brc-20221031

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number 1-14959

BRADY CORPORATION

(Exact name of registrant as specified in its charter)


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

6555 West Good Hope Road

Milwaukee, Wisconsin 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 class	Trading Symbol	Name of each exchange on which registered
Class A Nonvoting Common Stock, par value $0.01 per share	BRC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 15, 2022, there were 46,200,742 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.

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FORM 10-Q

BRADY CORPORATION

INDEX



			Page
PART I. Financial Information			3
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Income			4
Condensed Consolidated Statements of Comprehensive Income			5
Condensed Consolidated Statements of Stockholders' Equity			6
Condensed Consolidated Statements of Cash Flows			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			22
Item 4. Controls and Procedures			22
PART II. Other Information			24
Item 1A. Risk Factors			24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 6. Exhibits			25
Signatures			26

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)


	October 31, 2022		July 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, respectively	180,183		183,233
Inventories	195,695		190,023
Prepaid expenses and other current assets	12,902		10,743
Total current assets	503,251		498,068
Property, plant and equipment—net	136,320		139,511
Goodwill	579,404		586,832
Other intangible assets	69,494		74,028
Deferred income taxes	15,061		15,881
Operating lease assets	27,244		31,293
Other assets	19,855		21,719
Total	$	1,350,629	$	1,367,332
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	79,604	$	81,116
Accrued compensation and benefits	57,095		76,764
Taxes, other than income taxes	13,495		12,539
Accrued income taxes	13,943		8,294
Current operating lease liabilities	14,126		15,003
Other current liabilities	65,350		61,458
Total current liabilities	243,613		255,174
Long-term debt	99,000		95,000
Long-term operating lease liabilities	15,558		19,143
Other liabilities	80,733		86,717
Total liabilities	438,904		456,034
Stockholders’ equity:
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 46,176,267 and 46,370,708 shares, respectively	513		513
Class B voting common stock—Issued and outstanding, 3,538,628 shares	35		35
Additional paid-in capital	346,064		345,266
Retained earnings	920,482		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’ equity	911,725		911,298
Total	$	1,350,629	$	1,367,332

See Notes to Condensed Consolidated Financial Statements.

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BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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


	Three months ended October 31,
	2022		2021
Net sales	$	322,569	$	321,475
Cost of goods sold	167,305		166,487
Gross margin	155,264		154,988
Operating expenses:
Research and development	13,933		13,907
Selling, general and administrative	89,945		96,746
Total operating expenses	103,878		110,653
Operating income	51,386		44,335
Other (expense) income:
Investment and other (expense) income	(157)		543
Interest expense	(894)		(182)
Income before income taxes	50,335		44,696
Income tax expense	10,894		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:
Basic	49,868		51,973
Diluted	50,090		52,436

See Notes to Condensed Consolidated Financial Statements.

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BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands, Unaudited)


	Three months ended October 31,
	2022		2021
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 loss	893		(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 loss	66		(99)
Other comprehensive loss, net of tax	(17,437)		(4,718)
Comprehensive income	$	22,004	$	30,328

See Notes to Condensed Consolidated Financial Statements.

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BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in Thousands, Unaudited)


	Three months ended October 31, 2022
	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total 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 Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total 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

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BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands, Unaudited)


	Three months ended October 31,
	2022		2021
Operating activities:
Net income	$	39,441	$	35,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,665		8,509
Stock-based compensation expense	2,958		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 taxes	5,945		1,656
Net cash provided by operating activities	27,999		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 options	349		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 facilities	36,000		56,200
Repayment of borrowing on credit facilities	(32,000)		(27,200)
Other	66		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 equivalents	402		10,218
Cash and cash equivalents, beginning of period	114,069		147,335

Cash and cash equivalents, end of period	$	114,471	$	157,553

See Notes to Condensed Consolidated Financial Statements.

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BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended October 31, 2022

(Unaudited)

(In thousands, except share and per share amounts)

NOTE A — Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the "Company," "Brady," "we," or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of October 31, 2022 and July 31, 2022, its results of operations, cash flows and comprehensive income for the three months ended October 31, 2022 and 2021. The condensed consolidated balance sheet as of July 31, 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 Report on Form 10-K for the year ended July 31, 2022.

NOTE B — New 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, 2022		July 31, 2022
Finished products	$	111,897	$	112,323
Work-in-process	30,359		29,272
Raw materials and supplies	53,439		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.

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NOTE D — Other Intangible Assets

Other intangible assets as of October 31, 2022 and July 31, 2022 consisted of the following:


	October 31, 2022							July 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
Amortized other intangible assets:
Tradenames	3	$	1,728	$	(1,165)	$	563	3	$	1,749	$	(1,014)	$	735
Customer relationships	9	104,610		(51,312)		53,298		9	105,404		(48,428)		56,976
Technology	5	9,013		(2,686)		6,327		5	9,136		(2,241)		6,895
Unamortized other intangible assets:
Tradenames	N/A	9,306		—		9,306		N/A	9,422		—		9,422
Total		$	124,657	$	(55,163)	$	69,494		$	125,711	$	(51,683)	$	74,028

The change in the gross carrying amount of other intangible assets as of October 31, 2022 compared to July 31, 2022 was due to the effect of currency fluctuations during the three-month period. Amortization expense on intangible assets was $3,631 and $3,807 for the three months ended October 31, 2022 and 2021, respectively.

NOTE E — Leases

The Company leases certain manufacturing facilities, warehouse and office spaces, and vehicles 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 three months ended October 31, 2022 and 2021, 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 lease. Short-term lease expense, variable lease expenses, and sublease income was immaterial to the condensed consolidated statements of income for the three months ended October 31, 2022 and 2021.

Supplemental cash flow information related to the Company's operating leases for the three months ended October 31, 2022 and 2021, was as follows:


	Three months ended October 31,
	2022		2021
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 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.

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NOTE F — Accumulated Other Comprehensive Loss

Other comprehensive loss consists of foreign currency translation adjustments, the unrealized gain from cash flow hedges and the unamortized gain on post-retirement plans, net of their related tax effects.

The following table illustrates the changes in the balances of each component of accumulated other comprehensive loss, net of tax, for the three months ended October 31, 2022:


	Unrealized gain on cash flow hedges		Unamortized gain on post-retirement plans		Foreign currency translation adjustments		Accumulated other comprehensive loss
Beginning balance, July 31, 2022	$	954	$	1,436	$	(111,467)	$	(109,077)
Other comprehensive income (loss) before reclassification	813		—		(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 increase in accumulated other comprehensive loss as of October 31, 2022, compared to July 31, 2022, was primarily due to the appreciation of the U.S. dollar against certain other currencies during the three-month period.

The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended October 31, 2021, were as follows:


	Unrealized gain on cash flow hedges		Unamortized gain on post-retirement plans		Foreign currency translation adjustments		Accumulated other comprehensive loss
Beginning balance, July 31, 2021	$	729	$	1,888	$	(58,570)	$	(55,953)
Other comprehensive loss before reclassification	(273)

SEC Form 10-Q filed by Brady Corporation