Brady (BRC) - 2024 Q2 - Quarterly Report

PART I. Financial Information This section presents the company's unaudited financial statements and management's analysis of its financial condition and operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and their notes, prepared under GAAP with SEC-permitted omissions Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (Dollars in Thousands) | Metric | January 31, 2024 (Unaudited) | July 31, 2023 | | :------------------------------------------ | :--------------------------- | :------------ | | ASSETS | | | | Total current assets | $506,520 | $524,820 | | Property, plant and equipment—net | $190,777 | $142,149 | | Goodwill | $590,535 | $592,646 | | Other intangible assets | $57,108 | $62,096 | | Total Assets | $1,407,604 | $1,389,257 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $237,302 | $258,036 | | Long-term debt | $48,090 | $49,716 | | Total liabilities | $368,872 | $398,338 | | Total stockholders' equity | $1,038,732 | $990,919 | | Total Liabilities and Stockholders' Equity | $1,407,604 | $1,389,257 | Condensed Consolidated Statements of Income This section details the company's revenues, costs, and net income over specific reporting periods Condensed Consolidated Statements of Income (Dollars in Thousands, Except Per Share Amounts, Unaudited) | Metric | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $322,624 | $326,249 | $654,607 | $648,818 | | Cost of goods sold | $160,541 | $169,809 | $320,805 | $337,114 | | Gross margin | $162,083 | $156,440 | $333,802 | $311,704 | | Operating income | $53,926 | $48,781 | $113,656 | $100,167 | | Income before income taxes | $55,820 | $48,510 | $115,222 | $98,845 | | Net income | $43,628 | $37,986 | $90,869 | $77,427 | | Basic EPS (Class A Nonvoting Common Share) | $0.90 | $0.76 | $1.88 | $1.55 | | Diluted EPS (Class A Nonvoting Common Share) | $0.90 | $0.76 | $1.86 | $1.55 | Condensed Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income components, leading to total comprehensive income Condensed Consolidated Statements of Comprehensive Income (Dollars in Thousands, Unaudited) | Metric | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $43,628 | $37,986 | $90,869 | $77,427 | | Foreign currency translation adjustments | $14,591 | $30,562 | $(5,773) | $12,890 | | Cash flow hedges, net | $829 | $559 | $(750) | $871 | | Pension and other post-retirement benefits actuarial (gain) loss amortization | $(151) | $27 | $(302) | $(116) | | Other comprehensive income (loss), net of tax | $15,342 | $31,144 | $(6,880) | $13,707 | | Comprehensive income | $58,970 | $69,130 | $83,989 | $91,134 | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net income, dividends, and share repurchases Changes in Stockholders' Equity (Six months ended January 31, 2024, Dollars in Thousands) | Metric | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | | :------------------------------------------ | :----------- | :------------------------- | :---------------- | :------------- | :----------------------------------- | :------------------------- | | Balances at July 31, 2023 | $548 | $351,771 | $1,021,870 | $(290,209) | $(93,061) | $990,919 | | Net income | — | — | $90,869 | — | — | $90,869 | | Other comprehensive loss, net of tax | — | — | — | — | $(6,880) | $(6,880) | | Issuance of shares under stock plan | — | $(3,389) | — | $6,393 | — | $3,004 | | Stock-based compensation expense | — | $5,263 | — | — | — | $5,263 | | Repurchase of shares | — | — | — | $(21,898) | — | $(21,898) | | Cash dividends | — | — | $(22,694) | — | — | $(22,694) | | Balances at January 31, 2024 | $548 | $353,794 | $1,090,045 | $(305,714) | $(99,941) | $1,038,732 | Changes in Stockholders' Equity (Three months ended January 31, 2024, Dollars in Thousands) | Metric | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | | :------------------------------------------ | :----------- | :------------------------- | :---------------- | :------------- | :----------------------------------- | :------------------------- | | Balances at October 31, 2023 | $548 | $352,421 | $1,057,773 | $(300,467) | $(115,283) | $994,992 | | Net income | — | — | $43,628 | — | — | $43,628 | | Other comprehensive income, net of tax | — | — | — | — | $15,342 | $15,342 | | Issuance of shares under stock plan | — | $273 | — | $2,466 | — | $2,739 | | Stock-based compensation expense | — | $1,100 | — | — | — | $1,100 | | Repurchase of shares | — | — | — | $(7,713) | — | $(7,713) | | Cash dividends | — | — | $(11,356) | — | — | $(11,356) | | Balances at January 31, 2024 | $548 | $353,794 | $1,090,045 | $(305,714) | $(99,941) | $1,038,732 | Condensed Consolidated Statements of Cash Flows This section details cash flows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (Dollars in Thousands, Unaudited) | Metric | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | | Net cash provided by operating activities | $98,351 | $57,384 | | Net cash used in investing activities | $(60,832) | $(8,156) | | Net cash used in financing activities | $(42,964) | $(57,128) | | Effect of exchange rate changes on cash and cash equivalents | $(2,227) | $2,041 | | Net decrease in cash and cash equivalents | $(7,672) | $(5,859) | | Cash and cash equivalents, end of period | $143,860 | $108,210 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements - The condensed consolidated financial statements are unaudited and prepared by Brady Corporation and subsidiaries, containing normal recurring adjustments necessary for fair presentation. They conform with GAAP, but certain disclosures are omitted per SEC rules, and should be read in conjunction with the Annual Report on Form 10-K for the year ended July 31, 2023[26][71] NOTE A — Basis of Presentation Unaudited financial statements are prepared by Brady Corporation under SEC rules and GAAP, with management estimates - The condensed consolidated financial statements are unaudited and prepared by Brady Corporation and subsidiaries, containing normal recurring adjustments necessary for fair presentation. They conform with GAAP, but certain disclosures are omitted per SEC rules, and should be read in conjunction with the Annual Report on Form 10-K for the year ended July 31, 2023[26][71] NOTE B — New Accounting Pronouncements The Company is evaluating the impact of new ASUs on income tax disclosures (FY2026) and segment reporting (FY2025) - FASB issued ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' effective for fiscal 2026, requiring expanded annual disclosures including disaggregation of income tax rate reconciliation categories and income taxes paid by jurisdiction. The Company is evaluating its impact[50] - FASB issued ASU 2023-07, 'Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,' effective for fiscal 2025, requiring expanded interim and annual disclosures of significant segment expenses. The Company is evaluating its impact[72] NOTE C — Additional Balance Sheet Information This note details inventories and intangible assets, noting a decrease in intangibles due to currency, and accumulated depreciation Inventories (Dollars in Thousands) | Category | January 31, 2024 | July 31, 2023 | | :------------------------- | :--------------- | :------------ | | Finished products | $96,003 | $103,350 | | Work-in-process | $26,200 | $26,884 | | Raw materials and supplies | $42,741 | $46,844 | | Total inventories | $164,944 | $177,078 | - Property, plant and equipment is presented net of accumulated depreciation of $299,746 thousand as of January 31, 2024, and $292,680 thousand as of July 31, 2023[74] Other Intangible Assets (Dollars in Thousands) | Category | January 31, 2024 Net Book Value | July 31, 2023 Net Book Value | | :------------------------- | :------------------------------ | :--------------------------- | | Tradenames (Amortized) | $67 | $167 | | Customer relationships | $44,714 | $48,566 | | Technology | $4,082 | $5,078 | | Tradenames (Unamortized) | $8,245 | $8,285 | | Total | $57,108 | $62,096 | - The decrease in the gross carrying amount of other intangible assets as of January 31, 2024, compared to July 31, 2023, was primarily due to the effect of currency fluctuations[54] NOTE E — Leases The Company leases facilities and vehicles as operating leases, with expenses of $3.8 million (3 months) and $7.9 million (6 months) for Q2/H1 FY24 Operating Lease Expense (Dollars in Thousands) | Period | Operating Lease Expense | | :------------------------------------------ | :---------------------- | | Three months ended January 31, 2024 | $3,804 | | Three months ended January 31, 2023 | $3,868 | | Six months ended January 31, 2024 | $7,869 | | Six months ended January 31, 2023 | $7,648 | Supplemental Cash Flow Information for Operating Leases (Six months ended January 31, Dollars in Thousands) | Metric | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Operating cash outflows from operating leases | $8,585 | $8,766 | | Operating lease assets obtained in exchange for new operating lease liabilities | $2,551 | $6,545 | NOTE F — Accumulated Other Comprehensive Loss AOCI comprises currency adjustments, cash flow hedges, and post-retirement gains, increasing due to U.S. dollar appreciation - Other comprehensive loss consists of foreign currency translation adjustments (including net investment hedges and long-term intercompany loan translation adjustments), unrealized gains from cash flow hedges, and unamortized gains on post-retirement plans, net of related tax effects[56] - The increase in accumulated other comprehensive loss as of January 31, 2024, compared to July 31, 2023, was primarily due to the appreciation of the U.S. dollar against certain other currencies during the six-month period[79] Changes in Accumulated Other Comprehensive Loss (Six months ended January 31, 2024, Dollars in Thousands) | Component | Unrealized gain on cash flow hedges | Unamortized gain on postretirement plans | Foreign currency translation adjustments | Accumulated other comprehensive loss | | :------------------------------------------ | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------------------------------- | | Beginning balance, July 31, 2023 | $1,641 | $756 | $(95,458) | $(93,061) | | Other comprehensive income (loss) before reclassification | $350 | — | $(5,773) | $(5,423) | | Amounts reclassified from AOCI | $(1,155) | $(302) | — | $(1,457) | | Ending balance, January 31, 2024 | $836 | $454 | $(101,231) | $(99,941) | NOTE G — Revenue Recognition Revenue is recognized upon transfer of control; contract liabilities for warranties were $3.0 million as of January 31, 2024 - The Company recognizes revenue when control of the product or service transfers to the customer, primarily from the sale of identification solutions and workplace safety products. All revenue is from contracts with customers and included in 'Net sales'[81] - Contract liabilities for extended service warranties were $2,979 thousand as of January 31, 2024, and $2,757 thousand as of July 31, 2023. The Company expects to recognize 21% of the January 31, 2024 balance by the end of fiscal 2024, an additional 33% by the end of fiscal 2025, and the remaining balance thereafter[61] NOTE H — Segment Information The Company's two segments, Americas & Asia and Europe & Australia, reported $433.3M and $221.3M in H1 FY24 net sales Net Sales by Segment (Dollars in Thousands) | Segment | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------- | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Americas & Asia | $211,643 | $220,067 | $433,269 | $438,562 | | Europe & Australia | $110,981 | $106,182 | $221,338 | $210,256 | | Total Company | $322,624 | $326,249 | $654,607 | $648,818 | Segment Profit (Dollars in Thousands) | Segment | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------- | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Americas & Asia | $43,895 | $40,174 | $93,792 | $81,319 | | Europe & Australia | $15,054 | $13,459 | $31,798 | $30,217 | | Total profit from reportable segments | $58,949 | $53,633 | $125,590 | $111,536 | NOTE I — Net Income per Common Share Basic and diluted EPS for Class A Nonvoting Common Share were $1.88 and $1.86 for H1 FY24 Net Income per Common Share (Unaudited) | Metric | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Basic EPS (Class A Nonvoting Common Share) | $0.90 | $0.76 | $1.88 | $1.55 | | Diluted EPS (Class A Nonvoting Common Share) | $0.90 | $0.76 | $1.86 | $1.55 | | Basic EPS (Class B Voting Common Share) | $0.90 | $0.76 | $1.86 | $1.54 | | Diluted EPS (Class B Voting Common Share) | $0.90 | $0.76 | $1.85 | $1.53 | - Potentially dilutive securities (stock options and restricted stock units) were excluded from diluted EPS calculations if their effect was anti-dilutive. Anti-dilutive shares were 49,562 and 181,674 for the three and six months ended January 31, 2024, respectively[108] NOTE J — Fair Value Measurements Financial assets and liabilities are measured using a three-level fair value hierarchy, with most short-term items at carrying value - Fair value measurements are classified into a three-level hierarchy: Level 1 (unadjusted quoted prices in active markets), Level 2 (observable inputs), and Level 3 (significant unobservable inputs)[84][109] Financial Assets and Liabilities at Fair Value (Dollars in Thousands) | Metric | January 31, 2024 | July 31, 2023 | Fair Value Hierarchy | | :------------------------------------------ | :--------------- | :------------ | :------------------- | | Assets: | | | | | Deferred compensation plan assets | $18,825 | $18,288 | Level 1 | | Foreign exchange contracts | $695 | $492 | Level 2 | | Liabilities: | | | | | Foreign exchange contracts | $28 | $189 | Level 2 | - The fair values of cash and cash equivalents, accounts receivable, accounts payable, and other liabilities approximated carrying values due to their short-term nature[111] NOTE K — Derivatives and Hedging Activities The Company uses forward foreign exchange contracts, totaling $31.3 million notional, to hedge currency risk exposures - The Company uses forward foreign exchange currency contracts to reduce exchange rate risk for foreign currency denominated transactions, with maturities typically less than 18 months. These qualify as cash flow hedges or net investment hedges[68] U.S. Dollar Equivalent Notional Amounts of Outstanding Forward Exchange Contracts (Dollars in Thousands) | Category | January 31, 2024 | July 31, 2023 | | :------------------------------------------ | :--------------- | :------------ | | Designated as cash flow hedges | $26,552 | $39,661 | | Non-designated hedges | $4,716 | $4,803 | | Total foreign exchange contracts | $31,268 | $44,464 | - The Company designates certain foreign currency denominated debt (Euros and British Pounds) as net investment hedges to hedge portions of its net investment in European operations. Net gains or losses from changes in spot prices are recorded as cumulative translation within AOCI[70] NOTE L — Income Taxes The H1 FY24 income tax rate was 21.1%, down from 21.7% due to stock-based compensation benefits - The income tax rate for the three months ended January 31, 2024 and 2023 was 21.8% and 21.7%, respectively. For the six months ended January 31, 2024 and 2023, it was 21.1% and 21.7%, respectively[114] - The decrease in the tax rate in the six-month period was primarily due to tax benefits from stock-based compensation and other permanent adjustments. The Company expects its ongoing annual income tax rate to be approximately 22%[114] NOTE M — Contingencies The Company faces various legal proceedings, but believes their outcomes will not materially impact its financial position - The Company is subject to various investigations, claims, suits, and other legal proceedings, including intellectual property, employment, and breach of contract matters. A liability is recorded when a loss is probable and estimable[115] - The Company believes that the outcomes of such proceedings will not have a material adverse impact on its business, financial position, results of operations, or cash flows[115] NOTE N — Subsequent Events On February 20, 2024, a quarterly cash dividend of $0.235 per share was declared, payable April 30, 2024 - On February 20, 2024, the Board of Directors declared a quarterly cash dividend of $0.235 per share for Class A and Class B Common Stock, payable on April 30, 2024, to shareholders of record on April 9, 2024[116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Brady Corporation's financial performance for Q2/H1 FY24, covering sales, margins, expenses, segments, and liquidity Overview Brady Corporation is a global manufacturer of identification and safety products, focusing on organic growth, profitability, and operational excellence - Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products, organized into two reportable segments: Americas & Asia and Europe & Australia[93] - Key strategic initiatives for fiscal 2024 include investing in organic growth (R&D, customer service, digital presence), maintaining profitability through pricing, integrating acquisitions, driving operational excellence, and fostering a diverse culture[119] - As of January 31, 2024, the Company had $143.9 million in cash and $250.1 million available under its credit agreement, with an option to increase to $1,110.1 million, providing total available liquidity of $1,254.0 million[94] - The Company expects continued inflationary pressures and supply chain disruptions through fiscal 2024 but has mitigated impacts through pricing actions and efficiency gains. Financial resources are deemed sufficient to manage economic or geopolitical events[120][121] Results of Operations This section details the company's overall financial performance, including sales, margins, and operating income Overall Performance Q2 FY24 net sales decreased 1.1% to $322.6M, while gross margin rose to 50.2% and operating income increased 10.5% Key Financial Performance (Dollars in Thousands, Unaudited) | Metric | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $322,624 | $326,249 | $654,607 | $648,818 | | Gross margin | $162,083 (50.2% of sales) | $156,440 (48.0% of sales) | $333,802 (51.0% of sales) | $311,704 (48.0% of sales) | | R&D expenses | $16,832 (5.2% of sales) | $15,377 (4.7% of sales) | $32,534 (5.0% of sales) | $29,310 (4.5% of sales) | | SG&A expenses | $91,325 (28.3% of sales) | $92,282 (28.3% of sales) | $187,612 (28.7% of sales) | $182,227 (28.1% of sales) | | Operating income | $53,926 (16.7% of sales) | $48,781 (15.0% of sales) | $113,656 (17.4% of sales) | $100,167 (15.4% of sales) | - Net sales for the three months ended January 31, 2024, declined 1.1% to $322.6 million, with organic sales growth of 1.6% offset by a 3.5% decrease due to divestitures. For the six months, net sales increased 0.9% to $654.6 million, with 2.2% organic growth offset by 2.4% from divestitures[97][123] - Gross margin as a percentage of net sales increased to 50.2% (3 months) and 51.0% (6 months) primarily due to organic sales growth in higher gross margin product lines[98] - R&D expenses increased 9.5% (3 months) and 11.0% (6 months) primarily due to increased R&D headcount, focusing on new printing systems, materials, and industrial track and trace solutions[124] - SG&A expenses decreased 1.0% (3 months) due to reduced headcount and advertising from divested businesses, partially offset by increased headcount in sales and technology roles. For the six months, SG&A increased 3.0% due to increased headcount, foreign currency translation, and digital advertising investments[99][125][126] - Operating income increased 10.5% (3 months) and 13.5% (6 months) primarily due to increased segment profit in the Americas & Asia segment from organic sales growth and improved gross profit margin[101] Operating Income to Net Income Investment income increased due to deferred compensation and interest, while interest expense decreased from lower borrowings Operating Income to Net Income (Dollars in Thousands, Unaudited) | Metric | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Six months ended January 31, 2024 | Six months ended January 31, 2023 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Operating income | $53,926 | $48,781 | $113,656 | $100,167 | | Investment and other income | $2,684 | $968 | $3,122 | $811 | | Interest expense | $(790) | $(1,239) | $(1,556) | $(2,133) | | Income before income taxes | $55,820 | $48,510 | $115,222 | $98,845 | | Income tax expense | $12,192 | $10,524 | $24,353 | $21,418 | | Net income | $43,628 | $37,986 | $90,869 | $77,427 | - Investment and other income increased primarily due to an increase in the market value of securities held in deferred compensation plans and an increase in interest income[102] - Interest expense decreased primarily due to a decrease in outstanding borrowings on the Company's credit agreement, partially offset by an increase in interest rates[149] - The Company's income tax rate was 21.8% (3 months) and 21.1% (6 months) for the period ended January 31, 2024, with the six-month decrease primarily due to tax benefits from stock-based compensation and other permanent adjustments[128] Business Segment Operating Results This section analyzes the financial performance of the Americas & Asia and Europe & Australia segments Americas & Asia Americas & Asia net sales declined 3.8% to $211.6M (Q2 FY24) due to divestitures, but segment profit rose 9.3% Americas & Asia Sales Growth Information | Metric | Three months ended January 31, 2024 | Six months ended January 31, 2024 | | :------------------------- | :---------------------------------- | :-------------------------------- | | Organic sales growth | 1.2% | 2.3% | | Currency impact | 0.1% | 0.0% | | Divestiture impact | (5.1)% | (3.5)% | | Total sales growth | (3.8)% | (1.2)% | Americas & Asia Segment Profit (Dollars in Thousands) | Metric | Three months ended January 31, 2024 | Six months ended January 31, 2024 | | :------------------------- | :---------------------------------- | :-------------------------------- | | Segment profit | $43,895 | $93,792 | | Segment profit as % of net sales | 20.7% | 21.6% | - Organic sales in the Americas increased in the low single digits, driven by wire identification, safety and facility identification, and product identification product lines, partially offset by a decline in healthcare identification[131] - Organic sales in Asia increased in the mid-single digits for the three months, led by increased volume in China and India. For the six months, organic sales were flat, with growth in India and Japan offset by a decline in China[106] Europe & Australia Europe & Australia net sales increased 4.5% to $111.0M (Q2 FY24), with segment profit up 11.9% Europe & Australia Sales Growth Information | Metric | Three months ended January 31, 2024 | Six months ended January 31, 2024 | | :------------------------- | :---------------------------------- | :-------------------------------- | | Organic sales growth | 2.5% | 2.0% | | Currency impact | 2.0% | 3.3% | | Total sales growth | 4.5% | 5.3% | Europe & Australia Segment Profit (Dollars in Thousands) | Metric | Three months ended January 31, 2024 | Six months ended January 31, 2024 | | :------------------------- | :---------------------------------- | :-------------------------------- | | Segment profit | $15,054 | $31,798 | | Segment profit as % of net sales | 13.6% | 14.4% | - Organic sales in Europe increased in the low-single digits, driven by product identification, safety and facility identification, and wire identification product lines[154] - Organic sales in Australia increased in the low-single digits, driven by consistent growth in digital and other channels, price increases, and increased volume across major product lines[134] Liquidity and Capital Resources This section discusses the company's cash flows, material cash requirements, and credit agreement details Cash Flows Cash and equivalents decreased by $7.7M to $143.9M; operating cash flow increased to $98.4M (H1 FY24) - Cash and cash equivalents were $143.9 million at January 31, 2024, a decrease of $7.7 million from July 31, 2023[157] Net Cash Flow by Activity (Six months ended January 31, Dollars in Thousands) | Activity | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Operating activities | $98,351 | $57,384 | | Investing activities | $(60,832) | $(8,156) | | Financing activities | $(42,964) | $(57,128) | | Effect of exchange rate changes on cash | $(2,227) | $2,041 | | Net decrease in cash and cash equivalents | $(7,672) | $(5,859) | - The increase in cash provided by operating activities was primarily due to improved profitability, reduced inventory spend, and lower annual incentive compensation payments[157] - The increase in cash used in investing activities was primarily due to the purchase of a previously leased facility in Mexico and facility construction costs in Belgium[136] - The decrease in cash used in financing activities was primarily due to a decrease of $16.1 million in net repayments on the credit agreement, partially offset by an increase in share repurchases[138][158] Material Cash Requirements Material cash requirements for capital, debt, and leases are expected to be met by operating cash and borrowing capacity - Material cash requirements for known contractual obligations include capital expenditures, borrowings on the credit agreement, and lease obligations[139] - Net cash provided by operating activities is expected to be adequate to meet liquidity and capital needs for these items over the next 12 months and beyond[139] - The Company does not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities[139] Credit Agreement The Company has a $300M credit agreement, with $48.1M outstanding and $250.1M available as of January 31, 2024 - The Company has an unsecured $300 million multi-currency credit agreement, amended on November 14, 2022, to extend maturity to November 14, 2027, and increase lending commitments[140][141] - The credit agreement can be increased up to $1,110.1 million at the Company's option, subject to certain conditions[141] - As of January 31, 2024, the outstanding balance was $48.1 million, with $250.1 million available for future borrowing. The weighted average interest rate was 5.5%[161] - The Company was in compliance with financial covenants, including a debt to EBITDA ratio of 0.2 to 1.0 (not more than 3.5 to 1.0) and an interest expense coverage ratio of 95.9 to 1.0 (not less than 3.0 to 1.0)[162] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 2023 Form 10-K for market risk disclosures, noting no material changes since that filing - Refer to the Company's Annual Report on Form 10-K for the year ended July 31, 2023, for quantitative and qualitative disclosures about market risk. There has been no material change in this information since the 2023 Form 10-K[166] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of January 31, 2024, with no material changes - The Company's disclosure controls and procedures are designed to ensure timely and accurate reporting of information required under the Securities Exchange Act of 1934[167] - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of January 31, 2024[167] - There were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the most recently completed fiscal quarter[1] PART II. Other Information This section provides additional information, including risk factors, equity sales, other disclosures, and exhibits Item 1A. Risk Factors No material changes to risk factors have occurred since the Company's Annual Report on Form 10-K for July 31, 2023 - There have been no material changes from the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended July 31, 2023[146] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds The Board authorized an additional $100.0M for share repurchases, with $88.2M remaining as of January 31, 2024 - On August 30, 2023, the Board of Directors authorized an additional $100.0 million for the share repurchase program of Class A Nonvoting Common Stock[3] - As of January 31, 2024, $88.2 million worth of repurchase authority remained under the existing share repurchase program[3] Share Repurchases (Three months ended January 31, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Value of Shares that May Yet Be Purchased Under the Plan (Dollars in Thousands) | | :------------------------------------------ | :------------------------------- | :--------------------------- | :---------------------------------------------------------------------------- | | November 1, 2023 - November 30, 2023 | 117,371 | $53.20 | $89,648 | | December 1, 2023 - December 31, 2023 | 25,744 | $55.60 | $88,217 | | January 1, 2024 - January 31, 2024 | — | — | $88,217 | | Total | 143,115 | $53.63 | $88,217 | Item 5. Other Information No director or Section 16 officer adopted or terminated Rule 10b5-1 trading arrangements during Q2 FY24 - No director or Section 16 officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended January 31, 2024[173] Item 6. Exhibits This section lists Form 10-Q exhibits, including CEO/CFO certifications and various XBRL taxonomy documents - Exhibits include certifications from Russell R. Shaller (CEO) and Ann E. Thornton (CFO) under Rule 13a-14(a)/15d-14(a) and Section 1350[175][177][181] - The filing also includes various XBRL Taxonomy Extension documents: Instance Document, Calculation Linkbase, Label Linkbase, Schema Document, Definition Linkbase, and Presentation Label Linkbase[177][181][183] Signatures This section includes the official signatures of the company's principal executive and financial officers - The report is signed by Russell R. Shaller, President and Chief Executive Officer, and Ann E. Thornton, Chief Financial Officer, Chief Accounting Officer and Treasurer, on February 22, 2024[179][182]