BRADY CORP

Previous wording

We believe we have the financial strength to continue to invest in organic sales growth opportunities including sales, marketing and R&D, as well as inorganic sales opportunities including acquisitions, while continuing to drive sustainable efficiency gains and automation in our operations and selling, general and administrative ("SG&A") functions and return capital to our shareholders in the form of dividends and share repurchases. At January 31, 2024, we had cash of $143.9 million, as well as a credit agreement with $250.1 million available for future borrowing, which can be increased up to $1,110.1 million at the Company's option and subject to certain conditions, for total available liquidity of $1,254.0 million.

Current wording

We believe we have the financial strength to continue to invest in organic sales growth opportunities including sales, marketing and research and development ("R&D"), as well as inorganic sales opportunities including acquisitions, while continuing to drive sustainable efficiency gains and automation in our operations and selling, general and administrative ("SG&A") functions and return capital to our shareholders in the form of dividends and share repurchases. At April 30, 2024, we had cash of $160.5 million, as well as a credit agreement with $234.5 million available for future borrowing, which can be increased up to $1,084.5 million at the Company's option and subject to certain conditions, for total available liquidity of $1,245.0 million.

Previous wording

A comparison of results of operating income for the three and six months ended January 31, 2024 and 2023, is as follows:

Current wording

A comparison of results of operating income for the three and nine months ended April 30, 2024 and 2023, is as follows:

Previous wording

Net sales for the three months ended January 31, 2024 declined 1.1% to $322.6 million compared to $326.2 million in the same period in the prior year, which consisted of organic sales growth of 1.6% and an increase from foreign currency translation of 0.8%, which were offset by a decrease due to divestitures of 3.5%. Organic sales grew 1.2% in the Americas & Asia segment and 2.5% in the Europe & Australia segment during the three months ended January 31, 2024 compared to the same period in the prior year.

Current wording

Net sales for the three months ended April 30, 2024 increased 1.9% to $343.4 million compared to $337.1 million in the same period in the prior year, which consisted of organic sales growth of 4.5%, partially offset by a decrease from foreign currency translation of 0.3% and a decrease due to divestitures of 2.3%. Organic sales grew 4.5% in the Americas & Asia segment and 4.4% in the Europe & Australia segment during the three months ended April 30, 2024.

Previous wording

Net sales for the six months ended January 31, 2024 increased 0.9% to $654.6 million compared to $648.8 million in the same period in the prior year. The increase consisted of organic sales growth of 2.2% and an increase from foreign currency translation of 1.1%, which was partially offset by a decrease of 2.4% due to divestitures. Organic sales grew 2.3% in the Americas & Asia segment and 2.0% in the Europe & Australia segment during the six months ended January 31, 2024 compared to the same period in the prior year.

Current wording

Net sales for the nine months ended April 30, 2024 increased 1.2% to $998.0 million compared to $985.9 million in the same period in the prior year. The increase consisted of organic sales growth of 3.0% and an increase from foreign currency translation of 0.6%, which was partially offset by a decrease of 2.4% due to divestitures. Organic sales grew 3.0% in the Americas & Asia segment and 2.8% in the Europe & Australia segment during the nine months ended April 30, 2024.

Previous wording

Gross margin increased 3.6% to $162.1 million in the three months ended January 31, 2024 compared to $156.4 million in the same period in the prior year. As a percentage of net sales, gross margin increased to 50.2% from 48.0% in the three-month period. Gross margin increased 7.1% to $333.8 million in the six months ended January 31, 2024 compared to $311.7 million in the same period in the prior year. As a percentage of net sales, gross margin increased to 51.0% from 48.0% in the six-month period. The increase in gross margin as a percentage of net sales was primarily due to organic sales growth in higher gross margin product lines during both the three and six-month periods.

Current wording

Gross margin increased 4.3% to $177.0 million in the three months ended April 30, 2024 compared to $169.7 million in the same period in the prior year. As a percentage of net sales, gross margin increased to 51.6% from 50.3% in the three-month period. Gross margin increased 6.1% to $510.8 million in the nine months ended April 30, 2024 compared to $481.4 million in the same period in the prior year. As a percentage of net sales, gross margin increased to 51.2% from 48.8% in the nine-month period. The increase in gross margin as a percentage of net sales was primarily due to organic sales growth in higher gross margin product lines during both the three and nine-month periods.

Previous wording

R&D expenses increased 9.5% to $16.8 million in the three months ended January 31, 2024 compared to $15.4 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.2% from 4.7% in the three-month period. R&D expenses increased 11.0% to $32.5 million in the six months ended January 31, 2024 compared to $29.3 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.0% from 4.5% in the six-month period. The increase in R&D spending was primarily due to an increase in R&D headcount. The Company remains committed to investing in new product development to increase sales within our businesses. Investments in new printing systems, materials and an industrial track and trace solution remain the primary focus of R&D expenditures in fiscal 2024.

Current wording

R&D expenses increased 12.5% to $17.7 million in the three months ended April 30, 2024 compared to $15.7 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.1% from 4.7% in the three-month period. R&D expenses increased 11.5% to $50.2 million in the nine months ended April 30, 2024 compared to $45.0 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.0% from 4.6% in the nine-month period. The increase in R&D spending was primarily due to an increase in R&D headcount. The Company remains committed to investing in new product development to increase sales within our businesses. Investments in new printing systems, materials and an industrial track and trace solution remain the primary focus of R&D expenditures in fiscal 2024.

Previous wording

SG&A expenses include selling and administrative costs directly attributed to the Americas & Asia and Europe & Australia segments, as well as certain other administrative expenses including finance, information technology, human resources, and other administrative expenses. SG&A expenses decreased 1.0% to $91.3 million in the three months ended January 31, 2024 compared to $92.3 million in the same period in the prior year. The decrease in SG&A expenses during the three months ended January 31, 2024 compared to the same period in the prior year was primarily due to reduced headcount and advertising expense from divested businesses and a decrease in amortization expense, partially offset by increased headcount in sales and technology roles. As a percentage of sales, SG&A remained consistent at 28.3% in the three-month period.

Current wording

SG&A expenses include selling and administrative costs directly attributed to the Americas & Asia and Europe & Australia segments, as well as certain other administrative expenses including finance, information technology, human resources, and corporate administrative expenses. SG&A expenses increased 5.3% to $95.8 million in the three months ended April 30, 2024 compared to $91.0 million in the same period in the prior year. As a percentage of sales, SG&A increased to 27.9% from 27.0% in the three-month period. SG&A expenses increased 3.7% to $283.4 million for the nine months ended April 30, 2024 compared to $273.2 million in the same period in the prior year. As a percentage of net sales, SG&A increased to 28.4% from 27.7% in the nine-month period. SG&A expenses include a gain of $3.8 million from the sale of the PremiSys business during the three months ended April 30, 2023. The increase in SG&A expenses during the three and nine months ended April 30, 2024 was primarily due to increased headcount in sales and technology roles, investments in digital advertising and the gain on sale of business recorded in the prior period, which was partially offset by a decrease in headcount and advertising expense from divested businesses and a decrease in amortization expense.

Previous wording

Investment and other income was $2.7 million and $3.1 million for the three and six months ended January 31, 2024, respectively, compared to $1.0 million and $0.8 million in the same periods in the prior year. The increase in income during the three and six-month periods was primarily due to an increase in the market value of securities held in deferred compensation plans and an increase in interest income.

Current wording

Investment and other income was $1.6 million and $4.7 million in the three and nine months ended April 30, 2024, respectively, compared to $0.8 million and $1.6 million in the same periods in the prior year. The increase in income during the three and nine-month periods was primarily due to an increase in interest income and an increase in the market value of securities held in deferred compensation plans.

Previous wording

Interest expense decreased to $0.8 million and $1.6 million for the three and six months ended January 31, 2024, respectively, compared to $1.2 million and $2.1 million in the same periods in the prior year. The decrease in interest expense was primarily due to a decrease in outstanding borrowings on the Company's credit agreement, which was partially offset by an increase in interest rates on the Company's credit agreement compared to the same periods in the prior year.

Current wording

Interest expense decreased to $0.7 million and $2.3 million in the three and nine months ended April 30, 2024, respectively, compared to $0.8 million and $2.9 million in the same periods in the prior year. The decrease in interest expense was primarily due to a decrease in outstanding borrowings on the Company's credit agreement, which was partially offset by an increase in interest rates on the Company's credit agreement compared to the same periods in the prior year.

Previous wording

The Company's income tax rate was 21.8% and 21.7% for the three months ended January 31, 2024 and 2023, respectively, and the income tax rate was 21.1% and 21.7% for the six months ended January 31, 2024 and 2023, respectively. Refer to Note L, "Income Taxes" for additional information on the Company's income tax rates.

Current wording

The Company's income tax rate was 21.0% and 23.8% in the three months ended April 30, 2024 and 2023, respectively, and the income tax rate was 21.1% and 22.5% for the nine months ended April 30, 2024 and 2023, respectively. Refer to Note L, "Income Taxes" for additional information on the Company's income tax rates.

Previous wording

The following is a summary of segment information for the three and six months ended January 31, 2024 and 2023:

Current wording

The following is a summary of segment information for the three and nine months ended April 30, 2024 and 2023:

Previous wording

Americas & Asia net sales declined 3.8% to $211.6 million for the three months ended January 31, 2024 compared to $220.1 million in the same period in the prior year, which consisted of organic sales growth of 1.2% and an increase from foreign currency translation of 0.1%, which were offset by a decrease due to divestitures of 5.1%. Americas & Asia net sales decreased 1.2% to $433.3 million for the six months ended January 31, 2024 compared to $438.6 million in the same period in the prior year, which consisted of organic sales growth of 2.3% that was offset by a decrease due to divestitures of 3.5%.

Current wording

Americas & Asia net sales increased 0.9% to $224.8 million in the three months ended April 30, 2024 compared to $222.8 million in the same period in the prior year, which consisted of organic sales growth of 4.5% and decreases from foreign currency translation of 0.1% and divestitures of 3.5%. Americas & Asia net sales declined 0.5% to $658.0 million in the nine months ended April 30, 2024 compared to $661.4 million in the same period in the prior year, which consisted of organic sales growth of 3.0% that was offset by a decrease due to divestitures of 3.5%.

Previous wording

Organic sales in Europe increased in the low-single digits in both the three and six-month periods ended January 31, 2024 compared to the same periods in the prior year. Organic sales during the three-month period grew in the product identification, safety and facility identification and wire identification product lines. Organic sales grew in all major product lines with the strongest growth in the safety and facility identification product line during the six-month period.

Current wording

Organic sales in the Americas increased in the mid-single digits in the three months ended April 30, 2024 and increased in the low-single digits in the nine months ended April 30, 2024 compared to the same periods in the prior year. Organic sales growth during the three-month period was driven by growth in all major product lines with the strongest growth in the safety and facility identification and wire identification product lines. Organic sales growth during the nine-month period was primarily driven by growth in the wire identification, safety and facility identification and product identification product lines, which was partially offset by an organic sales decline in the healthcare identification product line.

Previous wording

Organic sales in Asia increased in the mid-single digits for the three months ended January 31, 2024 and were essentially flat for the six months ended January 31, 2024 compared to the same periods in the prior year. The organic sales increase during the three-month period was primarily driven by sales growth in all major countries led by increased volume in China and India. Organic sales were essentially flat during the six-month period, with sales growth in India and Japan being offset by a decline in volume in China during the first quarter of fiscal 2024.

Current wording

Organic sales in Asia increased in the low-single digits in both the three and nine-month periods ended April 30, 2024 compared to the same periods in the prior year. The organic sales increase during the three and nine-month periods was driven by sales growth in India, Singapore and Japan, which was partially offset by a decline in volume in China.

Previous wording

Americas & Asia segment profit increased 9.3% to $43.9 million for the three months ended January 31, 2024 compared to $40.2 million in the same period in the prior year. Segment profit increased 15.3% to $93.8 million for the six months ended January 31, 2024 compared to $81.3 million in the same period in the prior year. As a percentage of net sales, segment profit increased to 20.7% from 18.3% for the three-month period, and segment profit increased to 21.6% from 18.5% for the six-month period ended January 31, 2024 compared to the same periods in the prior year. The increase in segment profit as a percentage of net sales was primarily due to organic sales growth in higher gross margin product lines during both the three and six-month periods.

Current wording

Americas & Asia segment profit increased 1.0% to $49.7 million in the three months ended April 30, 2024 compared to $49.2 million in the same period in the prior year. Segment profit increased 9.9% to $143.5 million in the nine months ended April 30, 2024 compared to $130.5 million in the same period in the prior year. As a percentage of net sales, segment profit remained flat at 22.1% in the three-month period and segment profit increased to 21.8% from 19.7% in the nine-month period ended April 30, 2024 compared to the same periods in the prior year. The increase in segment profit was primarily due to organic sales growth in higher gross margin product lines and a decrease in headcount and advertising expenses from divested businesses, which was partially offset by increased headcount in sales and R&D roles during both the three and nine-month periods.

Previous wording

Organic sales in the Americas increased in the low single digits in both the three and six-month periods ended January 31, 2024 compared to the same periods in the prior year. Organic sales growth during the three and six-month periods was primarily driven by the wire identification, safety and facility identification, and product identification product lines, which was partially offset by an organic sales decline in the healthcare identification product line.

Current wording

Organic sales in Australia increased in the low-single digits in both the three and nine months ended April 30, 2024 compared to the same periods in the prior year. Organic sales growth during the three and nine-month periods was primarily driven by the wire identification product line and, to a lesser extent, the product identification product line.

Previous wording

Europe & Australia segment profit increased 11.9% to $15.1 million from $13.5 million, and as a percentage of net sales, segment profit increased to 13.6% from 12.7% for the three months ended January 31, 2024 compared to the same period in the prior year. Segment profit increased 5.2% to $31.8 million from $30.2 million and as a percentage of net sales, segment profit was 14.4% for both the six months ended January 31, 2024 and 2023. The increase in segment profit during both periods was primarily due to organic sales growth during the six months ended January 31, 2024.

Current wording

Europe & Australia segment profit increased 14.3% to $19.5 million in the three months ended April 30, 2024 compared to $17.1 million in the same period in the prior year. Segment profit increased 8.5% to $51.3 million in the nine months ended April 30, 2024 compared to $47.3 million in the same period in the prior year. As a percentage of net sales, segment profit increased to 16.5% from 15.0% for the three-month period and segment profit increased to 15.1% from 14.6% for the nine-month period ended April 30, 2024 compared to the same periods in the prior year. The increase in segment profit during both periods was primarily due to organic sales growth and improved gross margins due to product mix and reductions in freight expenses, which was partially offset by increased headcount in sales and R&D roles.

Previous wording

The Company's cash balances are generated and held in numerous locations throughout the world. At January 31, 2024, 98% 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, share repurchases, and dividend payments for the next 12 months and beyond. 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.

Current wording

The Company's cash balances are generated and held in numerous locations throughout the world. At April 30, 2024, 97% 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, share repurchases, and dividend payments for the next 12 months and beyond. 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.

Previous wording

Cash and cash equivalents were $143.9 million at January 31, 2024, a decrease of $7.7 million from July 31, 2023. The significant changes were as follows:

Current wording

Cash and cash equivalents were $160.5 million at April 30, 2024, an increase of $8.9 million from July 31, 2023. The significant changes were as follows:

Previous wording

Net cash provided by operating activities was $98.4 million for the six months ended January 31, 2024 compared to $57.4 million in the same period of the prior year. The increase in cash provided by operating activities was primarily due to improved profitability, reduced inventory spend and lower annual incentive compensation payments compared to the same period in the prior year.

Current wording

Net cash provided by operating activities was $171.1 million in the nine months ended April 30, 2024 compared to $129.9 million in the same period of the prior year. The increase in cash provided by operating activities was primarily due to improved profitability, reduced inventory spend and lower annual incentive compensation payments compared to the same period in the prior year.

Previous wording

Net cash used in investing activities consisted of $60.8 million of capital expenditures in the six months ended January 31, 2024 compared to $8.2 million in the same period of the prior year. The increase in cash used in investing activities was primarily due to the purchase of a previously leased facility in Mexico, in addition to facility construction costs in Belgium.

Current wording

Net cash used in investing activities was $70.3 million in the nine months ended April 30, 2024 compared to $4.9 million in the same period of the prior year. The increase in cash used in investing activities was primarily due to the purchase of a previously leased facility in Mexico, in addition to facility construction costs in Belgium.

Previous wording

Net cash used in financing activities was $43.0 million in the six months ended January 31, 2024 compared to $57.1 million in the same period in the prior year. The decrease in cash used in financing activities was primarily due to a decrease of

Current wording

Net cash used in financing activities was $89.0 million in the nine months ended April 30, 2024 compared to $105.9 million in the same period in the prior year. The decrease in cash used in financing activities was primarily due to increased net borrowings to fund higher level of capital expenditures during the nine months ended April 30, 2024, which was partially offset by an increase in share repurchases.

Previous wording

As of January 31, 2024, the outstanding balance on the Company's credit agreement was $48.1 million. The maximum amount outstanding on the credit agreement during the six months ended January 31, 2024 was $63.0 million. As of January 31, 2024, the U.S. dollar-denominated borrowings of $13.0 million bear interest at 6.6%; the Euro-denominated borrowings of €23.0 million bear interest at 4.8%; and the British Pound-denominated borrowings of £8.0 million bear interest at 6.1% for a weighted average interest rate of 5.5%. The Company had letters of credit outstanding under the credit agreement of $1.8 million as of January 31, 2024, and there was $250.1 million available for future borrowing, which can be increased to $1,110.1 million at the Company's option, subject to certain conditions. The credit agreement has a final maturity date of November 14, 2027. As such, borrowings were classified as long-term on the condensed consolidated balance sheets.

Current wording

As of April 30, 2024, the outstanding balance on the Company's credit agreement was $63.8 million. The maximum amount outstanding on the credit agreement during the nine months ended April 30, 2024 was $64.7 million. As of April 30, 2024, the U.S. dollar-denominated borrowings of $28.0 million bear interest at 6.3%; the Euro-denominated borrowings of €24.0 million bear interest at 4.7%; and the British Pound-denominated borrowings of £8.0 million bear interest at 6.1% for a weighted average interest rate of 5.6%. The Company had letters of credit outstanding under the credit agreement of $1.7 million as of April 30, 2024, and there was $234.5 million available for future borrowing, which can be increased to $1,084.5 million at the Company's option, subject to certain conditions. The credit agreement has a final maturity date of November 14, 2027. As such, borrowings were classified as long-term on the condensed consolidated balance sheets.

Previous wording

The Company's credit agreement requires it to maintain certain financial covenants, including a ratio of debt to the trailing twelve months EBITDA, as defined in the credit agreement, 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 January 31, 2024, the Company was in compliance with these financial covenants, with a ratio of debt to EBITDA, as defined by the agreement, equal to 0.2 to 1.0 and the interest expense coverage ratio equal to 95.9 to 1.0.

Current wording

The Company's credit agreement requires it to maintain certain financial covenants, including a ratio of debt to the trailing twelve months EBITDA, as defined in the credit agreement, 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 April 30, 2024, the Company was in compliance with these financial covenants, with a ratio of debt to EBITDA, as defined by the agreement, equal to 0.2 to 1.0 and the interest expense coverage ratio equal to 98.1 to 1.0.