash and cash equivalents, end of period | $ | $ |
October 31, 2019 | July 31, 2019 | ||||||
Finished products | $ | $ | |||||
Work-in-process | |||||||
Raw materials and supplies | |||||||
Total inventories | $ | $ |
October 31, 2019 | July 31, 2019 | ||||||||||||||||||||||||||
Weighted Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Book Value | Weighted Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Book Value | ||||||||||||||||||||
Amortized other intangible assets: | |||||||||||||||||||||||||||
Customer relationships and other | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Unamortized other intangible assets: | |||||||||||||||||||||||||||
Trademarks | N/A | — | N/A | — | |||||||||||||||||||||||
Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
Three months ended | |||||
Condensed Consolidated Statements of Income Location | October 31, 2019 | ||||
Operating lease cost | Cost of goods sold | $ | |||
Operating lease cost | Selling, general, and administrative expenses |
Years ended July 31, | Operating Leases | ||
Remainder of 2020 | $ | ||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total lease payments | $ | ||
Less interest | ( | ) | |
Present value of lease liabilities | $ |
October 31, 2019 | ||
Weighted average remaining lease term (in years) | ||
Weighted average discount rate | % |
Three months ended | |||
October 31, 2019 | |||
Operating cash flows from operating leases | $ | ||
Operating lease assets obtained in exchange for new operating lease liabilities |
Years ended July 31, | Operating Leases | ||
2020 | $ | 18,450 | |
2021 | 16,132 | ||
2022 | 13,439 | ||
2023 | 10,065 | ||
2024 | 5,656 | ||
Thereafter | 3,502 | ||
Total lease payments | $ | 67,244 |
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||
Balances at July 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
Net income | — | — | — | — | ||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Issuance of shares of Class A Common Stock under stock plan | — | ( | ) | — | — | ( | ) | |||||||||||||||||
Tax benefit and withholdings from deferred compensation distributions | — | — | — | — | ||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||
Purchase of shares of Class A Common Stock | — | — | — | — | ||||||||||||||||||||
Cash dividends on Common Stock | ||||||||||||||||||||||||
Class A — $0.22 per share | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Class B — $0.20 per share | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Balances at October 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||
Balances at July 31, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
Net income | — | — | — | — | ||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Issuance of shares of Class A Common Stock under stock plan | — | ( | ) | — | — | |||||||||||||||||||
Tax benefit and withholdings from deferred compensation distributions | — | — | — | — | ||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||
Purchase of shares of Class A Common Stock | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Cumulative adjustment for ASU 2014-09, net of tax | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Cash dividends on Common Stock | ||||||||||||||||||||||||
Class A — $0.21 per share | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Class B — $0.20 per share | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Balances at October 31, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
Three months ended October 31, | ||||||||
Black-Scholes Option Valuation Assumptions | 2019 | 2018 | ||||||
Expected term (in years) | ||||||||
Expected volatility | % | % | ||||||
Expected dividend yield | % | % | ||||||
Risk-free interest rate | % | % | ||||||
Weighted-average market value of underlying stock at grant date | $ | $ | ||||||
Weighted-average exercise price | $ | $ | ||||||
Weighted-average fair value of options granted during the period | $ | $ |
Time-Based Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||
Outstanding at July 31, 2019 | $ | |||||||||||
New grants | ||||||||||||
Exercised | ( | |||||||||||
Forfeited or expired | ( | |||||||||||
Outstanding at October 31, 2019 | $ | $ | ||||||||||
Exercisable at October 31, 2019 | $ | $ |
Time-Based RSUs | Shares | Weighted Average Grant Date Fair Value | |||||
Outstanding at July 31, 2019 | $ | ||||||
New grants | |||||||
Vested | |||||||
Forfeited | ( | ) | |||||
Outstanding at October 31, 2019 | $ |
Performance-Based RSUs | Shares | Weighted Average Grant Date Fair Value | |||||
Outstanding at July 31, 2019 | $ | ||||||
New grants | |||||||
Vested | ( | ) | |||||
Outstanding at October 31, 2019 | $ |
Unrealized gain on cash flow hedges | Unamortized gain on post-retirement plans | Foreign currency translation adjustments | Accumulated other comprehensive loss | ||||||||||||
Beginning balance, July 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | |||||||
Other comprehensive income before reclassification | — | ||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | ( | ) | ( | ) | — | ( | ) | ||||||||
Ending balance, October 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) |
Unrealized gain on cash flow hedges | Unamortized gain on post-retirement plans | Foreign currency translation adjustments | Accumulated other comprehensive loss | ||||||||||||
Beginning balance, July 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | |||||||
Other comprehensive loss before reclassification | ( | ) | — | ( | ) | ( | ) | ||||||||
Amounts reclassified from accumulated other comprehensive loss | ( | ) | ( | ) | — | ( | ) | ||||||||
Ending balance, October 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Income tax benefit (expense) related to items of other comprehensive loss: | |||||||
Cash flow hedges | $ | $ | ( | ) | |||
Other income tax adjustments and currency translation | ( | ) | |||||
Income tax benefit (expense) related to items of other comprehensive loss | $ | $ | ( | ) |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Net sales: | |||||||
ID Solutions | |||||||
Americas | $ | $ | |||||
Europe | |||||||
Asia | |||||||
Total | $ | $ | |||||
Workplace Safety | |||||||
Americas | $ | $ | |||||
Europe | |||||||
Australia | |||||||
Total | $ | $ | |||||
Total Company | |||||||
Americas | $ | $ | |||||
Europe | |||||||
Asia-Pacific | |||||||
Total | $ | $ |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Segment profit: | |||||||
ID Solutions | $ | $ | |||||
Workplace Safety | |||||||
Total Company | $ | $ |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Total profit from reportable segments | $ | $ | |||||
Unallocated amounts: | |||||||
Administrative costs | ( | ) | ( | ) | |||
Investment and other income (expense) | ( | ) | |||||
Interest expense | ( | ) | ( | ) | |||
Income before income taxes | $ | $ |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Numerator (in thousands): | |||||||
Income (Numerator for basic and diluted income per Class A Nonvoting Common Share) | $ | $ | |||||
Less: | |||||||
Preferential dividends | ( | ) | ( | ) | |||
Preferential dividends on dilutive stock options | ( | ) | ( | ) | |||
Numerator for basic and diluted income per Class B Voting Common Share | $ | $ | |||||
Denominator: (in thousands) | |||||||
Denominator for basic income per share for both Class A and Class B | |||||||
Plus: Effect of dilutive equity awards | |||||||
Denominator for diluted income per share for both Class A and Class B | |||||||
Net income per Class A Nonvoting Common Share: | |||||||
Basic | $ | $ | |||||
Diluted | $ | $ | |||||
Net income per Class B Voting Common Share: | |||||||
Basic | $ | $ | |||||
Diluted | $ | $ |
October 31, 2019 | July 31, 2019 | Fair Value Hierarchy | |||||||
Assets: | |||||||||
Trading securities | $ | $ | Level 1 | ||||||
Foreign exchange contracts | Level 2 | ||||||||
Liabilities: | |||||||||
Foreign exchange contracts | Level 2 |
October 31, 2019 | July 31, 2019 | ||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
Current maturities on long-term debt | $ | $ | $ | $ |
October 31, 2019 | July 31, 2019 | ||||||
Designated as cash flow hedges | $ | $ | |||||
Non-designated hedges | |||||||
Total foreign exchange contracts | $ | $ |
Three months ended October 31, | |||||||
2019 | 2018 | ||||||
Gains (losses) recognized in OCI: | |||||||
Foreign exchange contracts (cash flow hedges) | $ | $ | ( | ) | |||
Foreign currency denominated debt (net investment hedges) | |||||||
Gains reclassified from OCI into cost of goods sold: | |||||||
Forward exchange contracts (cash flow hedges) |
October 31, 2019 | July 31, 2019 | ||||||||||||||||||||||
Prepaid expenses and other current assets | Other current liabilities | Current maturities on long-term obligations | Prepaid expenses and other current assets | Other current liabilities | Current maturities on long-term obligations | ||||||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||||||
Foreign exchange contracts (cash flow hedges) | $ | $ | |||||||||||||||||||||
Foreign currency denominated debt (net investment hedges) | |||||||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||
Total derivative instruments | $ | $ | $ | $ | $ | $ |
• | Enhancing our research and development process and improving the time to launch high-value, innovative products in alignment with our target markets. |
• | Providing our customers with the highest level of customer service. |
• | Driving operational excellence and executing sustainable efficiency gains within our global operations and within our selling, general and administrative structures. |
• | Expanding and enhancing our sales capabilities through an improved digital presence and increased sales resources. |
• | Growing through focused actions in selected vertical markets and strategic accounts. |
• | Enhancing our employee development process to create an engaged workforce and to attract and retain key talent. |
Three months ended October 31, | |||||||||||||
(Dollars in thousands) | 2019 | % Sales | 2018 | % Sales | |||||||||
Net sales | $ | 286,947 | $ | 293,196 | |||||||||
Gross margin | 141,405 | 49.3 | % | 146,539 | 50.0 | % | |||||||
Operating expenses: | |||||||||||||
Research and development | 10,967 | 3.8 | % | 11,326 | 3.9 | % | |||||||
Selling, general and administrative | 89,547 | 31.2 | % | 94,591 | 32.3 | % | |||||||
Total operating expenses | 100,514 | 35.0 | % | 105,917 | 36.1 | % | |||||||
Operating income | $ | 40,891 | 14.3 | % | $ | 40,622 | 13.9 | % |
Three months ended October 31, | |||||||||||||
(Dollars in thousands) | 2019 | % Sales | 2018 | % Sales | |||||||||
Operating income | $ | 40,891 | 14.3 | % | $ | 40,622 | 13.9 | % | |||||
Other income (expense): | |||||||||||||
Investment and other income (expense) | 1,380 | 0.5 | % | (17 | ) | — | % | ||||||
Interest expense | (701 | ) | (0.2 | )% | (712 | ) | (0.2 | )% | |||||
Income before income tax | 41,570 | 14.5 | % | 39,893 | 13.6 | % | |||||||
Income tax expense | 4,072 | 1.4 | % | 9,256 | 3.2 | % | |||||||
Net income | $ | 37,498 | 13.1 | % | $ | 30,637 | 10.4 | % |
Three months ended October 31, | |||||
2019 | 2018 | ||||
SALES GROWTH INFORMATION | |||||
ID Solutions | |||||
Organic | (0.2 | )% | 5.7 | % | |
Currency | (1.2 | )% | (1.7 | )% | |
Total | (1.4 | )% | 4.0 | % | |
Workplace Safety | |||||
Organic | (0.8 | )% | 2.2 | % | |
Currency | (3.4 | )% | (2.6 | )% | |
Divestitures | — | % | (6.2 | )% | |
Total | (4.2 | )% | (6.6 | )% | |
Total Company | |||||
Organic | (0.4 | )% | 4.7 | % | |
Currency | (1.7 | )% | (2.0 | )% | |
Divestitures | — | % | (1.7 | )% | |
Total | (2.1 | )% | 1.0 | % | |
SEGMENT PROFIT AS A PERCENT OF NET SALES | |||||
ID Solutions | 19.7 | % | 19.1 | % | |
Workplace Safety | 7.2 | % | 7.4 | % | |
Total | 16.6 | % | 16.1 | % |
Three months ended October 31, | |||||||
(Dollars in thousands) | 2019 | 2018 | |||||
Net cash flow provided by (used in): | |||||||
Operating activities | $ | 38,848 | $ | 18,818 | |||
Investing activities | (7,197 | ) | (5,672 | ) | |||
Financing activities | (15,326 | ) | 664 | ||||
Effect of exchange rate changes on cash | (304 | ) | (3,061 | ) | |||
Net increase in cash and cash equivalents | $ | 16,021 | $ | 10,749 |
• | Brady's ability to compete effectively or to successfully execute its strategy |
• | Brady's ability to develop technologically advanced products that meet customer demands |
• | Difficulties in protecting websites, networks, and systems against security breaches |
• | Decreased demand for the Company's products |
• | Raw material and other cost increases |
• | Extensive regulations by U.S. and non-U.S. governmental and self regulatory entities |
• | Risks associated with the loss of key employees |
• | Divestitures, contingent liabilities from divestitures and the failure to identify, integrate, and grow acquired companies |
• | Litigation, including product liability claims |
• | Foreign currency fluctuations |
• | Changes in tax legislation and tax rates |
• | Potential write-offs of Brady's substantial intangible assets |
• | Numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady's U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item 1A of Part I of Brady's Form 10-K for the year ended July 31, 2019. |
Exhibit No. | Exhibit Description | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.) | |
101.SCH | XBRL Taxonomy Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Label Linkbase Document | |
104 | Cover Page Inline XBRL data (contained in Exhibit 101) | |
BRADY CORPORATION | ||||||
Date: November 21, 2019 | /s/ J. MICHAEL NAUMAN | |||||
J. Michael Nauman | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: November 21, 2019 | /s/ AARON J. PEARCE | |||||
Aaron J. Pearce | ||||||
Chief Financial Officer and Treasurer | ||||||
(Principal Financial Officer) |
Date: November 21, 2019 | |
/s/ J. MICHAEL NAUMAN | |
President & Chief Executive Officer | |
(Principal Executive Officer) |
Date: November 21, 2019 | |
/s/ AARON J. PEARCE | |
Chief Financial Officer and Treasurer | |
(Principal Financial Officer) |
Date: November 21, 2019 | |
/s/ J. MICHAEL NAUMAN | |
President & Chief Executive Officer | |
(Principal Executive Officer) |
Date: November 21, 2019 | |
/s/ AARON J. PEARCE | |
Chief Financial Officer and Treasurer | |
(Principal Financial Officer) |
New Accounting Pronouncements New Accounting Pronouncements - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Oct. 31, 2019 |
Aug. 01, 2019 |
Jul. 31, 2019 |
|
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||
New Accounting Pronouncements, Policy [Policy Text Block] | New Accounting Pronouncements In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which simplifies and reduces the complexity of the hedge accounting requirements and better aligns an entity's financial reporting for hedging relationships with its risk management activities. The guidance is effective for interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2017-12 effective August 1, 2019, using the required modified retrospective adoption approach to apply this guidance to existing hedging relationships as of the adoption date, which did not have a material impact on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, "Goodwill and Other, Simplifying the Test for Goodwill Impairment," which simplifies the accounting for goodwill impairment. The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods thereafter; however, early adoption is permitted for any impairment tests performed after January 1, 2017. The Company has not adopted this guidance, which will only impact the Company's consolidated financial statements if there is a future impairment of goodwill. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under ASU 2016-13, the Company will be required to use a current expected credit loss model ("CECL") that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance becomes effective for interim periods in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASC 842"), which replaced the current lease accounting standards. The update requires, among other items, lessees to recognize the assets and liabilities that arise from most leases on the balance sheet and disclose key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-11 "Leases (Topic 842): Targeted Improvements," which provides, among other items, an additional transition method allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. ASC 842 is effective for interim periods in fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-02 (and related updates) effective August 1, 2019, using the optional transition method provided in ASU 2018-11 to apply this guidance to the impacted lease population at the date of initial application. Results for reporting periods beginning after August 1, 2019, are presented under ASU 2016-02, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect during those periods. The Company elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carryforward the historical lease accounting of expired or existing leases with respect to lease identification, lease classification and accounting treatment for initial direct costs as of the adoption date. The Company also elected the practical expedient related to lease versus nonlease components, allowing the Company to recognize lease and nonlease components as a single lease. Lastly, the Company elected the hindsight practical expedient, allowing the Company to use hindsight in determining the lease term and assessing impairment of right-of-use assets when transitioning to ASC 842. The Company has made a policy election not to capitalize leases with an initial term of 12 months or less. Upon adoption of ASC 842, the Company recorded additional operating lease assets and liabilities of $55,984 and $58,544, respectively, as of August 1, 2019, which included operating lease assets and liabilities of $9,769 and $9,674, respectively, for leases that commenced on the adoption date of August 1, 2019. No cumulative effect adjustment to retained earnings was recognized upon adoption of the new standard. Adoption of ASC 842 did not have a material impact on the Company's cash flows or operating results. Refer to Note E "Leases" for additional information and required disclosures under the new standard.
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Operating lease liabilities | $ 54,981 | $ 58,544 | |
Operating leases assets | $ 52,233 | $ 55,984 | $ 0 |
Subsequent Events - Additional Information (Detail) |
Nov. 19, 2019
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Subsequent Event [Line Items] | |
Dividends Payable, Amount Per Share | $ 0.2175 |
Other Comprehensive Income Other Comprehensive Income (Loss) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) Note | Comprehensive Loss Other comprehensive loss consists of foreign currency translation adjustments, unrealized gains and losses from cash flow hedges and net investment hedges, and the unamortized gain on post-retirement plans, net of their related tax effects. The following table illustrates the changes in the balances of each component of accumulated other comprehensive loss, net of tax, for the three months ended October 31, 2019:
The change in the accumulated other comprehensive loss as of October 31, 2019, compared to July 31, 2019, was negligible primarily due to the stability of the U.S. dollar against certain other currencies. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax. Of the total $391 in amounts reclassified from accumulated other comprehensive loss, the $286 gain on cash flow hedges was reclassified into cost of goods sold and the $105 gain on post-retirement plans was reclassified into selling, general and administrative expenses ("SG&A") on the condensed consolidated statements of income for the three months ended October 31, 2019. The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended October 31, 2018, were as follows:
The increase in accumulated other comprehensive loss as of October 31, 2018, compared to July 31, 2018, was primarily due to the appreciation of the U.S. dollar against certain other currencies. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax. Of the total $190 in amounts reclassified from accumulated other comprehensive loss, the $35 gain on cash flow hedges was reclassified into cost of goods sold and the $155 gain on post-retirement plans was reclassified into SG&A on the condensed consolidated statements of income for the three months ended October 31, 2018. The following table illustrates the income tax expense on the components of other comprehensive loss for the three months ended October 31, 2019 and 2018:
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives and Hedging Activities | Derivatives and Hedging Activities The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate on a future date, with maturities of less than 18 months, which qualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objective of the Company’s foreign currency exchange risk management program is to minimize the impact of currency movements due to transactions in other than the respective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s net investment denominated in a currency other than the U.S. dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts. The Company hedges a portion of known exposures using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, Euro, Canadian dollar, Australian dollar, Mexican Peso, Chinese Yuan, Malaysian Ringgit and Singapore dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions. The U.S. dollar equivalent notional amounts of outstanding forward exchange contracts were as follows:
Cash Flow Hedges The Company has designated a portion of its forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income ("OCI") and reclassified into income in the same period or periods during which the hedged transaction affects income. As of October 31, 2019 and July 31, 2019, unrealized gains of $620 and $805 have been included in OCI, respectively. These balances are expected to be reclassified from OCI to income during the next twelve months. Net Investment Hedges The Company has designated certain third party-foreign currency denominated debt instruments as net investment hedges. On May 13, 2010, the Company completed the private placement of €75,000 aggregate principal amount of senior unsecured notes consisting of €30,000 aggregate principal amount of 3.71% Series 2010-A Senior Notes, which were repaid during fiscal 2017, and €45,000 aggregate principal amount of 4.24% Series 2010-A Senior Notes, due May 13, 2020. This Euro-denominated debt obligation was designated as a net investment hedge to selectively hedge portions of the Company's net investment in European foreign operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices, and the net gains or losses attributable to the changes in spot prices are recorded as cumulative translation within AOCI and are included in the foreign currency translation adjustments section of the condensed consolidated statements of comprehensive income. As of October 31, 2019 and July 31, 2019, the cumulative balance recognized in accumulated other comprehensive income were gains of $12,462 and $12,440, respectively, on the Euro-denominated debt obligations. The following table summarizes the amount of pre-tax gains and losses related to derivatives designated as hedging instruments:
Non-Designated Hedges The Company recognized losses of $8 and $33 for the three months ended October 31, 2019 and 2018, respectively, in “Investment and other income (expense)” on the condensed consolidated statements of income related to non-designated hedges. Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
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Stock-Based Compensation - Stock Option Assumptions (Detail) - $ / shares |
3 Months Ended | |
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Oct. 31, 2019 |
Oct. 31, 2018 |
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Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract] | ||
Expected term (in years) | 6 years 2 months 12 days | 6 years 2 months 12 days |
Expected volatility | 25.85% | 25.83% |
Expected dividend yield | 2.63% | 2.71% |
Risk-free interest rate | 1.64% | 3.01% |
Options, Grants in Period, Weighted Average Exercise Price | $ 54.05 | $ 43.96 |
Weighted-average fair value of options granted during the period | $ 10.63 | $ 9.70 |
Other Intangible Assets (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
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Oct. 31, 2019 |
Oct. 31, 2018 |
Jul. 31, 2018 |
Jul. 31, 2019 |
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Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract] | ||||
Amortization of Intangible Assets | $ 1,291 | $ 1,436 | ||
Intangible Assets, Amortization Expense, Next Twelve Months | 5,164 | |||
Intangible Assets, Amortization Expense, Year Two | 5,164 | |||
Intangible Assets, Amortization Expense, Year Three | 4,898 | |||
Intangible Assets, Amortization Expense, Year Four | 2,025 | |||
Intangible Assets, Amortization Expense, Year Five | $ 0 | |||
Other Intangible Assets [Line Items] | ||||
Weighted Average Amortization Period | 9 years | 9 years | ||
Intangible Assets, Gross (Excluding Goodwill) | $ 65,494 | $ 65,466 | ||
Finite-Lived Intangible Assets, Gross | 46,594 | 46,595 | ||
Accumulated Amortization | (30,634) | (29,343) | ||
Finite-Lived Intangible Assets, Net | 15,960 | 17,252 | ||
Net Book Value | 34,860 | 36,123 | ||
Indefinite-lived Intangible Assets (Excluding Goodwill) | $ 18,900 | $ 18,871 |
Derivatives and Hedging Activities (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) [Table Text Block] |
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Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block] |
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Fair Values of Derivative Instruments in Consolidated Balance Sheets | Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
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Leases (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Lease, Cost [Table Text Block] |
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Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Other Comprehensive Income Other Comprehensive Income, Net of Tax (Tables) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | The following table illustrates the changes in the balances of each component of accumulated other comprehensive loss, net of tax, for the three months ended October 31, 2019:
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The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended October 31, 2018, were as follows:
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Other Comprehensive Income , Tax | The following table illustrates the income tax expense on the components of other comprehensive loss for the three months ended October 31, 2019 and 2018:
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Net Income per Common Share - Additional Informations (Detail) - shares |
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Earnings Per Share [Abstract] | ||
Common stock of Class A shares excluded from computations of diluted net income per share | 323,719 | 679,902 |
Other Comprehensive Income Schedule of Other Comprehensive Income, Tax (Details) - USD ($) $ in Thousands |
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Other Comprehensive Income (Loss), Tax [Abstract] | ||
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Tax | $ 35 | $ (100) |
Other Comprehensive Income Tax Other Adjustments | 176 | (358) |
Other Comprehensive Income (Loss), Tax | $ 211 | $ (458) |
Revenue Recognition Remaining Performance Obligation (Tables) |
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Oct. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Table Text Block] | Of the contract liability balance outstanding at October 31, 2019, the Company expects to recognize 29% by the end of fiscal 2020, an additional 27% by the end of fiscal 2021, and the remaining balance thereafter. |
Segment Information (Tables) |
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Revenue from External Customers by Geographic Areas [Table Text Block] | The following is a summary of net sales by segment and geographic region for the three months ended October 31, 2019 and 2018:
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Schedule of Segment Reporting Information by Segment | Segment profit for the three months ended October 31, 2019 and 2018 was as follows:
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Reconciliation of Segment Profit | The following is a reconciliation of segment profit to income before income taxes for the three months ended October 31, 2019 and 2018:
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New Accounting Pronouncements (Details) - USD ($) $ in Thousands |
Oct. 31, 2019 |
Aug. 01, 2019 |
Jul. 31, 2019 |
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New Accounting Pronouncements [Abstract] | |||
Operating leases assets | $ 52,233 | $ 55,984 | $ 0 |
Operating lease liabilities | $ 54,981 | $ 58,544 |
Fair Value Measurements Fair Value of Debt Disclosure (Details) - USD ($) $ in Thousands |
Oct. 31, 2019 |
Jul. 31, 2019 |
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Fair Value Disclosures [Abstract] | ||
Long-term Debt, Current Maturities | $ 50,144 | $ 50,166 |
Long-term Debt, Fair Value | $ 51,076 | $ 51,566 |
Net Income per Common Share - Reconciliation of Numerator and Denominator of Basic and Diluted Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
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Oct. 31, 2019 |
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Earnings Per Share [Line Items] | ||
Net income | $ 37,498 | $ 30,637 |
Denominator for basic income per share for both Class A and Class B | 53,143 | 52,201 |
Plus: Effect of dilutive equity awards | 593 | 757 |
Denominator for diluted income per share for both Class A and Class B | 53,736 | 52,958 |
Class A Nonvoting Common Stock | ||
Earnings Per Share [Line Items] | ||
Net income per share, basic | $ 0.71 | $ 0.59 |
Net income per share, diluted | $ 0.70 | $ 0.58 |
Class B Voting Common Stock | ||
Earnings Per Share [Line Items] | ||
Preferential dividends | $ (828) | $ (815) |
Preferential dividends on dilutive stock options | (10) | (13) |
Net income | $ 36,660 | $ 29,809 |
Net income per share, basic | $ 0.69 | $ 0.57 |
Net income per share, diluted | $ 0.68 | $ 0.56 |
Derivatives and Hedging Activities Notional Amount of Derivative Contracts (Details) - USD ($) $ in Thousands |
Oct. 31, 2019 |
Jul. 31, 2019 |
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Derivative [Line Items] | ||
Derivative, Notional Amount | $ 22,925 | $ 29,389 |
Designated as hedging instruments [Member] | ||
Derivative [Line Items] | ||
Derivative, Notional Amount | 19,540 | 26,013 |
Not designated as hedging Instruments [Member | ||
Derivative [Line Items] | ||
Derivative, Notional Amount | $ 3,385 | $ 3,376 |
Goodwill and Intangible Assets |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets Disclosure [Text Block] | Other Intangible Assets Other intangible assets include customer relationships, patents, and trademarks with finite lives being amortized in accordance with the accounting guidance for other intangible assets. The Company also has unamortized indefinite-lived trademarks that are classified as other intangible assets. The net book value of these assets was as follows:
The change in the gross carrying amount of other intangible assets as of October 31, 2019 compared to July 31, 2019 was due to the effects of currency fluctuations during the three-month period. Amortization expense on intangible assets was $1,291 and $1,436 for the three months ended October 31, 2019 and 2018, respectively. Amortization expense over each of the next five fiscal years is projected to be $5,164, $5,164, $4,898, $2,025 and $0 for the fiscal years ending July 31, 2020, 2021, 2022, 2023 and 2024, respectively.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Oct. 31, 2019 |
Oct. 31, 2018 |
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Statement of Comprehensive Income [Abstract] | ||
Net income | $ 37,498 | $ 30,637 |
Foreign currency translation adjustments: | ||
Foreign currency translation adjustments | 50 | (8,790) |
Cash flow hedges: | ||
Reclassification adjustment for gains included in net income | (381) | (47) |
Total cash flow hedges | (185) | (427) |
Pension and other post-retirement benefits: | ||
Pension and other post-retirement benefits actuarial gain amortization | (105) | (155) |
Other comprehensive loss before tax | (240) | (9,372) |
Income tax benefit (expense) related to items of other comprehensive loss | 211 | (458) |
Other comprehensive loss, net of tax | (29) | (9,830) |
Comprehensive income | $ 37,469 | $ 20,807 |
Segment Information |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment Information The Company is organized and managed on a global basis within three operating segments, Identification Solutions, Workplace Safety, and People Identification ("PDC"), which aggregate into two reportable segments that are organized around businesses with consistent products and services: IDS and WPS. The Identification Solutions and PDC operating segments aggregate into the IDS reporting segment, while the WPS reporting segment is comprised solely of the Workplace Safety operating segment. The Company evaluates short-term segment performance based on segment profit and customer sales. Interest expense, investment and other income (expense), income taxes, and certain corporate administrative expenses are excluded when evaluating segment performance. The following is a summary of net sales by segment and geographic region for the three months ended October 31, 2019 and 2018:
Segment profit for the three months ended October 31, 2019 and 2018 was as follows:
The following is a reconciliation of segment profit to income before income taxes for the three months ended October 31, 2019 and 2018:
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Subsequent Events |
3 Months Ended |
---|---|
Oct. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On November 19, 2019, the Board of Directors declared a quarterly cash dividend to shareholders of the Company’s Class A and Class B Common Stock of $0.2175 per share payable on January 31, 2020, to shareholders of record at the close of business on January 10, 2020.
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