BRC Brady Corp - 10-K

Item 1A. Risk Factors

Investors should carefully consider the risks set forth below and all other information contained in this report and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as market conditions, geopolitical events, changes in laws or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major health concerns, natural disasters or other disruptions of expected economic or business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business and financial results.

Business Risks

Raw material and other cost inflation as well as product shortages could adversely affect our business and financial results.

We manufacture certain parts and components of our products and therefore require raw materials from suppliers, which could be interrupted for a variety of reasons, including availability and pricing. Our prices and lead times for raw materials and other components necessary for production have continued to fluctuate over the past year, including increased raw production costs, increased wage rates, and extended lead times. Significant increases could adversely affect our profit margins and results of operations. Changes in trade policies; supply chain disruptions; and the imposition of duties and tariffs and potential retaliatory countermeasures could adversely impact the price or availability of raw materials, which could adversely affect our profit margins and results of operations. In addition, labor shortages or an increase in the cost of labor could adversely affect our profit margins and results of operations. Due to competitive pressures or other factors, we may not be able to pass along increased raw material and component part costs to our customers in the form of price increases or our ability to do so could be delayed, which could adversely impact our business and financial results.

While we have implemented certain cost containment measures and selective price increases, as well as taken other actions to offset recent inflationary pressures in our supply chain, we may not be able to offset all of the increases in our operational costs, which could adversely impact our business and financial results.

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Demand for our products may be adversely affected by numerous factors, some of which we cannot predict or control. This could adversely affect our business and financial results.

Numerous factors may affect the demand for our products, including:

• Deterioration of economic conditions in major markets served

• Catastrophic events, including epidemics, major health concerns, or natural disasters

• Economic and operational impact of the war between Russia and Ukraine or other wars

• Consolidation in the marketplace allowing competitors to be more efficient and more price competitive

• Competitors entering the marketplace

• Decreasing product life cycles

• Changes in customer preferences

• Ability to achieve strong operational performance, including the manufacture and sale of high-quality products and the ability to meet customer delivery expectations

If any of these factors occur, the demand for our products could suffer, and this could adversely impact our business and financial results.

Failure to compete effectively or to successfully execute our strategy may have a negative impact on our business and financial results.

We actively compete with companies that produce and market the same or similar products, and in some instances, with companies that sell different products that are designed for the same target markets. Competition may force us to reduce prices or incur additional costs to remain competitive in an environment in which business models, including the development and use of artificial intelligence technologies, are changing rapidly. We compete on the basis of several factors, including customer support, product innovation, product offering, product quality, price, expertise, digital capabilities, production capabilities, and for multinational customers, our global footprint. Present or future competitors may develop and introduce new and enhanced products, offer products based on alternative technologies and processes, accept lower profit, have greater financial, technical or other resources, or have lower production costs or other pricing advantages. Any of these could put us at a disadvantage by threatening our share of sales or reducing our profit margins, which could adversely impact our business and financial results.

Additionally, throughout our global business, distributors and customers may not accept our price increases or may seek lower cost sourcing opportunities, which could result in a loss of business that may adversely impact our business and financial results.

Our strategy is to expand into higher-growth adjacent product categories and markets with technologically advanced new products, as well as to grow our sales generated through the digital channel. While traditional direct marketing channels such as catalogs are an important means of advertising and selling our products, an increasing number of customers are purchasing products online. Our strategy to increase sales through the digital channel is an investment in our e-commerce sales capabilities. There is a risk that we may not continue to successfully implement this strategy, or if successfully implemented, we may not realize its expected benefits due to increased competition and pricing pressure brought about by other e-commerce businesses. Our failure to successfully implement our strategy could adversely impact our business and financial results.

Failure to develop or acquire technologically advanced products that meet customer demands, including price expectations, could adversely impact our business and financial results.

We develop technologically advanced new products to promote our organic growth and profitability. Technology is changing rapidly and our competitors are innovating quickly. If we do not keep pace with developing technologically advanced products, we risk product commoditization, deterioration of the value of our brand, and reduced ability to effectively compete. We must continue to develop innovative products, as well as acquire and retain the necessary intellectual property rights in these products. If we fail to innovate, or we launch products with quality problems, or if customers do not accept our products, then our business and financial results could be adversely affected.

The failure to properly identify, integrate and grow acquired companies, and to manage contingent liabilities from divested businesses could adversely affect our business and financial results.

Our historical growth has included acquisitions and our future growth strategy includes acquisitions. Acquisitions place significant demands on management, operational, and financial resources. Recent and future acquisitions will require integration of operations, sales and marketing, information technology, finance, and administrative operations, which could decrease the time available to focus on our other growth strategies. We cannot assure that we will be able to successfully integrate acquisitions, that these acquisitions will operate profitably, or that we will be able to achieve the desired sales growth

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or operational success. Our sales, results of operations, cash flow, and liquidity could be adversely affected if we do not successfully integrate acquired businesses, including realizing synergies, or if our other businesses suffer due to the increased focus on the acquired businesses.

We continually assess the strategic fit of our existing businesses and may divest businesses that we determine do not align with our strategic plan, or that are not achieving the desired return on investment. Divestitures pose risks and challenges that could negatively impact our business. When we decide to sell a business or specific assets, we may be unable to do so on satisfactory terms or within our anticipated timeframe, and even after reaching a definitive agreement to sell a business, the sale is typically subject to pre-closing conditions which may not be satisfied. In addition, the impact of the divestiture on our revenue and net income may be larger than projected, which could distract management, and disputes may arise with buyers. We have retained responsibility for and have agreed to indemnify buyers against certain contingent liabilities related to several businesses that we have sold. The resolution of these contingencies has not had a material adverse impact on our financial results, but we cannot be certain that this pattern will continue.

Global Operating Risks

Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, to protect our confidential information, or to facilitate our digital strategy, could adversely affect our business and financial results.

Our business systems collect, transmit and store data about our customers, vendors and others, including credit card information and personally identifiable information. We also employ third-party service providers that store, process and transmit proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other similar disruptions that may jeopardize the security of information stored in or transmitted by our sites, networks and systems or that we or our third-party service providers otherwise maintain. We engage third-party service providers to assist with certain of our website and digital platform upgrades, which may result in a decline in sales when initially deployed, which could have an adverse effect on our business and financial results.

We and our service providers may not have the resources or technical sophistication to anticipate or prevent all types of attacks, and techniques used to obtain unauthorized access to or to sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships. Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate or will cover liabilities actually incurred, or that insurance will continue to be available to us on economically reasonable terms, or at all. Any compromise or breach of our security measures, or those of our third-party service providers, could adversely impact our ability to conduct business, violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity, and a loss of confidence in our security measures, which could have an adverse effect on our business and financial results.

We are a global company headquartered in the United States. We are subject to extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities at various levels of the governing bodies. Failure to comply with laws and regulations could adversely affect our business and financial results.

Approximately 50% of our sales are derived outside of the United States. Our operations are subject to the risks of doing business domestically and globally, including the following:

• Imposition of new or changes in existing duties, tariffs and trade agreements, which could have a direct or indirect impact on our ability to manufacture products, on our customers' demand for our products, or on our suppliers' ability to deliver raw materials.

• Delays or disruptions in product deliveries and payments in connection with international manufacturing and sales.

• Regulations resulting from political and economic instability and disruptions.

• Import, export and economic sanction laws.

• Current and changing governmental policies, regulatory, and business environments.

• Disadvantages from competing against companies from countries that are not subject to U.S. laws and regulations including the Foreign Corrupt Practices Act.

• Local labor regulations.

• Regulations relating to climate change, air emissions, wastewater discharges, handling and disposal of hazardous materials and wastes.

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• Regulations relating to product content, health, safety and the protection of the environment.

• Imposition of trade or travel restrictions as a result of any effects of pandemics or global health crises.

• Specific country regulations where our products are manufactured or sold.

• Regulations relating to compliance with data protection and privacy laws throughout our global business.

• Laws and regulations that apply to companies doing business with the government, including audit requirements of government contracts related to procurement integrity, export control, employment practices, and the accuracy of records and recording of costs.

Further, these laws and regulations are constantly evolving and it is difficult to accurately predict the effect they may have upon our business and financial results.

We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents or business partners that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data privacy. Any such improper actions could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, lead to substantial civil or criminal, monetary and non-monetary penalties and related lawsuits by shareholders and others, damage our reputation, and adversely impact our business and financial results.

We depend on key employees and the loss of these individuals could have an adverse effect on our business and financial results.

Our financial results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or increased compensation and benefit costs. Our employees are important to our success and we are dependent on our ability to retain the services of our employees in key roles. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our customers. In order to compete and to continue to grow, we must attract, retain and motivate our employees. We need qualified managers and skilled employees with technical and industry experience to operate our business successfully. If we are unable to attract and retain qualified individuals, or if our costs to do so increase significantly, or if internal realignment of responsibilities are not executed properly, our business and financial results could be adversely affected.

We are subject to litigation that could adversely impact our business, financial results, and reputation.

We are, or may become, a party to litigation that arises in the normal course of our business operations, including product liability and recall (strict liability and negligence) claims, patent and trademark matters, contract disputes and environmental, employment and other litigation matters. We face an inherent risk that our competitors will allege that aspects of our products infringe their intellectual property or that our intellectual property is invalid, such that we could be prevented from manufacturing and selling our products or prevented from stopping others from manufacturing and selling competing products. We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other damage. To date, we have not incurred material costs related to these types of claims. However, while we currently maintain insurance coverage for certain types of claims that we believe is adequate, we cannot be certain that we will be able to maintain this insurance on acceptable terms or that this insurance will provide sufficient coverage against potential liabilities that may arise. Any claims brought against us, with or without merit, may have an adverse effect on our business, financial results and reputation as a result of potential adverse outcomes. The expenses associated with defending such claims and the diversion of our management’s resources and time may have an adverse effect on our business and financial results.

Global climate change and related emphasis on environmental matters by various stakeholders could negatively affect our business and financial results.

Increased public awareness and concern regarding global climate change may result in more regional and/or federal requirements to reduce or mitigate the effects of greenhouse gas emissions. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. Further, our customers and the markets we serve may impose emissions or other environmental standards through regulation, market-based emissions policies or consumer preference that we may not be able to timely meet due to the required level of capital investment or technological advancement.

Additionally, the enhanced stakeholder focus on Environmental, Social and Governance (“ESG”) issues relating to our business requires the continuous monitoring of various and evolving standards and the associated reporting requirements. A failure to adequately meet stakeholder expectations may result in the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent.

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Financial and Security Ownership Risks

The global nature of our business exposes us to foreign currency fluctuations that could adversely affect our business and financial results.

Approximately 50% o f our sales are derived outside the United States. Sales and purchases in currencies other than the U.S. dollar expos e us to fluctuations in foreign currencies relative to the U.S. dollar, and may adversely affect our financial results. Increased strength of the U.S. dollar could increase the effective price of our products sold in currencies other than U.S. dollars into other countries. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products, and services purchased overseas. Our sales and expenses are translated into U.S. dollars for reporting purposes, and further strengthening of the U.S. dollar could result in unfavorable translation effects. In addition, certain of our subsidiaries may invoice customers in a currency other than its functional currency or may be invoiced by suppliers in a currency other than its functional currency, which could result in unfavorable translation effects on our business and financial results.

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

We are subject to income taxes in the U.S. and in many non-U.S. jurisdictions. As such, our income is subject to risk due to changing tax laws and tax rates around the world. Our tax filings are subject to audit by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in payments or assessments that differ from our reserves, our future net income may be adversely impacted.

On July 4, 2025, the U.S. government enacted tax legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA made permanent or extended several provisions from the Tax Cuts and Jobs Act of 2017, including restoration of 100% bonus depreciation, an EBITDA-based limitation on interest expense deductions, and immediate expensing of domestic research and development expenditures. Future changes to these or other tax laws, as well as related regulations and interpretations, could materially affect our financial results.

We review the probability of the realization of our deferred tax assets quarterly based on forecasts of taxable income in both the U.S. and foreign jurisdictions. As part of this review, we utilize historical results, projected future operating results, eligible carry-forward periods, tax planning opportunities, and other relevant considerations. Changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions, or changes in our geographic footprint may require modifications in the valuation allowance for deferred tax assets.

Globally, many countries have enacted, or plan to enact, legislation and other guidance to align with the Organisation for Economic Co-operation and Development’s (“OECD”) Inclusive Framework on Base Erosion and Profit Shifting Pillar Two (“Pillar Two”) model rules, which aim to establish a global minimum tax rate of 15 percent for large multinational enterprise groups. The OECD has continued to issue new administrative guidance on the Pillar Two model rules throughout 2025. Significant uncertainty remains regarding the interpretation and consistent implementation of the Pillar Two model rules across jurisdictions, their interaction with existing national tax laws, and their alignment with current tax treaty obligations. Final adoption and implementation of Pillar Two in the jurisdictions where we operate could adversely affect our business and financial results. While it is impossible to predict whether other tax proposals will be enacted, many could have an impact on our business and financial results.

Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact income and profitability .

We have goodwill of $676.9 million and other intangible assets of $105.4 million as of July 31, 2025, which represent 45.1% of our total assets, and we have recognized impairment charges in the past. We evaluate goodwill and other intangible assets for impairment on an annual basis, or more frequently if impairment indicators are present, based upon the fair value of each respective asset. The valuations prepared for the required impairment test include management's estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures, and other assumptions. Significant negative industry or economic trends, disruptions to our business, inability to achieve sales projections or cost savings, inability to effectively integrate acquired businesses, unexpected changes in the use of the assets, and divestitures may adversely impact the assumptions used in the valuations. If the estimated fair value of our goodwill or other intangible assets change in future periods, we may be required to record an impairment charge, which would reduce net income in such period.

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Substantially all of our voting stock is controlled by two shareholders, while our public investors hold non-voting stock. The interests of the voting and non-voting shareholders could differ, potentially resulting in decisions that affect the value of the non-voting shares.

Substantially all of our voting stock is controlled by Elizabeth P. Bruno, one of our directors, and William H. Brady III, both of whom are descendants of the Company's founder. All of our publicly traded shares are non-voting. Therefore, the voting shareholders have control in most matters requiring approval or acquiescence by shareholders, including the composition of our Board of Directors and many corporate actions, and their interests may not align with those of the non-voting shareholders. Such concentration of ownership may discourage a potential acquirer from making a purchase offer that our public shareholders may find favorable and it may adversely affect the trading price for our non-voting common stock because investors may perceive disadvantages in owning stock in companies whose voting stock is controlled by a limited number of shareholders. Additionally, certain private investors, mutual funds and index sponsors have implemented rules restricting ownership, or excluding from indices, companies with non-voting publicly traded shares. For example, the Company was removed from the Russell 2000 Index in the fourth quarter of fiscal year 2023 for not meeting the minimum voting rights hurdle.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The Company is organized and managed on a geographic basis with two reportable segments: Americas & Asia and Europe & Australia.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and the notes to those statements (Item 8) in this Annual Report on Form 10-K. The following discussion is intended to help the reader understand the results of operations and financial condition of the Company for the year ended July 31, 2025 compared to the year ended July 31, 2024.

A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 can be found under Item 7 in our Annual Report on Form 10-K for the year ended July 31, 2024, filed with the SEC on September 6, 2024, which is available on the SEC's website at www.sec.gov and our corporate website at www.bradyid.com/corporate/investors and such information is incorporated by reference herein.

References in this Annual Report on Form 10-K to “organic sales” refer to sales calculated in accordance with U.S. GAAP, excluding the impact of foreign currency translation, sales recorded from divested companies up to the first anniversary of their divestiture and sales recorded from acquired companies prior to the first anniversary date of their acquisition. The Company’s organic sales disclosures exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying sales trends in our businesses and facilitating comparisons of our sales performance with prior periods.

Macroeconomic Conditions and Trends

The Company's operations and financial performance are subject to the risks and uncertainties inherent in the global economic environment, including inflationary pressures, supply chain disruptions, and other macroeconomic challenges. These pressures may impact the Company's business, financial condition and results of operations as the global economic outlook remains uncertain.

In recent months, the U.S. government introduced incremental import tariffs on goods imported into the U.S. from numerous countries, triggering reciprocal tariffs and other actions from many countries on goods exported from the U.S. Trade policies of the U.S. and other countries, including China, are complex and rapidly evolving. Our strategy of manufacturing products near the point of sale reduces our overall exposure to tariffs, though certain sourced inputs and manufactured items remain subject to incremental tariffs. Our business has incurred, and expects to continue to incur, additional costs as it relates to these incremental tariffs for the foreseeable future. The Company has taken and will continue to take action to mitigate inflationary pressures caused by the incremental tariffs through a combination of targeted price increases and surcharges, strategic sourcing adjustments, product portfolio optimization, as well as our ongoing efforts to drive sustainable efficiency gains in our operations and administrative structures.

Notwithstanding the uncertain situation relating to tariffs, we believe our financial strength positions us well to continue investing in acquisitions and organic growth opportunities, such as expanded sales channels, marketing programs, and research and development (“R&D”). We remain focused on driving sustainable efficiency gains and automation across our operations and selling, general and administrative (“SG&A”) functions, while also returning capital to our shareholders through dividends and share repurchases. At July 31, 2025 , we had cash of $174.3 million, as well as a credit agreement with $ 198.1 million available for future borrowing, which can be increased up to $ 1,093.1 million at the Company's option and subject to certain conditions, for total available liquidity of $1,267.4 million.

We believe that our financial resources and liquidity levels, including the undrawn portion of our credit agreement and our ability to increase that credit line as necessary, are sufficient to support the execution of our growth strategy and to manage the impact of economic or geopolitical events that could potentially reduce sales, net income, or cash provided by operating activities. Refer to Risk Factors, included in Part I, Item 1A of this Annual Report on Form 10-K for the year ended July 31, 2025 , for further discussion of the possible impact of global economic or geopolitical events on our business.

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Results of Operations

The comparability of the operating results for the year ended July 31, 2025 to the year ended July 31, 2024 has been impacted by the acquisitions of Gravotech Holding (“Gravotech”) on August 1, 2024, American Barcode and RFID Incorporated (“AB&R”) on October 1, 2024 and the Microfluidic Solutions business unit of Funai Electric Co., Ltd. (“Microfluidic Solutions”) on April 1, 2025. The operating results of Gravotech, AB&R and Microfluidic Solutions have been included since their acquisition dates. Gravotech has been included in both reportable segments, and AB&R and Microfluidic Solutions have been included in the Americas & Asia reportable segment. The comparability of the operating results for the Americas & Asia segment has also been impacted by the divestiture of two non-core businesses, one in March 2023 and another in October 2023.

A comparison of results of operating income for the years ended July 31, 2025, 2024, and 2023 is as follows:

(Dollars in thousands)

% Sales

% Sales

% Sales

Net sales

Gross margin

Operating expenses:

Research and development

Selling, general and administrative

Total operating expenses

Operating income

Net sales increased 12.8% to $1,513.6 million in fiscal 2025 compared to $1,341.4 million in fiscal 2024, which consisted of organic sales growth of 2.6% and sales growth from acquisitions of 10.5%, which was partially offset by a decrease of 0.3% due to divestitures. Organic sales grew 4.8% in the Americas & Asia segment, while organic sales declined 1.8% in the Europe & Australia segment.

Gross margin increased 10.6% to $760.8 million in fiscal 2025 compared to $687.9 million in fiscal 2024. As a percentage of net sales, gross margin decreased to 50.3% in fiscal 2025 from 51.3% in fiscal 2024. The decrease in gross margin as a percentage of net sales was primarily due to a non-recurring increase in cost of goods sold of $4.1 million related to the fair value adjustment to inventory from acquisitions, facility closure and other reorganization costs of $4.9 million, as well as the impact of incremental tariffs, which were partially offset by organic sales growth in higher gross margin product lines.

R&D expenses increased 17.9% to $79.9 million in fiscal 2025 compared to $67.7 million in fiscal 2024. As a percentage of net sales, R&D expenses increased to 5.3% in fiscal 2025 compared to 5.1% in fiscal 2024. The increase in R&D spending in fiscal 2025 was primarily due to the acquisition of Gravotech, and, to a lesser extent, an increase in R&D headcount within the Company's organic business. The Company remains committed to investing in new innovative product development to drive long-term organic sales growth. Investments in new printing systems, pressure sensitive materials, scanners and software are the primary focus of R&D expenditures in fiscal 2026.

SG&A expenses include selling and administrative costs directly attributed to the Americas & Asia and Europe & Australia segments, as well as certain other corporate administrative expenses including finance, information technology, human resources and other administrative expenses. SG&A expenses increased 17.9% to $444.3 million in fiscal 2025 compared to $376.7 million in fiscal 2024. As a percentage of net sales, SG&A expense increased to 29.4% in fiscal 2025 compared to 28.1% in fiscal 2024 primarily due to incremental amortization expense from acquired intangible assets of $9.5 million and facility closure and other reorganization costs of $13.6 million.

Operating income decreased 2.8% to $236.6 million in fiscal 2025 compared to $243.4 million in fiscal 2024. As a percentage of sales, operating income decreased to 15.6% in fiscal 2025 compared to 18.1% in fiscal 2024. The decrease in operating income in fiscal 2025 was primarily due to facility closure and other reorganization costs, incremental amortization expense related to acquired businesses, and the fair value adjustment to inventory from acquisitions.

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OPERATING INCOME TO NET INCOME

The following is a reconciliation of operating income to net income for the years ended July 31:

(Dollars in thousands)

% Sales

% Sales

% Sales

Operating income

Other income (expense):

Investment and other income

Interest expense

Income before income taxes

Income tax expense

Net income

Investment and other income was $5.2 million in fiscal 2025 compared to $7.6 million in fiscal 2024. The decrease in investment and other income in fiscal 2025 was primarily due to a decrease in interest income resulting from a reduced cash balance and lower interest rates.

Interest expense increased to $4.7 million in fiscal 2025 compared to $3.1 million in fiscal 2024. The increase in interest expense in fiscal 2025 was primarily due to an increase in outstanding borrowings on the Company's credit agreement to fund acquisitions, which was partially offset by a decrease in the weighted average interest rate compared to fiscal 2024.

The Company's income tax rate was 20.2% in fiscal 2025 compared to 20.4% in fiscal 2024. Refer to Item 8, Note 11, “Income Taxes” for additional information on the Company's income tax rates.

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Business Segment Operating Results

The Company evaluates short-term segment performance based on segment profit and customer sales. Interest expense, investment and other income, income tax expense, and certain corporate administrative expenses are excluded when evaluating segment performance.

The following is a summary of segment information for the years ended July 31:

SALES GROWTH INFORMATION

Americas & Asia

Organic

Acquisitions

Currency

Divestiture

Total

Europe & Australia

Organic

Acquisitions

Currency

Total

Total Company

Organic

Acquisitions

Currency

Divestiture

Total

SEGMENT PROFIT AS A PERCENT OF NET SALES

Americas & Asia

Europe & Australia

Total

Americas & Asia

Americas & Asia net sales increased 12.1% to $993.7 million in fiscal 2025 compared to $886.5 million in fiscal 2024, which consisted of organic sales growth of 4.8% and sales growth from acquisitions of 8.3%, which were partially offset by a decrease from foreign currency translation of 0.6% and a decrease due to a divestiture of 0.4%. Organic sales growth reflected strong execution of our commercial strategies, supported by steady industrial demand in North America, continued expansion in key end markets across Latin America, and resilient demand in Asia despite mixed economic conditions in certain countries.

Organic sales in the Americas increased in the low-single digits in fiscal 2025. The increase in organic sales was primarily due to growth in the wire identification, safety and facility identification and product identification product lines, which was partially offset by a decline in the people identification and healthcare identification product lines.

Organic sales in Asia increased approximately 13% in fiscal 2025. The organic sales increase was primarily driven by higher demand from electronics manufacturing services providers, technology companies, and industrial suppliers across Japan, India, Malaysia and Singapore. This growth was partially offset by lower volumes in China.

Segment profit increased 6.6% to $209.8 million in fiscal 2025 from $196.8 million in fiscal 2024. As a percent of net sales, segment profit decreased to 21.1% in fiscal 2025 from 22.2% in fiscal 2024. The increase in segment profit was primarily due to increased profit from organic sales growth, which was partially offset by facility closure and other reorganization costs and incremental amortization expense related to acquired businesses. The decrease in segment profit as a percentage of sales was primarily due to costs associated with the closure of two facilities, incremental amortization from acquired businesses and purchase accounting adjustments, which was partially offset by increased profit from organic sales growth.

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Europe & Australia

Europe & Australia sales increased 14.3% to $519.9 million in fiscal 2025 compared to $454.9 million in fiscal 2024. The increase consisted of sales growth from acquisitions of 14.7% and an increase from foreign currency translation of 1.4%, which was partially offset by an organic sales decline of 1.8%. Organic sales declined due to softer industrial demand, driven by lower manufacturing output and ongoing economic uncertainty in Europe, particularly the United Kingdom and Germany, and by a weaker growth outlook in Australia. Looking ahead, the Company remains focused on leveraging its capabilities and market presence to drive growth in key markets over the long term.

Organic sales in Europe declined in the low-single digits in fiscal 2025. The decline was driven by the safety and facility identification and people identification product lines, which was partially offset by growth in the wire identification product line. The decline was driven by the United Kingdom and Western Europe Regions, which was partially offset by growth in the Middle East and Nordic Regions.

Organic sales in Australia declined in the mid-single digits in fiscal 2025. The organic sales decline was primarily driven by a decrease in volume in the safety and facility and wire identification product lines.

Segment profit decreased 19.4% to $56.9 million in fiscal 2025 compared to $70.6 million in fiscal 2024. As a percentage of net sales, segment profit decreased to 11.0% in fiscal 2025 compared to 15.5% in fiscal 2024. The decrease in segment profit and segment profit as a percentage of sales was primarily due to incremental amortization from acquired businesses, purchase accounting adjustments and reorganization costs in order to streamline our operating structure.

Financial Condition

Liquidity & Capital Resources

The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2025, approximately 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, common stock repurchases, dividend payments, and strategic acquisitions 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.

Cash Flows

Cash and cash equivalents were $174.3 million at July 31, 2025, a decrease of $75.8 million from July 31, 2024. The following summarizes the cash flow statement for the years ended July 31:

(Dollars in thousands)

Net cash flow provided by (used in):

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Net cash provided by operating activities was $181.2 million during fiscal 2025 compared to $255.1 million in fiscal 2024. The decrease in cash provided by operating activities was primarily due to changes in working capital, including inventory growth to maintain high service levels and align with customer needs, higher receivables from strong organic growth in the Americas & Asia segment, and lower payroll-related accruals and accounts payable due to the timing of payments.

Net cash used in investing activities was $171.3 million during fiscal 2025, which primarily consisted of the acquisition of businesses of $144.5 million and capital expenditures of $27.6 million. Net cash used in investing activities was $81.0 million in fiscal 2024, which primarily consisted of capital expenditures, which included the purchase of a previously leased facility in Mexico and facility construction costs in Belgium.

Net cash used in financing activities was $83.9 million during fiscal 2025 compared to $70.5 million in fiscal 2024. The

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increase in cash used in financing activities was primarily due to increased net repayments on borrowings on our credit agreement following the funding of acquisitions in fiscal 2025, which was partially offset by a decline in share repurchases compared to the prior year.

Material Cash Requirements

Our material cash requirements for known contractual obligations include capital expenditures, borrowings on our credit agreement and lease obligations. We believe that net cash provided by operating activities will continue to be adequate to meet our liquidity and capital needs for these items over the next 12 months and in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current and anticipated customer needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities. In addition, we may have liabilities for uncertain tax positions, but we do not believe that the cash requirements to meet any of these liabilities will be material. A discussion of income taxes is contained in Note 11 of the notes to consolidated financial statements.

Credit Agreement and Covenant Compliance

Refer to Item 8, Note 6, “Debt” for information regarding the Company's credit agreement and covenant compliance.

Inflation and Changing Prices

Essentially all of the Company’s revenue is derived from the sale of its products and services in competitive markets. Because prices are influenced by market conditions, it is not always possible to fully recover cost increases through pricing. Changes in product mix from year to year, timing differences in instituting price changes, and the large amount of custom products make it impracticable to accurately define the impact of inflation on profit margins.

Critical Accounting Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases these estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and judgments.

The Company believes the following accounting estimates are most critical to an understanding of its financial statements. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) material changes in the estimates are reasonably likely from period to period. For a detailed discussion on the application of these and other accounting estimates, refer to Note 1 to the company’s consolidated financial statements.

Income Taxes

The Company operates in numerous taxing jurisdictions and is subject to regular examinations by U.S. federal, state and non-U.S. taxing authorities. Its income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which the Company does business. Due to the ambiguity of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, the uncertainty of how underlying facts may be construed and the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company's estimates of income tax liabilities may differ from actual payments or assessments.

While the Company has support for the positions it takes on tax returns, taxing authorities may assert different interpretations of laws and facts and may challenge cross-jurisdictional transactions. The Company generally re-evaluates the technical merits of its tax positions and recognizes an uncertain tax benefit when (i) there is completion of a tax audit; (ii) there is a change in applicable tax laws including a tax case ruling or legislative guidance; or (iii) there is an expiration of the statute of limitations. The liability for unrecognized tax benefits, excluding interest and penalties, was $21.8 million and $22.6 million as of July 31, 2025 and 2024, respectively. If recognized, $18.3 million of unrecognized tax benefits would reduce the Company's income tax rate as of both July 31, 2025 and 2024. Accrued interest and penalties related to unrecognized tax benefits were $6.6 million and $6.1 million as of July 31, 2025 and 2024, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense on the consolidated statements of income. The Company believes it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $3.1 million in

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the next 12 months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or statute expirations, which would be the maximum amount that would be recognized as an income tax benefit in the consolidated statements of income.

The Company recognizes deferred tax assets and liabilities for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The Company establishes valuation allowances for its deferred tax assets if it is more likely than not that some or all of the deferred tax asset will not be realized. This requires management to make judgments regarding: (i) the timing and amount of the reversal of taxable temporary differences, (ii) expected future taxable income or loss, and (iii) the impact of tax planning strategies. The Company recognized valuation allowances for its deferred tax assets of $82.2 million and $47.2 million as of July 31, 2025 and 2024, respectively, which were primarily related to foreign tax credit carryforwards and net operating loss carryforwards in its various tax jurisdictions.

Goodwill and Other Intangible Assets

The allocation of purchase price for business combinations requires management estimates and judgment as to expectations for future cash flows of the acquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value. If the actual results differ from these estimates, it could result in an impairment of intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets. In addition, goodwill and other indefinite-lived intangible assets must be tested for impairment at least annually. If circumstances or events prior to the date of the required annual assessment indicate that, in management's judgment, it is more likely than not that there has been a reduction of fair value of a reporting unit below its carrying value, the Company performs an impairment analysis at the time of such circumstance or event. Changes in management's estimates or judgments could result in an impairment charge, and such a charge could have an adverse effect on the Company's financial condition and results of operations.

The Company has identified six reporting units within its two reportable segments, Americas & Asia and Europe & Australia, with the following goodwill balances as of July 31, 2025: North America, $494.8 million; Europe, $179.3 million; and Latin America, $2.9 million. The other three identified reporting units each have a goodwill balance of zero. The Company has the option to first assess qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is greater than its respective carrying value. If the qualitative assessment leads to a determination that the fair value of a reporting unit may be less than its carrying value, or if the Company elects to bypass the qualitative assessment altogether, the Company performs a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with its associated carrying value. When the Company performs the quantitative test for goodwill, the Company establishes the fair value for the reporting unit based on the income approach, in which a discounted cash flow model is utilized, the market approach, in which market multiples of comparable companies are utilized, or a combination of both approaches. The income approach requires the use of significant estimates and assumptions, including forecasted sales growth, operating income projections, and discount rates and changes in these assumptions may adversely impact the fair value assessments. The market approach requires significant assumptions related to the selection of comparable publicly traded companies and the market multiples. Significant negative industry or macroeconomic trends, disruptions to the Company's business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations.

The Company completes its annual goodwill impairment analysis on May 1 of each fiscal year and evaluates its reporting units for potential triggering events on a quarterly basis in accordance with ASC 350, “Intangibles - Goodwill and Other.” In addition to the metrics listed above, the Company considers multiple internal and external factors when evaluating its reporting units for potential impairment, including (i) GDP growth for the respective geography, (ii) industry and market factors such as competition and changes in the market for the reporting unit's products, (iii) new product development, (iv) competing technologies, (v) overall financial performance such as cash flows, actual and planned revenue and profitability, and (vi) changes in the strategy of the reporting unit. In the event the fair value of a reporting unit is less than the carrying value, the Company would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds the fair value. If necessary, the Company may consult valuation specialists to assist with the assessment of the estimated fair value of the reporting unit.

On May 1, 2025, the Company performed the qualitative assessment for all three reporting units with goodwill balances and determined that it was more likely than not that the fair value exceeds the carrying value for each reporting unit, and as such, goodwill was not considered impaired.

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Business Combinations

The Company uses the acquisition method of accounting to allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill. If the fair value of net assets acquired exceeds the purchase price, the Company records the excess as a bargain purchase gain in earnings after reassessing the estimated values. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in use and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets, including intangible assets and significant tangible long-lived assets. The valuation methods used to determine the estimated fair value of intangible assets included the multi-period excess earnings method for customer relationships using customer inputs and contributory charges, and the relief from royalty method for tradenames and technological know-how. Several assumptions and estimates were involved in the application of these valuation methods, including forecasted sales growth, margin, and cash flows attributable to existing customers, obsolescence factor, royalty rate, contributory asset charges, customer attrition rate, tax rates, and discount rates. Tangible long-lived assets are valued using a combination of the income, cost and market value approaches. While we believe expectations and assumptions utilized for historical business combinations have been reasonable, they are inherently uncertain and include significant management judgment.

New Accounting Standards

The information required by this Item is provided in Note 1 of the notes to consolidated financial statements contained in Item 8 — Financial Statements and Supplementary Data.

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