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What changed in BRADY CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BRADY CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+165 added−143 removedSource: 10-K (2023-09-05) vs 10-K (2022-09-01)

Top changes in BRADY CORP's 2023 10-K

165 paragraphs added · 143 removed · 115 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

30 edited+5 added−5 removed17 unchanged
Biggest changeBelow is a summary of sales by reportable segment during the years ended July 31: 2022 2021 2020 IDS 77.6 % 73.5 % 72.6 % WPS 22.4 % 26.5 % 27.4 % Total 100.0 % 100.0 % 100.0 % ID Solutions Within the ID Solutions segment, the primary product categories include: • Product identification, which includes materials, printing systems, RFID and bar code scanners for product identification, brand protection labeling, work in process labeling, finished product identification, and industrial track and trace applications. • Facility safety and identification and protection, which includes safety signs, floor-marking tape, pipe markers, labeling systems, spill control products, lockout/tagout devices, and software and services for safety compliance auditing, procedure writing and training. • Wire identification, which includes hand-held printers, wire markers, sleeves, and tags. 4 Table of Contents • People identification, which includes name tags, badges, lanyards, rigid-card printing systems, and access control software. • Patient identification, which includes wristbands, labels, printing systems, and other products used in hospitals, laboratories, and other healthcare settings for tracking and improving the safety of patients.
Biggest changeIDS is primarily involved in the design, manufacturing, and distribution of high-performance and innovative identification and healthcare products, while WPS manufactures a broad range of stock and custom identification products and is a distributor of a wide variety of resale products. 4 Table of Contents Below is a summary of sales for IDS and WPS within each current reportable segment during the years ended July 31: Americas & Asia 2023 2022 2021 IDS 91.4 % 90.4 % 88.3 % WPS 8.6 % 9.6 % 11.7 % Total 100.0 % 100.0 % 100.0 % Europe & Australia 2023 2022 2021 IDS 52.8 % 52.8 % 46.9 % WPS 47.2 % 47.2 % 53.1 % Total 100.0 % 100.0 % 100.0 % Identification Solutions Primary product categories include: • Product identification, which includes materials, printing systems, RFID and bar code scanners for product identification, brand protection labeling, work in process labeling, finished product identification, and industrial track and trace applications. • Facility safety and identification and protection, which includes safety signs, floor-marking tape, pipe markers, labeling systems, spill control products, lockout/tagout devices, and software and services for safety compliance auditing, procedures writing and training. • Wire identification, which includes hand-held printers, wire markers, sleeves, and tags. • People identification, which includes name tags, badges, lanyards, rigid card printing systems, and access control software. • Patient identification, which includes wristbands, labels, printing systems, and other products used in hospital, laboratories, and other healthcare settings for tracking and improving the safety of patients.
The Company’s primary objective is to build upon its market position and increase shareholder value by enabling a highly competent and experienced organization to focus on the following key competencies: • Innovative products — Technologically-advanced, internally-developed proprietary products that drive revenue growth and sustain gross profit margins. • Customer service — Understanding customer needs and providing a high level of customer service. • Global leadership position in niche markets. • Digital capabilities. • Compliance expertise. • Operational excellence — Continuous productivity improvement, automation, and product customization capabilities. 3 Table of Contents Brady's long-term sales growth and profitability will depend not only on the overall economic environment and our ability to successfully navigate changes in the macro environment, but also on our ability to develop and market innovative new products, deliver a high level of customer service, advance our digital capabilities, and continuously improve the efficiency of our global operations.
The Company’s primary objective is to build upon its market position and increase shareholder value by enabling a highly competent and experienced organization to focus on the following key competencies: • Innovative products — Technologically-advanced, internally-developed proprietary products that drive revenue growth and sustain gross profit margins 3 Table of Contents • Customer service — Understanding customer needs and providing a high level of customer service • Global leadership position in niche markets • Digital capabilities • Compliance expertise • Operational excellence — Continuous productivity improvement, automation, and product customization capabilities Brady's long-term sales growth and profitability will depend not only on the overall economic environment and our ability to successfully navigate changes in the macro environment, but also on our ability to develop and market innovative products, deliver a high level of customer service, advance our digital capabilities, and continuously improve the efficiency of our global operations.
Item 1. Business General Development of Business Brady was incorporated under the laws of the state of Wisconsin in 1914. The Company is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people.
Item 1. Business General Development of Business Brady was incorporated under the laws of the state of Wisconsin in 1914. Brady is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people.
Operations The materials used in the products manufactured consist of a variety of plastic and synthetic films, paper, metal and metal foil, cloth, fiberglass, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers, and solvents for consumable identification products in addition to molded parts, electronic components, chips, and sub-assemblies for identification and printing systems.
Operations The materials used in the products manufactured by the Company consist of a variety of plastic and synthetic films, paper, metal and metal foil, cloth, fiberglass, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers, and solvents for consumable identification products in addition to molded parts, electronic components, chips, and sub-assemblies for identification and printing systems.
Lagging indicators include the OSHA Total Recordable Incident Rate (“TRIR”) and the Lost Time Case Rate (“LTCR”) based upon the 6 Table of Contents number of incidents per 100 employees. Leading indicators include reporting and closure of all near miss events. The Company also utilizes trainings such as Environmental, Health and Safety (“EHS”) coaching and engagement conversations as preventative measure.
Lagging indicators include the OSHA Total Recordable Incident Rate (“TRIR”) and the Lost Time Case Rate (“LTCR”) based upon the number of incidents per 100 employees. Leading indicators include reporting and closure of all near miss events. The Company also utilizes trainings such as Environmental, Health and Safety (“EHS”) coaching and engagement conversations as preventative measure.
The Company provides subsidized health and welfare benefits, as well as postretirement, incentive and equity-based compensation plans and programs to eligible employees. Refer to the Compensation Discussion & Analysis for additional information regarding the Company’s compensation and benefits programs. Information Available on the Internet The Company’s Corporate Internet address is www.bradyid.com.
The Company provides subsidized health and welfare benefits, as well as postretirement, incentive and equity-based compensation plans and programs to eligible employees. Refer to the Compensation Discussion & Analysis for additional information regarding the Company’s compensation and benefits programs. 7 Table of Contents Information Available on the Internet The Company’s Corporate Internet address is www.bradyid.com.
The Company is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K. 7 Table of Contents
The Company is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
As of July 31, 2022, 40% of the members of the Company’s Board of Directors were women and 60% of committee chairs of the Company’s Board of Directors were women. Training and Talent Development : The Company is committed to the continued development of its people. Strategic talent reviews and succession planning occur on a planned cadence annually.
As of July 31, 2023, 44% of the members of the Company’s Board of Directors were women and 60% of Board committee chairs were women. Training and Talent Development : The Company is committed to the continued development of its people. Strategic talent reviews and succession planning occur on a planned cadence annually.
The Company makes available, free of charge, on or through its website, copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to all such reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
The Company makes available, free of charge, on or through its website, copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to all such reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).
The following were key initiatives supporting the strategy in fiscal 2022: • Investing in organic growth by enhancing our research and development process and utilizing customer feedback and observations to develop innovative new products that solve customer needs and improve environmental sustainability. • Providing our customers with the highest level of customer service. • Expanding and enhancing our sales capabilities through an improved digital presence and the use of data-driven marketing automation tools. • Maintaining profitability through pricing mechanisms to mitigate the impacts of supply chain disruptions and inflationary pressures while ensuring prices are market competitive. • Investing in acquisitions that enhance our strategic position and accelerate long-term sales growth. • Driving operational excellence and executing sustainable efficiency gains within our selling, general and administrative structures and within our global operations including insourcing of critical products and manufacturing activities while reducing our environmental footprint. • Building on our culture of diversity, equity and inclusion to increase employee engagement and enhance recruitment and retention practices in order to drive differentiated performance and execute our strategy.
The following were key initiatives supporting the strategy in fiscal 2023: • Investing in organic growth by enhancing our research and development process and utilizing customer feedback and observations to develop innovative new products that solve customer needs and improve environmental sustainability. • Providing our customers with the highest level of customer service. • Expanding and enhancing our sales capabilities through an improved digital presence and the use of data-driven marketing automation tools. • Maintaining profitability through pricing mechanisms to mitigate the impacts of supply chain disruptions and inflationary pressures while ensuring prices are market competitive. • Executing our reorganization to a regional operating structure to support continued growth in key geographies, facilitating new product development in our recent acquisitions, and simplifying and further integrating our businesses. • Integrating recent acquisitions to further enhance our strategic position and accelerate long-term sales growth. • Driving operational excellence and executing sustainable efficiency gains within our selling, general and administrative structures and within our global operations including insourcing of critical products and manufacturing activities while reducing our environmental footprint. • Building on our culture of diversity, equity and inclusion to increase employee engagement and enhance recruitment and retention practices in order to drive differentiated performance and execute our strategy.
During the year ended July 31, 2022, the Company had a TRIR of 0.53, a LTCR of 0.32 and no work-related fatalities. Diversity, Equity, and Inclusion : Fostering a culture of diversity, equity and inclusion in the workplace means employees are and believe that they are valued and listened to, and the Company has made this a top priority.
During the year ended July 31, 2023, the Company had a TRIR of 0.60, a LTCR of 0.28 and no work-related fatalities. Diversity, Equity, and Inclusion : Fostering a culture of diversity, equity and inclusion in the workplace means employees are and believe that they are valued and listened to, and the Company has made this a top priority.
Approximately 65% of ID Solutions products are sold under the Brady brand, with other primary brands including identification products for the utility industry which are marketed under the Electromark brand and security and identification badges and systems which are marketed under the IDenticard, PromoVision, Brady People ID, BIG, and MAGiCARD brands.
Approximately 64% of IDS products are sold under the Brady brand, with other primary brands including identification products for the utility industry which are marketed under the Electromark brand and security and identification badges and systems which are marketed under the PromoVision, Brady People ID, BIG, and MAGiCARD brands.
The Company has also expanded its university outreach programs to access diverse organizations, has implemented interview guides to mitigate bias in interviewing, has implemented a Company-wide recruiting policy to drive change and ensure manager accountability, has implemented mentoring programs to increase employee engagement and retention and has implemented required training for all managers on diversity, equity and inclusion compliance and unconscious bias.
The Company has also expanded its university outreach programs to access diverse organizations, has implemented interview guides to mitigate bias in interviewing, has implemented mentoring programs and employee resource groups to increase employee engagement and retention and has implemented required training for all managers on diversity, equity and inclusion compliance and unconscious bias.
Products within the Workplace Safety segment are sold under a variety of brands including: safety and facility identification products offered under the Seton, Emedco, Signals, Safety Signs, SafetyShop, Signs & Labels, and Pervaco brands; first aid supplies under the Accidental Health and Safety, Trafalgar, and Securimed brands; wire identification products marketed under the Carroll brand; and labor law and compliance posters under the Personnel Concepts and Clement Communications brands.
Products are sold under a variety of brands including: safety and facility identification products offered under the Seton, Emedco, Signals, Safety Signs, SafetyShop, Signs & Labels, and Pervaco brands; first aid supplies marketed under the Accidental Health and Safety, Trafalgar, and Securimed brands; and wire identification products marketed under the Carroll brand.
ID Solutions serves customers in many industries, which include industrial manufacturing, electronic manufacturing, healthcare, chemical, oil, gas, automotive, aerospace, governments, mass transit, electrical contractors, education, leisure and entertainment and telecommunications, among others.
These products serve customers in many industries within each region, which include industrial manufacturing, electronic manufacturing, healthcare, chemical, oil, gas, alternative energy, automotive, aerospace, governments, mass transit, electrical contractors, education, leisure and entertainment and telecommunications, among others.
IDS competes for business on several factors, including product innovation, customer service, breadth of product offering, product quality, price, expertise, production capabilities, and for multinational customers, our global footprint.
Competition is present based upon several factors, including product innovation, customer service, breadth of product offering, product quality, price, expertise, production capabilities, and for multinational customers, our global footprint.
Therefore, to compete effectively, we focus on pricing our products competitively, we continue to build out our e-commerce capabilities, we focus on developing unique or customized solutions, enhancing the customer experience, and providing compliance expertise as these factors are critical to retain existing customers and convert new customers.
Therefore, to compete effectively, we focus on pricing our products competitively, building out our e-commerce capabilities, developing unique or customized solutions, enhancing the customer experience, and providing compliance expertise as these factors are critical to retain existing customers and convert new customers. WPS primarily sells to businesses and serves many industries, including manufacturers, process industries, government, education, construction, and utilities.
IDS markets and sells products through multiple channels including distribution, a direct sales force, and digital channels. The ID Solutions sales force partners with end-users and distributors by providing technical application and product expertise. IDS manufactures differentiated, proprietary products, most of which have been internally developed. These internally developed products include materials; printing, identification and tracking systems; and software.
The direct sales force within each region partners with end-users and distributors by providing technical application and product expertise. The Company manufactures differentiated, proprietary products, most of which have been internally developed. These internally developed products include materials; printing, identification and tracking systems; and software.
The Workplace Safety segment manufactures a broad range of stock and custom identification products, and also sells a broad range of related resale products. Historically, both the Company and many of our competitors focused their businesses on catalog marketing, often with varying product niches. Many of our competitors extensively utilize e-commerce to promote the sale of their products.
The Company manufactures a broad range of stock and custom identification products, and also sells a broad range of related resale products. Manufactured products comprise approximately 40% of WPS product sales. Historically, both the Company and many of our competitors focused their businesses on catalog marketing, often with varying product niches.
A consequence of e-commerce is price transparency, as prices on non-proprietary products can be easily compared.
Many of our competitors extensively utilize e-commerce to promote the sale of their products. A consequence of e-commerce is price transparency, as prices on non-proprietary products can be easily compared.
Although the Company believes patents are a significant driver in maintaining its position for certain products, technology in the areas covered by many of the patents continues to evolve and may limit the value of such patents. The Company's business is not dependent on any single patent or group of patents.
The Company owns patents and tradenames relating to certain products in the United States and internationally. Although the Company believes patents are a significant driver in maintaining its position for certain products, technology in the areas covered by many of the patents continues to evolve and may limit the value of such patents.
Patents applicable to specific products extend for up to 20 years according to the date of patent application filing or patent grant, depending upon the legal term of patents in the various countries where patent protection is obtained. The Company's tradenames are generally valid ten years from the date of registration, and are typically renewed on an ongoing basis.
The Company's business is not dependent on any single patent or group of patents. Patents applicable to specific products extend for up to 20 years according to the date of patent application filing or patent grant, depending upon the legal term of patents in the various countries where patent protection is obtained.
Normal and customary payment terms primarily range from net 10 to 90 days from date of invoice and vary by geography. The Company has a broad customer base, and no individual customer represents 10% or more of total net sales.
Normal and customary payment terms primarily range from net 10 to 90 days from date of invoice and vary by geography.
Material development involves the application of surface chemistry concepts for top coatings and adhesives applied to a variety of base materials. The design of our identification and printing systems integrates materials, embedded software, a variety of printing technologies and product scanning and identification technologies to form a complete solution for customer applications.
The design of our identification and printing systems integrates materials, embedded software, a variety of printing technologies and product scanning and identification technologies to form a complete solution for customer applications. In addition, the R&D team supports production and marketing efforts by providing application and technical expertise.
Identification and patient safety products in the healthcare industry are available under the PDC Healthcare brand and custom wristbands for the leisure and entertainment industry are available under the PDC brand. The ID Solutions segment offers high-quality products with rapid response and superior service to provide solutions to customers.
Identification and patient safety products in the healthcare industry are available under the PDC Healthcare brand and custom wristbands for the leisure and entertainment industry are available under the PDC brand. Each region markets and sells high-quality and rapid response IDS products through multiple channels including distribution, a direct sales force, and digital channels.
In our Identification Solutions ("ID Solutions" or "IDS") business, our strategy for growth includes an increased focus on certain industries and products, a focus on improving the customer buying experience, and the development of technologically advanced, innovative and proprietary products.
Our strategy for growth includes an increased focus on certain industries and products, streamlining our product offerings, expanding into higher growth end-markets, improving the overall customer experience, developing technologically advanced, innovative and proprietary products, and improving our digital capabilities.
Workplace Safety primarily sells to businesses and serves many industries, including manufacturers, process industries, government, education, construction, and utilities. Research and Development The Company focuses its research and development ("R&D") efforts on track and trace applications, pressure sensitive materials, identification and printing systems, software, and the development of other workplace safety-related products.
Research and Development The Company focuses its research and development ("R&D") efforts on track and trace applications, pressure sensitive materials, identification and printing systems, software, and the development of other workplace safety-related products. The Company spent $61.4 million, $58.5 million, and $44.6 million on its R&D activities during the years ended July 31, 2023, 2022, and 2021, respectively.
Human Capital Management As of July 31, 2022, the Company employed approx im ately 5,700 individuals worldwide, of which approximately 1,650 were employed in the United States and approximately 4,050 were employed outside the United States.
The Company has a broad customer base, and no individual customer represents 10% or more of total net sales. 6 Table of Contents Human Capital Management As of July 31, 2023, the Company employed approximately 5,600 individuals worldwide, of which approximately 1,650 were employed in the United States and approximately 3,950 were employed outside the United States.
Workplace Safety Within the Workplace Safety segment, the primary product categories include: • Safety and compliance signs, tags, labels, and markings. • Informational signage and markings. • Asset tracking labels. • Facility safety and personal protection equipment. • First-aid products. • Labor law and other compliance posters.
Workplace Safety Primary product categories include: • Product identification, which includes asset tracking labels and asset tags. • Facility, safety and identification and protection, which includes safety signs, traffic signs and control products, floor-marking tape, pipe markers, lockout/tagout devices, personal protection equipment, first aid products, and other workplace compliance products. 5 Table of Contents • Wire identification, which includes handheld printers, wire markers, sleeves and tags.
Narrative Description of Business Overview The Company is organized and managed on a global basis within two reportable segments: Identification Solutions and Workplace Safety. The IDS segment includes high-performance and innovative safety, identification and healthcare products manufactured under multiple brands, including the Brady brand.
Narrative Description of Business Overview The Company is organized and managed on a geographic basis with two reportable segments: Americas & Asia and Europe & Australia.
Removed
In our Workplace Safety ("WPS") business, our strategy for growth includes a focus on workplace safety critical industries, streamlining our product offerings, compliance expertise, customization expertise, improving the overall customer experience, and improving our digital capabilities.
Added
Effective February 1, 2023, the Company is organized and managed on a geographic basis with two reportable segments: Americas & Asia and Europe & Australia.
Removed
Industrial identification products are sold through distribution to a broad range of maintenance, repair, and operations ("MRO") and original equipment manufacturing customers and through other channels, including direct sales and digital. Healthcare identification products are sold directly to customers and through distribution and group purchasing organizations.
Added
This change to a regional operating structure allows the Company to further integrate its businesses, support continued growth through the application of the best go-to-market strategies in key geographies, facilitate new product development within recent acquisitions and further simplify the global business. All segment-related data has been conformed to the new reportable segments.
Removed
The WPS segment includes workplace safety, identification and compliance products sold under multiple brand names primarily through catalog and digital channels to a broad range of MRO customers. Approximately 40% of the WPS business is derived from internally manufactured products and 60% is from externally sourced products.
Added
Below is a summary of sales by reportable segment during the years ended July 31: 2023 2022 2021 Americas & Asia 66.7 % 66.1 % 64.3 % Europe & Australia 33.3 % 33.9 % 35.7 % Total 100.0 % 100.0 % 100.0 % Prior to February 1, 2023, the Company operated two former segments: Identification Solutions (“IDS”) and Workplace Safety (“WPS”).
Removed
The Company spent $58.5 million, $44.6 million, and $40.7 million on its R&D activities during the years ended July 31, 2022, 5 Table of Contents 2021, and 2020, respectively. The majority of R&D spend supports the IDS segment including the recent acquisitions of Code, Magicard, and Nordic ID in fiscal 2021.
Added
The majority of R&D spend supports the Company's identification products. Material development involves the application of surface chemistry concepts for top coatings and adhesives applied to a variety of base materials.
Removed
In addition, the R&D team supports production and marketing efforts by providing application and technical expertise. The Company owns patents and tradenames relating to certain products in the United States and internationally.
Added
The Company's tradenames are generally valid ten years from the date of registration, and are typically renewed on an ongoing basis.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

18 edited+5 added−9 removed55 unchanged
Biggest changeNumerous factors may affect the demand for our products, including: • Deterioration of economic conditions in major markets served. • Ongoing economic and operational impact of the COVID-19 or other pandemics. • 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.
Biggest changeNumerous factors may affect the demand for our products, including: • Deterioration of economic conditions in major markets served • Residual economic and operational impact of the COVID-19 pandemic, or the impact of other pandemics • 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. 8 Table of Contents Failure to compete effectively or to successfully execute our strategy may have a negative impact on our business and financial results.
Our sales, results of operations, cash flow, and liquidity could be adversely affected if we do not successfully integrate the newly acquired businesses, including realizing synergies, or if our other businesses suffer due to the increased focus on the acquired businesses.
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.
Our operations are subject to the risks of doing business domestically and globally, including the following: • Delays or disruptions in product deliveries and payments in connection with international manufacturing and sales. • Regulations resulting from political and economic instability and disruptions. • 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. • 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. • Regulations relating to product content, health, safety and the protection of the environment. • Imposition of trade or travel restrictions as a result of the COVID-19 or other pandemics. • 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.
Our operations are subject to the risks of doing business domestically and globally, including the following: • Delays or disruptions in product deliveries and payments in connection with international manufacturing and sales. • Regulations resulting from political and economic instability and disruptions. • 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. 10 Table of Contents • 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. • Regulations relating to product content, health, safety and the protection of the environment. • Imposition of trade or travel restrictions as a result of any continuing effects of the COVID-19 pandemic, or as a result of other 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.
Due to competitive pressures or other factors, the Company may not be able to pass along increased raw material and component part costs to its 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.
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.
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. 9 Table of Contents 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.
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.
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 10 Table of Contents successfully.
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.
The COVID-19 pandemic has adversely impacted, and continues to pose risks to our operations and business. The COVID-19 pandemic has disrupted the global economy and adversely impacted our businesses, including demand for our products across multiple end-markets as well as our supply chain and operations.
The COVID-19 pandemic disrupted the global economy and adversely impacted our businesses, including demand for our products across multiple end-markets as well as our supply chain and operations.
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. Development of technologically advanced new products is targeted as a driver of our organic growth and profitability.
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.
Significant increases could adversely affect our profit margins and results of operations. Changes in trade policies; shortages due to the COVID-19 pandemic, other pandemics, or any other reason; the imposition of duties and tariffs and potential retaliatory countermeasures could adversely impact the price or availability of raw materials.
Changes in trade policies; shortages due to the residual effects of the COVID-19 pandemic, other pandemics, or any other reason; and the imposition of duties and tariffs and potential retaliatory countermeasures could adversely impact the price or availability of raw materials.
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.
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.
The duration and extent of the impact of the COVID-19 pandemic on our business, operations and financial results depends on factors that cannot be accurately predicted at this time, such as the severity and transmission rate of COVID-19, the emergence of new variants of the virus, the extent and effectiveness of containment actions, the extent to which vaccines or other medical treatments are developed and made available to and accepted by the public, and the impact of these and other factors on our stakeholders.
Any future resurgence of the COVID-19 pandemic, or other health epidemics, may have an impact on our business, operations and financial results depending on factors that cannot be accurately predicted at this time, such as the severity and transmission rate of any health epidemic, the extent and effectiveness of containment actions, the extent to which vaccines or other medical treatments are developed and made available to and accepted by the public, and the impact of these and other factors on our stakeholders.
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 $586.8 million and other intangible assets of $74.0 million as of July 31, 2022, which represents 48.3% of our total assets, and we have recognized impairment charges in the past.
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 $592.6 million and other intangible assets of $62.1 million as of July 31, 2023, which represents 47.1% of our total assets, and we have recognized impairment charges in the past.
The resolution of these contingencies has not had a material adverse impact on our financial results, but we cannot be certain that this favorable pattern will continue.
The resolution of these contingencies has not had a material adverse impact on our financial results, but we cannot be certain that this favorable pattern will continue. 9 Table of Contents The COVID-19 pandemic has adversely impacted our operations and business.
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. 12 Table of Contents Item 1B. Unresolved Staff Comments None.
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 2023 for not meeting the minimum voting rights hurdle. 12 Table of Contents Item 1B. Unresolved Staff Comments None.
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. Prices and lead times for raw materials and other components necessary for production have fluctuated in the past, including increased raw production costs, increased wage rates, and extended lead times.
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.
Any of these events could amplify the other risks and uncertainties described in this Annual Report on Form 10-K for the year ended July 31, 2022 and could have an adverse effect on our business and financial results. Demand for our products may be adversely affected by numerous factors, some of which we cannot predict or control.
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.
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 end user. Competition may force us to reduce prices or incur additional costs to remain competitive in an environment in which business models are changing rapidly.
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.
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. 11 Table of Contents 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.
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. 11 Table of Contents 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.
Removed
While we have experienced sequentially improving activity in most markets and geographies, the public health situation, global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook. The COVID-19 pandemic has impacted our business most recently related to supply chain disruptions, labor constraints, inflation, and government-mandated lockdowns.
Added
Our prices and lead times for raw materials and other components necessary for production have fluctuated in 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.
Removed
Some actions that we have taken in response to the COVID-19 pandemic include enabling remote working arrangements, which may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation and commercial relationships, disrupt operations, increase costs or decrease revenues, and expose us to claims from customers, suppliers, financial institutions, regulators, payment card associations, employees and others.
Added
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.
Removed
While we attempt to maintain sufficient inventory levels in order to meet rapidly shifting customer demand patterns and supplier lead time requirements, we cannot be certain we will be able to accurately predict demand or lead times, which may cause us to be unable to service customer demand or expose us to risks of product shortages, or result in excess inventory, which could lead to additional inventory carrying costs and inventory obsolescence.
Added
Global climate change and related emphasis on ESG matters by various stakeholders could negatively affect our business 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.
Removed
The conditions caused by COVID-19 have affected, and may continue to affect, the overall demand environment for our products. The level of demand for certain product components has resulted in, and may continue to result in, lengthened lead times and higher input costs, including freight.
Added
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.
Removed
Additionally, our financial results may be adversely impacted by challenges in the macroeconomic environment, including rapid cost inflation. Although our current accounting estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of 8 Table of Contents operations and financial position.
Added
Additionally, the enhanced stakeholder focus on ESG issues relating to our business requires the continuous monitoring of various and evolving standards and the associated reporting requirements.
Removed
In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions may change over time in response to COVID-19.
Removed
Such changes could result in future impairments of goodwill, intangible assets, long-lived assets, incremental credit losses on accounts receivable, excess and obsolete inventories, or a decrease in the carrying amount of our deferred tax assets.
Removed
This could adversely affect our business and financial results.
Removed
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.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed0 unchanged
Biggest changeSix facilities are located in the United States; four each in Belgium and China; three in the United Kingdom; two each in Brazil and Mexico; and one each in Canada, India, Japan, Malaysia, Singapore, South Africa, Thailand, and Turkey. WPS: Nine manufacturing and distribution facilities are used for our WPS business.
Biggest changeSix facilities are located in the United States; four in China; two each in Brazil, India, and Mexico; and one each in Canada, Japan, Malaysia, Singapore, and Thailand. Europe & Australia: Seventeen manufacturing and distribution facilities are used for our Europe & Australia business.
Item 2. Properties The Company currently operates 38 manufacturing and distribution facilities across the globe and are split by reporting segment as follows: IDS: Twenty-nine manufacturing and distribution facilities are used for our IDS business.
Item 2. Properties The Company currently operates 38 manufacturing and distribution facilities across the globe and are split by reporting segment as follows: Americas & Asia: Twenty-one manufacturing and distribution facilities are used for our Americas & Asia business.
Three facilities are located in France; two are located in Australia; and one each in Germany, Norway, the United Kingdom, and the United States. The Company believes that its equipment and facilities are modern, well maintained, and adequate for present needs.
Four facilities each are located in Belgium and the United Kingdom, three are located in France; two are located in Australia; and one each in Germany, Norway, South Africa, and Turkey. The Company believes that its equipment and facilities are modern, well maintained, and adequate for present needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+4 added−0 removed4 unchanged
Biggest changeThe following table provides information with respect to the purchases by the Company of Class A Nonvoting Common Stock during the three months ended July 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (Dollars in Thousands) May 1, 2022 - May 31, 2022 (1) 203,664 $ 45.71 203,664 $ 100,000 June 1, 2022 - June 30, 2022 327,167 45.23 327,167 85,202 July 1, 2022 - July 31, 2022 4,277 44.90 4,277 85,010 Total 535,108 $ 45.41 535,108 $ 85,010 (1) Prior to the approval of the current share repurchase program on May 24, 2022, 203,664 shares were purchased for an aggregate purchase price of $9.3 million under the Company's previous program, which fully exhausted the previous repurchase authorization. 14 Table of Contents (e) Common Stock Price Performance Graph The graph below shows a comparison of the cumulative return over the last five fiscal years had $100 been invested at the close of business on July 31, 2017, in each of Brady Corporation Class A Common Stock, the Standard & Poor’s ("S&P") 500 Index, the S&P SmallCap 600 Index, and the Russell 2000 Index. 2017 2018 2019 2020 2021 2022 Brady Corporation $ 100.00 $ 117.76 $ 162.23 $ 146.76 $ 177.63 $ 158.31 S&P 500 Index 100.00 116.24 125.52 140.53 191.75 182.85 S&P SmallCap 600 Index 100.00 123.11 114.81 104.84 164.55 154.29 Russell 2000 Index 100.00 118.73 113.49 108.28 164.55 141.03 Copyright (C) 2022, Standard & Poor’s, Inc. and Russell Investments.
Biggest changeThe following table provides information with respect to the purchases by the Company of Class A Nonvoting Common Stock during the three months ended July 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (Dollars in Thousands) May 1, 2023 - May 31, 2023 194,962 $ 49.20 194,962 $ 45,643 June 1, 2023 - June 30, 2023 503,541 48.86 503,541 21,040 July 1, 2023 - July 31, 2023 230,128 47.92 230,128 10,013 Total 928,631 $ 48.70 928,631 $ 10,013 14 Table of Contents (e) Common Stock Price Performance Graph The graph below shows a comparison of the cumulative return over the last five fiscal years had $100 been invested at the close of business on July 31, 2018, in each of Brady Corporation Class A Common Stock, the Standard & Poor’s ("S&P") 500 Index, the S&P SmallCap 600 Index, the S&P SmallCap 600 Industrials Index, and the Russell 2000 Index.
The plan may be implemented by purchasing shares in the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company’s stock-based plans and for other corporate purposes.
The plan may be implemented by purchasing shares in the open market or in privately negotiated transactions, with repurchased shares delivered to treasury and available for use in connection with the Company’s stock-based plans and for other corporate purposes.
During the two most recent years ended July 31 and for the first quarter of fiscal 2023, the Company declared the following dividends per share on its Class A and Class B Common Stock: 2023 2022 2021 1st Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Class A $ 0.2300 $ 0.2250 $ 0.2250 $ 0.2250 $ 0.2250 $ 0.2200 $ 0.2200 $ 0.2200 $ 0.2200 Class B 0.2134 0.2084 0.2250 0.2250 0.2250 0.2034 0.2200 0.2200 0.2200 (d) Issuer Purchases of Equity Securities The Company has a share repurchase program for the Company’s Class A Nonvoting Common Stock.
During the two most recent years ended July 31 and for the first quarter of fiscal 2024, the Company declared the following dividends per share on its Class A and Class B Common Stock: 2024 2023 2022 1st Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Class A $ 0.2350 $ 0.2300 $ 0.2300 $ 0.2300 $ 0.2300 $ 0.2250 $ 0.2250 $ 0.2250 $ 0.2250 Class B 0.2184 0.2134 0.2300 0.2300 0.2300 0.2084 0.2250 0.2250 0.2250 (d) Issuer Purchases of Equity Securities The Company has a share repurchase program for the Company’s Class A Nonvoting Common Stock.
On May 24, 2022, the Company's Board of Directors authorized an increase in the Company's share repurchase program, authorizing the repurchase of up to $100.0 million of the Company's Class A Nonvoting Common Stock. As of July 31, 2022, there were $85.0 million worth of shares authorized to purchase remaining pursuant to the existing share repurchase program.
As of July 31, 2023, there were $10.0 million worth of shares authorized to purchase remaining pursuant to this share repurchase program. On August 30, 2023, the Company's Board of Directors authorized an increase in the Company's share repurchase program, authorizing the repurchase of an additional $100.0 million of the Company's Class A Nonvoting Common Stock.
(b) Holders As of August 30, 2022, there were approxi mately 1,100 Class A Common Stock shareholders of record and approximately 10,000 benefi cial shareholders. There are three Class B Common Stock shareholders. (c) Dividends The Company has historically paid quarterly dividends on outstanding common stock.
(b) Holders As of August 31, 2023, there were approximately 1,000 Class A Common Stock shareholders of record and approximately 12,000 beneficial shareholders. There are three Class B Common Stock shareholders. (c) Dividends The Company has historically paid quarterly dividends on outstanding common stock.
Added
On May 24, 2022, the Company's Board of Directors authorized an increase in the Company's share repurchase program, authorizing the repurchase of up to $100.0 million of the Company's Class A Nonvoting Common Stock, with no expiration date associated with the authorization.
Added
The share repurchase program may be implemented from time to time on the open market or in privately negotiated transactions and has no expiration date. The repurchased shares will be available for use in connection with the Company's stock-based plans and for other corporate purposes.
Added
The S&P SmallCap 600 Industrials Index will replace the S&P SmallCap 600 Index in future years. This change creates consistency between the index included in this Common Stock Price Performance Graph and the Pay Versus Performance table included in Item 11.
Added
Executive Compensation. 2018 2019 2020 2021 2022 2023 Brady Corporation $ 100.00 $ 137.76 $ 124.63 $ 150.84 $ 134.43 $ 147.74 S&P 500 Index 100.00 107.99 120.90 164.96 157.31 177.78 S&P SmallCap 600 Index 100.00 93.25 85.16 133.66 125.32 131.92 S&P SmallCap 600 Industrials Index 100.00 94.96 87.76 132.55 132.29 156.84 Russell 2000 Index 100.00 95.58 91.19 138.59 118.78 128.17 Copyright (C) 2023, Standard & Poor’s, Inc. and Russell Investments.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

49 edited+36 added−14 removed32 unchanged
Biggest changeRefer to Risk Factors, included in Part I, Item 1A of this Annual Report on Form 10-K for the year ended July 31, 2022 , for further discussion of the possible impact of the COVID-19 pandemic and other global geopolitical events on our business. 16 Table of Contents Results of Operations The comparability of the operating results for the year ended July 31, 2022 to the years ended July 31, 2021 and July 31, 2020 has been impacted by the following acquisitions: Acquisitions Segment Date Completed Magicard Holdings Limited ("Magicard") IDS May 2021 Nordic ID Oyj ("Nordic ID") IDS May 2021 The Code Corporation ("Code") IDS June 2021 A comparison of results of operating income for the years ended July 31, 2022, 2021, and 2020 is as follows: (Dollars in thousands) 2022 % Sales 2021 % Sales 2020 % Sales Net sales $ 1,302,062 $ 1,144,698 $ 1,081,299 Gross margin 631,552 48.5 % 561,446 49.0 % 528,565 48.9 % Operating expenses: Research and development 58,548 4.5 % 44,551 3.9 % 40,662 3.8 % Selling, general and administrative 379,992 29.2 % 349,768 30.6 % 336,059 31.1 % Impairment charges — — % — — % 13,821 1.3 % Total operating expenses 438,540 33.7 % 394,319 34.4 % 390,542 36.1 % Operating income $ 193,012 14.8 % $ 167,127 14.6 % $ 138,023 12.8 % 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.
Biggest changeA comparison of results of operating income for the years ended July 31, 2023, 2022, and 2021 is as follows: (Dollars in thousands) 2023 % Sales 2022 % Sales 2021 % Sales Net sales $ 1,331,863 $ 1,302,062 $ 1,144,698 Gross margin 657,275 49.4 % 631,552 48.5 % 561,446 49.0 % Operating expenses: Research and development 61,365 4.6 % 58,548 4.5 % 44,551 3.9 % Selling, general and administrative 370,697 27.8 % 379,992 29.2 % 349,768 30.6 % Total operating expenses 432,062 32.4 % 438,540 33.7 % 394,319 34.4 % Operating income $ 225,213 16.9 % $ 193,012 14.8 % $ 167,127 14.6 % Fiscal 2023 Compared to Fiscal 2022 Net sales increased 2.3% to $1,331.9 million in fiscal 2023 compared to $1,302.1 million in fiscal 2022, which consisted of organic sales growth of 5.5%, partially offset by a decrease from foreign currency translation of 3.0% and a decrease of 0.2% due to the divestiture of a business.
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, 2022 compared to the year ended July 31, 2021.
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, 2023 compared to the year ended July 31, 2022 and the year ended July 31, 2022 compared to the year ended July 31, 2021.
The increase in SG&A expenses in fiscal 2022 was primarily due to the acquisitions of Code, Magicard and Nordic ID, and to a lesser extent an increase in sales personnel in the IDS business, which was partially offset by a decrease due to foreign currency translation.
The increase in SG&A expenses in fiscal 2022 was primarily due to the acquisitions of Code, Magicard and Nordic ID, and to a lesser extent an increase in sales personnel, which was partially offset by a decrease due to foreign currency translation.
The annual impairment testing performed on May 1, 2022, in accordance with ASC 350, “Intangibles - Goodwill and Other” indicated that each of the reporting units had a fair value substantially in excess of its carrying value. 22 Table of Contents Other Indefinite-Lived Intangible Assets Other indefinite-lived intangible assets, which consists of tradenames, are tested for impairment in accordance with the Company's policy outlined above using the income approach.
The annual impairment testing performed on May 1, 2023, in accordance with ASC 350, “Intangibles - Goodwill and Other” indicated that each of the reporting units had a fair value substantially in excess of its carrying value. 23 Table of Contents Other Indefinite-Lived Intangible Assets Other indefinite-lived intangible assets, which consists of tradenames, are tested for impairment in accordance with the Company's policy outlined above using the income approach.
The increase in operating income in fiscal 2022 was primarily due to the increase in segment profit in the IDS segment as a result of organic sales growth and to a lesser extent, positive earnings from the acquisitions completed in the fourth quarter of fiscal 2021.
The increase in operating income in fiscal 2022 was primarily due to the increase in segment profit in the Americas & Asia segment as a result of organic sales growth and to a lesser extent, positive earnings from the acquisitions completed in the fourth quarter of fiscal 2021.
The decrease in segment profit as a percentage of net sales was primarily due to gross margin compression resulting from an increase in the cost of materials, labor and freight, as well as incremental amortization expense of $7.9 million in fiscal 2022, which was partially offset by pricing actions.
The decrease in segment profit as a percentage of net sales was primarily due to gross margin compression resulting from an increase in the cost of materials, labor and freight, as well as incremental amortization expense of $5.4 million in fiscal 2022, which was partially offset by pricing actions.
GDP growth, (ii) industry and market factors such as competition and changes in the market for the reporting unit's products, (iii) new product development, (iv) hospital admission rates, (v) competing technologies, (vi) overall financial performance such as cash flows, actual and planned revenue and profitability, and (vii) changes in the strategy of the reporting unit.
GDP growth, (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.
The increase in R&D spending in fiscal 2022 was primarily due to the acquisitions of Code and Nordic ID, as these companies operate with a greater amount of R&D spend as a percentage of net sales compared to Brady's organic business. In addition, the R&D headcount increased in the IDS business.
The increase in R&D spending in fiscal 2022 was primarily due to the acquisitions of Code and Nordic ID, as these companies operate with a greater amount of R&D spend as a percentage of net sales compared to Brady's organic business. In addition, the R&D headcount increased in the Americas & Asia segment.
As a result of the analysis performed on May 1, 2022, all indefinite-lived tradenames had fair value in excess of carrying value. 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. 23 Table of Contents
As a result of the analysis performed on May 1, 2023, all indefinite-lived tradenames had fair value in excess of carrying value. 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.
Financial Condition Liquidity & Capital Resources The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2022, approximately 94% of the Company's cash and cash equivalents were held outside the United States.
Financial Condition Liquidity & Capital Resources The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2023, approximately 98% of the Company's cash and cash equivalents were held outside the United States.
The Company believes it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $3.9 million in 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 believes it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $2.6 million in 22 Table of Contents 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 recognized valuation allowances for its deferred tax assets of $47.3 million and $51.1 million as of July 31, 2022 and 2021, respectively, which were primarily related to foreign tax credit carryforwards and net operating loss carryforwards in its various tax jurisdictions.
The Company recognized valuation allowances for its deferred tax assets of $52.8 million and $47.3 million as of July 31, 2023 and 2022, respectively, which were primarily related to foreign tax credit carryforwards and net operating loss carryforwards in its various tax jurisdictions.
The decrease in investment and other income in fiscal 2022 was primarily due to a decrease in the market value of securities held in deferred compensation plans. Interest expense increased to $1.3 million in fiscal 2022 compared to $0.4 million in fiscal 2021.
Fiscal 2022 Compared to Fiscal 2021 Investment and other income was $0.2 million in fiscal 2022 compared to $4.3 million in fiscal 2021. The decrease in investment and other income in fiscal 2022 was primarily due to a decrease in the market value of securities held in deferred compensation plans.
The liability for unrecognized tax benefits, excluding interest and penalties, was $20.6 million and $21.9 million as of July 31, 2022 and 2021, respectively. If recognized, $17.8 million and $18.7 million of unrecognized tax benefits as of July 31, 2022 and 2021, respectively, would reduce the Company's income tax rate.
The liability for unrecognized tax benefits, excluding interest and penalties, was $20.9 million and $20.6 million as of July 31, 2023 and 2022, respectively. If recognized, $17.8 million of unrecognized tax benefits would reduce the Company's income tax rate as of both July 31, 2023 and 2022.
The decrease in gross margin as a percentage of net sales was primarily due to an increase in the cost of materials, labor and freight, which was partially mitigated by our ongoing efforts to increase prices, streamline manufacturing processes and drive sustainable operational efficiencies. 17 Table of Contents R&D expenses increased 31.4% to $58.5 million in fiscal 2022, compared to $44.6 million in fiscal 2021.
The decrease in gross margin as 17 Table of Contents a percentage of net sales was primarily due to an increase in the cost of materials, labor and freight, which was partially mitigated by pricing actions and operational efficiencies including streamlining manufacturing processes. R&D expenses increased 31.4% to $58.5 million in fiscal 2022 compared to $44.6 million in fiscal 2021.
Accrued interest and penalties related to unrecognized tax benefits were $4.8 million and $4.4 million as of July 31, 2022 and 2021, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense on the Consolidated Statements of 21 Table of Contents Income.
Accrued interest and penalties related to unrecognized tax benefits were $5.3 million and $4.8 million as of July 31, 2023 and 2022, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense on the Consolidated Statements of Income.
Net sales increased 13.7% to $1,302.1 million in fiscal 2022, compared to $1,144.7 million in fiscal 2021, which consisted of organic sales growth of 9.4% and growth from acquisitions of 6.9%, partially offset by a decrease from foreign currency translation of 2.6%. Organic sales grew 12.8% in the IDS segment and were flat at 0.0% in the WPS segment.
Fiscal 2022 Compared to Fiscal 2021 Net sales increased 13.7% to $1,302.1 million in fiscal 2022 compared to $1,144.7 million in fiscal 2021, which consisted of organic sales growth of 9.4% and growth from acquisitions of 6.9%, partially offset by a decrease from foreign currency translation of 2.6%.
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 $114.1 million at July 31, 2022, a reduction of $33.3 million from July 31, 2021.
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 $151.5 million at July 31, 2023, an increase of $37.5 million from July 31, 2022.
As a result, management performed an analysis to determine whether the loss in value of the investment was other than temporary and recognized an other-than-temporary impairment charge of $5.0 million.
As a result, management performed an analysis to determine whether the loss in value of the investment was other than temporary and recognized an other-than-temporary impairment charge of $5.0 million. The Company's equity interest in React Mobile's losses was $0.8 million in fiscal 2021.
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 and sales recorded from acquired companies prior to the first anniversary date of their acquisition which, for the periods reported in this Form 10-K, includes each of Magicard, Nordic ID and Code.
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.
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") and inorganic sales opportunities including acquisitions, while continuing to drive sustainable efficiencies and automation in our operations and selling, general and administrative ("SG&A") functions.
We believe we have the financial strength to continue to invest in organic sales growth opportunities including sales, marketing, R&D and 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.
The following summarizes the cash flow statement for the years ended July 31: (Dollars in thousands) 2022 2021 2020 Net cash flow provided by (used in): Operating activities $ 118,449 $ 205,665 $ 140,977 Investing activities (43,071) (268,592) (36,119) Financing activities (102,089) (12,324) (163,520) Effect of exchange rate changes on cash (6,555) 4,943 (2,767) Net decrease in cash and cash equivalents $ (33,266) $ (70,308) $ (61,429) Net cash provided by operating activities was $118.4 million during fiscal 2022, compared to $205.7 million in fiscal 2021.
The following summarizes the cash flow statement for the years ended July 31: (Dollars in thousands) 2023 2022 2021 Net cash flow provided by (used in): Operating activities $ 209,149 $ 118,449 $ 205,665 Investing activities (11,214) (43,071) (268,592) Financing activities (163,568) (102,089) (12,324) Effect of exchange rate changes on cash 3,096 (6,555) 4,943 Net increase (decrease) in cash and cash equivalents $ 37,463 $ (33,266) $ (70,308) Fiscal 2023 Compared to Fiscal 2022 Net cash provided by operating activities was $209.1 million during fiscal 2023 compared to $118.4 million in fiscal 2022.
Net cash used in investing activities was $43.1 million during fiscal 2022, compared to $268.6 million in the prior year. The decrease in cash used in investing activities was primarily due to the acquisitions of Code, Magicard and Nordic ID which were closed during the fourth quarter of fiscal 2021.
The decrease in cash used in investing activities was primarily due to the acquisitions of Code, Magicard and Nordic ID which were closed during the fourth quarter of fiscal 2021. 21 Table of Contents Net cash used in financing activities was $102.1 million during fiscal 2022 compared to $12.3 million in fiscal 2021.
OPERATING INCOME TO NET INCOME (Dollars in thousands) 2022 % Sales 2021 % Sales 2020 % Sales Operating income $ 193,012 14.8 % $ 167,127 14.6 % $ 138,023 12.8 % Other income (expense): Investment and other income 244 — % 4,333 0.4 % 5,079 0.5 % Interest expense (1,276) (0.1) % (437) — % (2,166) (0.2) % Income before income taxes and losses of unconsolidated affiliate 191,980 14.7 % 171,023 14.9 % 140,936 13.0 % Income tax expense 42,001 3.2 % 35,610 3.1 % 28,321 2.6 % Income before losses of unconsolidated affiliate 149,979 11.5 % 135,413 11.8 % 112,615 10.4 % Equity in losses of unconsolidated affiliate — — % (5,754) (0.5) % (246) — % Net income $ 149,979 11.5 % $ 129,659 11.3 % $ 112,369 10.4 % Investment and other income was $0.2 million in fiscal 2022 compared to $4.3 million in fiscal 2021.
OPERATING INCOME TO NET INCOME (Dollars in thousands) 2023 % Sales 2022 % Sales 2021 % Sales Operating income $ 225,213 16.9 % $ 193,012 14.8 % $ 167,127 14.6 % Other income (expense): Investment and other income 4,022 0.3 % 244 0.0 % 4,333 0.4 % Interest expense (3,539) (0.3) % (1,276) (0.1) % (437) (0.0) % Income before income taxes and losses of unconsolidated affiliate 225,696 16.9 % 191,980 14.7 % 171,023 14.9 % Income tax expense 50,839 3.8 % 42,001 3.2 % 35,610 3.1 % Income before losses of unconsolidated affiliate 174,857 13.1 % 149,979 11.5 % 135,413 11.8 % Equity in losses of unconsolidated affiliate — — % — — % (5,754) (0.5) % Net income $ 174,857 13.1 % $ 149,979 11.5 % $ 129,659 11.3 % Fiscal 2023 Compared to Fiscal 2022 Investment and other income was $4.0 million in fiscal 2023 compared to $0.2 million in fiscal 2022.
We believe that net cash provided by operating activities will continue to be adequate to meet our liquidity and capital needs for these items over the short-term in the next 12 months and in the long-term beyond the next 12 months.
Material Cash Requirements Our material cash requirements for known contractual obligations include capital expenditures, borrowings on credit facilities and lease obligations. We believe that net cash provided by operating activities will continue to be adequate to meet our liquidity and capital needs for these items over the next 12 months and in the long-term beyond the next 12 months.
At July 31, 2022 , we had cash of $114.1 million, as well as a credit facility with $103.4 million available for future borrowing, which can be increased up to $303.4 million at the Company's option and subject to certain conditions, for total available liquidity of $417.5 million.
At July 31, 2023 , we had cash of $151.5 million , as well as a credit agreement with $248.3 million available for future borrowing, which can be increased up to $1,068.3 million at the Company's option and subject to certain conditions, for total available liquidity o f $1,219.8 million.
The increase in interest expense in fiscal 2022 was due to increased borrowing on our credit facility and an increase in interest rates compared to fiscal 2021. The Company's income tax rate was 21.9% in fiscal 2022. Refer to Note 11, "Income Taxes" for additional information on the Company's income tax rates.
Interest expense increased to $1.3 million in fiscal 2022 compared to $0.4 million in fiscal 2021. The increase in interest expense in fiscal 2022 was due to increased borrowing on our credit agreement and an increase in interest rates compared to fiscal 2021. The Company's income tax rate was 21.9% in fiscal 2022.
SG&A expenses include selling and administrative costs directly attributed to the IDS and WPS segments, as well as certain other corporate administrative expenses including finance, information technology, human resources and other administrative expenses. SG&A expenses increased 8.6% to $380.0 million in fiscal 2022 compared to $349.8 million in fiscal 2021.
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 decreased 2.4% to $370.7 million in fiscal 2023 compared to $380.0 million in fiscal 2022.
The decrease was primarily due to cash outflows for inventory purchases in order to reduce the risk of supply chain disruption. In addition, annual incentive compensation payments were higher in the current fiscal year than they were in the prior year.
The decrease was primarily due to cash outflows for inventory purchases in order to reduce the risk of supply chain disruption. In addition, annual incentive compensation payments were higher in fiscal 2022 than they were in fiscal 2021. Net cash used in investing activities was $43.1 million during fiscal 2022 compared to $268.6 million in fiscal 2021.
Following is a summary of segment information for the years ended July 31: 2022 2021 2020 SALES GROWTH INFORMATION ID Solutions Organic 12.8 % 3.7 % (8.0) % Acquisitions 9.4 % 1.5 % — % Currency (2.1) % 2.0 % (1.1) % Total 20.1 % 7.2 % (9.1) % Workplace Safety Organic 0.0 % (3.8) % 2.3 % Currency (4.0) % 6.0 % (2.6) % Total (4.0) % 2.2 % (0.3) % Total Company Organic 9.4 % 1.6 % (5.4) % Acquisitions 6.9 % 1.1 % — % Currency (2.6) % 3.2 % (1.4) % Total 13.7 % 5.9 % (6.8) % SEGMENT PROFIT AS A PERCENT OF NET SALES ID Solutions 19.5 % 20.1 % 19.2 % Workplace Safety 8.0 % 7.5 % 7.1 % Total 16.9 % 16.8 % 15.9 % ID Solutions IDS net sales increased 20.1% to $1,010.9 million in fiscal 2022, compared to $841.5 million in fiscal 2021.
The following is a summary of segment information for the years ended July 31: 2023 2022 2021 SALES GROWTH INFORMATION Americas & Asia Organic 4.4 % 10.3 % 1.9 % Currency (0.9) % (0.1) % 0.6 % Divestiture (0.3) % — % — % Acquisition — % 6.9 % 0.8 % Total 3.2 % 17.1 % 3.3 % Europe & Australia Organic 7.6 % 7.9 % 1.1 % Currency (7.1) % (7.0) % 8.1 % Acquisition — % 6.9 % 1.6 % Total 0.5 % 7.8 % 10.8 % Total Company Organic 5.5 % 9.4 % 1.6 % Currency (3.0) % (2.6) % 3.2 % Divestiture (0.2) % — % — % Acquisition — % 6.9 % 1.1 % Total 2.3 % 13.7 % 5.9 % SEGMENT PROFIT AS A PERCENT OF NET SALES Americas & Asia 20.3 % 18.3 % 18.6 % Europe & Australia 14.8 % 14.3 % 13.5 % Total 18.5 % 16.9 % 16.8 % Fiscal 2023 Compared to Fiscal 2022 Americas & Asia Americas & Asia net sales increased 3.2% to $888.9 million in fiscal 2023 compared to $861.1 million in fiscal 2022.
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.
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.
Equity in losses of unconsolidated affiliate represented the Company's 23% equity interest in React Mobile, Inc. ("React Mobile"), an employee safety software and hardware company based in the United States.
Refer to Note 11, "Income Taxes" for additional information on the Company's income tax rates. 18 Table of Contents Equity in losses of unconsolidated affiliate represented the Company's 23% equity interest in React Mobile, Inc. ("React Mobile"), an employee safety software and hardware company based in the United States.
We believe that our financial resources and liquidity levels including the remaining undrawn amount of the credit facility and our ability to increase that credit line as necessary are sufficient to manage the continuing impact of geopolitical events including supply chain disruptions as a result of the conflict in the Ukraine as well as the lasting impacts of the COVID-19 pandemic, including the spread of variants that could result in additional government actions around the world to contain the virus or prevent further spread which may result in reduced sales, reduced net income, and reduced cash provided by operating activities.
We believe that our financial resources and liquidity levels including the remaining undrawn amount of the credit agreement and our ability to increase that credit line as necessary are sufficient to manage the continuing impact of economic or geopolitical events which may result in reduced sales, net income, or cash provided by operating activities.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The IDS segment is primarily involved in the design, manufacture, and distribution of high-performance and innovative identification and healthcare products.
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'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, and dividend payments for the next 12 months.
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, and dividend payments for the next 12 months and beyond.
Impairment charges, interest expense, investment and other income, income tax expense, equity in losses of unconsolidated affiliate, and certain corporate administrative expenses are excluded when evaluating segment performance.
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, equity in losses of unconsolidated affiliate, and certain corporate administrative expenses are excluded when evaluating segment performance.
Segment profit increased to $23.2 million in fiscal 2022 compared to $22.8 million in fiscal 2021, an increase of $0.5 million or 2.1%. As a percentage of net sales, segment profit increased to 8.0% in fiscal 2022 compared to 7.5% in fiscal 2021.
Segment profit increased 13.9% to $63.1 million in fiscal 2022 compared to $55.4 million in fiscal 2021. As a percentage of net sales, segment profit increased to 14.3% in fiscal 2022 compared to 13.5% in fiscal 2021.
The Company remains committed to investing in new product development to increase sales within our IDS and WPS businesses. Investments in new printing systems, materials and the build out of a comprehensive industrial track and trace solution were the primary focus of R&D expenditures in fiscal 2022.
Investments in new printing systems, materials and the build out of a comprehensive industrial track and trace solution were the primary focus of R&D expenditures in fiscal 2022. SG&A expenses increased 8.6% to $380.0 million in fiscal 2022 compared to $349.8 million in fiscal 2021.
Organic sales grew in all major product lines with the strongest growth in the wire identification and product identification product lines. Approximately one-third of the organic sales growth in IDS was driven by price increases with the remainder of the growth resulting from volume.
The increase in organic sales was primarily due to organic sales growth in IDS products of approximately 15%. Organic sales grew in all major IDS product lines with the strongest growth in the product identification product line, followed by the safety and facility identification and wire identification product lines.
The net sales increase consisted of organic sales growth of 12.8%, growth from acquisitions of 9.4% and a decrease from foreign currency translation of 2.1%. Organic sales grew in all three regions in fiscal 2022. Organic sales in the Americas and Asia increased nearly 12% and organic sales in Europe grew approximately 15%.
Fiscal 2022 Compared to Fiscal 2021 Americas & Asia Americas & Asia net sales increased 17.1% to $861.1 million in fiscal 2022 compared to $735.6 million in fiscal 2021. The net sales increase consisted of organic sales growth of 10.3%, growth from acquisitions of 6.9% and a decrease from foreign currency translation of 0.1%.
Segment profit increased to $197.1 million in fiscal 2022 from $169.2 million in fiscal 2021, an increase of $27.9 million or 16.5%. The increase in segment profit was primarily due to organic sales growth in fiscal 2022. As a percent of net sales, segment profit decreased to 19.5% in fiscal 2022 compared to 20.1% in fiscal 2021.
The increase in segment profit was primarily due to organic sales growth in fiscal 2022 and positive earnings from acquisitions completed in the fourth quarter of fiscal 2021. As a percent of net sales, segment profit decreased to 18.3% in fiscal 2022 compared to 18.6% in fiscal 2021.
As a percentage of net sales, gross margin decreased to 48.5% in fiscal 2022, compared to 49.0% in fiscal 2021.
Organic sales grew 10.3% in the Americas & Asia segment and 7.9% in the Europe & Australia segment. Gross margin increased 12.5% to $631.6 million in fiscal 2022 compared to $561.4 million in fiscal 2021. As a percentage of net sales, gross margin decreased to 48.5% in fiscal 2022 compared to 49.0% in fiscal 2021.
Net cash used in financing activities was $102.1 million during fiscal 2022, which primarily consisted of share repurchases of $109.2 million and dividend payments of $45.9 million, which was partially offset by $57.0 million of net borrowing on the credit facility.
The increase in cash used in financing activities was primarily due to an increase in share repurchases of $105.6 million, which was partially offset by a $19.0 million increase in net borrowings on the credit agreement in fiscal 2022 compared to fiscal 2021.
Organic sales consisted of a low-single digit decrease in catalog channel sales and low single-digit growth in digital sales in fiscal 2022 compared to fiscal 2021. 19 Table of Contents Organic sales in Europe and Australia increased slightly, while organic sales in North America decreased in the low-single digits in fiscal 2022 compared to fiscal 2021.
WPS product organic sales increased slightly during the year with mid-single digit growth from the digital channel, while sales from all other channels were essentially flat. 20 Table of Contents Organic sales in Australia increased slightly in fiscal 2022. Digital sales increased in the low-single digits, and sales from all other channels were essentially flat.
The increase in segment profit was primarily due to actions taken during the third quarter of the fiscal year to reduce the cost structure, including reductions in headcount and advertising expenses. As a result, the entire increase in segment profit occurred during the second half of fiscal 2022.
As a percentage of net sales, segment profit increased to 14.8% in fiscal 2023 compared to 14.3% in fiscal 2022. The increase in segment profit was primarily due to actions taken during fiscal 2022 to reduce the cost structure as well as pricing actions implemented throughout fiscal 2023.
Credit Facilities and Covenant Compliance Refer to Item 8, Note 6, "Debt" for information regarding the Company's credit facilities and covenant compliance. Subsequent Events Affecting Financial Condition Refer to Item 8, Note 16, "Subsequent Events" for information regarding the Company's subsequent events affecting financial condition.
Credit Facilities and Covenant Compliance Refer to Item 8, Note 6, "Debt" for information regarding the Company's credit facilities 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.
The Company has identified eight reporting units within its two reportable segments, IDS and WPS, with the following goodwill balances as of July 31, 2022: IDS Americas and Europe, $286.9 million; PDC, $93.3 million; WPS Europe, $30.7 million; Code Corporation, $138.6 million; and Magicard, $37.3 million.
The Company has identified seven reporting units within its two reportable segments, Americas & Asia and Europe & Australia, with the following goodwill balances as of July 31, 2023: North America, $438.0 million; Europe, $151.2 million; and Latin America, $3.4 million. The other four identified reporting units each have a goodwill balance of zero.
Workp lace Safety WPS sales decreased 4.0% to $291.2 million in fiscal 2022 compared to $303.2 million in fiscal 2021, all of which was due to foreign currency translation.
As a percentage of net sales, SG&A expense decreased to 27.8% in fiscal 2023 compared to 29.2% in fiscal 2022. The decrease in SG&A expenses in fiscal 2023 was due to foreign currency translation.
As a result, the recovery from the COVID-19 pandemic had a significant impact on organic sales through fiscal 2022, with the impact varying between the IDS and WPS businesses due to sales patterns realized during the height of the pandemic in fiscal 2021. Gross margin increased 12.5% to $631.6 million in fiscal 2022, compared to $561.4 million in fiscal 2021.
Organic sales grew 4.4% in the Americas & Asia segment and 7.6% in the Europe & Australia segment. Gross margin increased 4.1% to $657.3 million in fiscal 2023 compared to $631.6 million in fiscal 2022. As a percentage of net sales, gross margin increased to 49.4% in fiscal 2023 from 48.5% in fiscal 2022.
Removed
The WPS segment provides workplace safety, identification and compliance products. Approximately 50% of our total sales are derived outside of the United States. Foreign sales within the IDS and WPS segments are approximately 40% and 75%, respectively.
Added
Effective February 1, 2023, the Company is organized and managed on a geographic basis with two reportable segments: Americas & Asia and Europe & Australia. As such, all segment-related data has been recast to reflect our new reportable segments in the Management's Discussion and Analysis of Financial Condition and Results of Operations section.
Removed
I mpact of the COVID-19 Pandemic and other Global Geopolitical Events on Our Business The Company has experienced, and expects to continue to experience, increased freight and input material cost inflation as a result of disruptions caused by COVID-19 and government-mandated actions in response to COVID-19, the conflict in the Ukraine, as well as labor shortages.
Added
Prior to February 1, 2023, the Company operated two former segments: IDS and WPS. IDS products include high-performance and innovative identification and healthcare products that are designed, manufactured, and distributed within the Company's value chain.
Removed
The Company has taken and will continue to take actions to mitigate inflation issues, but thus far has not fully offset the impact of these trends partially due to advance notice requirements of certain distributors related to any pricing changes. As a result, these trends have negatively impacted the Company's gross profit margin during fiscal 2022.
Added
WPS products include a broad range of stock and custom identification products that the Company manufactures, as well as a wide variety of products that the Company purchases and resells as a distributor.
Removed
A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 can be found under Item 7 in our Annual Report on Form 10-K for the year ended July 31, 2021, filed with the SEC on September 2, 2021, 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.
Added
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.
Removed
The COVID-19 pandemic had a significant impact on organic sales with the impact varying between the IDS and WPS segments.
Added
Macroeconomic Conditions and Trends The Company has experienced, and expects to continue to experience, inflationary pressures and supply chain and other business disruptions. The Company has taken and will continue to take actions to mitigate inflation issues through pricing actions and the execution of sustainable efficiency gains.
Removed
In the first quarter of fiscal 2021, the IDS business began to recover from a decline in sales due to the impacts of both the COVID-19 pandemic and the overall global economy, while the WPS segment realized strong organic sales growth due to increased sales of personal protective equipment and other pandemic-related products.
Added
Refer to Risk Factors, included in Part I, Item 1A of this Annual Report on Form 10-K for the year ended July 31, 2023 , for further discussion of the possible impact of global economic or geopolitical events on our business. 16 Table of Contents Results of Operations The comparability of the operating results for the year ended July 31, 2022 to the year ended July 31, 2021 has been impacted by the following acquisitions: Magicard Holdings Limited ("Magicard") and Nordic ID Oyj ("Nordic ID") which were completed in May 2021, and The Code Corporation ("Code") which was completed in June 2021.
Removed
The Company's equity interest in React Mobile's losses was $0.8 million in fiscal 2021 and $0.2 million in fiscal 2020. 18 Table of Contents Business Segment Operating Results The Company evaluates short-term segment performance based on segment profit and customer sales.
Added
All three acquisitions operate within both of our reportable segments. In addition, in March 2023 the Company divested the PremiSys business which impacted the Americas & Asia reportable segment.
Removed
The WPS business realized organic sales growth during the height of the pandemic at the end of fiscal 2020 and the beginning of fiscal 2021 due to increased sales of personal protective equipment and other pandemic-related products, which resulted in challenging comparable results during the first half of fiscal 2022.
Added
The increase in gross margin as a percentage of net sales was primarily due to operating efficiencies resulting from investment in process automation and reductions in freight expense, partially offset by an increase in material costs due to inflationary pressures. R&D expenses increased 4.8% to $61.4 million in fiscal 2023 compared to $58.5 million in fiscal 2022.
Removed
Sales of core safety and identification products continued to recover through fiscal 2022 but were offset by a decline in sales of COVID-19 related products in the first half of the year, resulting in an organic sales decline which was offset by organic sales growth in the second half of the year, finishing the year with flat organic sales in the WPS business.
Added
As a percentage of net sales, R&D expenses increased to 4.6% in fiscal 2023 compared to 4.5% in fiscal 2022. The increase in R&D spending in fiscal 2023 was primarily due to increased headcount as well as increased project spend. The Company remains committed to investing in new product development to increase sales within our businesses.
Removed
The trend noted above was applicable to each region within the WPS business with challenging comparable results during the first half of fiscal 2022 due to decreased demand for pandemic-related products, which was offset by an increase in sales of core safety and identification products.
Added
Investments in new printing systems, materials and the build out of industrial track and trace solutions were the primary focus of R&D expenditures in fiscal 2023.
Removed
Digital sales increased in the mid-single digits in both North America and Europe and increased in the low-single digits in Australia. This growth was offset by a mid-single digit decline in catalog sales in North America, while catalog sales were essentially flat in Europe and Australia in fiscal 2022 compared to fiscal 2021.
Added
The decrease in SG&A expenses as a percentage of sales in fiscal 2023 was primarily due to reduced headcount, lower advertising spend and a decrease in amortization expense of $3.2 million, which was partially offset by costs associated with the change to a regional reporting structure.
Removed
Net cash used in financing activities of $12.3 million during fiscal 2021 primarily consisted of dividend payments of $45.7 million and share repurchases of $3.6 million, which was partially offset by net borrowing on the credit facility of $38.0 million to finance a portion of the purchase price of Code in the fourth quarter of fiscal 2021. 20 Table of Contents Material Cash Requirements Our material cash requirements for known contractual obligations include capital expenditures, borrowings on credit facilities and lease obligations, each of which are discussed in more detail throughout this section.
Added
Operating income increased 16.7% to $225.2 million in fiscal 2023 compared to $193.0 million in fiscal 2022.
Removed
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.
Added
The increase in operating income in fiscal 2023 was primarily due to the increase in segment profit in the Americas & Asia segment as a result of organic sales growth, improved gross profit margin primarily due to reductions in freight costs as well as price increases, and operational efficiencies throughout the region.
Removed
The IDS Asia, WPS North America, and WPS Australia reporting units each have a goodwill balance of zero.
Added
The increase in investment and other income in fiscal 2023 was primarily due to an increase in the market value of securities held in deferred compensation plans and an increase in interest income. Interest expense increased to $3.5 million in fiscal 2023 compared to $1.3 million in fiscal 2022.
Added
The increase in interest expense in fiscal 2023 was primarily due to an increase in benchmark interest rates compared to fiscal 2022. The Company's income tax rate was 22.5% in fiscal 2023. Refer to Note 11, "Income Taxes" for additional information on the Company's income tax rates.
Added
The net sales increase consisted of organic sales growth of 4.4% and decreases from foreign currency translation of 0.9% and the sale of the PremiSys business of 0.3%. Organic sales in the Americas increased in the mid-single digits in fiscal 2023.
Added
The increase in organic sales was primarily due to organic sales growth in IDS products with strongest growth in the safety and facility identification, healthcare identification and wire identification product lines, which was partially offset by an organic sales decline in the product identification product line.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+0 added−0 removed6 unchanged
Biggest changeThe Company's multi-currency revolving credit facility allows it to borrow up to $200 million in currencies other than U.S. dollars. The Company has periodically borrowed funds in Euros and British Pounds under its revolving credit facility. Debt issued in currencies other than U.S. dollars acts as a natural hedge to the Company's exposure to the associated currency.
Biggest changeThe Company uses Euro-denominated debt of €24.0 million and British Pound-denominated debt of £8.0 million designated as hedge instruments to hedge portions of the Company’s net investment in its Euro-denominated and British Pound-denominated businesses. The Company's multi-currency revolving credit agreement allows it to borrow up to $200 million in currencies other than U.S. dollars.
The interest rate risk management program allows the Company to enter into approved interest rate derivatives if there is a desire to modify the Company’s exposure to interest rates. As of July 31, 2022, the Company had no interest rate derivatives and no fixed rate debt outstanding. 24 Table of Contents
The interest rate risk management program allows the Company 24 Table of Contents to enter into approved interest rate derivatives if there is a desire to modify the Company’s exposure to interest rates. As of July 31, 2023, the Company had no interest rate derivatives and no fixed rate debt outstanding. 25 Table of Contents
Currency exchange rates decreased fiscal 2022 net sales by 2.6% compared to fiscal 2021 as the U.S. dollar appreciated, on average, against other major currencies throughout the year. Changes in foreign currency exchange rates for the Company’s foreign subsidiaries reporting in local currencies are generally reported as a component of stockholders’ equity.
Currency exchange rates decreased fiscal 2023 net sales by 3.0% compared to fiscal 2022 as the U.S. dollar appreciated, on average, against other major currencies throughout the year. Changes in foreign currency exchange rates for the Company’s foreign subsidiaries reporting in local currencies are generally reported as a component of stockholders’ equity.
The objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions. To achieve this objective, the Company hedges a portion of known exposures using forward contracts. As of July 31, 2022, the notional amount of outstanding forward foreign exchange contracts designated as cash flow hedges was $25.3 million.
The objective of the Company’s foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions. To achieve this objective, the Company hedges a portion of known exposures using forward contracts. As of July 31, 2023, the notional amount of outstanding forward foreign exchange contracts designated as cash flow hedges was $39.7 million.
The potential decrease in net current assets as of July 31, 2022, from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be approximately $19.4 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar.
The potential decrease in net current assets as of July 31, 2023, from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be approximately $20.8 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar.
The Company’s currency translation adjustments recorded during the years ended July 31, 2022, 2021, and 2020, as a separate component of stockholders’ equity, were unfavorable by $53.4 million, favorable by $10.3 million, and favorable by $6.6 million, respectively.
The Company’s currency translation adjustments recorded during the years ended July 31, 2023, 2022, and 2021, as a separate component of stockholders’ equity, were favorable by $16.0 million, unfavorable by $53.4 million, and favorable by $10.3 million, respectively.
As of July 31, 2022 and 2021, the Company’s foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $193.6 million and $184.5 million, respectively.
As of July 31, 2023 and 2022, the Company’s foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $207.6 million and $193.6 million, respectively.
In particular, the Company has more sales in European currencies than it has expenses in those currencies. Therefore, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively.
As a result, the Company is exposed to movements in the exchange rates of various currencies against the U.S. dollar. In particular, the Company has more sales in European currencies than it has expenses in those currencies. Therefore, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively.
Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates in effect during the respective period. As a result, the Company is exposed to movements in the exchange rates of various currencies against the U.S. dollar.
Although the Company has a U.S. dollar functional currency for reporting purposes, it has manufacturing sites throughout the world and a significant portion of its sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates in effect during the respective period.
The Company also faces exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates. Although the Company has a U.S. dollar functional currency for reporting purposes, it has manufacturing sites throughout the world and a significant portion of its sales are generated in foreign currencies.
Debt issued in currencies other than U.S. dollars acts as a natural hedge to the Company's exposure to the associated currency. The Company also faces exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates.

Other BRC 10-K year-over-year comparisons