BRADY CORPBRC
BRADY CORP Income Taxes Disclosure
Income Taxes
Income before income taxes consists of the following:
| Years Ended July 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| United States | $ | 120,323 | $ | 111,647 | $ | 92,053 | ||||||||||||||
| Other Nations | 116,774 | 136,194 | 133,643 | |||||||||||||||||
| Total | $ | 237,097 | $ | 247,841 | $ | 225,696 | ||||||||||||||
Income tax expense consists of the following:
| Years Ended July 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Current income tax expense: | ||||||||||||||||||||
| United States | $ | 21,573 | $ | 22,637 | $ | 26,324 | ||||||||||||||
| Other Nations | 29,576 | 32,121 | 31,093 | |||||||||||||||||
| States (U.S.) | 4,315 | 5,267 | 5,894 | |||||||||||||||||
| $ | 55,464 | $ | 60,025 | $ | 63,311 | |||||||||||||||
| Deferred income tax (benefit) expense: | ||||||||||||||||||||
| United States | $ | (2,667) | $ | (7,999) | $ | (10,577) | ||||||||||||||
| Other Nations | (3,640) | (133) | 251 | |||||||||||||||||
| States (U.S.) | (1,316) | (1,267) | (2,146) | |||||||||||||||||
| $ | (7,623) | $ | (9,399) | $ | (12,472) | |||||||||||||||
| Total income tax expense | $ | 47,841 | $ | 50,626 | $ | 50,839 | ||||||||||||||
The tax effects of temporary differences are as follows as of July 31, 2025 and 2024:
| July 31, 2025 | ||||||||||||||||||||
| Assets | Liabilities | Total | ||||||||||||||||||
| Inventories | $ | 9,147 | $ | (59) | $ | 9,088 | ||||||||||||||
| Employee compensation and benefits | 8,982 | — | 8,982 | |||||||||||||||||
| Accounts receivable | 1,772 | — | 1,772 | |||||||||||||||||
| Fixed assets | 8,610 | (8,085) | 525 | |||||||||||||||||
| Intangible assets | 722 | (63,886) | (63,164) | |||||||||||||||||
| Capitalized R&D expenditures | 30,525 | — | 30,525 | |||||||||||||||||
| Deferred and equity-based compensation | 9,413 | — | 9,413 | |||||||||||||||||
| Postretirement benefits | 3,336 | (252) | 3,084 | |||||||||||||||||
| Tax credit and net operating loss carry-forwards | 84,160 | — | 84,160 | |||||||||||||||||
| Valuation allowances | (82,180) | — | (82,180) | |||||||||||||||||
| Other, net | 26,959 | (14,067) | 12,892 | |||||||||||||||||
| Total | $ | 101,446 | $ | (86,349) | $ | 15,097 | ||||||||||||||
| July 31, 2024 | ||||||||||||||||||||
| Assets | Liabilities | Total | ||||||||||||||||||
| Inventories | $ | 7,462 | $ | (59) | $ | 7,403 | ||||||||||||||
| Employee compensation and benefits | 9,248 | — | 9,248 | |||||||||||||||||
| Accounts receivable | 1,828 | — | 1,828 | |||||||||||||||||
| Fixed assets | 3,507 | (8,148) | (4,641) | |||||||||||||||||
| Intangible assets | 639 | (48,248) | (47,609) | |||||||||||||||||
| Capitalized R&D expenditures | 20,252 | — | 20,252 | |||||||||||||||||
| Deferred and equity-based compensation | 9,071 | — | 9,071 | |||||||||||||||||
| Postretirement benefits | 2,463 | (52) | 2,411 | |||||||||||||||||
| Tax credit and net operating loss carry-forwards | 43,929 | — | 43,929 | |||||||||||||||||
| Valuation allowances | (47,224) | — | (47,224) | |||||||||||||||||
| Other, net | 20,346 | (5,462) | 14,884 | |||||||||||||||||
| Total | $ | 71,521 | $ | (61,969) | $ | 9,552 | ||||||||||||||
Tax credit carry-forwards as of July 31, 2025 consist of the following:
•Foreign net operating loss carry-forwards of $204,016, of which $178,936 have no expiration date and the remainder of which expire from fiscal 2026 to fiscal 2035.
•State net operating loss carry-forwards of $22,423, all of which expire in fiscal 2032.
•Foreign tax credit carry-forwards of $16,919, which expire from fiscal 2026 to fiscal 2035.
•State credit carry-forwards of $13,955, which expire from fiscal 2026 to fiscal 2040.
Rate Reconciliation
A reconciliation of the income tax rate computed by applying the statutory U.S. federal income tax rate to income before income taxes to the total income tax expense is as follows:
| Years Ended July 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Tax at statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
International rate differential (1) | 0.8 | % | 0.7 | % | 1.7 | % | ||||||||||||||
| Adjustments to tax accruals and reserves | (0.9) | % | 0.2 | % | 0.2 | % | ||||||||||||||
| Research and development tax credits | (1.9) | % | (1.6) | % | (1.3) | % | ||||||||||||||
| Valuation allowance against foreign tax credits and foreign net operating loss carry-forwards | 0.3 | % | 0.2 | % | 1.2 | % | ||||||||||||||
| Other adjustments, net | 0.9 | % | (0.1) | % | (0.3) | % | ||||||||||||||
| Income tax rate | 20.2 | % | 20.4 | % | 22.5 | % | ||||||||||||||
(1)Represents the foreign income tax rate differential when compared to the U.S. statutory income tax rate for the years ended July 31, 2025, 2024, and 2023.
Uncertain Tax Positions
The Company follows the guidance in ASC 740, “Income Taxes” regarding uncertain tax positions. The guidance requires application of a more-likely-than-not threshold to the recognition and de-recognition of income tax positions. A reconciliation of unrecognized tax benefits (excluding interest and penalties) is as follows:
| Balance as of July 31, 2022 | $ | 20,564 | |||
| Additions based on tax positions related to the current year | 2,902 | ||||
| Additions for tax positions of prior years | 792 | ||||
| Reductions for tax positions of prior years | (19) | ||||
| Lapse of statute of limitations | (2,682) | ||||
| Settlements with tax authorities | (782) | ||||
| Cumulative translation adjustments and other | 124 | ||||
| Balance as of July 31, 2023 | $ | 20,899 | |||
| Additions based on tax positions related to the current year | 3,130 | ||||
| Additions for tax positions of prior years | 1,594 | ||||
| Reductions for tax positions of prior years | (43) | ||||
| Lapse of statute of limitations | (2,666) | ||||
| Settlements with tax authorities | (257) | ||||
| Cumulative translation adjustments and other | (67) | ||||
| Balance as of July 31, 2024 | $ | 22,590 | |||
| Additions based on tax positions related to the current year | 3,583 | ||||
Additions for tax positions of prior years (1) | 1,035 | ||||
| Reductions for tax positions of prior years | (1,616) | ||||
| Lapse of statute of limitations | (4,111) | ||||
| Settlements with tax authorities | (88) | ||||
| Cumulative translation adjustments and other | 409 | ||||
| Balance as of July 31, 2025 | $ | 21,802 | |||
(1) Includes acquisitions.
Of the $21,802 of unrecognized tax benefits, if recognized, $18,318 would affect the Company's income tax rate. The Company has classified $18,502 and $19,527, excluding interest and penalties, of the reserve for uncertain tax positions in “Other liabilities” on the consolidated balance sheets as of July 31, 2025 and 2024, respectively. The Company has classified $3,300 and $3,063, excluding interest and penalties, as a reduction of long-term deferred income tax assets on the accompanying consolidated balance sheets as of July 31, 2025 and 2024, respectively.
Interest expense is recognized on the amount of potentially underpaid taxes associated with the Company's tax positions, beginning in the first period in which interest starts accruing under the respective tax law and continuing until the tax positions are settled. The Company recognized interest expense of $299, $893, and $700 on the reserve for uncertain tax positions during the years ended July 31, 2025, 2024, and 2023, respectively. The Company also recognized benefits related to penalties of $120, $38, and $281 during the years ended July 31, 2025, 2024, and 2023, respectively. These amounts are net of reversals due to reductions for tax positions of prior years, statute of limitations, and settlements. At July 31, 2025 and 2024, the Company had $4,740 and $4,448, respectively, accrued for interest on unrecognized tax benefits. Penalties are accrued if the tax position does not meet the minimum statutory threshold to avoid the payment of a penalty. At July 31, 2025 and 2024, the Company had $1,893 and $1,631, respectively, accrued for penalties on unrecognized tax benefits. Interest expense and penalties are recorded as a component of “Income tax expense” in the consolidated statements of income.
The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by up to $3,117 in the next 12 months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or the expiration of statute of limitations, all of which, if recognized, would result in an income tax benefit in the consolidated statements of income.
During the year ended July 31, 2025, the Company recognized $6,033 of tax benefits (including interest and penalties) associated with the lapse of statutes of limitations.
The Company and its subsidiaries file income tax returns in the U.S., various states, and foreign jurisdictions. The following table summarizes the open tax years for the Company's major jurisdictions:
| Jurisdiction | Open Tax Years | |||||||
| United States — Federal | F’22 — F’25 | |||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Sep 4, 2025 | Showing above |
| 2024 | Sep 6, 2024 | |
| 2023 | Sep 5, 2023 | |
| 2022 | Sep 1, 2022 | |
| 2019 | Sep 6, 2019 | |
| 2018 | Sep 13, 2018 | |
| 2017 | Sep 13, 2017 | |
| 2016 | Sep 15, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.