The Quarterly
BRC 2012 10-K

Brady Corp (BRC) SEC Annual Report (10-K) for 2012

BRC 2013 10-K
BRC 2012 10-K BRC 2013 10-K
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x

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

For the fiscal year ended July 31, 2012

OR

¨

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

For the transition period from                    to                    

Commission file number 1-14959

BRADY CORPORATION

(Exact name of registrant as specified in charter)

Wisconsin 39-0178960

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

6555 West Good Hope Road,

Milwaukee, WI

53223
(Address of principal executive offices) (Zip Code)

(414) 358-6600

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Class A Nonvoting Common Stock, Par

Value $.01 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨   (Do not check if a smaller reporting company)

Smaller reporting company

¨

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

The aggregate market value of the non-voting common stock held by non-affiliates of the registrant as of January 31, 2012, was approximately $1,441,914,982 based on closing sale price of $32.37 per share on that date as reported for the New York Stock Exchange. As of September 20, 2012, there were 47,406,559 outstanding shares of Class A Nonvoting Common Stock (the "Class A Common Stock"), and 3,538,628 shares of Class B Common Stock. The Class B Common Stock, all of which is held by affiliates of the registrant, is the only voting stock.

Table of Contents

INDEX

Page

PART I

Item 1. Business

3

General Development of Business

3

Financial Information About Industry Segments

3

Narrative Description of Business

3

Overview

3

Research and Development

5

Operations

5

Environment

6

Employees

6

Financial Information About Foreign and Domestic Operations and Export Sales

6

Information Available on the Internet

6

Item 1A. Risk Factors

6

Item 1B. Unresolved Staff Comments

10

Item 2. Properties

10

Item 3. Legal Proceedings

11

Item 4. Mine Safety Disclosures

11

PART II

Item  5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

12

Item 6. Selected Financial Data

15

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

16

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

28

Item 8. Financial Statements and Supplementary Data

29

Item  9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

63

Item 9A. Controls and Procedures

64

Item 9B. Other Information

66

PART III

Item 10. Directors and Executive Officers of the Registrant

66

Item 11. Executive Compensation

70

Compensation Discussion and Analysis

70

Management Development and Compensation Committee Interlocks and Insider Participation

80

Management Development and Compensation Committee Report

80

Compensation Policies and Practices

81

Summary Compensation Table

81

Grants of Plan-Based Awards for 2012

82

Outstanding Equity Awards at 2012 Fiscal Year End

83

Option Exercises for Fiscal 2012

85

Non-Qualified Deferred Compensation for Fiscal 2012

85

Potential Payments Upon Termination or Change in Control

85

Compensation of Directors

89

Director Compensation Table - Fiscal 2012

90

Item  12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

90

Item 13. Certain Relationships, Related Transactions, and Director Independence

92

Item 14. Principal Accounting Fees and Services

93

PART IV

Item 15. Exhibits and Financial Statement Schedules

94

Signatures

99

2

Table of Contents

PART I

Item 1. Business

(a) General Development of Business

Brady Corporation ("Brady," "Company," "we," "us," "our") was incorporated under the laws of the state of Wisconsin in 1914. The Company's corporate headquarters are located at 6555 West Good Hope Road, Milwaukee, Wisconsin 53223, and the telephone number is (414) 358-6600.

Brady Corporation is an international manufacturer of identification solutions and specialty materials that identify and protect premises, products and people. The ability to provide customers with a broad range of proprietary, customized, and diverse products for use in various applications, along with a commitment to quality and service, a global footprint and multiple sales channels, have made Brady a world leader in many of its markets.

The Company's primary objective is to build upon its leading market position and increase shareholder value by leveraging competitive strengths including:

Global leadership position in niche markets

Innovation advantage - Internally developed products drive growth and help sustain gross profit margins

Operational excellence - Continuous productivity improvement through global sourcing, the Brady Business Performance System ("BBPS"), and SG&A effectiveness programs

Disciplined acquisition process

(b) Financial Information About Industry Segments

The information required by this Item is provided in Note 7 of the Notes to Consolidated Financial Statements contained in Item 8 - Financial Statements and Supplementary Data.

(c) Narrative Description of Business

Overview

The Company is organized and managed on a geographic basis within three regions: Americas, EMEA (Europe, the Middle East and Africa), and Asia-Pacific, which are the reportable segments. Below is a summary of sales by reportable segments in the fiscal years ended July 31:

2012 2011 2010

Americas

45 43 44

EMEA

29 30 30

Asia-Pacific

26 27 26

Total

100 100 100

Across these regions, the Company operates three primary business platforms: Identification Solutions ("ID Solutions"), Direct Marketing and Die-Cut. The ID Solutions business platform was referred to as the Brady business in prior filings. Below is a summary of sales by business in the fiscal years ended July 31:

2012 2011 2010

ID Solutions

56 55 54

Direct Marketing

27 27 27

Die-Cut

17 18 19

Total

100 100 100

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ID Solutions

Within the ID Solutions platform, the primary product categories include:

Workplace safety and compliance, which includes facility identification, labeling systems, spill control, lockout/tagout, and software services

Product identification, which includes materials and printing systems for product identification, brand protection labeling, work in process labeling, finished product identification, and bar coding that performs under a variety of harsh or demanding conditions

Wire identification, which includes handheld printers, wire markers, sleeves, and tags

People identification, which includes self-expiring name tags, badges, lanyards, and access control software and products

Approximately 75% of ID Solutions products are sold under the Brady brand. Safety and facility identification products are also marketed under the Safety Signs Service brand, with some lockout/tagout products offered under the Scafftag brands. In the United States, identification products for the utility industry are marketed under the Electromark brand, and spill-control products are marketed under the Sorbent Products Company brand; security and identification badges and systems are included in the Temtec, B.I.G., Identicard/Identicam, STOPware, J.A.M. Plastics, PromoVision, and Brady People ID brands; wire identification products are marketed under the Modernotecnica brand in Italy and the Carroll brand in Australia; hand-held regulatory documentation systems are available under the Tiscor brand, and custom labels and nameplates are available under the Stickolor brand in Brazil.

The ID Solutions platform offers high quality products with rapid response and superior service to provide solutions to customers. The business markets and sells products through multiple channels including distributors, direct sales, mail-order-catalog marketing, and electronic access through e-commerce. The business' sales force partners with end-users and distributors providing technical application and product expertise.

The ID Solutions platform serves customers in many markets, which include industrial manufacturing, electronic manufacturing, chemical, oil, gas, food and beverage, aerospace, defense, mass transit, electrical contractors, and telecommunications, among others.

The ID Solutions platform provides differentiated, proprietary products, many which have been internally developed and manufactured. These internally developed products include materials, printing systems, and software. Brady competes for business principally on the basis of production capabilities, engineering, research and development capabilities, materials expertise, global account management where needed, customer service, product quality and price. Competition in many of its product markets is highly fragmented, ranging from smaller companies offering only one or a few types of products, to some of the world's major adhesive and electrical product companies offering some competing products as part of their overall product lines.

Direct Marketing

Within the Direct Marketing business platform, the primary product categories include workplace safety and compliance products, which include informational signs, tags, security and traffic related products, first aid supplies, material handling, asset identification, safety and facility identification, and regulatory products.

Products within the Direct Marketing platform are sold under a variety of brands including: safety and facility identification products offered under the Seton, Emedco, Signals, Safetyshop, Clement and Personnel Concepts brands; spill-control products under the D.A.W.G. brand; and first aid supplies under the Accidental Health and Safety, Trafalgar, and Securimed brands.

The Direct Marketing platform markets and sells products through multiple channels, which include catalog, telemarketing and e-commerce. The business serves customers in many markets, which include process industries, manufacturers, government, education, construction, and utilities.

The Direct Marketing platform manufactures a broad range of stock and custom identification products, and also sells a broad range of related resale products. Historically, many of our competitors were experts in direct marketing, often with varying product niches. However, the competitive landscape is changing with the evolution of e-commerce channels. The barriers to entry are evolving with internet technology replacing direct marketing catalog expertise. A consequence of this shift is price transparency, as prices on commodity products can be easily compared. Dynamic pricing capabilities and an enhanced customer experience are critical to convert customers from traditional catalog channels to the internet.

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Die-Cut

Within the Die-Cut business platform, the primary products include customized precision die-cut products used to seal, dissipate heat, insulate, protect, shield, or provide other mechanical performance properties.

Products within the Die-Cut platform are sold primarily under the Brady brand, with some European business marketed as Balkhausen products. The business sells through a technical direct sales force, and is supported by global strategic account management. The Die-Cut platform serves customers in many markets, which include mobile handset, hard disk drive, consumer electronics, other computing devices, as well as products for the automotive and medical equipment markets.

The Die-Cut platform consists of engineered customized products, manufactured to specific customer requirements. The market for die-cut components is cyclical and can be volatile as it is driven by rapidly changing consumer demand, in addition to being highly price competitive. As products containing die-cut parts (mobile phones, disk drives, and other electronics) change rapidly, programs earned are often short-lived, and business must be rebid with each new program. Brady competes for business principally on the basis of price, production capabilities, engineering, global footprint, and global account management. Competitors include global die-cut and label converters, local low-cost manufacturers, and device manufacturers looking to vertically integrate (shorten supply chain).

Research and Development

The Company focuses research and development efforts on material development, printing systems design and software development. Material development involves the application of surface chemistry concepts for top coatings and adhesives applied to a variety of base materials. Systems design integrates materials, embedded software and a variety of printing technologies to form a complete solution for customer applications. The Company's research and development team also supports production and marketing efforts by providing application and technical expertise.

The Company owns patents and trademarks relating to certain products in the United States and internationally. Although the Company believes that patents are a significant factor in maintaining market 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. 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 trademarks are valid ten years from the date of registration, and are typically renewed on an ongoing basis.

The Company spent approximately $38.4 million, $43.0 million, and $42.6 million during the fiscal years ended July 31, 2012, 2011, and 2010, respectively, on its research and development activities. The reduction in R&D spending in 2012 was primarily due to reductions in variable compensation in addition to cost reduction actions within the Asia-Pacific region. Research and development creates a competitive advantage for the Company that enables long-term sales growth and gross margin improvement. Consistent with fiscal 2011, approximately 220 employees were engaged in research and development activities for the Company in fiscal 2012.

Operations

The materials used in the products manufactured consist primarily of plastic sheets and films, paper, metal and metal foil, cloth, fiberglass, polypropylene, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers, solvents and electronic components and subassemblies. The Company has a coating facility that manufactures bulk rolls of label stock for internal and external customers. In addition, the Company purchases finished products for resale.

The Company purchases raw materials, components and finished products from many suppliers. Overall, the Company is not dependent upon any single supplier for its most critical base materials or components; however, the Company has chosen in certain situations to sole source materials, components or finished items for design or cost reasons. As a result, disruptions in supply could have an impact on results for a period of time, but generally these disruptions would simply require qualification of new suppliers and the disruption would be modest. In certain instances, the qualification process could be more costly or take a longer period of time and in rare circumstances, such as a global shortage of a critical materials or components, the financial impact could be significant. The Company currently operates 56 manufacturing or distribution facilities globally.

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Table of Contents

The Company carries working capital mainly related to accounts receivable and inventory. Inventory consists of raw materials, work in process and finished goods. Generally, custom products are made to order while an on-hand quantity of stock products is maintained to provide customers immediate delivery of stock products. Normal and customary payment terms range from net 30 to 90 days from date of invoice and varies by region.

The Company has a broad customer base, and no individual customer is 5% or more of total net sales. Sales to government markets represent a non-material amount of the business.

Average delivery time for the Company's orders varies from same-day delivery to one month, depending on the type of product, customer request or demand, and whether the product is stock or custom-designed and manufactured. The Company's backlog is not material, does not provide much visibility for future business, and is not pertinent to an understanding of the business.

Environment

Compliance with federal, state and local environmental protection laws during fiscal 2012 had no material effect upon the Company's business, financial condition or results of operations.

Employees

As of September 20, 2012, the Company employed approximately 6,900 individuals. Brady has never experienced a material work stoppage due to a labor dispute and considers its relations with employees to be good.

Financial Information About Foreign and Domestic Operations and Export Sales

The information required by this Item is provided in Note 7 of the Notes to Consolidated Financial Statements contained in Item 8 - Financial Statements and Supplementary Data.

Information Available on the Internet

The Company's Corporate Internet address is http://www.bradycorp.com. The Company makes available, free of charge, on or through its Internet 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 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.

Item 1A. Risk Factors

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

Deterioration of or instability in the global economy and financial markets may adversely affect our business and financial statements.

Our business and operating results have been and will continue to be affected by global economic conditions. When global economic conditions deteriorate or economic uncertainty continues, customers and potential customers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products. In particular, the European debt crisis and the instability and uncertainty relating to the Euro could adversely impact our financial results. Our sensitivity to economic cycles and any related fluctuations in the businesses of our customers or potential customers may have a material effect on our results of operations, liquidity and financial conditions.

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E-commerce increases price transparency and may adversely affect our business and financial statements.

A portion of our Direct Marketing business platform is transitioning from traditional channels to e-commerce. Historically, competitors were experts in direct marketing database management. The competitive landscape is changing with the evolution of e-commerce. The barriers to entry are changing with internet technology replacing some traditional catalog direct marketing expertise, and a consequence of this shift is such that prices on some commodity products can be easily compared by the customer. Approximately one-fourth of our sales are derived from our Direct Marketing platform, and this shift toward increased price transparency could adversely impact our results of operations.

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

Numerous factors may affect the demand for our products including:

Cyclical demands of the end user marketplace. These markets include, but are not limited to, mobile telecommunication devices, hard disk drives, and electronics in personal computers and other electronic devices.

Future financial performance of major markets served

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

Future competitors entering the marketplace

Large customer market share fluctuations

Ever decreasing product life cycles

Changes in customer preferences

Declines in general economic conditions

If any of these factors occur, the demand for our products could suffer, and this would adversely affect our results of operations.

Price reductions or additional costs may need to be incurred to remain competitive in certain markets, which would have a negative impact on profitability.

We face substantial competition throughout our entire business, but particularly in the Die-Cut business platform. Competition may force us to cut prices or incur additional costs to remain competitive. We compete on the basis of price, production capabilities, engineering, global footprint, and global account management. Present or future competitors may have greater financial, technical or other resources, lower production costs or other pricing advantages, any of which could put us at a disadvantage in the affected business by threatening our market share or reducing our profit margins. Additionally, throughout our global business, distributors and customers may seek lower cost sourcing opportunities, which could result in a loss of business that may adversely impact results of operations, cash flows, and liquidity.

A large customer loss could significantly affect results of operations, cash flows, and liquidity.

While we have a broad customer base and no individual customer represents 5% or more of total sales, several of our large customers in the Die-Cut platform together comprise a significant portion of our sales. Additionally, we conduct business with several large distribution companies. Our dependence on these large customers makes relationships with them important. We cannot guarantee that these relationships will be retained in the future. Because these large customers account for a significant portion of sales, they may possess a greater capacity to negotiate reduced prices. If we are unable to provide products to our customers at the quality and prices acceptable to them or to adapt to technological changes, some of our customers may shift their business to competitors or may substitute another manufacturer's products. If one of the large customers consolidates, is acquired, or loses market share, the result of that event may have an adverse impact on our business. The loss of or reduction of business from one or more of these large customers could have a material impact on our financial condition, results of operations, cash flows, and liquidity.

The global nature of our business exposes us to foreign currency fluctuations that could adversely affect sales, profits, and cash balances.

The majority of our sales are derived outside the United States. Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar, and may adversely affect our financial statements. Increased strength of the U.S. dollar will increase the effective price of our products sold in currencies other than U.S. dollars into other countries. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products, and services purchased overseas. Our sales and expenses are translated into U.S. dollars for reporting purposes, and the strengthening or weakening of the U.S. dollar could result in unfavorable translation effects. In addition, certain of our subsidiaries may invoice customers in a currency other than its functional currency, which could result in unfavorable translation effects on sales, profits, and cash balances.

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International operations are subject to various U.S. or country-specific regulations which could adversely affect our financial statements.

Our operations are subject to the risks of doing business abroad, including the following:

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

Political and economic instability and disruptions

Imposition of duties and tariffs

Import and export controls

Changes in governmental policies 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 (FCPA)

Local labor market conditions

Current and changing regulatory environments

Potentially adverse tax consequences, including repatriation of profits

Stability of the Euro and its ability to serve as a single currency for a variety of countries

These events could have an adverse effect on our operations by reducing the demand, decreasing prices, or increasing costs for our products, which would adversely affect our financial condition or operating results.

Failure to develop new products or lack of acceptance of new products could adversely impact our business and financial statements .

Development of proprietary products is a driver of core growth and reasonable gross profit margins both currently and in the future. Therefore, we must continue to develop new and innovative products, as well as acquire and retain the necessary intellectual property rights in these products. If we fail to make innovations, if we launch products with quality problems, or if the market does not accept our new products, then our financial condition, results of operations, cash flows, and liquidity could be adversely affected. We continue to invest in the development and marketing of new products. These expenditures do not always result in products that will be accepted by the market. Failure to develop successful new products may also cause customers to buy from a competitor or may cause us to lower our prices in order to compete. This could have an adverse impact on profitability.

Inability to identify, complete and integrate acquisitions may adversely impact our business and financial statements.

Our historical growth has included, and our future growth strategy includes making acquisitions. We may not be able to identify acquisition targets or successfully complete acquisitions in the future due to the absence of quality companies in our target markets, economic conditions, or price expectations from sellers. If we are unable to complete additional acquisitions, our growth may be limited.

Additionally, as we grow through acquisitions, we will continue to place significant demands on management, operational, and financial resources. Recent and future acquisitions will require integration of operations, sales and marketing, information technology, finance and administrative operations, which could decrease the time available to serve and attract customers. We cannot assure that we will be able to successfully integrate acquisitions, that these acquisitions will operate profitably, or that we will be able to achieve the financial or operational success expected from the acquisitions. Our financial condition, cash flows, and operational results could be adversely affected if we do not successfully integrate the newly acquired businesses, or if our other businesses suffer due to the increased focus on the newly acquired businesses.

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Failure to successfully complete restructuring plans may adversely impact the financial statements.

We continue to implement measures to address our cost structure. Successful implementation of such initiatives is critical to our future competitiveness and to improve profitability. Further actions to reduce our cost structure and the charges related to these actions may have a material effect on our results of operations and financial condition.

Failure to comply with laws and regulations could adversely affect our financial condition, results of operations, cash flows, and reputation.

We are subject to extensive regulation by U.S. and non-U.S. governmental and self-regulatory entities at the federal, state and local levels, including the following:

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

Regulations relating to health, safety and the protection of the environment

Specific country regulations where product is manufactured or sold

Import, export and economic sanction laws

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

Further , these laws and regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon our financial condition, results of operations or cash flows.

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

Computer systems and technology may be susceptible to cyber threats which could adversely impact the financial statements.

Our exposure to cyber-security threats is growing as we expand and increase our reliance on computers and digital technologies. Our business employs systems and websites designed for the secure storage and transmission of proprietary information. Security breaches could expose us to a risk of loss or misuse of this information, litigation and potential liability. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber attacks. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business.

Failure to meet certain financial covenants required by our debt agreements may adversely affect our assets, financial position, cash flows, and liquidity.

As of July 31, 2012, we had approximately $316.2 million in outstanding indebtedness. In addition, based on the availability under our credit facilities as of July 31, 2012, we had the ability to incur an additional $300.0 million under our revolving credit agreement. Our current revolving credit agreement and long-term debt obligations also impose certain restrictions on us. Refer to the MD&A within Item 7 for more information regarding our credit agreement and long-term debt obligations. If we breach any of these restrictions or covenants and do not obtain a waiver from the lenders, then, subject to applicable cure periods, the outstanding indebtedness (and any other indebtedness with cross-default provisions) could be declared immediately due and payable, which would adversely affect our liquidity and financial condition.

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An increase in the level of debt could adversely affect our financial health.

An increase in our level of debt, which historically has occurred in order to finance acquisitions and for other general corporate purposes, could adversely impact: obligations under existing debt agreements; ability to obtain additional financing for future growth; future interest rates; cash flows available to fund new product development; capital expenditures; working capital and other general corporate activities; and our flexibility in planning and reacting to changes in the business.

Goodwill or other intangible assets may become impaired, which may negatively impact profitability.

We have goodwill of $676.8 million and other intangible assets of $84.1 million as of July 31, 2012, which represents 47% of our total assets. We evaluate goodwill for impairment on an annual basis or more frequently if impairment indicators are present based upon the fair value of each reporting unit. We assess the impairment of other intangible assets on an annual basis or more frequently if impairment indicators are present based upon the expected future cash flows of the respective assets. These valuations include management's estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures, and other assumptions. Significant negative industry or economic trends, disruptions to our business, inability to achieve forecasted sales projections or cost savings, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations. If the estimated fair value of our reporting units changes in future periods, we may be required to record an impairment charge related to goodwill or other intangible assets, which would reduce earnings in such period.

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

We are subject to income taxes in the U.S. and in many non-U.S. jurisdictions. As such, our earnings are subject to risk due to changing tax laws and tax rates around the world. At any point in time, there are a number of tax proposals at various stages of legislation throughout the globe. While it is impossible for us to predict whether some or all of these proposals will be enacted, it is likely would have an impact on our earnings.

Our tax filings are subject to audit by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in payments or assessments different from our reserves, our future net earnings may be adversely impacted.

We review the probability of the realization of our deferred tax assets on a quarterly basis based on forecasts of taxable income in both the U.S. and foreign jurisdictions. As part of this review, we utilize historical results, projected future operating results, eligible carry-forward periods, tax planning opportunities, and other relevant considerations. Adverse changes in profitability and financial outlook in both the U.S. and foreign jurisdictions, or changes in our geographic footprint may require changes in the valuation allowances in order to reduce our deferred tax assets. Such changes could result in a material impact on earnings.

Our annual cash needs could require us to repatriate cash to the U.S. from foreign jurisdictions. This could result in material expenses in the period in which the transactions occur.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company currently operates 56 manufacturing or distribution facilities in the following regions:

Americas: Eleven are located in the United States; three in Brazil, two in Mexico; and one in Canada.

EMEA: Four each located in the United Kingdom, Belgium, and Germany; three in France; two each in Norway and Sweden, and one each in the Netherlands, Denmark, Italy, Poland, and South Africa.

Asia-Pacific: Seven are located in China; two in Australia; and one each in Japan, Thailand, Singapore, India, South Korea, and Malaysia.

The Company leases the majority of its operating facilities under operating lease agreements. The Company believes that its equipment and facilities are modern, well maintained, and adequate for present needs.

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Item 3. Legal Proceedings

The Company is, and may in the future be, party to litigation arising in the normal course of business. The Company is not currently a party to any material pending legal proceedings in which management believes the ultimate resolution would have a material effect on the Company's consolidated financial statements.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)

Market Information

Brady Corporation Class A Nonvoting Common Stock trades on the New York Stock Exchange under the symbol BRC. The following table sets forth the range of high and low daily closing sales prices for the Company's class A stock as reported on the New York Stock Exchange for each of the quarters in the fiscal years ended July 31:

2012 2011 2010
High Low High Low High Low

4th Quarter

$ 31.28 $ 25.15 $ 38.49 $ 29.60 $ 34.75 $ 24.37

3rd Quarter

$ 34.37 $ 29.41 $ 37.71 $ 33.37 $ 35.28 $ 27.19

2nd Quarter

$ 34.40 $ 27.09 $ 33.78 $ 30.83 $ 31.22 $ 26.77

1st Quarter

$ 32.24 $ 24.73 $ 31.33 $ 25.35 $ 33.06 $ 27.08

There is no trading market for the Company's Class B Voting Common Stock.

(b)

Holders

As of September 17, 2012, there were 901 Class A Common Stock shareholders of record and approximately 6,000 beneficial shareholders. There are three Class B Common Stock shareholders.

(c)

Issuer Purchases of Equity Securities

On September 9, 2011, the Company's Board of Directors authorized a share repurchase program for up to two million shares of the Company's Class A Nonvoting Common Stock. 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. During the three months ended July 31, 2012, the Company purchased 1,411,833 shares of its Class A Nonvoting Common Stock under this plan for $37.6 million. As of July 31, 2012, there remained 334,940 shares to purchase in connection with this share repurchase plan.

The following table provides information with respect to the purchase of Class A Nonvoting Common Stock during the three months ended July 31, 2012:

Total Number of Maximum Number
Average Shares Purchased of Shares that May
Total Number of Price Paid as Part of Publicly Yet Be Purchased

Period

Shares Purchased per Share Announced Plans Under the Plans

May 1, 2012 – May 31, 2012

-   $ -   -   1,746,773

June 1, 2012 – June 30, 2012

586,833 $ 27.25 586,833 1,159,940

July 1, 2012 – July 31, 2012

825,000 $ 26.22 825,000 334,940

Total

1,411,833 $ 26.65 1,411,833 334,940

(d)

Dividends

The Company has historically paid quarterly dividends on outstanding common stock. Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual, noncumulative cash dividend of $0.01665 per share (subject to adjustment in the event of future stock splits, stock dividends or similar events involving shares of Class A Common Stock). Thereafter, any further dividend in that fiscal year must be paid on all shares of Class A Common Stock and Class B Common Stock on an equal basis. The Company believes that based on its historic dividend practice, this restriction will not impede it in following a similar dividend practice in the future.

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During the two most recent fiscal years and for the first quarter of fiscal 2013, the Company declared the following dividends per share on its Class A and Class B Common Stock for the years ended July 31:

2013 2012 2011
1st Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Class A

$ 0.19 $ 0.185 $ 0.185 $ 0.185 $ 0.185 $ 0.18 $ 0.18 $ 0.18 $ 0.18

Class B

0.17335 0.16835 0.185 0.185 0.185 0.16335 0.18 0.18 0.18

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(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, 2007, in each of Brady Corporation Class A Common Stock, The Standard & Poor's (S&P) 500 index, the Standard and Poor's SmallCap 600 index, and the Russell 2000 index.

Comparison of 5 Year Cumulative Total Return*

Among Brady Corporation, The S&P 500 Index,

The S&P SmallCap 600 Index and The Russell 2000 Index

*

$100 invested on 7/31/07 in stock or index-including reinvestment of dividends. Fiscal year ended July 31.

7/31/2007 7/31/2008 7/31/2009 7/31/2010 7/31/2011 7/31/2012

Brady Corporation

100.00 106.65 87.90 85.12 99.72 91.60

S&P 500 Index

100.00 88.91 71.16 81.01 96.93 105.78

S&P SmallCap 600 Index

100.00 91.72 74.05 88.25 110.06 114.45

Russell 2000 Index

100.00 93.29 73.94 87.58 108.52 108.72

Copyright (C) 2012, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.

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Item 6. Selected Financial Data

CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATA

Years Ended July 31, 2008 through 2012

2012 2011 2010 2009 2008

Operating Data (1)

Net Sales

$ 1,324,269 $ 1,339,597 $ 1,259,096 $ 1,208,702 $ 1,523,016

Gross Margin

636,306 656,196 623,297 577,583 744,195

Operating Expenses:

Research and development

38,440 43,001 42,621 34,181 40,607

Selling, general and administrative

430,310 441,815 435,906 397,180 495,904

Restructuring charges (2)

12,110 9,188 15,314 25,849 -  

Impairment charge (3)

115,688 -   -   -   -  

Total operating expenses

596,548 494,004 493,841 457,210 536,511

Operating Income

39,758 162,192 129,456 120,373 207,684

Other Income (Expense):

Investment and other income-net

2,082 3,990 1,168 1,800 4,888

Interest expense

(19,090 (22,124 (21,222 (24,901 (26,385

Net other expense

(17,008 (18,134 (20,054 (23,101 (21,497

Income before income taxes

22,750 144,058 109,402 97,272 186,187

Income Taxes

40,661 35,406 27,446 27,150 53,999

Net (Loss) Income

$ (17,911 $ 108,652 $ 81,956 $ 70,122 $ 132,188

Net (Loss) Income Per Common Share- (Diluted):

Class A nonvoting

$ (0.35 $ 2.04 $ 1.55 $ 1.32 $ 2.41

Class B voting

$ (0.35 $ 2.03 $ 1.53 $ 1.31 $ 2.39

Cash Dividends on:

Class A common stock

$ 0.74 $ 0.72 $ 0.70 $ 0.68 $ 0.60

Class B common stock

$ 0.72 $ 0.70 $ 0.68 $ 0.66 $ 0.58

Balance Sheet at July 31:

Working capital

$ 383,836 $ 456,406 $ 375,184 $ 286,955 $ 390,524

Total assets

1,607,719 1,861,505 1,746,231 1,583,267 1,850,513

Long-term obligations, less current maturities

254,944 331,914 382,940 346,457 457,143

Stockholders' investment

1,009,353 1,156,192 1,005,027 951,092 1,021,808

Cash Flow Data:

Net cash provided by operating activities

$ 144,705 $ 167,350 165,238 126,645 225,554

Depreciation and amortization

43,987 48,827 53,022 54,851 60,587

Capital expenditures

(24,147 (20,532 (26,296 (24,027 (26,407

(1)

Financial data has been impacted by the acquisitive nature of the Company as three, one, three, and two acquisitions were completed in fiscal years ended July 31, 2012, 2011, 2010, and 2008, respectively. There were no acquisitions in fiscal 2009. Refer to Note 2 within Item 8 for further information on the acquisitions that were completed.

(2)

In fiscal 2009, in response to the global economic downturn, the Company initiated several measures to address its cost structure, including the reduction in its workforce and decreased discretionary spending. The Company continued certain of these measures during fiscal 2010 and 2011. During fiscal 2012, the Company took various measures to address its cost structure in response to a decline in forecasted operating results. As a result, the Company recorded restructuring charges during fiscal 2012.

(3)

The Company recognized a goodwill impairment charge of $115.7 million during the quarter ended January 31, 2012, related to the former North/South Asia reporting unit within the Asia-Pacific reporting segment. Refer to Note 1 within Item 8 for further information regarding the impairment charge.

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

Overview

In fiscal 2012, the Company posted sales of $1,324.3 million and a net loss of $17.9 million. Sales declined by 1.1% from fiscal 2011 to fiscal 2012, of which organic sales decreased by 0.4%, the effects of fluctuations in the exchange rates used to translate financial results into the United States dollar decreased sales by 1.0%, and acquisitions net of divestitures, increased sales by 0.3%. Regionally, fiscal 2012 sales in the Americas increased 2.2%, while sales in EMEA and Asia-Pacific decreased 3.9% and 3.4%, respectively, as compared to fiscal 2011.

The net loss for fiscal 2012 of $17.9 million or ($0.35) per diluted share of Class A Common Stock is a decline from fiscal 2011 net income of $108.7 million, or $2.04 per diluted share. The decline in net income was primarily due to a $115.7 million goodwill impairment charge recorded during the second quarter ended January 31, 2012, related to the former North/South Asia reporting unit within the Asia-Pacific operating segment. Refer to Note 1, "Summary of Significant Accounting Policies" within the Notes to the Consolidated Financial Statements for further discussion regarding the goodwill impairment charge.

Results of Operations

Year Ended July 31, 2012, Compared to Year Ended July 31, 2011

The comparability of the operating results for the fiscal years ended July 31, 2012 to July 31, 2011, has been impacted by the following acquisitions and divestitures completed in fiscal 2012 and 2011.

Acquisitions:

Segment

Date Completed

ID Warehouse

Asia Pacific

November 2010

Grafo Wiremarkers Africa ("Grafo")

EMEA

March 2012

Runelandhs Försäljnings AB ("Runelandhs")

EMEA

May 2012

Pervaco AS ("Pervaco")

EMEA

May 2012

Divestitures:

Segments

Date Completed

Teklynx

Americas, EMEA

December 2010

Etimark

EMEA

July 2012

Fiscal 2012 sales decreased $15.3 million, or 1.1% from fiscal 2011. The 1.1% decrease in sales consisted of a 0.4% decline in organic sales, a 1.0% decline due to the effects of the foreign currency translation, and 0.3% growth due to acquisitions net of divestitures.

Organic sales, defined as sales in the Company's existing businesses and regions (exclusive of acquisitions owned less than one year, divestitures, and foreign currency translation effects), were down 0.4% compared to fiscal 2011. Regionally, fiscal 2012 organic sales in the Americas increased 3.4%, while organic sales in EMEA and Asia-Pacific decreased 1.3% and 5.3%, respectively, as compared to fiscal 2011. The organic sales increase experienced in the Americas was due primarily to strong ID Solutions sales growth and new products positively received by end-users and distributors. The decrease in EMEA's organic sales was primarily due to the challenging economic environment within the region. The organic sales decline in the Asia-Pacific segment was driven by the Asia Die-Cut business platform. Sales were weak within the die-cut mobile handset market, and the flooding in Thailand caused a significant disruption to the hard disk drive supply chain during the last nine months of the fiscal year.

The acquisitions net of divestitures increased sales by 0.3% in fiscal 2012 as compared to fiscal 2011. The currency growth reflects fluctuations in the exchange rates used to translate financial results into the United States Dollar, which decreased sales by 1.0% for the year.

Gross margin as a percentage of sales declined to 48.0% in fiscal 2012 from 49.0% in fiscal 2011. The primary driver of the gross margin decline was the Asia-Pacific region, where lost sales due to the decline in market share of a primary customer have been replaced with lower margin sales opportunities, and price competition within the die-cut industry has increased.

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Research and development expenses decreased to $38.4 million in fiscal 2012 from $43.0 million in fiscal 2011, and declined as a percentage of sales in fiscal 2012 to 2.9% compared to 3.2% in fiscal 2011. The decline in R&D expenses was primarily due to a decrease in variable incentive compensation for fiscal year 2012 compared to fiscal year 2011, as well as cost reduction actions within the Asia-Pacific region.

Selling, general, and administrative ("SG&A") expenses decreased to $430.3 million in fiscal 2012 as compared to $441.8 million in fiscal 2011. As a percentage of sales, SG&A declined to 32.5% in fiscal 2012 from 33.0% in fiscal 2011, mainly due to a pretax reduction in variable incentive compensation in fiscal 2012.

During fiscal year 2012, the Company took various measures to address its cost structure in response to weaker sales forecasts across the Company. As a result of these actions, the Company recorded restructuring expenses of $12.1 million during fiscal 2012. During fiscal 2011, the Company continued its cost-cutting actions initiated during fiscal 2009 and recorded $9.2 million in restructuring charges. Restructuring related costs were driven by facility consolidations and continued workforce reduction activities. The costs associated with the workforce reduction primarily include employee separation costs, consisting of severance pay, outplacement services, medical, and other related benefits for the Company's work force.

Interest expense decreased to $19.1 million from $22.1 million for fiscal 2012 compared to fiscal 2011. The decrease was due to the Company's declining principal balance under its outstanding debt agreements. In fiscal 2012, the Company repaid $62.7 million in debt.

Investment and other income decreased $1.9 million in fiscal 2012 to $2.1 million from $4.0 million in the prior year. The decrease was due to losses on foreign exchange transactions, partially offset by an increase in interest income earned on money market and depository accounts.

The Company's effective tax rate was 178.7% in fiscal 2012, compared to the effective tax rate of 24.6% in fiscal 2011. The effective tax rate for fiscal 2012 was significantly impacted by the non-deductible goodwill impairment charge of $115.7 million recorded on the former North/South Asia reporting unit during the three months ended January 31, 2012, as well as a tax charge recorded during the three months ended July 31, 2012, related to an internal reorganization. Excluding these items our effective tax rate would have been consistent with the prior year. Refer to Note 1, "Summary of Significant Accounting Policies" within the Notes to the Consolidated Financial Statements for further discussion regarding the goodwill impairment charge.

The net loss for the fiscal year ended July 31, 2012, was $17.9 million, compared to net income of $108.7 million for the fiscal year ended July 31, 2011. The net loss as a percentage of sales was (1.4%) for fiscal 2012, compared to net income as a percentage of sales of 8.1% for fiscal 2011. Diluted net loss per share was ($0.35) per share for fiscal 2012, compared to diluted net income per share of $2.04 for fiscal 2011. The fiscal 2012 net loss was a result of the goodwill impairment charge of $115.7 million recorded during the three months ended January 31, 2012. Refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements for further discussion.

The Company's fiscal 2012 net income before the goodwill impairment charge and restructuring-related expenses was $107.3 million, a decrease from net income before restructuring-related expenses of $115.2 million in fiscal 2011. The decline in net income excluding impairment and restructuring of 6.8% from fiscal 2011 to fiscal 2012 was primarily due to the gross margin and profit decline in the Asia Die-Cut business platform.

Year Ended July 31, 2011, Compared to Year Ended July 31, 2010

The comparability of the operating results for the fiscal years ended July 31, 2011 to July 31, 2010, has been impacted by the following acquisition and divestiture completed in fiscal 2011.

Acquisition:

Segment

Date Completed

ID Warehouse

Asia Pacific

November 2010

Divestiture:

Segments

Date Completed

Teklynx

Americas, EMEA

December 2010

Fiscal 2011 sales increased $80.5 million, or 6.4% from fiscal 2010. The 6.4% increase in sales consisted of 2.9% growth in organic sales, 2.5% growth due to the effects of the foreign currency translation, and 1.0% growth due to an acquisition net of divesture.

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Organic sales, defined as sales in the Company's existing core businesses and regions (exclusive of acquisitions owned less than one year, divestitures, and foreign currency translation effects), were up 2.9% compared to fiscal 2010. Regionally, fiscal 2011 organic sales in the Americas, EMEA, and Asia-Pacific increased 3.2%, 4.7%, and 0.4%, respectively, as compared to fiscal 2010.The organic sales increase experienced in the Americas was due primarily to the strong ID Solutions sales growth and new products positively received by end–users and distributors. The increase in EMEA's organic sales was broad-based with growth in both the ID Solutions and Direct Marketing platforms. Geographically, sales were weak in the United Kingdom, offsetting strength in other European markets. Organic sales in the Asia-Pacific segment remained relatively flat. The segment's on-going customer base diversification in the mobile handset and other adjacent markets offset the reduced demand from one of our largest mobile handset customers.

The acquisition net of the divestiture listed above increased sales by $12.7 million or 1.0% in fiscal 2011 as compared to fiscal 2010. The currency growth reflects fluctuations in the exchange rates used to translate financial results into the United States Dollar which increased sales by $31.1 million or 2.5% for the year.

Gross margin as a percentage of sales declined to 49.0% in fiscal 2011 from 49.5% in fiscal 2010. The decline in gross margin as a percentage of sales was primarily due to the increased costs of raw materials which the company was not able to fully offset through continued cost reduction activities or price increases. The Company continued to focus on gross margin improvements through the Brady Business Performance System, lean, and strategic sourcing efforts.

Research and development expenses increased to $43.0 million in fiscal 2011 from $42.6 million in fiscal 2010, and declined as a percentage of sales in fiscal 2011 to 3.2% compared to 3.4% in fiscal 2010. The increase in R&D spending was due to the Company's continued commitment to innovation and new product development. This investment declined as percentage of sales slightly in fiscal 2011 as a result of the elimination of the R&D expenses incurred by the Company's previously owned Teklynx business.

Selling, general, and administrative ("SG&A") expenses increased to $441.8 million in fiscal 2011 as compared to $435.9 million in fiscal 2010. SG&A expenses increased during the fiscal year mainly due to the fluctuations in exchange rates. The Company divested of its Teklynx business resulting in a pre-tax gain of $4.4 million, which is included in SG&A. This pre-tax gain was offset by the associated transaction-related costs and income tax expense, resulting in a net income impact of $0.8 million during fiscal 2011. SG&A also increased in fiscal 2011 as a result of the annual merit increases, and increased advertising campaign expenses. As a percentage of sales, SG&A declined to 33.0% in fiscal 2011 from 34.6% in fiscal 2010 as the Company continued to reduce administrative costs through its cost reduction activities including simplifying, standardizing, and automating processes.

Restructuring charges were $9.2 million and $15.3 million during fiscal 2011 and 2010, respectively. During fiscal 2010 and 2011, the Company incurred restructuring related costs as a result of facility consolidations and continued workforce reduction activities. The costs associated with the workforce reduction primarily include employee separation costs, consisting of severance pay, outplacement services, medical, and other related benefits for the Company's work force.

Interest expense increased to $22.1 million from $21.2 million for fiscal 2011 compared to fiscal 2010. In fiscal 2011, the Company repaid approximately $61.3 million of debt. Interest expense increased due to a full year of interest being recognized on the May 2010 private placement, compared to a partial year of interest in 2010. The increase was partially offset by the lower principal balance under the previously outstanding debt agreements.

Other income and expense increased $2.8 million in fiscal 2011 to $4.0 million from $1.2 million in the prior year. The increase was primarily due to the interest income earned on the Company's money market and depository accounts, in addition to the gains on securities held in executive deferred compensation plans.

The Company's effective tax rate was 24.6% in fiscal 2011, which was relatively consistent with the effective tax rate of 25.1% in fiscal 2010.

Net income for the fiscal year ended July 31, 2011, increased 32.6% to $108.7 million, compared to $82.0 million for the fiscal year ended July 31, 2010, as a result of the factors noted above. Net income as a percentage of sales increased to 8.1% from 6.5% for the fiscal year ended July 31, 2011 compared to the prior year. Diluted net income per share increased 31.6% to $2.04 per share for fiscal 2011 compared to $1.55 per share for the fiscal year ended July 31, 2010. Fiscal 2011 and 2010 net income before restructuring related expenses was $115.2 million, or $2.16 per diluted share of Class A Common Stock, and $93.4 million, or $1.76 per diluted share of Class A Common Stock, respectively.

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Table of Contents

Business Segment Operating Results

The Company is organized and managed on a geographic basis by region. Each of these regions, Americas, EMEA and Asia Pacific, has a President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each region has its own distinct operations, is managed locally by its own management team, maintains its own financial reports and is evaluated based on regional segment profit. The Company has determined that these regions comprise its operating and reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance. Segment results are as follows:

(Dollars in thousands)

Americas EMEA Asia- Pacific Total
Regions
Corporate  and
Eliminations
Total
Company

SALES TO EXTERNAL CUSTOMERS

Years ended:

July 31, 2012

$ 589,924 $ 389,156 $ 345,188 $ 1,324,269 -   $ 1,324,269

July 31, 2011

577,428 404,955 357,214 1,339,597 -   1,339,597

July 31, 2010

551,185 380,121 327,790 1,259,096 -   1,259,096

SALES GROWTH INFORMATION

Year ended July 31, 2012:

Organic

3.4 (1.3 )%  (5.3 )%  (0.4 )%  -   (0.4 )% 

Currency

(0.9 )%  (3.5 )%  1.4 (1.0 )%  -   (1.0 )% 

Acquisitions/Divestitures

(0.3 )%  0.9 0.5 0.3 -   0.3

Total

2.2 (3.9 )%  (3.4 )%  (1.1 )%  -   (1.1 )% 

Year ended July 31, 2011:

Organic

3.2 4.7 0.4 2.9 -   2.9

Currency

1.1 0.6 6.9 2.5 -   2.5

Acquisitions/Divestitures

0.5 1.2 1.7 1.0 -   1.0

Total

4.8 6.5 9.0 6.4 -   6.4

SEGMENT PROFIT

Years ended:

July 31, 2012

$ 155,657 $ 105,643 $ 31,704 (1)  $ 293,004 $ (7,328 $ 285,676

July 31, 2011

145,516 112,047 50,105 307,668 (15,742 291,926

July 31, 2010

125,169 103,316 52,105 280,590 (14,131 266,459

(1)

The Company recognized a goodwill impairment charge of $115.7 million during the quarter ended January 31, 2012, related to the former North/South Asia reporting unit within the Asia-Pacific reporting segment, which is excluded from segment profit as presented in the table above. Refer to Note 1 within Item 8 for further discussion regarding the impairment charge.

NET INCOME RECONCILIATION

Years ended:

(Dollars in thousands)

July 31,
2012
July 31,
2011
July 31,
2010

Total profit for reportable segments

$ 293,004 $ 307,668 $ 280,590

Corporate and eliminations

(7,328 (15,742 (14,131

Unallocated amounts:

Administrative costs

(118,120 (120,546 (121,689

Restructuring charges

(12,110 (9,188 (15,314

Impairment charge

(115,688 -   -  

Investment and other income - net

2,082 3,990 1,168

Interest expense

(19,090 (22,124 (21,222

Income before income taxes

22,750 144,058 109,402

Income taxes

(40,661 (35,406 (27,446

Net (loss) income

$ (17,911 $ 108,652 $ 81,956

The Company evaluates short-tem segment performance based on segment profit or loss and customer sales. Segment profit or loss does not include certain administrative costs, such as the cost of finance, information technology and human resources, which are managed as global functions. Restructuring charges, impairment charges, stock options, interest, investment and other income and income taxes are also excluded when evaluating performance.

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Table of Contents

Americas

In the Americas region, the sales mix consists of approximately 70% ID Solutions and 30% Direct Marketing. Sales increased 2.2% from fiscal 2011 to fiscal 2012, and increased 4.8% from fiscal 2010 to fiscal 2011. Organic sales grew 3.4% in 2012 and grew 3.2% in 2011. The fiscal 2011 divestiture of the Teklynx business decreased sales of the segment by 0.3% and the fluctuations of the exchange rates used to translate financial results into the United States dollar decreased sales by 0.9% in fiscal 2012. The increase in organic sales in fiscal 2012 was entirely driven by the ID Solutions platform through new product development and the successful launch earlier in the year of several high quality printers and proprietary consumable materials. Fiscal 2012 organic sales were relatively flat in the Direct Marketing platform compared to fiscal 2011, as the growth achieved during the first half of the year was offset by declines in the second half of the year. This decline in the Direct Marketing platform was primarily due to the softening of the construction and manufacturing markets.

The increase in organic sales in fiscal 2011 of 3.2% was driven by the broad-based improvements in the segment's core markets in addition to the positive results from the segment's sales and marketing productivity initiatives. The net impact of the fiscal 2010 acquisition of Stickolor and the fiscal 2011 divestiture of the Teklynx business increased sales of the segment by 0.5%, and the fluctuations of the exchange rates used to translate financial results into the United States dollar increased sales by 1.1%.

In the Americas region, segment profit increased 7.0% to $155.7 million in fiscal 2012 from $145.5 million in fiscal 2011. Segment profit as a percentage of sales increased to 26.4% in 2012 from 25.2% in 2011. This increase was due to both the ID Solutions and Direct Marketing platforms. Within the ID Solutions platform, the profit improvement was consistent throughout fiscal 2012 due to increased sales and operational efficiencies from site consolidation actions, operational and sourcing cost savings projects. The Direct Marketing platform began fiscal 2012 with modest single digit sales growth and strong profit growth. Profit growth in the second half of the year was essentially flat, as operational savings were reinvested into digital initiatives to drive growth through the internet. The Company's key investment initiatives are to grow customer files and improve every aspect of a customer's on-line experience, targeting improved customer conversion and loyalty.

Comparing fiscal 2011 to 2010, segment profit increased 16.3% to $145.5 million in fiscal 2011 from $125.2 million in fiscal 2010. Segment profit as a percentage of sales increased to 25.2% in 2011 from 22.7% in 2010. This increase was primarily due to the segment's improved gross margin due to certain facility consolidation actions, operational and sourcing cost savings projects offset by higher inflation, in addition to actions taken in fiscal 2011 to streamline the segment's selling expense structure.

EMEA

In the EMEA region, the sales mix consists of approximately 50% ID Solutions, 40% Direct Marketing, and 10% Die-Cut. EMEA sales declined 3.9% from fiscal 2011 to fiscal 2012, and increased 6.5% from fiscal 2010 to fiscal 2011. Organic sales declined 1.3% in fiscal 2012 and increased 4.7% in fiscal 2011 as compared to prior years. Segment sales increased 0.9% in fiscal 2012 as a result of the fiscal 2012 acquisitions of Grafo, Runelandhs and Pervaco, net of the fiscal 2011 divestiture of the Teklynx business. By business, the ID Solutions and Direct Marketing platforms were essentially flat for fiscal 2012 due to the challenging economic climate within the region. The Die-Cut platform declined during the fiscal year, resulting in the overall decline in organic sales within the region.

The increase in organic sales in fiscal 2011 of 4.7% was driven by growth in the ID Solutions and Direct Marketing platforms in Germany and Southern EMEA due to a combination of improving economies and positive results of sales initiatives, partially offset by the continued depressed conditions in the United Kingdom. Segment sales increased 1.2% in fiscal 2011 as a result of the fiscal 2010 acquisitions of Welco and Securimed, net of the fiscal 2011 divestiture of the Teklynx business. Sales were also positively affected by fluctuations in the exchange rates used to translate financial results into the United States dollar, which increased sales within the segment by 0.6% in fiscal 2011.

In the EMEA region, segment profit declined 5.7% to $105.6 million in fiscal 2012 from $112.0 million in fiscal 2011. The majority of the decline of $6.4 million related to fluctuations in the exchange rates used to translate financial results into the United States dollar, as segment profit as a percentage of sales decreased slightly to 27.1% in fiscal 2012 from 27.7% in fiscal 2011 and 27.2% in fiscal 2010. The decline in segment profit as a percentage of sales was due primarily to the overall sales decline and depressed economic conditions, limiting the ability to pass along price increases. The improvement in the segment's profit from fiscal 2010 to fiscal 2011 was primarily due to increased sales volumes in addition to the continued efforts to streamline selling expenses through the Company's strategic initiatives.

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Table of Contents

Asia-Pacific

In the Asia-Pacific region, the sales mix consists of approximately 50% Die-Cut, 40% ID Solutions, and 10% Direct Marketing. Asia-Pacific sales declined 3.4% from fiscal 2011 to fiscal 2012, and sales increased 9.0% from fiscal 2010 to fiscal 2011. Organic sales declined 5.3% and increased 0.4% in fiscal 2012 and 2011, respectively, compared to prior years. Foreign currency translation positively impacted the segment's sales by 1.4% and 6.9% in fiscal 2012 and 2011, respectively, compared to prior years. The decline in organic sales was primarily due to the Asia Die-Cut platform. Sales were weak within the die-cut mobile handset market, and the flooding in Thailand caused a significant disruption to the hard disk drive supply chain during the last nine months of the fiscal year.

The relatively flat fiscal 2011 organic sales growth of 0.4% was a result of increased sales from the segment's on-going customer base diversification in the mobile handset and other adjacent markets, which offset the reduced demand from one of the Company's largest mobile handset customers.

In the Asia-Pacific region, segment profit declined 36.7% to $31.7 million in fiscal 2012 from $50.1 million in fiscal 2011. Segment profit as a percentage of sales declined to 9.2% in fiscal 2012 from 14.0% in fiscal 2011. The decline in the profit in fiscal 2012 was primarily due to increased market competitiveness and a decline in sales within the Asia Die-Cut platform, particularly within the mobile handset industry. In addition, segment profit was negatively impacted by the residual effects of the Thailand flood through delayed product launches and lower absorption of fixed costs. Losses caused by the flooding are expected to be partially covered by property and business interruption insurance during fiscal 2013.

Comparing fiscal 2011 to 2010, segment profit as a percentage of sales decreased to 14.0% in 2011 from 15.9% in 2010. The decline in profit in fiscal 2011 was a result of relatively flat organic sales, continued price pressure, and inflation on raw materials and wages.

Liquidity and Capital Resources

Cash and cash equivalents were $305.9 million at July 31, 2012, and $390.0 million at July 31, 2011, a decline of $84.1 million as summarized below:

Years ended July 31,

(Dollars in thousands)

2012 2011 2010

Net cash flow provided by (used in):

Operating activities

$ 144,705 $ 167,350 $ 165,238

Investing activities

(64,604 (22,631 (48,681

Financing activities

(147,824 (91,574 15,275

Effect of exchange rate changes on cash

(16,348 21,986 (5,148

Net (decrease) increase in cash and cash equivalents

$ (84,071 $ 75,131 $ 126,684

Net cash provided by operating activities was $144.7 million in fiscal 2012, compared to $167.4 million in fiscal 2011. Cash flows from operating activities are generated primarily from operating income and managing the components of working capital. The decrease in cash flows from operating activities of $21.9 million from fiscal 2011 to fiscal 2012 was partially due to a decline in net income of $10.9 million after excluding the goodwill impairment charge of $115.7 million. In addition, the net change of inventories and accounts payable and accrued liabilities reduced operating cash flows by $30.8 million compared to the prior year. This decline was partially offset by favorable cash flows from income taxes of $20.5 million in fiscal 2012 compared to 2011.

Net cash used in investing activities was $64.6 million in fiscal 2012, compared to $22.6 million in fiscal 2011. The increase in cash used in investing activities of $42.0 million from fiscal 2011 to fiscal 2012 was primarily due to the increase in cash used in acquisitions of $29.7 million compared to 2011. In addition, cash provided by divestitures declined by $12.1 million, which further increased the net use of cash in investing activities from fiscal 2011 to fiscal 2012. See Note 3 within Item 8 for further information regarding acquisitions and divestitures.

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Net cash used in financing activities was $147.8 million in fiscal 2012, compared to $91.6 million in fiscal 2011. The increase in cash used in financing activities of $56.2 million was primarily due to the repurchase of common shares during the current year for $49.9 million. In addition, cash received from the exercise of employee stock options declined by $4.3 million from fiscal 2011 to fiscal 2012. See Item 5 within Part II for further information regarding the current year share repurchases.

Net cash provided by operating activities was $167.4 million in fiscal 2011, compared to $165.2 million in fiscal 2010. The increase in cash flows from operating activities of $2.1 million from fiscal 2010 to fiscal 2011 was due to an increase in net income of $22.3 million after excluding the gain on the sale of business of $4.4 million. This was partially offset by the aggregate of accounts receivable and accounts payable and accrued liabilities, which reduced operating cash flows by $18.6 million from 2010 to 2011.

Net cash used in investing activities was $22.6 million in fiscal 2011, compared to $48.7 million in fiscal 2010. The decrease in cash used in investing activities of $26.1 million was primarily due to a reduction in cash used in acquisitions of $22.5 million in fiscal 2011 as compared to fiscal 2010. In addition, cash provided by the fiscal 2011 divestiture of Teklynx reduced cash used in investing activities by $13.0 million as compared to fiscal 2010. This was partially offset by the settlement of net investment hedges in fiscal 2011 and fiscal 2010.

Net cash used in financing activities was $91.6 million in fiscal 2011, compared to net cash provided by financing activities of $15.3 million in fiscal 2010. The decrease in cash used in financing activities of $106.8 million was primarily due to the proceeds received from the issuance of debt of $94.9 million in fiscal 2010. In addition, the increase in cash used for principal payments on debt was $16.4 million from fiscal 2010 to fiscal 2011.

On October 26, 2011, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission ("SEC"), which will allow the Company to issue and sell, from time to time in one or more offerings, an indeterminate amount of Class A Nonvoting Common Stock and debt securities as it deems prudent or necessary to raise capital at a later date. The shelf registration statement became effective upon filing with the SEC. The Company plans to use the proceeds from any future offerings under the shelf registration for general corporate purposes, including, but not limited to, acquisitions, capital expenditures, and refinancing of debt.

During fiscal 2004 through fiscal 2007, the Company completed three private placement note issuances totaling $500 million in ten-year fixed rate notes with varying maturity dates to institutional investors at interest rates varying from 5.14% to 5.33%. The notes must be repaid equally over seven years, with initial payment due dates ranging from 2008 to 2011, with interest payable on the notes due semiannually on various dates throughout the year, which began in December 2004. The private placements were exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale and may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. The notes have certain prepayment penalties for repaying them prior to the maturity date. Under the debt agreement, the Company made scheduled principal payments of $44.9 million, $61.3 million, and $61.3 million during the years ended July 31, 2010, 2011, and 2012, respectively.

On May 13, 2010, the Company completed a private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited institutional investors. The €75.0 million of senior notes consists of €30.0 million aggregate principal amount of 3.71% Series 2010-A Senior Notes, due May 13, 2017 and €45.0 million aggregate principal amount of 4.24% Series 2010-A Senior Notes, due May 13, 2020, with interest payable on the notes semiannually. This private placement was exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale and may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. The notes have certain prepayment penalties for repaying them prior to maturity. The notes have been fully and unconditionally guaranteed on an unsecured basis by the Company's domestic subsidiaries.

On February 1, 2012, the Company and certain of its subsidiaries entered into an unsecured $300 million multi-currency revolving loan agreement with a group of six banks that replaced and terminated the Company's previous credit agreement that had been entered into on October 5, 2006, and amended on March 18, 2008. Under the new credit agreement, which has a final maturity date of February 1, 2017, the Company has the option to select either a base interest rate (based upon the higher of the federal funds rate plus one-half of 1% or the prime rate of Bank of America plus a margin based on the Company's consolidated leverage ratio) or a Eurocurrency interest rate (at the LIBOR rate plus a margin based on the Company's consolidated leverage ratio). At the Company's option, and subject to certain conditions, the available amount under the new credit facility may be increased from $300 million up to $450 million. No borrowings have occurred under the new credit facility.

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The Company's debt and revolving loan agreements require it to maintain certain financial covenants. As of July 31, 2012, the Company was in compliance with financial covenants in its debt agreements. See Note 5 within Item 8 for further information regarding the financial covenants.

Long-term obligations as a percentage of long-term obligations plus stockholders' investment were 20.1% at July 31, 2012 and 22.3% at July 31, 2011. Long-term obligations decreased by $77.0 million from July 31, 2011 to July 31, 2012 due to debt repayments made during the year, combined with a $15.7 million decrease in the USD value of the Euro denominated debt due to foreign exchange fluctuations. The fiscal 2012 debt repayments consisted of the scheduled installment of $18.8 million on the 2004 private placement, an installment of $26.1 million on the 2006 private placement, and an installment of $16.4 million on the 2007 private placement. In addition, long-term debt assumed as part of the acquisition of Runelandhs was repaid in the amount of $1.4 million.

Stockholders' investment decreased $146.8 million during fiscal 2012 due to the negative effects of foreign currency translation of approximately $55.3 million, an increase in treasury stock of $42.6 million due to the current year share repurchase, dividends paid of $38.9 million, and the current year net loss of $17.9 million.

The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2012, approximately 78% of the Company's cash and cash equivalents was held outside the United States. The Company's growth has historically been funded by a combination of cash provided by operating activities and debt financing. The Company believes that its cash from operations, in addition to its borrowing capacity, are sufficient to fund its anticipated requirements for working capital, capital expenditures, restructuring activities, acquisitions, common stock repurchases, scheduled debt repayments, and dividend payments for at least the next 12 months. The Company believes that its current credit arrangements are sound and that the strength of its balance sheet will allow financial flexibility to respond to both internal growth opportunities and those available through acquisition.

Subsequent Events Affecting Liquidity and Capital Resources

On September 6, 2012, the Company's Board of Directors authorized a share buyback program for up to an additional two million shares of the Company's Class A Common Stock. The share repurchase plan may be implemented from time to time on the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's stock-based compensation plans and for other corporate purposes.

On September 6, 2012, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from $0.74 to $0.76 per share. A quarterly dividend of $0.19 will be paid on October 31, 2012, to shareholders of record at the close of business on October 10, 2012. This dividend represents an increase of 2.7% and is the 27th consecutive annual increase in dividends.

Off-Balance Sheet Arrangements

The Company does not have material off-balance sheet arrangements or related party transactions. The Company is not aware of factors that are reasonably likely to adversely affect liquidity trends, other than the risks discussed in this filing and presented in other Company filings. However, the following additional information is provided to assist financial statement users.

Operating Leases - These leases generally are entered into for investments in facilities such as manufacturing facilities, warehouses and office space, computer equipment and Company vehicles.

Purchase Commitments - The Company has purchase commitments for materials, supplies, services, and property, plant and equipment as part of the ordinary conduct of its business. In the aggregate, such commitments are not in excess of current market prices and are not material to the financial position of the Company. Due to the proprietary nature of many of the Company's materials and processes, certain supply contracts contain penalty provisions for early termination. The Company does not believe a material amount of penalties will be incurred under these contracts based upon historical experience and current expectations.

Other Contractual Obligations - The Company does not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity other than those discussed below under "Payments Due Under Contractual Obligations."

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Related Party Transactions - The Company evaluated its affiliated party transactions for the period ended July 31, 2012. Based on the evaluation the Company does not have material related party transactions that affect the results of operations, cash flow or financial condition.

Payments Due Under Contractual Obligations

The Company's future commitments at July 31, 2012, for long-term debt, operating lease obligations, purchase obligations, interest obligations and other obligations are as follows (dollars in thousands):

Payments Due by Period

Contractual Obligations

Total Less than
1 Year
1-3
Years
3-5
Years
More
than

5 Years
Uncertain
Timeframe

Long-Term Debt Obligations

$ 316,208 $ 61,264 $ 103,778 $ 95,797 $ 55,369 $ -  

Operating Lease Obligations

69,308 16,280 23,732 12,544 16,752 -  

Purchase Obligations (1)

46,655 45,850 805 -   -   -  

Interest Obligations

55,464 15,550 21,434 11,437 7,043 -  

Tax Obligations

36,532 -   -   -   -   36,532

Other Obligations (2)

18,246 716 1,578 1,863 14,089 -  

Total

$ 542,413 $ 139,660 $ 151,327 $ 121,641 $ 93,253 $ 36,532

(1)

Purchase obligations include all open purchase orders as of July 31, 2012.

(2)

Other obligations represent expected payments under the Company's U.S. postretirement medical plan and international pension plans as disclosed in Note 3 to the consolidated financial statements, under Item 8 of this report.

Inflation and Changing Prices

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

Critical Accounting Estimates

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

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

Income Taxes

The Company's effective tax rate is based on pre-tax income and the tax rates applicable to that income in the various jurisdictions in which the Company operates. Significant judgment is required in determining the Company's effective income tax rate and in evaluating its tax positions. The Company establishes liabilities when it is more likely than not that the Company will not realize the full tax benefit of the position. The Company adjusts these liabilities in light of changing facts and circumstances.

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Tax regulations may require items of income and expense to be included in a tax return in different periods than the items are reflected in the consolidated financial statements. As a result, the effective income tax rate reflected in the consolidated financial statements may be different than the tax rate reported in the income tax return. Some of these differences are permanent, such as expenses that are not deductible on the income tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as tax deductions or credits in the tax return in future years for which the Company has already recorded the tax benefit in the consolidated financial statements. The Company establishes valuation allowances against its deferred tax assets when it is more likely than not that the amount of expected future taxable income will not support the use of the deduction or credit. The determination of the amount of valuation allowance to be provided on recorded deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies, and can also be impacted by changes to tax laws. Deferred tax liabilities generally represent tax expense recognized in the consolidated financial statements for which payment has been deferred or expense for which the Company has already taken a deduction on an income tax return, but has not yet recognized as expense in the consolidated financial statements.

The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. Judgment is required in evaluating tax positions and determining income tax provisions. The Company generally re-evaluates the technical merits of its tax positions and recognizes an uncertain tax benefit when (i) there is completion of a tax audit; (ii) there is a change in applicable tax law including a tax case ruling or legislative guidance; or (iii) there is an expiration of the statute of limitations.

Goodwill and Other Indefinite-lived Intangible Assets

The allocation of purchase price for business combinations requires management estimates and judgment as to expectations for future cash flows of the acquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocation purposes. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets. In addition, accounting guidance requires that goodwill and other indefinite-lived intangible assets be tested at least annually for impairment. If circumstances or events prior to the date of the required annual assessment indicate that, in management's judgment, it is more likely than not that there has been a reduction of fair value of a reporting unit below its carrying value, the Company performs an impairment analysis at the time of such circumstance or event. Changes in management's estimates or judgments could result in an impairment charge, and such a charge could have an adverse effect on the Company's financial condition and results of operations. To aid in establishing the value of goodwill and other intangible assets at the time of acquisition, Company policy requires that all acquisitions with goodwill of greater than $5 million require the use of external valuations.

The Company has identified six reporting units within its three reportable segments with the corresponding goodwill balances as of July 31, 2012: Brady Americas, $234.7 million; Direct Marketing Americas, $183.1 million; Brady EMEA, $107.8 million; Direct Marketing EMEA, $67.2 million; Brady Asia, $59.3 million; and Die-Cut Asia, $24.7 million. Brady continues to believe that the discounted cash flow model and market multiples model provide a reasonable and meaningful fair value estimate based upon the reporting units' projections of future operating results and cash flows and replicates how market participants would value the Company's reporting units. The projections of future operating results, which are based on both past performance and the projections and assumptions used in the Company's current and long range operating plans, are subject to change as a result of changing economic and competitive conditions. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected growth rates, price increases, improvement in gross margin and SG&A as a percentage of sales, capital expenditures, working capital levels, income tax rates, the benefits of recent acquisitions and expected synergies, and a weighted-average cost of capital that reflects the specific risk profile of the reporting unit being tested. Significant negative industry or economic trends, disruptions to the Company's business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations.

In the event the fair value of a reporting unit is less than the carrying value, including goodwill, the Company would then perform an additional assessment that would compare the implied fair value of goodwill with the carrying amount of goodwill. The determination of implied fair value of goodwill would require management to compare the fair value of the reporting unit to the estimated fair value of the assets and liabilities of the reporting unit; if necessary, the Company may consult valuation specialists to assist with the assessment of the estimated fair value of assets and liabilities for the reporting unit. If the implied fair value of the goodwill is less than the carrying value, an impairment would be recorded.

In performing the Company's annual goodwill impairment assessment, the Company performed a sensitivity analysis on the material assumptions used in the discounted cash flow valuation models for each of its reporting units. Based on the Company's fiscal 2012 goodwill impairment testing and assuming a hypothetical 10% decrease in the estimated fair values of each of its reporting units, the hypothetical fair value of each of the Company's reporting units would have been greater than the carrying value. The assumptions that are most sensitive to a decline in estimated fair value are sales growth rates, and improvement in gross margin and SG&A as a percentage of sales, particularly within the Company's Die-Cut Asia and Direct Marketing Americas reporting units.

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During the quarter ended January 31, 2012, the Company recorded a goodwill impairment charge related to its former North/South Asia reporting unit within the Asia-Pacific operating segment. This impairment charge was recorded as a result of a triggering event related to a decline in profitability within the Asia Die-Cut platform. The Company's methodologies for valuing goodwill were applied consistently from the period in which the impairment charge was recorded to the annual goodwill impairment assessment. Refer to Note 1 within Item 8 for further discussion regarding the fiscal 2012 goodwill impairment charge.

The Company also evaluates the recoverability of its indefinite-lived intangible assets by utilizing a relief from royalty valuation methodology that estimates the fair value of the future discounted cash flows of each indefinite-lived intangible asset. The future projections, which are based on both past performance and the projections and assumptions used in the Company's current and long range operating plans, are subject to change as a result of changing economic and competitive conditions. Significant estimates used by management in the relief from royalty valuation methodology include estimates of future revenue streams based on expected growth and royalty rates, income tax rates, and a weighted-average cost of equity that reflects the specific risk profile of the indefinite-lived intangible asset tested. The Company's methodologies for valuing indefinite-lived intangible assets are applied consistently on a year-over-year basis, and are aligned with the methodologies and assumptions applied to the annual goodwill impairment assessment. The Company continues to believe that the relief from royalty valuation methodology provides the most reasonable and meaningful fair value estimate based upon the indefinite-lived intangible assets' projected future revenue streams and replicates how market participants would value the Company's indefinite-lived intangible assets in an orderly transaction.

The Company completed its annual impairment testing of goodwill and other indefinite-lived intangibles assets in the fourth quarter of fiscal 2012. Although the Company consistently uses the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain in nature and can vary from actual results.

Reserves and Allowances

The Company has recorded reserves or allowances for inventory obsolescence, uncollectible accounts receivable, and credit memos. These accounts require the use of estimates and judgment. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company believes that such estimates are made with consistent and appropriate methods. Actual results may differ from these estimates under different assumptions or conditions.

New Accounting Standards

The information required by this Item is provided in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 - Financial Statements and Supplementary Data.

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Forward-Looking Statements

In this annual report on Form 10-K, statements that are not reported financial results or other historic information are "forward-looking statements." These forward-looking statements relate to, among other things, the Company's future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations.

The use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "project" or "plan" or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady's control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from:

The length or severity of the current worldwide economic downturn or timing or strength of a subsequent recovery;

Increased usage of e-commerce allowing for ease of price transparency;

Future financial performance of major markets Brady serves, which include, without limitation, telecommunications, hard disk drive, manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, and transportation;

Future competition;

Changes in the supply of, or price for, parts and components;

Increased price pressure from suppliers and customers;

Brady's ability to retain significant contracts and customers;

Fluctuations in currency rates versus the U.S. dollar;

Risks associated with international operations;

Difficulties associated with exports;

Risks associated with obtaining governmental approvals and maintaining regulatory compliance;

Brady's ability to develop and successfully market new products;

Risks associated with identifying, completing, and integrating acquisitions;

Risks associated with restructuring plans;

Environmental, health and safety compliance costs and liabilities;

Technology changes and potential security violations to the Company's information technology systems;

Brady's ability to maintain compliance with its debt covenants;

Increase in our level of debt;

Potential write-offs of Brady's substantial intangible assets;

Unforeseen tax consequences; and

Numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady's U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of this Form 10-K.

These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements except as required by law.

Risk Factors

Refer to the information contained in Item 1A - Risk Factors.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company's business operations give rise to market risk exposure due to changes in foreign exchange rates. To manage that risk effectively, the Company enters into hedging transactions, according to established guidelines and policies that enable it to mitigate the adverse effects of this financial market risk.

The global nature of the Company's business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global scale, the Company has assets, liabilities and cash flows in currencies other than the U.S. Dollar. The objective of the Company's foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions and minimize the foreign currency translation impact of the Company's foreign operations. To achieve this objective, the Company hedges a portion of known exposures using forward contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Japanese Yen, Swiss Franc, Malaysian Ringgit, and Singapore Dollar. As of July 31, 2012, the notional amount of outstanding forward contracts designated as cash flow hedges was $61.2 million. The Company also uses euro-denominated debt of €75.0 million designated as a hedge instrument to hedge portions of the Company's net investments in its European foreign operations.

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 the majority 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 effective 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. 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.

Currency exchange rates decreased fiscal 2012 sales by 1.0% as compared to fiscal 2011 as the U.S. dollar appreciated, on average, against other major currencies throughout the year. The most significant impact on sales due to currency fluctuations occurred during the fourth quarter ended July 31, 2012, as sales declined by 5.0% as compared to the same quarter of the prior year. This decline was primarily driven by the appreciation of the U.S. dollar against the Euro.

The Company could be exposed to interest rate risk through its corporate borrowing activities. The objective of the Company's interest rate risk management activities is to manage the levels of the Company's fixed and floating interest rate exposure to be consistent with the Company's preferred mix. 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. Such activities require approval of the Board of Directors. As of July 31, 2012, the Company had no interest rate derivatives.

The Company is subject to the risk of changes in foreign currency exchange rates due to its operations in foreign countries. The Company has manufacturing facilities and sells and distributes its products throughout the world. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company manufactures, distributes and sells its products. Changes in foreign currency exchange rates for the Company's foreign subsidiaries reporting in local currencies are generally reported as a component of stockholders' investment. The Company's currency translation adjustment recorded in fiscal 2012 and 2011 as a separate component of stockholders' investment was $55.3 million unfavorable and $63.0 million favorable, respectively. As of July 31, 2012 and 2011, the Company's foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $384.2 million and $427.7 million, respectively. The potential decrease in the net current assets as of July 31, 2012 from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be approximately $38.4 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar. Exchange rates rarely move in the same direction relative to the U.S. dollar due to positive and negative correlations of the various global currencies. This assumption may overstate the impact of changing exchange rates on individual assets and liabilities denominated in a foreign currency.

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Item 8. Financial Statements and Supplementary Data

BRADY CORPORATION & SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm

30

Financial Statements:

Consolidated Balance Sheets - July 31, 2012 and 2011

31

Consolidated Statements of Income - Years Ended July 31, 2012, 2011, and 2010

32

Consolidated Statements of Stockholders' Investment - Years Ended July  31, 2012, 2011, and 2010

33

Consolidated Statements of Cash Flows - Years Ended July  31, 2012, 2011, and 2010

34

Notes to Consolidated Financial Statements - Years Ended July  31, 2012, 2011, and 2010

35

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Brady Corporation

Milwaukee, WI

We have audited the accompanying consolidated balance sheets of Brady Corporation and subsidiaries (the "Company") as of July 31, 2012 and 2011, and the related consolidated statements of income, stockholders' investment, and cash flows for each of the three years in the period ended July 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Brady Corporation and subsidiaries at July 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of July 31, 2012 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 27, 2012, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Milwaukee, WI

September 27, 2012

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BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

July 31, 2012 and 2011

2012 2011
(Dollars in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$ 305,900 $ 389,971

Accounts receivable - net

199,006 228,483

Inventories:

Finished products

64,740 62,152

Work-in-process

15,377 14,550

Raw materials and supplies

25,407 27,484

Total inventories

105,524 104,186

Prepaid expenses and other current assets

40,424 35,647

Total current assets

650,854 758,287

Other assets:

Goodwill

676,791 800,343

Other intangibles assets

84,119 89,961

Deferred income taxes

45,356 53,755

Other

20,584 19,244

Property, plant and equipment:

Cost:

Land

8,651 6,406

Buildings and improvements

101,962 104,644

Machinery and equipment

292,130 305,557

Construction in progress

10,417 11,226

413,160 427,833

Less accumulated depreciation

283,145 287,918

Property, plant and equipment - net

130,015 139,915

Total

$ 1,607,719 $ 1,861,505

LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities:

Accounts payable

$ 86,646 $ 98,847

Wages and amounts withheld from employees

54,629 69,798

Taxes, other than income taxes

9,307 7,612

Accrued income taxes

14,357 9,954

Other current liabilities

40,815 54,406

Current maturities on long-term obligations

61,264 61,264

Total current liabilities

267,018 301,881

Long-term obligations, less current maturities

254,944 331,914

Other liabilities

76,404 71,518

Total liabilities

598,366 705,313

Commitments and contingencies (See Note 9)

Stockholders' investment:

Common stock:

Class A Nonvoting - Issued 51,261,487 and 51,261,487 shares, respectively; (aggregate liquidation preference of $42,803 and $42,803 at July 31, 2012 and 2011, respectively)

513 513

Class B Voting - Issued and outstanding 3,538,628 shares

35 35

Additional paid-in capital

313,008 307,527

Earnings retained in the business

732,290 789,100

Treasury stock - 3,245,561 and 1,667,235 shares, respectively of Class A nonvoting common stock, at cost

(92,600 (50,017

Accumulated other comprehensive income

59,411 113,898

Other

(3,304 (4,864

Total stockholders' investment

1,009,353 1,156,192

Total

$ 1,607,719 $ 1,861,505

See notes to consolidated financial statements.

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BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended July 31, 2012, 2011 and 2010

2012 2011 2010
(In thousands, except per share amounts)

Net sales

$ 1,324,269 $ 1,339,597 $ 1,259,096

Cost of products sold

687,963 683,401 635,799

Gross margin

636,306 656,196 623,297

Operating expenses:

Research and development

38,440 43,001 42,621

Selling, general and administrative

430,310 441,815 435,906

Restructuring charges

12,110 9,188 15,314

Impairment charge

115,688 -   -  

Total operating expenses

596,548 494,004 493,841

Operating income

39,758 162,192 129,456

Other income (expense):

Investment and other income- net

2,082 3,990 1,168

Interest expense

(19,090 (22,124 (21,222

Net other expense

(17,008 (18,134 (20,054

Income before income taxes

22,750 144,058 109,402

Income taxes

40,661 35,406 27,446

Net (loss) income

$ (17,911 $ 108,652 $ 81,956

Net (loss) income per common share:

Class A Nonvoting:

Basic

$ (0.35 $ 2.06 $ 1.56

Diluted

$ (0.35 $ 2.04 $ 1.55

Dividends

$ 0.74 $ 0.72 $ 0.70

Class B Voting:

Basic

$ (0.36 $ 2.04 $ 1.55

Diluted

$ (0.36 $ 2.03 $ 1.53

Dividends

$ 0.72 $ 0.70 $ 0.68

Weighted average Class A and Class B common shares outstanding

Basic

52,453 52,639 52,402

Diluted

52,453 53,133 52,946

See notes to consolidated financial statements.

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BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT

Years Ended July 31, 2012, 2011 and 2010

Common
Stock
Additional
Paid-In
Capital
Earnings
Retained
in the
Business
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Other Total
Comprehensive
Income
(In thousands, except per share amounts)

Balances at July 31, 2009

$ 548 $ 298,466 $ 673,342 $ (69,823 $ 53,051 $ (4,492

Net income

-   -   81,956 -   -   -   $ 81,956

Net currency translation adjustment and other (Note 1)

-   -   -   -   (2,146 -   (2,146

Total comprehensive income

$ 79,810

Issuance of 215,447 shares of Class A Common Stock under stock option plan

-   (2,788 -   6,505 -   -  

Other (Note 6)

-   (2,512 -   (459 -   1,663

Tax benefit from exercise of stock options and deferred compensation distributions

-   1,318 -   -   -   -  

Stock-based compensation expense (Note 1)

-   9,721 -   -   -   -  

Purchase of 102,067 shares of Class A Common Stock

-   -   -   (2,537 -   -  

Cash dividends on Common Stock

Class A - $0.70 per share

-   -   (34,368 -   -   -  

Class B - $0.68 per share

-   -   (2,418 -   -   -  

Balances at July 31, 2010

$ 548 $ 304,205 $ 718,512 $ (66,314 $ 50,905 $ (2,829

Net income

-   -   108,652 -   -   -   $ 108,652

Net currency translation adjustment and other (Note 1)

-   -   -   -   62,993 -   62,993

Total comprehensive income

$ 171,645

Issuance of 524,144 shares of Class A Common Stock under stock option plan

-   (5,684 -   13,877 -   -  

Other (Note 6)

-   (1,964 -   2,420 -   (2,035

Tax benefit from exercise of stock options and deferred compensation distributions

-   1,140 -   -   -   -  

Stock-based compensation expense (Note 1)

-   9,830 -   -   -   -  

Cash dividends on Common Stock

Class A - $0.72 per share

-   -   (35,575 -   -   -  

Class B - $0.70 per share

-   -   (2,489 -   -   -  

Balances at July 31, 2011

$ 548 $ 307,527 $ 789,100 $ (50,017 $ 113,898 $ (4,864

Net (loss) income

-   -   (17,911 -   -   -   $ (17,911

Net currency translation adjustment and other (Note 1)

-   -   -   -   (54,487 -   (54,487

Total comprehensive income

$ (72,398

Issuance of 265,491 shares of Class A Common Stock under stock option plan

-   (3,516 -   7,380 -   -  

Other (Note 6)

-   (1,637 -   (30 -   1,560

Tax benefit from exercise of stock options and deferred compensation distributions

-   1,167 -   -   -   -  

Stock-based compensation expense (Note 1)

-   9,467 -   -   -   -  

Purchase of 1,869,193 shares of Class A Common Stock

-   -   -   (49,933 -   -  

Cash dividends on Common Stock

Class A - $0.74 per share

-   -   (36,340 -   -   -  

Class B - $0.72 per share

-   -   (2,559 -   -   -  

Balances at July 31, 2012

$ 548 $ 313,008 $ 732,290 $ (92,600 $ 59,411 $ (3,304

See notes to consolidated financial statements.

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BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended July 31, 2012, 2011 and 2010

2012 2011 2010
(Dollars in thousands)

Operating activities:

Net (loss) income

$ (17,911 $ 108,652 $ 81,956

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization

43,987 48,827 53,022

Deferred income taxes

(9,679 (8,161 (6,834

Loss (gain) on the sale of business (pre-tax)

204 (4,394 -  

Non-cash portion of stock-based compensation expense

9,735 9,830 9,721

Non-cash portion of restructuring charges

458 2,155 2,260

Impairment charge

115,688 -   -  

Changes in operating assets and liabilities (net of effects of business
acquisitions):

Accounts receivable

18,089 7,680 (29,479

Inventories

(7,674 (2,886 426

Prepaid expenses and other assets

(2,744 5,624 (3,502

Accounts payable and accrued liabilities

(29,370 (3,365 52,410

Income taxes

23,922 3,388 5,258

Net cash provided by operating activities

144,705 167,350 165,238

Investing activities:

Acquisitions of businesses, net of cash acquired

(37,649 (7,970 (30,431

Payments of remaining consideration

(2,580 (1,528 -  

Divestiture of business, net of cash retained in business

856 12,980 -  

Purchases of property, plant and equipment

(24,147 (20,532 (26,296

Settlements of net investment hedges

(797 (5,542 6,248

Other

(287 (39 1,798

Net cash used in investing activities

(64,604 (22,631 (48,681

Financing activities:

Payment of dividends

(38,899 (38,064 (36,786

Proceeds from issuance of common stock

3,864 8,193 3,717

Principal payments on debt

(62,687 (61,264 (44,893

Proceeds from issuance of debt

-   -   94,915

Purchase of treasury stock

(49,933 -   (2,537

Credit revolver costs

(961 -   -  

Income tax benefit from the exercise of stock options and deferred compensation distributions, and other

792 (439 859

Net cash (used in) provided by financing activities

(147,824 (91,574 15,275

Effect of exchange rate changes on cash

(16,348 21,986 (5,148

Net (decrease) increase in cash and cash equivalents

(84,071 75,131 126,684

Cash and cash equivalents, beginning of year

389,971 314,840 188,156

Cash and cash equivalents, end of year

$ 305,900 $ 389,971 $ 314,840

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Interest, net of capitalized interest

$ 19,194 $ 21,298 $ 21,626

Income taxes, net of refunds

35,292 35,851 30,870

Acquisitions:

Fair value of assets acquired, net of cash

$ 23,792 $ 4,624 $ 15,366

Liabilities assumed

(8,987 (1,446 (5,201

Goodwill

22,844 4,792 20,266

Net cash paid for acquisitions

$ 37,649 $ 7,970 $ 30,431

See notes to consolidated financial statements.

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BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended July 31, 2012, 2011 and 2010

(In thousands except share and per share amounts)

1. Summary of Significant Accounting Policies

Nature of Operations - Brady Corporation is an international manufacturer of identification solutions and specialty materials that identify and protect premises, products and people. The ability to provide customers with a broad range of proprietary, customized, and diverse products for use in various applications, along with a commitment to quality and service, a global footprint, and multiple sales channels, have made Brady a world leader in many of its markets.

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Brady Corporation and its subsidiaries ("Brady" or the "Company"), all of which are wholly-owned. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events - On September 6, 2012, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from $0.74 to $0.76 per share. A quarterly dividend of $0.19 will be paid on October 31, 2012, to shareholders of record at the close of business on October 10, 2012.

On September 6, 2012, the Company's Board of Directors authorized a share buyback program for up to an additional two million shares of the Company's Class A Common Stock. The share repurchase plan may be implemented from time to time on the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's stock-based compensation plans and for other corporate purposes.

Fair Value of Financial Instruments - The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable and accounts payable) is a reasonable estimate of the fair value of these instruments due to their short-term nature. See Note 5 for more information regarding the fair value of long-term debt and Note 10 for fair value measurements.

Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents, which are recorded at cost.

Accounts Receivables - Accounts receivables are stated net of allowances for doubtful accounts of $6,006 and $6,183 as of July 31, 2012 and 2011, respectively. No single customer comprises more than 10% of the Company's consolidated net sales in 2012, 2011, or 2010, or 10% of the Company's consolidated accounts receivable as of July 31, 2012 or 2011. Specific customer provisions are made when a review of significant outstanding amounts, utilizing information about customer creditworthiness and current economic trends, indicates that collection is doubtful. In addition, provisions are made for the remainder of accounts receivable based upon the age of the receivable and the Company's historical collection experience.

Inventories - Inventories are stated at the lower of cost or market. Cost has been determined using the last-in, first-out ("LIFO") method for certain domestic inventories (approximately 18% of total inventories at July 31, 2012, and approximately 16% of total inventories at July 31, 2011) and the first-in, first-out ("FIFO") or average cost methods for other inventories. Had all domestic inventories been accounted for on a FIFO basis instead of on a LIFO basis, the carrying value would have increased by $9,271 and $9,168 on July 31, 2012 and 2011, respectively.

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Plant, Property, and Equipment - Plant, property, and equipment are recorded at cost. The cost of buildings and improvements and machinery and equipment is being depreciated over their estimated useful lives using primarily the straight-line method for financial reporting purposes. The estimated useful lives range from 3 to 33 years as shown below.

Asset Category

Range of Useful Lives

Buildings and improvements

10 to 33 Years

Computer systems

5 Years

Machinery and equipment

3 to 10 Years

Fully depreciated assets are retained in property and accumulated depreciation accounts until disposal. Upon disposal, assets and related accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to operations. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the respective asset. Depreciation expense was $27,656, $28,997, and $31,560 for the years ended July 31, 2012, 2011 and 2010, respectively.

Goodwill and Other Intangible Assets - The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed on a straight-line basis, over the estimated periods benefited. Intangible assets with indefinite useful lives and goodwill are not subjected to amortization. These assets are assessed for impairment annually or more frequently as deemed necessary.

In the quarter ended January 31, 2012, the former North/South Asia reporting unit experienced a sales decline and margin erosion due in large part to a major customer's loss of market share within the mobile handset industry. The impact of this sales decline was partially offset by additional opportunities within the mobile handset and other computing devices markets, but these sales were achieved at a lower gross margin percentage than was previously realized. The Company's plans to fill capacity and absorb overhead with these additional sales opportunities were partially successful; however, increased competition from local competitors drove down unit prices. While the Company continued to capture similar dollar value of sales, the gross margins were less than what was anticipated. The Company placed increased focus on cost reduction and material procurement strategies to reduce cost of goods sold; however, these efforts were not enough to return the reporting unit to previous levels of profitability. Based upon the economic environment within the mobile handset market, management determined that the events were not temporary and gross margins in the mobile handset market were not likely to improve materially in the near term.

Due to the convergence of these events, in connection with a reforecast of expected fiscal 2012 financial results completed during the quarter ended January 31, 2012, the Company determined the foregoing circumstances to be indicators of potential impairment under the guidance of ASC 350, "Intangibles – Goodwill and Other." The Company completed the required initial ("Step One") impairment test for the former North/South Asia reporting unit by preparing a discounted cash flow model taking into account updated projections, estimates and assumptions. These estimates and assumptions primarily included, but were not limited to, projections of revenue growth, operating earnings, discount rates, terminal growth rates, and required capital for the reporting unit. Due to the inherent uncertainty involved in these estimates, actual results could differ materially from the estimates. The Company evaluated the significant assumptions used to determine the fair value of the reporting unit with the assistance of a third party valuation firm and concluded that they were reasonable.

The estimated fair value of the reporting unit was compared to the carrying amount including goodwill, and the results of the analysis indicated that the former North/South Asia reporting unit was potentially impaired. Therefore, the Company proceeded to measure the amount of the potential impairment ("Step Two") with the assistance of a third party valuation firm. In Step Two of the goodwill impairment test, the Company determined the implied fair value of the goodwill and compared it to the carrying value of the goodwill. The Company allocated the fair value of the former North/South Asia reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. The excess fair value of the reporting unit over the fair value of its identifiable assets and liabilities was the implied fair value of goodwill. Upon completion of the assessment, the Company recognized a goodwill impairment charge of $115,688 during the quarter ended January 31, 2012. The amount of accumulated impairments as of July 31, 2012 was $115,688. There were no accumulated impairments as of July 31, 2011.

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In order to better allocate resources to align with sales growth initiatives, the Company reorganized its management reporting structure within the EMEA and Asia-Pacific operating segments. As a result of the reorganization and in accordance with ASC 350, "Intangibles – Goodwill and Other," the Company's reporting units for purposes of goodwill impairment testing were updated during the quarter ended April 30, 2012. In the EMEA operating segment, the Emerging Platforms reporting unit was consolidated into the Brady EMEA and Direct Marketing EMEA reporting units. In the Asia-Pacific operating segment, the North/South Asia reporting unit was divided into Brady North/South Asia and Die-Cut Asia. Further, Brady North/South Asia has been aggregated with Australia as part of the Brady Asia reporting unit. There were no changes to the management structure within the Americas operating segment.

The changes in the carrying amount of goodwill by reportable segment for the years ended July 31, 2012 and 2011 are as follows:

Americas EMEA Asia-
Pacific
Total

Balance as of July 31, 2010

$ 425,018 $ 163,189 $ 180,393 $ 768,600

Current year acquisitions

-   -   4,792 4,792

Current year divestitures

(3,696 (8,380 -   (12,076

Translation adjustments and other

4,256 16,429 18,342 39,027

Balance as of July 31, 2011

$ 425,578 $ 171,238 $ 203,527 $ 800,343

Current year acquisitions

-   22,844 -   22,844

Current year divestitures

-   (495 -   (495

Translation adjustments and other

(7,692 (18,719 (3,802 (30,213

Impairment charge

-   -   (115,688 (115,688

Balance as of July 31, 2012

$ 417,886 $ 174,868 $ 84,037 $ 676,791

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Goodwill decreased $123,552 during fiscal 2012. Of the $123,552 decrease, $115,688 was due to the goodwill impairment charge recognized on the former North/South Asia reporting unit, and $30,185 was due to the negative effects of foreign currency translation. These declines were partially offset by the acquisitions of Grafo, Runelandhs, and Pervaco during fiscal 2012, which increased goodwill by $1,227, $8,440, and $13,177, respectively, net of the fiscal 2012 divestiture of Etimark, which decreased goodwill by $495. See Note 2, "Acquisitions and Divestitures" for further discussion.

Goodwill increased $31,743 during fiscal 2011 due to the net effects of foreign currency translation and acquisition activity, offset by divestitures. Of the $31,743 increase, $39,027 was due to the positive effects of foreign currency translation and $4,792 resulted from the acquisition of ID Warehouse during the second quarter of fiscal 2011. The increase was offset by a $12,076 decrease in goodwill as a result of the divestiture of the Company's Teklynx business during the second quarter of fiscal 2011.

Other intangible assets include patents, trademarks, customer relationships, non-compete agreements and other intangible assets with finite lives being amortized in accordance with accounting guidance for other intangible assets. The net book value of these assets was as follows:

July 31, 2012 July 31, 2011
Weighted
Average
Amortization
Period (Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Weighted
Average
Amortization
Period (Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value

Amortized other intangible assets:

Patents

5 $ 10,418 $ (9,058 $ 1,360 5 $ 9,784 $ (8,556 $ 1,228

Trademarks and other

7 8,945 (7,094 1,851 7 9,448 (6,599 2,849

Customer relationships

7 164,392 (128,805 35,587 7 165,566 (119,977 45,589

Non-compete agreements and other

4 15,988 (15,417 571 4 16,432 (15,760 672

Unamortized other intangible
assets:

Trademarks and tradenames

N/A 44,750 -   44,750 N/A 39,623 -   39,623

Total

$ 244,493 $ (160,374 $ 84,119 $ 240,853 $ (150,892 $ 89,961

The value of other intangible assets in the Consolidated Balance Sheet at July 31, 2012, differs from the value assigned to them in the allocation of purchase price due to the effect of fluctuations in the exchange rates used to translate financial statements into the United States dollar between the date of acquisition and July 31, 2012.

Amortization expense of intangible assets during fiscal 2012, 2011, and 2010 was $16,331, $19,830, and $21,462, respectively. The amortization over each of the next five fiscal years is projected to be $14,323, $6,962, $6,145, $5,957, and $2,859 for the years ending July 31, 2013, 2014, 2015, 2016 and 2017, respectively.

Impairment of Long-Lived and Other Intangible Assets - The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived and other finite-lived intangible assets may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of possible impairment is based on fair value of the assets generally estimated by the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. If impairment is determined to exist, any related impairment loss is calculated based on the fair value of the asset.

Impairment of Goodwill and Indefinite-lived Intangible Assets - Goodwill and other indefinite-lived intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Annual impairment tests are performed by the Company in the fourth quarter of each year.

During the fourth quarter of fiscal 2012, the Company conducted a goodwill impairment assessment. The assessment included comparing the carrying amount of net assets, including goodwill, of each reporting unit to its respective fair value as of May 1, 2012, the Company's assessment date. Fair value was determined using the weighted average of a discounted cash flow and market participant analysis for each reporting unit. The Company's methodologies for valuing goodwill are applied consistently on a year-over-year basis. No indications of impairment have been identified between the date of the interim assessments and July 31, 2012.

During the fourth quarter of fiscal 2012, the Company conducted an indefinite-lived intangible asset impairment assessment. The assessment included comparing the carrying amount of the indefinite-lived intangible asset to the fair value of those assets as of May 1, 2012, the Company's assessment date. Fair value was determined using a discounted revenue stream analysis for each indefinite-lived intangible asset based on a relief from royalty valuation methodology. The Company's methodologies for valuing indefinite-lived intangible assets are applied consistently on a year-over-year basis. No indications of impairment have been identified between the date of the interim assessments and July 31, 2012.

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Catalog Costs and Related Amortization - The Company accumulates all direct costs incurred, net of vendor cooperative advertising payments, in the development, production, and circulation of its catalogs on its balance sheet until such time as the related catalog is mailed. The catalog costs are subsequently amortized into selling, general, and administrative expense over the expected sales realization cycle, which is one year or less. Consequently, any difference between the estimated and actual revenue stream for a particular catalog and the related impact on amortization expense is neutralized within a period of one year or less. The estimate of the expected sales realization cycle for a particular catalog is based on the Company's historical sales experience with identical or similar catalogs, and an assessment of prevailing economic conditions and various competitive factors. The Company tracks subsequent sales realization, reassesses the marketplace, and compares its findings to the previous estimate, and adjusts the amortization of future catalogs, if necessary. At July 31, 2012 and 2011, $15,011 and $11,892, respectively, of prepaid catalog costs were included in prepaid expenses and other current assets.

Revenue Recognition - Revenue is recognized when it is both earned and realized or realizable. The Company's policy is to recognize revenue when title to the product, ownership, and risk of loss have transferred to the customer, persuasive evidence of an arrangement exists, and collection of the sales proceeds is reasonably assured, all of which generally occur upon shipment of goods to customers. The majority of the Company's revenue relates to the sale of inventory to customers, and revenue is recognized when title and the risks and rewards of ownership pass to the customer. Given the nature of the Company's business and the applicable rules guiding revenue recognition, the Company's revenue recognition practices do not contain estimates that materially affect the results of operations, with the exception of estimated returns and credit memos. The Company provides for an allowance for estimated product returns and credit memos which is recognized as a deduction from sales at the time of the sale. As of July 31, 2012 and 2011, the Company had a reserve of $3,046 and $4,491, respectively. The decline from fiscal 2011 to fiscal 2012 is a result of a reduction in specific reserves that were recorded at the end of fiscal 2011, as well as a decline in the product return lag.

Sales Incentives - The Company accounts for cash consideration (such as sales incentives and cash discounts) given to its customers or resellers as a reduction of revenue rather than an operating expense. Sales incentives for the years ended July 31, 2012, 2011, and 2010 were $18,474, $18,826, and $12,673, respectively.

Shipping and Handling Fees and Costs - Amounts billed to a customer in a sale transaction related to shipping and handling fees are reported as net sales and the related costs incurred for shipping and handling are reported as cost of goods sold.

Advertising Costs - Advertising costs are expensed as incurred, except catalog and mailer costs as outlined above. Advertising expense for the years ended July 31, 2012, 2011, and 2010 were $74,852, $79,326, and $72,000, respectively.

Stock-Based Compensation - The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees and non-employee directors. The stock options have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Stock options issued under these plans, referred to herein as "service-based" stock options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above; these options are referred to herein as "performance-based" stock options. Performance-based stock options expire 10 years from the date of grant. Restricted shares have an issuance price equal to the fair market value of the underlying stock at the date of grant. The Company granted restricted shares in fiscal 2008 and fiscal 2011 that have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 were amended in fiscal 2011 to allow for vesting after either a five-year period or a seven-year period based upon both performance and service conditions. The restricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. The restricted shares granted in fiscal 2008 and 2011 are referred to herein as "performance-based restricted shares."

As of July 31, 2012, the Company has reserved 6,555,084 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 5,005,850 shares remain of Class A Nonvoting Common Stock for future issuance of stock options and restricted shares under the various plans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.

The Company recognizes the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Total stock compensation expense recognized by the Company during the years ended July 31, 2012, 2011, and 2010 was $9,735 ($5,939 net of taxes), $9,830 ($5,996 net of taxes), and $9,721 ($5,930 net of taxes), respectively. As of July 31, 2012, total unrecognized compensation cost related to share-based compensation awards was $13,827 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 1.8 years.

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The Company has estimated the fair value of its performance-based and service-based option awards granted after August 1, 2005, using the Black-Scholes option-pricing model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:

2012 2011 2010

Black-Scholes Option Valuation Assumptions

Performance-
Based
Options
Service-Based
Options
Performance-
Based
Options
Service-Based
Options
Performance-
Based
Options
Service-Based
Options

Expected term (in years)

6.57 5.89 6.57 5.91 6.57 5.94

Expected volatility

39.21 39.41 39.39 40.22 38.72 39.88

Expected dividend yield

1.99 2.07 1.96 1.94 3.02 3.01

Risk-free interest rate

2.05 1.16 2.35 1.65 3.03 2.63

Weighted-average market value of
underlying stock at grant date

$ 29.55 $ 27.05 $ 28.43 $ 29.13 $ 28.73 $ 28.68

Weighted-average exercise price

$ 29.55 $ 27.05 $ 28.35 $ 29.13 $ 29.78 $ 28.68

Weighted-average fair value of
options granted

$ 10.01 $ 8.42 $ 9.87 $ 9.59 $ 8.70 $ 8.77

The Company uses historical data regarding stock option exercise behaviors to estimate the expected term of options granted based on the period of time that options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company's stock. The expected dividend yield is based on the Company's historical dividend payments and historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for the length of time corresponding to the expected term of the option. The market value is calculated as the average of the high and the low stock price on the date of grant.

The Company granted 100,000 shares of performance-based restricted stock to Frank M. Jaehnert, the Company's President and Chief Executive Officer in August of 2010, with a grant price and fair value of $28.35 per share. The Company also granted 210,000 shares of performance-based restricted stock to Mr. Jaehnert and other executives during fiscal 2008, with a grant price and fair value of $32.83. As of July 31, 2012, 310,000 performance-based restricted shares were outstanding.

Effective July 20, 2011, the Compensation Committee of the Board of Directors of the Company approved an amendment to the fiscal 2008 performance-based restricted shares to provide for an additional two-year vesting period. These awards originally vested five years from the grant date upon meeting certain financial performance and service conditions. This modification resulted in a one-time cumulative reduction of $1.2 million in fiscal 2011 to share-based compensation expense in order to align the expense recognition with the amended vesting terms. The Company's Chief Executive Officer, Chief Financial Officer, and the other three named executive officers currently have the following performance-based restricted shares affected by this amendment: Frank M. Jaehnert, 50,000 shares; Thomas J. Felmer, 35,000 shares; Peter C. Sephton, 35,000 shares; Allan J. Klotsche, 35,000 shares; and Matthew O. Williamson, 35,000 shares.

The Company granted 415,000 performance-based stock options during fiscal 2012, with a weighted average exercise price of $29.55 and a weighted average fair value of $10.01. The Company also granted 797,450 service-based stock options during fiscal 2012, with a weighted average exercise price of $27.05 and a weighted average fair value of $8.42.

Research and Development - Amounts expended for research and development are expensed as incurred.

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

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The following table illustrates the changes in the balances of each component of accumulated other comprehensive income for the periods presented. The unrealized (loss) gain on cash flow hedges and the amortization of gain on the postretirement medical plan are presented net of tax:

Unrealized
(loss) gain  on
cash flow
hedges
Amortization
of gain on
post-
retirement
medical plan
Foreign
currency
translation
adjustments
Accumulated
other
comprehensive
income

Beginning balance, July 31, 2009

$ (53 $ 1,942 $ 51,162 $ 53,051

Current-period change

(268 (585 (1,293 (2,146

Ending balance, July 31, 2010

$ (321 $ 1,357 $ 49,869 $ 50,905

Current-period change

(833 831 62,995 62,993

Ending balance, July 31, 2011

$ (1,154 $ 2,188 $ 112,864 $ 113,898

Current-period change

2,030 (1,210 (55,307 (54,487

Ending balance, July 31, 2012

$ 876 $ 978 $ 57,557 $ 59,411

The decrease in accumulated other comprehensive income for the year ended July 31, 2012, as compared to the years ended July 31, 2011 was primarily due to the appreciation of the U.S. dollar against other currencies. The foreign currency translation adjustments line in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of the net investment hedges, net of tax.

Foreign Currency Translation - Foreign currency assets and liabilities are translated into United States dollars at end of period rates of exchange, and income and expense accounts are translated at the weighted average rates of exchange for the period. Resulting translation adjustments are included in other comprehensive income.

Income Taxes - The Company accounts for income taxes in accordance with the applicable accounting guidance, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The Company recognizes the effect of income tax positions only if sustaining those positions is more likely than not. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs.

Risk Management Activities - The Company is exposed to market risk, such as changes in interest rates and currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes.

Foreign Currency Hedging - The objective of the Company's foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions and minimize the foreign currency translation impact on the Company's foreign operations. While the Company's risk management objectives and strategies are driven from an economic perspective, the Company attempts, where possible and practical, to ensure that the hedging strategies it engages in qualify for hedge accounting and result in accounting treatment where the earnings effect of the hedging instrument provides substantial offset (in the same period) to the earnings effect of the hedged item. Generally, these risk management transactions will involve the use of foreign currency derivatives to protect against exposure resulting from transactions in a currency differing from the respective functional currency.

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of less than 18 months. These instruments may or may not qualify as hedges under the accounting guidance for derivative instruments and hedging activities based upon the intended objective of the contract. The fair value of these instruments at July 31, 2012 and 2011 was an asset of $953 and a liability of $6,109, respectively. As of July 31, 2012 and 2011, the notional amount of these outstanding forward exchange contracts was $61.2 million and $80.8 million. See Note 12 for more information regarding the Company's derivative instruments and hedging activities.

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The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the Consolidated Balance Sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income ("AOCI") and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At July 31, 2012 and July 31, 2011, unrealized gains of $1,348 and unrealized losses of $1,535 have been included in AOCI, respectively. All balances are expected to be reclassified from AOCI to earnings during the next fifteen months when the hedged transactions impact earnings.

The Company has designated a portion of its foreign exchange contracts as net investment hedges of the Company's net investments in foreign operations and recorded these contracts at fair value on the Consolidated Balance Sheets. For net investment hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within accumulated other comprehensive income. Any ineffective portions are to be recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At July 31, 2012 and July 31, 2011, unrealized losses of $1,041 and $4,589 have been included in AOCI, respectively.

The Company also utilizes Euro-denominated debt designated as hedge instruments to hedge portions of the Company's net investments in European foreign operations. As of July 31, 2012, the Company had €75.0 million foreign denominated debt outstanding designated as a net investment hedge of the Company's net investment in its European foreign operations. See Note 12 for more information regarding the Company's derivative instruments and hedging activities. For net investment hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within accumulated other comprehensive income. Any ineffective portions are to be recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At July 31, 2012 and July 31, 2011, unrealized gains of $2,635 and unrealized losses of $13,070 have been included in AOCI, respectively.

The Company also enters into forward exchange contracts to create economic hedges to manage foreign exchange risk exposure. The fair value of these instruments at July 31, 2012 and 2011 was $78 and $2, respectively. The Company has not designated these derivative contracts as hedge transactions, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings.

Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not significant for the fiscal years ended July 31, 2012, 2011, and 2010.

New Accounting Standards - In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement," which is intended to clarify three points that are part of FASB ASC 820 – Fair Value Measurements and Disclosures: (1) only nonfinancial assets should be valued via a determination of their best use; (2) the value of an instrument in shareholder's equity should be measured from the perspective of an investor or trader who owns that instrument, which is the same method for measuring a liability; and (3) businesses will have to provide data and disclose the methods used to value Level 3 assets, those that are difficult to price because they do not have observable pricing inputs since they have stopped trading in the open market. The Company adopted this ASU effective July 31, 2012; however, it does not have a material impact on the basis of reporting fair value or the related disclosures.

In June 2011, the FASB issued ASU 2011-05, "Presentation of Comprehensive Income," which eliminates the option to present components of other comprehensive income ("OCI") as part of the statement of changes in stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently, in December 2011, the FASB issued ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income," which indefinitely defers the requirements in ASU 2011-05 to present on the face of the financial statements adjustments for items that are reclassified from OCI to net income in the statement where the components of net income and the components of OCI are presented. The ASU does not change the items that must be reported in OCI. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company will adopt the standard with its fiscal 2013 first quarter ending October 31, 2012. The Company does not anticipate the adoption of this update to have a material impact on its financial statements.

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In August 2012, the FASB issued ASU 2012-240, "Comprehensive Income – Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income," to solicit comments on a proposal to replace ASU 2011-05, "Presentation of Comprehensive Income." The proposed standard would require presentation of (1) the effects of reclassifications of items out of accumulated other comprehensive income for each component of accumulated OCI, (2) a tabular disclosure of how items reclassified out of accumulated OCI impact line items of net income if the item was required under U.S. GAAP to be reclassified entirely into net income, and (3) references from effected components of accumulated OCI to other note disclosures currently required under U.S. GAAP for items not entirely reclassified into net income. Notably, the proposal specifically excludes from the new presentation requirements certain (1) postretirement benefit costs and (2) deferred acquisition costs related to certain insurance products. This update is tentatively applicable to companies with reporting periods ending after December 15, 2012, and would apply to both interim and annual reports. The Company is in the process of determining its method of presentation; however, it does not anticipate the adoption of these updates will have a material impact on its financial statements.

In July 2012, the FASB issued ASU 2012-02, "Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment," to establish an optional two-step analysis for impairment testing of indefinite-lived intangibles other than goodwill. The two-step analysis establishes an optional qualitative assessment to precede the quantitative assessment, if necessary. In the qualitative assessment, the entity must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The entity must proceed to conducting a quantitative analysis, according to which the entity would record an impairment charge for the amount of the asset's fair value exceeding the carrying amount, if (1) the entity determines that such an impairment is more likely than not to exist, or (2) the entity foregoes the qualitative assessment entirely. The standards update will be effective for financial statements of periods beginning after September 15, 2012, with early adoption permitted. The Company does not expect adoption of this ASU to have a material impact on the Company's results of operations, financial position or cash flow.

2. Acquisitions and Divestitures

The Company completed three business acquisitions during each of the fiscal years ended July 31, 2012 and July 31, 2010, and one business acquisition during the fiscal year ended July 31, 2011. All of these transactions were accounted for using business combination accounting; therefore, the results of the acquired operations are included in the accompanying consolidated financial statements only since their acquisition dates.

The Company also divested of one business during each of the fiscal years ended July 31, 2012 and July 31, 2011. The Company did not complete any divestitures during the fiscal year ended July 31, 2010.

Fiscal 2012

In March 2012, the Company acquired Grafo Wiremarkers Africa (Proprietary) Limited ("Grafo"), based in Johannesburg, South Africa for $3,039. Grafo offers a comprehensive range of wire identification products and is the sole distributor in Africa of locally developed Dartag ® ABS cablemarkers, and stainless steel ties and tags. Grafo has annual sales of approximately $3,000 and is included in the Company's EMEA segment. The purchase price allocation resulted in $1,227 assigned to goodwill and $961 assigned to customer relationships. The amount assigned to the customer relationships is being amortized over seven years. The Company expects the acquisition to provide a solid base in South Africa where it can further expand its business with the established distributors and customers throughout South Africa and the Southern African Development Community (SADC) countries.

In May 2012, the Company acquired Runelandhs Försäljnings AB ("Runelandhs"), based in Kalmar, Sweden for $22,499, net of cash received. Runelandhs is a direct marketer of industrial and office equipment with annual sales of approximately $19,000. Its products include lifting, transporting, and warehouse equipment; workbenches and material handling supplies; products for environmental protection; and entrance, reception, and office furnishings. Runelandhs is included in the Company's EMEA segment. The final purchase price allocation resulted in $13,177 assigned to goodwill, $5,340 assigned to trademark, $5,474 assigned to customer relationships, and $95 assigned to non-compete agreements. The amount assigned to the trademark has an indefinite life. The amounts assigned to the customer relationships and non-compete agreements are being amortized over seven and five years, respectively. The Company expects the acquisition to expand its direct marketing presence in Scandinavia.

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In May 2012, the Company acquired Pervaco AS ("Pervaco"), based in Kjeller, Norway for approximately $12,111, net of cash received. Pervaco is a direct marketer of facility identification products with annual sales of approximately $6,000. Pervaco is included in the Company's EMEA segment. The purchase price allocation resulted in $8,440 assigned to goodwill, $1,538 assigned to trademark, $2,468 assigned to customer relationships, and $91 assigned to non-compete agreements. The amount assigned to the trademark has an indefinite life. The amounts assigned to the customer relationships and non-compete agreements are being amortized over 5 and 3 years, respectively. The Company also expects the acquisition to expand its direct marketing presence in Scandinavia.

The following table summarizes the combined estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:

Current assets net of cash

$ 5,082

Property, plant & equipment

2,743

Goodwill

22,844

Customer relationships

8,903

Trademarks

6,878

Non-compete agreements

186

Total assets acquired net of cash

46,636

Liabilities assumed

7,555

Debt assumed

1,432

Net assets acquired

$ 37,649

The results of the operations of the acquired business have been included since the date of acquisition in the accompanying consolidated financial statements. Pro forma information related to the acquisitions during the twelve months ended July 31, 2012, is not included because the impact on the Company's consolidated results of operations is considered to be immaterial.

In July 2012, the Company sold certain net assets of its Etimark business, a manufacturer of bar-code labels and other identification products, based in Bad Nauheim, Germany. The Etimark business had operations in the Company's EMEA segment. The Company received proceeds of $856, net of cash retained in the business. The transaction resulted in a pre-tax loss of $204, which was accounted for in "Selling, general, and administrative expenses" ("SG&A") on the Consolidated Statement of Income for the year ended July 31, 2012. The divestiture of the Etimark business was part of the Company's continued long-term growth strategy to focus the Company's energies and resources on growth of the Company's core businesses.

Fiscal 2011

In November 2010, the Company acquired ID Warehouse, based in New South Wales, Australia for $7,970. ID Warehouse offers security identification and visitor management products including identification card printers, access control cards, wristbands, tamper-evident security seals and identification accessories. The business is included in the Company's Asia-Pacific segment. The purchase price allocation resulted in $4,792 assigned to goodwill, $1,846 assigned to customer relationships, and $487 assigned to non-compete agreements. The amounts assigned to the customer relationships and non-compete agreements are being amortized over 10 and 5 years, respectively. The acquisition further strengthened the Company's position in the people identification business in Australia and within the segment.

The following table summarizes the combined estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:

Current assets net of cash

$  1,876

Property, plant & equipment

415

Goodwill

4,792

Customer relationships

1,846

Non-compete agreements

487

Total assets acquired net of cash

9,416

Liabilities assumed

1,446

Net assets acquired

$ 7,970

The results of the operations of the acquired business have been included since the date of acquisition in the accompanying consolidated financial statements. Pro forma information related to the acquisition of ID Warehouse was not included because the impact on the Company's consolidated results of operations is considered to be immaterial.

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In December 2010, the Company sold its Teklynx business, a barcode software company. The Teklynx business had operations primarily in the Company's Americas and EMEA segments. The Company received proceeds of $12,980, net of cash retained in the business. The transaction resulted in a pre-tax gain of $4,394, which was accounted for in "Selling, general, and administrative expenses" ("SG&A") on the Consolidated Statement of Income for the year ended July 31, 2011. The divestiture of the Teklynx business was part of the Company's continued long-term growth strategy to focus the Company's energies and resources on growth of the Company's core businesses.

Fiscal 2010

In March 2010, the Company acquired Securimed SAS ("Securimed"), based in Coudekerque, France for $10,132. Securimed is a leading French supplier and distributor of customized first-aid kits and supplies, and related healthcare products including personal protection, disinfection and hygiene products, diagnosis materials, and products for emergency response. The Securimed business is included in the Company's EMEA segment.

In December 2009, the Company acquired Stickolor Industria e Comercio de Auto Adesivos Ltda. ("Stickolor"), based in Saõ Paulo, Brazil for $18,459. Stickolor manufactures screen-printed custom labels, overlays and nameplates for automobiles, tractors, motorcycles, electronics, white goods and general industrial markets. The Stickolor business is included in the Company's Americas segment.

In October 2009, the Company acquired certain assets of the Welco division of Welconstruct Group Limited, based in the United Kingdom for $1,840. The Welco division conducts a direct marketing business platform consisting of sales of storage, handling, office and workplace products, and equipment via catalog and the internet to industrial and commercial markets under the name and title "Welco." The Welco business is included in the Company's EMEA segment.

The following table summarizes the combined estimated fair values of the assets acquired and liabilities assumed at the date of the acquisitions.

Current assets net of cash

$ 5,313

Property, plant & equipment

743

Goodwill

20,266

Customer relationships

7,970

Trademarks

1,340

Total assets acquired net of cash

35,632

Liabilities assumed

5,201

Net assets acquired

$ 30,431

Purchased identifiable intangible assets for the three business acquisitions closed during the twelve months ended July 31, 2010 totaled $9,310 and will be amortized on a straight-line basis over lives ranging from three to ten years.

The results of the operations of the acquired businesses have been included since the respective dates of acquisition in the accompanying consolidated financial statements. Pro-forma information related to the acquisitions during the twelve months ended July 31, 2010 is not included because the impact on the Company's consolidated results of operations is considered to be immaterial.

3. Employee Benefit Plans

The Company provides postretirement medical benefits (the "Plan") for eligible regular full and part-time domestic employees (including spouses) outlined by the plan. Postretirement benefits are provided only if the employee was hired prior to April 1, 2008, and retires on or after attainment of age 55 with 15 years of credited service. Credited service begins accruing at the later of age 40 or date of hire. All active employees first eligible to retire after July 31, 1992, are covered by an unfunded, contributory postretirement healthcare plan where employer contributions will not exceed a defined dollar benefit amount, regardless of the cost of the program. Employer contributions to the plan are based on the employee's age and service at retirement.

The accounting guidance on defined benefit pension and other postretirement plans requires full recognition of the funded status of defined benefit and other postretirement plans on the balance sheet as an asset or a liability. The guidance also continues to require that unrecognized prior service costs/credits, gains/losses, and transition obligations/assets be recorded in Accumulated Other Comprehensive Income, thus not changing the income statement recognition rules for such plans.

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The Plan is unfunded and recorded as a liability in the accompanying consolidated balance sheets as of July 31, 2012 and 2011. The following table provides a reconciliation of the changes in the Plan's accumulated benefit obligations during the years ended July 31:

2012 2011

Obligation at beginning of year

$ 15,011 $ 15,277

Service cost

644 666

Interest cost

633 694

Actuarial (gain)/loss

1,104 (955

Benefit payments

(2,062 (671

Plan amendments

(1,105 -  

Obligation at end of fiscal year

$ 14,225 $ 15,011

The plan was amended to exclude dental and vision benefits for retirees over the age of 65, resulting in a reduction of $1,105 in the pension obligation as of July 31, 2012. Benefit payments were $2,062 in fiscal 2012 as compared to $671 in fiscal 2011, which is the result of four large claims realized within the Company's self-insured retiree population.

As of July 31, 2012 and 2011, amounts recognized as liabilities in the accompanying consolidated balance sheets consist of:

2012 2011

Current liability

$ 716 $ 1,054

Noncurrent liability

13,509 13,957

$ 14,225 $ 15,011

As of July 31, 2012 and 2011, pre-tax amounts recognized in accumulated other comprehensive income in the accompanying consolidated balance sheets consist of:

2012 2011

Net actuarial gain

$ 1,837 $ 3,131

Prior service credit

1,405 503

$ 3,242 $ 3,634

Net periodic benefit cost for the Plan for fiscal years 2012, 2011, and 2010 includes the following components:

Years Ended July 31,
2012 2011 2010

Net periodic postretirement benefit cost included the following components:

Service cost - benefits attributed to service during the period

$ 644 $ 666 $ 662

Prior service credit

(203 (82 (64

Interest cost on accumulated postretirement benefit obligation

633 694 795

Amortization of unrecognized gain

(189 (76 (206

Periodic postretirement benefit cost

$ 885 $ 1,202 $ 1,187

The estimated actuarial gain and prior service credit that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost over the next fiscal year are $45 and $203, respectively.

The following assumptions were used in accounting for the Plan:

2012 2011 2010

Weighted average discount rate used in determining accumulated postretirement benefit obligation liability

3.25 4.50 4.50

Weighted average discount rate used in determining net periodic benefit cost

4.50 4.50 5.50

Assumed health care trend rate used to measure APBO at July 31

8.00 8.00 8.00

Rate to which cost trend rate is assumed to decline (the ultimate trend rate)

5.50 5.50 5.50

Fiscal year the ultimate trend rate is reached

2016 2017 2016

The discount rate utilized in preparing the accumulated postretirement benefit obligation liability was reduced from 4.50% in fiscal 2011 to 3.25% in fiscal 2012 as a result of a decline in the bond yield as of the Company's measurement date of July 31, 2012.

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A one-percentage point change in assumed health care cost trend rates would have the following effects on the Plan:

One-Percentage
Point Increase
One-Percentage
Point Decrease

Effect on future service and interest cost

$ 10 $ (10

Effect on accumulated postretirement benefit obligation at July 31, 2012

296 (386

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the years ending July 31:

2013

$ 716

2014

760

2015

817

2016

878

2017

985

2018 through 2021

6,593

The Company sponsors defined benefit pension plans that provide an income benefit upon termination or retirement for certain of its international employees. As of July 31, 2012 and 2011, the accumulated pension obligation related to these plans was $4,021 and $2,612, respectively. As of July 31, 2012 and 2011, pre-tax amounts recognized in accumulated other comprehensive income in the accompanying balance sheets were ($828) and $525, respectively. The net periodic benefit cost for these plans was $299, $301, and $265 as of July 31, 2012, 2011, and 2010.

The Company has retirement and profit-sharing plans covering substantially all full-time domestic employees and certain of its foreign subsidiaries. Contributions to the plans are determined annually or quarterly, according to the respective plans, based on earnings of the respective companies and employee contributions. At July 31, 2012 and 2011, $4,371 and $4,752, respectively, of accrued retirement and profit-sharing contributions were included in other current liabilities and other long-term liabilities on the accompanying consolidated balance sheets.

The Company also has deferred compensation plans for directors, officers and key executives which are discussed below. At July 31, 2012 and 2011, $13,738 and $12,299, respectively, of deferred compensation was included in other long-term liabilities in the accompanying consolidated balance sheets.

During fiscal 1998, the Company adopted a new deferred compensation plan that invests solely in shares of the Company's Class A Nonvoting Common Stock. Participants in a predecessor phantom stock plan were allowed to convert their balances in the old plan to this new plan. The new plan was funded initially by the issuance of shares of Class A Nonvoting Common Stock to a Rabbi Trust. All deferrals into the new plan result in purchases of Class A Nonvoting Common Stock by the Rabbi Trust. No deferrals are allowed into a predecessor plan. Shares held by the Rabbi Trust are distributed to participants upon separation from the Company as defined in the plan agreement.

During fiscal 2002, the Company adopted a new deferred compensation plan that allows future contributions to be invested in shares of the Company's Class A Nonvoting Common Stock or in certain other investment vehicles. Prior deferred compensation deferrals must remain in the Company's Class A Nonvoting Common Stock. All participant deferrals into the new plan result in purchases of Class A Nonvoting Common Stock or certain other investment vehicles by the Rabbi Trust. Balances held by the Rabbi Trust are distributed to participants upon separation from the Company as defined in the plan agreement. On May 1, 2006, the plan was amended to require that deferrals into the Company's Class A Nonvoting Common Stock must remain in the Company's Class A Nonvoting Common Stock and be distributed in shares of the Company's Class A Nonvoting Common Stock.

The amounts charged to expense for the retirement and profit sharing described above were $14,458, $14,911, and $12,547 during the years ended July 31, 2012, 2011, and 2010, respectively.

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4. Income Taxes

Income (loss) before income taxes consists of the following:

Years Ended July 31,
2012 2011 2010

United States

$ 42,597 $ 29,913 $ 4,423

Other Nations

(19,847 114,145 104,979

Total

$ 22,750 $ 144,058 $ 109,402

Income taxes consist of the following:

Years Ended July 31,
2012 2011 2010

Current income tax expense:

United States

$ 8,781 $ 5,784 $ 474

Other Nations

39,272 37,384 32,800

States (U.S.)

2,287 399 1,006

50,340 43,567 34,280

Deferred income tax (benefit) expense:

United States

(1,480 (5,161 (4,604

Other Nations

(7,325 (3,746 (1,942

States (U.S.)

(874 746 (288

(9,679 (8,161 (6,834

Total

$ 40,661 $ 35,406 $ 27,446

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Deferred income taxes result from temporary differences in the recognition of revenues and expenses for financial statement and income tax purposes.

The approximate tax effects of temporary differences are as follows:

July 31, 2012
Assets Liabilities Total

Inventories

$ 4,984 $ (4 $ 4,980

Prepaid catalog costs

13 (3,520 (3,507

Employee benefits

2,980 (4 2,976

Accounts receivable

1,370 (11 1,359

Other, net

7,267 (3,221 4,046

Current

16,614 (6,760 9,854

Fixed Assets

2,146 (5,703 (3,557

Intangible Assets

1,885 (39,561 (37,676

Capitalized R&D expenditures

2,047 -   2,047

Deferred compensation

27,122 -   27,122

Postretirement benefits

7,429 -   7,429

Tax credit carry-forwards and net operating losses

68,148 -   68,148

Less valuation allowance

(25,847 -   (25,847

Other, net

156 (7,146 (6,990

Noncurrent

83,086 (52,410 30,676

Total

$ 99,700 $ (59,170 $ 40,530

July 31, 2011
Assets Liabilities Total

Inventories

$ 5,328 $ (37 $ 5,291

Prepaid catalog costs

18 (3,038 (3,020

Employee benefits

892 -   892

Accounts receivable

1,979 (75 1,904

Other, net

8,429 (2,363 6,066

Current

16,646 (5,513 11,133

Fixed Assets

2,189 (7,672 (5,483

Intangible Assets

1,964 (33,798 (31,834

Capitalized R&D expenditures

2,807 -   2,807

Deferred compensation

23,654 -   23,654

Postretirement benefits

6,764 -   6,764

Tax credit carry-forwards and net operating losses

62,638 -   62,638

Less valuation allowance

(27,476 -   (27,476

Other, net

2,453 -   2,453

Noncurrent

74,993 (41,470 33,523

Total

$ 91,639 $ (46,983 $ 44,656

Tax loss carry-forwards at July 31, 2012 are comprised of:

Foreign net operating loss carry-forwards of $101,904, of which $87,996 have no expiration date and the remainder of which expire within the next 5-8 years.

State net operating loss carry-forwards of $46,504, which expire from 2014 to 2032.

Foreign tax credit carry-forwards of $31,079, which expire from 2018 to 2022.

State research and development credit carry-forwards of $3,457, which expire from 2018 to 2027.

The valuation allowance decreased by $1,629 during the fiscal year ended July 31, 2012 and decreased by $34 during the fiscal year ended July 31, 2011. If realized or reversed in future periods, substantially all of the valuation allowance would impact the income tax rate.

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Rate Reconciliation

A reconciliation of the tax 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,
2012 2011 2010

Tax at statutory rate

Goodwill impairment


35.0

178.0



35.0

0.0



35.0

0.0


State income taxes, net of federal tax benefit

0.7 0.0 0.6

International rate differential

(43.3 )%  (6.3 )%  (9.8 )% 

Non-creditable withholding taxes

14.3 0.8 1.8

Rate variances arising from foreign subsidiary distributions

(39.9 )%  (6.5 )%  (2.6 )% 

Adjustments to tax accruals and reserves

58.5 3.8 (0.5 )% 

Research and development tax credits and section 199 manufacturer's deduction

(6.4 )%  (1.1 )%  (0.3 )% 

Foreign tax credit carryforward adjustments

(21.1 )%  0.0 0.0

Other, net

2.9 (1.1 )%  0.9

Effective tax rate

178.7 24.6 25.1

The Company is eligible for tax holidays on the earnings of certain subsidiaries in Asia, including Thailand and the Philippines. The benefits realized as a result of these tax holidays reduced the consolidated effective tax rate by approximately 0.8%, 1.5%, and 2.3% during the years ended July 31, 2012, 2011, and 2010, respectively. These tax holidays are in the process of expiring and are anticipated to be fully exhausted by 2020.

Uncertain Tax Positions

On August 1, 2007, the Company adopted guidance regarding uncertain tax positions. The guidance requires application of a "more likely than not" threshold to the recognition and derecognition of tax positions.

A reconciliation of unrecognized tax benefits (excluding interest and penalties) is as follows:

Balance at July 31, 2009

$  19,462

Additions based on tax positions related to the current year

1,989

Additions for tax positions of prior years

3,934

Reductions for tax positions of prior years

(6,672

Lapse of statute of limitations

(194

Settlements with tax authorities

(1,054

Cumulative Translation Adjustments and other

203

Balance at July 31, 2010

$ 17,668

Additions based on tax positions related to the current year

5,147

Additions for tax positions of prior years

2,387

Reductions for tax positions of prior years

(291

Lapse of statute of limitations

(2,803

Settlements with tax authorities

(728

Cumulative Translation Adjustments and other

963

Balance at July 31, 2011

$ 22,343

Additions based on tax positions related to the current year

6,983

Additions for tax positions of prior years

9,460

Reductions for tax positions of prior years

-  

Lapse of statute of limitations

(949

Settlements with tax authorities

-  

Cumulative Translation Adjustments and other

(1,305

Balance at July 31, 2012

$ 36,532

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Approximately $31,070 of unrecognized tax benefits, if recognized, would affect the Company's effective income tax rate. The Company has classified $29,765 and $22,343, excluding interest and penalties, of the reserve for uncertain tax positions in Other Liabilities on the Consolidated Balance Sheet as of July 31, 2012 and 2011, respectively. The Company has classified $6,768, excluding interest and penalties, as a reduction of long-term deferred income tax assets on the Consolidated Balance Sheet as of July 31, 2012.

The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of income.

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. During the years ended July 31, 2012, 2011, and 2010, the Company recognized a $539 increase in interest expense, a $990 reduction in interest expense, and a $33 increase in interest expense, as well as $855, $500 and $780 of penalties, respectively, related to the reserve for uncertain tax positions. These amounts are net of reversals due to reductions for tax positions of prior years, statute of limitations, and settlements. At July 31, 2012 and 2011, the Company had $1,986 and $1,507, 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, 2012 and 2011, the Company had $2,840 and $2,229, respectively, accrued for penalties on unrecognized tax benefits.

The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $13,563 within twelve months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or statute expirations. The maximum amount that would be recognized through the consolidated statements of income as expense is $5,686, and the remainder would result in a balance sheet reclassification.

During the year ended July 31, 2012, the Company recognized tax benefits associated with the lapse of statutes of limitations.

The Company and its subsidiaries file income tax returns in the U.S., various state, 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'09 - F'12

France

F'12

Germany

F'06 - F'12

United Kingdom

F'09 - F'12

Unremitted Earnings

The Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and at July 31, 2012, were approximately $467,066. These earnings have been reinvested in non-U.S. business operations, and the Company does not intend to repatriate these earnings to fund U.S. operations. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.

5. Long-Term Obligations

On May 13, 2010, the Company completed a private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited institutional investors. The €75.0 million of senior notes consists of €30.0 million aggregate principal amount of 3.71% Series 2010-A Senior Notes, due May 13, 2017 and €45.0 million aggregate principal amount of 4.24% Series 2010-A Senior Notes, due May 13, 2020, with interest payable on the notes semiannually. This private placement was exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale and may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. The notes have certain prepayment penalties for repaying them prior to maturity. The notes have been fully and unconditionally guaranteed on an unsecured basis by the Company's domestic subsidiaries.

During fiscal 2004 through fiscal 2007, the Company completed three private placement note issuances totaling $500 million in ten-year fixed rate notes with varying maturity dates to institutional investors at interest rates varying from 5.14% to 5.33%. The notes must be repaid equally over seven years, with initial payment due dates ranging from 2008 to 2011, with interest payable on the notes due semiannually on various dates throughout the year, which began in December 2004. The private placements were exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale and may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. The notes have certain prepayment penalties for repaying them prior to the maturity date. Under the debt agreement, the Company made scheduled principal payments of $61.3 million, $61.3 million, and $44.9 million during the years ended July 31, 2012, 2011, and 2010, respectively.

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On February 1, 2012, the Company and certain of its subsidiaries entered into an unsecured $300 million multi-currency revolving loan agreement with a group of six banks that replaced and terminated the Company's previous credit agreement. Under the new credit agreement, which has a final maturity date of February 1, 2017, the Company has the option to select either a base interest rate (based upon the higher of the federal funds rate plus one-half of 1% or the prime rate of Bank of America plus a margin based on the Company's consolidated leverage ratio) or a Eurocurrency interest rate (at the LIBOR rate plus a margin based on the Company's consolidated leverage ratio). At the Company's option, and subject to certain conditions, the available amount under the new credit facility may be increased from $300 million up to $450 million. As of July 31, 2012, there were no outstanding borrowings under the credit facility.

The Company's debt and revolving loan agreements require it to maintain certain financial covenants. The Company's June 2004, February 2006, March 2007, and May 2010 private placement debt agreements require the Company to maintain a ratio of debt to the trailing twelve months EBITDA, as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio). As of July 31, 2012, the Company was in compliance with the financial covenant of the June 2004, February 2006, March 2007, and May 2010 private placement debt agreements, with the ratio of debt to EBITDA, as defined by the agreements, equal to 1.5 to 1.0. Additionally, the Company's February 2012 revolving loan agreement requires the Company to maintain a ratio of debt to trailing twelve months EBITDA, as defined by the debt agreement, of not more than a 3.25 to 1.0 ratio. The revolving loan agreement requires the Company's trailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of July 31, 2012, the Company was in compliance with the financial covenants of the revolving loan agreement, with the ratio of debt to EBITDA, as defined by the agreement, equal to 1.5 to 1.0 and the interest expense coverage ratio equal to 11.4 to 1.0.

Long-term obligations consist of the following as of July 31:

2012 2011

Euro-denominated notes payable in 2017 at a fixed rate of 3.71%

$ 36,912 $ 43,194

Euro-denominated notes payable in 2020 at a fixed rate of 4.24%

55,368 64,791

USD-denominated notes payable through 2014 at a fixed rate of 5.14%

37,500 56,250

USD-denominated notes payable through 2016 at a fixed rate of 5.30%

104,571 130,714

USD-denominated notes payable through 2017 at a fixed rate of 5.33%

81,857 98,229

$ 316,208 $ 393,178

Less current maturities

$ (61,264 $ (61,264

$ 254,944 $ 331,914

The estimated fair value of the Company's long-term obligations was $338,668 and $416,694 at July 31, 2012 and July 31, 2011, respectively, as compared to the carrying value of $316,208 and $393,178 at July 31, 2012 and July 31, 2011, respectively. The fair value of the long-term obligations, which were determined using the market approach based upon the interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy.

Maturities on long-term debt are as follows:

Years Ending July 31,

2013

$ 61,264

2014

61,264

2015

42,514

2016

42,514

2017

53,283

Thereafter

55,369

Total

$ 316,208

The Company had outstanding letters of credit of $3,762 and $1,466 at July 31, 2012 and 2011, respectively.

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6. Stockholders' Investment

Information as to the Company's capital stock at July 31, 2012 and 2011 is as follows:

July 31, 2012 July 31, 2011
Shares
Authorized
Shares
Issued
(thousands)
Amount
Shares
Authorized
Shares
Issued
(thousands)
Amount

Preferred Stock, $.01 par value

5,000,000 5,000,000

Cumulative Preferred Stock: 6% Cumulative

5,000 5,000

1972 Series

10,000 10,000

1979 Series

30,000 30,000

Common Stock, $.01 par value: Class A Nonvoting

100,000,000 51,261,487 $ 513 100,000,000 51,261,487 $ 513

Class B Voting

10,000,000 3,538,628 35 10,000,000 3,538,628 35

$ 548 $ 548

Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual, noncumulative cash dividend of $.01665 per share. Thereafter, any further dividend in that fiscal year must be paid on each share of Class A Common Stock and Class B Common Stock on an equal basis.

Other than as required by law, holders of the Class A Common Stock are not entitled to any vote on corporate matters, unless, in each of the three preceding fiscal years, the $.01665 preferential dividend described above has not been paid in full. Holders of the Class A Common Stock are entitled to one vote per share for the entire fiscal year immediately following the third consecutive fiscal year in which the preferential dividend is not paid in full. Holders of Class B Common Stock are entitled to one vote per share for the election of directors and for all other purposes.

Upon liquidation, dissolution or winding up of the Company, and after distribution of any amounts due to holders of Cumulative Preferred Stock, holders of the Class A Common Stock are entitled to receive the sum of $0.835 per share before any payment or distribution to holders of the Class B Common Stock. Thereafter, holders of the Class B Common Stock are entitled to receive a payment or distribution of $0.835 per share. Thereafter, holders of the Class A Common Stock and Class B Common Stock share equally in all payments or distributions upon liquidation, dissolution or winding up of the Company.

The preferences in dividends and liquidation rights of the Class A Common Stock over the Class B Common Stock will terminate at any time that the voting rights of Class A Common Stock and Class B Common Stock become equal.

The following is a summary of other activity in stockholders' investment for the years ended July 31, 2012, 2011, and 2010:

Unearned
Restricted
Stock
Deferred
Compensation
Shares Held
in Rabbi
Trust, at cost
Total

Balances at July 31, 2009

$ (4,747 $ 13,282 $ (13,027 $ (4,492

Shares at July 31, 2009

671,650 671,650

Sale of shares at cost

-   (1,247 1,536 289

Purchase of shares at cost

-   813 (813 -  

Amortization of restricted stock

1,374 -   -   1,374

Balances at July 31, 2010

$ (3,373 $ 12,848 $ (12,304 $ (2,829

Shares at July 31, 2010

614,988 614,988

Sale of shares at cost

-   (1,421 1,375 (46

Purchase of shares at cost

-   666 (666 -  

Issuance of restricted stock

(2,835 -   -   (2,835

Amortization of restricted stock

846 -   -   846

Balances at July 31, 2011

$ (5,362 $ 12,093 $ (11,595 $ (4,864

Shares at July 31, 2011

560,078 560,078

Sale of shares at cost

-   (1,407 1,368 (39

Purchase of shares at cost

-   924 (924 -  

Amortization of restricted stock

1,599 -   -   1,599

Balances at July 31, 2012

$ (3,763 $ 11,610 $ (11,151 $ (3,304

Shares at July 31, 2012

517,105 517,105

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Prior to 2002, all Brady Corporation deferred compensation was invested in the Company's Class A Nonvoting Common Stock. In 2002, the Company adopted a new deferred compensation plan which allowed investing in other investment funds in addition to the Company's Class A Nonvoting Common Stock. Under this plan, participants were allowed to transfer funds between the Company's Class A Nonvoting Common Stock and the other investment funds. On May 1, 2006 the plan was amended with the provision that deferrals into the Company's Class A Nonvoting Common Stock must remain in the Company's Class A Nonvoting Common Stock and be distributed in shares of the Company's Class A Nonvoting Common Stock. At July 31, 2012, the deferred compensation balance in stockholders' investment represents the investment at the original cost of shares held in the Company's Class A Nonvoting Common Stock for the deferred compensation plan prior to 2002 and the investment at the cost of shares held in the Company's Class A Nonvoting Common Stock for the plan subsequent to 2002, adjusted for the plan amendment on May 1, 2006. The balance of shares held in the Rabbi Trust represents the investment in the Company's Class A Nonvoting Common Stock at the original cost of all the Company's Class A Nonvoting Common Stock held in deferred compensation plans.

The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees and non-employee directors. The options have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under these plans, referred to herein as "service-based" options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above. These options are referred to herein as "performance-based" options. Performance-based stock options expire 10 years from the date of grant. Restricted shares have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 were amended in fiscal 2011 to allow for vesting after either a five-year period or a seven-year period based upon both performance and service conditions. The restricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. These shares are referred to herein as "performance-based restricted shares."

As of July 31, 2012, the Company has reserved 6,536,751 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 5,008,350 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the various plans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.

Changes in the options are as follows:

Option Price Options
Outstanding
Weighted
Average
Exercise
Price

Balance, July 31, 2009

$13.31–$40.37 3,980,606 $ 27.96

Options granted

24.78 – 33.28 1,446,500 29.08

Options exercised

14.16 – 31.54 (241,403 18.16

Options cancelled

15.28 – 38.31 (76,967 31.91

Balance, July 31, 2010

$13.31–$40.37 5,108,736 $ 28.69

Options granted

28.35 – 37.95 1,365,500 28.86

Options exercised

14.16 – 29.78 (417,888 19.62

Options cancelled

16.39 – 38.31 (330,331 31.37

Balance, July 31, 2011

$13.31–$40.37 5,726,017 $ 29.24

Options granted

27.00 – 33.54 1,212,450 27.91

Options exercised

13.31 – 29.78 (266,991 20.21

Options cancelled

16.00 – 38.31 (417,725 31.16

Balance, July 31, 2012

$13.31–$40.37 6,253,751 $ 29.24

The total fair value of options vested during the fiscal years ended July 31, 2012, 2011, and 2010 was $8,016, $6,822, and $5,548, respectively. The total intrinsic value of options exercised during the fiscal years ended July 31, 2012, 2011, and 2010 was $3,096, $5,701, and $3,004, respectively.

There were 3,503,963, 3,316,815, and 3,100,955 options exercisable with a weighted average exercise price of $29.69, $29.83, and $28.85 at July 31, 2012, 2011, and 2010, respectively. The cash received from the exercise of options during the fiscal years ended July 31, 2012, 2011, and 2010 was $3,864, $8,193, and $3,717, respectively. The tax benefit on options exercised during the fiscal years ended July 31, 2012, 2011, and 2010 was $777, $682, and $866, respectively.

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The following table summarizes information about stock options outstanding at July 31, 2012:

Options Outstanding Options Outstanding  and
Exercisable

Range of Exercise Prices

Number of Shares
Outstanding at
July 31, 2012
Weighted  Average
Remaining
Contractual Life
(in years)
Weighted
Average
Exercise
Price
Shares
Exercisable
at July 31,
2012
Weighted
Average
Exercise
Price

Up to $14.99

125,000 0.6 $ 13.31 125,000 $ 13.31

$15.00 to $29.99

4,634,451 6.9 27.08 1,914,296 24.95

$30.00 and up

1,494,300 4.1 37.25 1,464,667 37.28

Total

6,253,751 6.1 29.24 3,503,963 29.69

As of July 31, 2012, the aggregate intrinsic value (defined as the amount by which the fair value of the underlying stock exceeds the exercise price of an option) of options outstanding and the options exercisable was $7,327 and $7,326, respectively.

7. Segment Information

The Company evaluates short-term segment performance based on segment profit or loss and customer sales. Segment profit or loss does not include certain administrative costs, such as the cost of finance, information technology, human resources, and executive leadership which are managed as global functions. Restructuring charges, impairment charges, equity compensation costs, interest, investment and other income and income taxes are also excluded when evaluating segment performance. Intersegment sales and transfers are recorded at cost plus a standard percentage markup.

The Company is organized and managed on a geographic basis by region. Each of these regions, Americas, EMEA and Asia-Pacific, has a President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each region has its own distinct operations, is managed locally by its own management team, maintains its own financial reports and is evaluated based on regional segment profit. The Company has determined that these regions comprise its operating and reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance.

Following is a summary of segment information for the years ended July 31, 2012, 2011, and 2010:

Americas EMEA Asia-Pacific Total Region Corporate
and
Eliminations
Total Company

Year ended July 31, 2012:

Revenues from external customers

$ 589,925 $ 389,156 $ 345,188 $ 1,324,269 $ -   $ 1,324,269

Intersegment revenues

40,440 3,577 29,798 73,815 (73,815 -  

Depreciation and amortization expense

13,706 7,511 16,447 37,664 6,323 43,987

Segment profit

155,657 105,643 31,704 293,004 (7,328 285,676

Assets

708,216 332,936 248,965 1,290,117 317,602 1,607,719

Expenditures for property, plant and
equipment

13,623 3,417 7,107 24,147 -   24,147

Year ended July 31, 2011:

Revenues from external customers

$ 577,428 $ 404,955 $ 357,214 $ 1,339,597 $ -   $ 1,339,597

Intersegment revenues

41,638 3,054 24,500 69,192 (69,192 -  

Depreciation and amortization expense

15,682 8,147 15,515 39,344 9,483 48,827

Segment profit

145,516 112,047 50,105 307,668 (15,742 291,926

Assets

735,003 333,977 389,465 1,458,445 403,060 1,861,505

Expenditures for property, plant and
equipment

8,212 2,626 8,620 19,458 1,074 20,532

Year ended July 31, 2010:

Revenues from external customers

$ 551,185 $ 380,121 $ 327,790 $ 1,259,096 $ -   $ 1,259,096

Intersegment revenues

43,136 4,456 18,188 65,780 (65,780 -  

Depreciation and amortization expense

21,142 8,088 15,749 44,979 8,043 53,022

Segment profit

125,169 103,316 52,105 280,590 (14,131 266,459

Assets

754,753 313,204 362,653 1,430,610 315,921 1,746,531

Expenditures for property, plant and
equipment

8,502 1,535 9,946 19,983 6,313 26,296

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Years Ended July 31,
2012 2011 2010

Net income reconciliation:

Total profit for reportable segments

$ 293,004 $ 307,668 $ 280,590

Corporate and eliminations

(7,328 (15,742 (14,131

Unallocated amounts: Administrative costs

(118,120 (120,546 (121,689

Restructuring costs

(12,110 (9,188 (15,314

Impairment charge

(115,688 -   -  

Investment and other income - net

2,082 3,990 1,168

Interest expense

(19,090 (22,124 (21,222

Income before income taxes

22,750 144,058 109,402

Income taxes

(40,661 (35,406 (27,446

Net income

$ (17,911 $ 108,652 $ 81,956

Revenues*
Years Ended July 31,
Long-Lived Assets**
As of Years Ended July 31,
2012 2011 2010 2012 2011 2010

Geographic information:

United States

$ 553,209 $ 535,412 $ 521,318 $ 479,791 $ 488,571 $ 507,481

China

133,209 164,640 156,842 46,797 118,945 118,953

Other

711,665 708,737 646,716 364,337 422,703 391,214

Eliminations

(73,814 (69,192 (65,780 -   -   -  

Consolidated total

$ 1,324,269 $ 1,339,597 $ 1,259,096 $ 890,925 $ 1,030,219 $ 1,017,648

*

Revenues are attributed based on country of origin.

**

Long-lived assets consist of property, plant, and equipment, other intangible assets and goodwill.

Following is a summary of sales by business platform for the years ended July 31, 2012, 2011, and 2010:

2012 2011 2010

ID Solutions

$ 746,608 $ 742,299 $ 688,364

Direct Marketing

355,916 357,734 333,924

Die-Cut

221,745 239,564 236,808

Total

1,324,269 1,339,597 1,259,096

8. Net Income Per Common Share

Net income per Common Share is computed by dividing net income (after deducting restricted stock dividends and the applicable preferential Class A Common Stock dividends) by the weighted average Common Shares outstanding of 52,453,285 for 2012, 52,639,355 for 2011, and 52,402,387 for 2010. The preferential dividend on the Class A Common Stock of $.01665 per share has been added to the net income per Class A Common Share for all years presented.

In June 2008, the Financial Accounting Standards Board ("FASB") issued accounting guidance addressing whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share. This guidance requires that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends be considered participating securities in undistributed earnings with common shareholders. The Company adopted the guidance during the first quarter of fiscal 2010. As a result, the dividends on the Company's performance-based restricted shares are included in the basic and diluted earnings per share calculations for the respective periods presented.

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Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company's Class A and Class B common stock are summarized as follows:

Years ended July 31,
2012 2011 2010

Numerator

Net (loss) income (numerator for basic and diluted Class A net income per share)

$ (17,911 $ 108,652 $ 81,956

Less:

Restricted stock dividends

(2029 (223 (147

Numerator for basic and diluted Class A net income per share

$ (18,140 $ 108,429 $ 81,809

Less:

Preferential dividends

(818 (820 (816

Preferential dividends on dilutive stock options

(5 (6 (11

Numerator for basic and diluted Class B net income per share

$ (18,963 $ 107,603 $ 80,982

Denominator:

Denominator for basic net (loss) income per share for both Class A and B

52,453 52,639 52,402

Plus: effect of dilutive stock options

-   494 544

Denominator for diluted net (loss) income per share for both Class A and B

52,453 53,133 52,946

Class A common stock net (loss) income per share calculation:

Basic

$ (0.35 $ 2.06 $ 1.56

Diluted

$ (0.35 $ 2.04 $ 1.55

Class B common stock net (loss) income per share calculation:

Basic

$ (0.36 $ 2.04 $ 1.55

Diluted

$ (0.36 $ 2.03 $ 1.53

In accordance with ASC 260, "Earnings per Share," dilutive options were not included in the computation of diluted loss per share for fiscal 2012 since to do so would reduce the calculated loss per share.

Options to purchase 4,592,486, 3,049,611 and 2,832,337 shares of Class A Nonvoting Common Stock for fiscal years ended July 31, 2012, 2011 and 2010, respectively, were not included in the computation of diluted net loss or net gain per share because the impact of the inclusion of the options would have been anti-dilutive.

9. Commitments and Contingencies

The Company has entered into various non-cancellable operating lease agreements. Rental expense charged to operations on a straight-line basis was $17,609, $22,213, and $23,712 for the years ended July 31, 2012, 2011, and 2010, respectively. Future minimum lease payments required under such leases in effect at July 31, 2012 are as follows, for the years ending July 31:

2013

$ 16,280

2014

13,917

2015

9,815

2016

6,934

2017

5,610

Thereafter

16,752

$ 69,308

In the normal course of business, the Company is named as a defendant in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may ultimately result from lawsuits are not expected to have a material effect on the consolidated financial statements of the Company.

10. Fair Value Measurements

The Company adopted new accounting guidance on fair value measurements on August 1, 2008 as it relates to financial assets and liabilities. The Company adopted the new accounting guidance on fair value measurements for its nonfinancial assets and liabilities on August 1, 2009. The accounting guidance applies to other accounting pronouncements that require or permit fair value measurements, defines fair value based upon an exit price model, establishes a framework for measuring fair value, and expands the applicable disclosure requirements. The accounting guidance indicates, among other things, that a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

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The accounting guidance on fair value measurements establishes a fair market value hierarchy for the pricing inputs used to measure fair market value. The Company's assets and liabilities measured at fair market value are classified in one of the following categories:

Level 1 - Assets or liabilities for which fair value is based on quoted market prices in active markets for identical instruments as of the reporting date.

Level 2 - Assets or liabilities for which fair value is based on valuation models for which pricing inputs were either directly or indirectly observable.

Level 3 - Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

The following tables set forth by level within the fair value hierarchy, the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at July 31, 2012, and July 31, 2011, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurements Using Inputs
Considered as
Quoted Prices
in Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value

Balance Sheet

Classification

July 31, 2012:

Trading Securities

$ 12,676 $ -   $ -   $ 12,676

Other assets

Foreign exchange contracts - cash flow hedges

-   1,156 -   1,156

Prepaid expenses and other current assets

Foreign exchange contracts

-   78 -   78

Prepaid expenses and other current assets

Total Assets

$ 12,676 $ 1,234 $ -   $ 13,910

Foreign exchange contracts- cash flow hedges

$ -   $ 210 $ -   $ 210

Other current liabilities

Foreign exchange contracts - net investment hedges

-   71 -   71

Other current liabilities

Foreign exchange contracts

-   -   -   -  

Other current liabilities

Foreign currency denominated debt - net investment hedge

-   99,081 -   99,081

Long term obligations, less current maturities

Total Liabilities

$ -   $ 99,362 $ -   $ 99,362

July 31, 2011:

Trading Securities

$ 10,897 $ -   $ -   $ 10,897

Other assets

Foreign exchange contracts - cash flow hedges

-   16 -   16

Prepaid expenses and other current assets

Foreign exchange contracts

-   3 -   3

Prepaid expenses and other current assets

Total Assets

$ 10,897 $ 19 $ -   $ 10,916

Foreign exchange contracts - cash flow hedges

$ -   $ 830 $ -   $ 830

Other current liabilities

Foreign exchange contracts – net investment hedges

-   5,295 -   5,295

Other current liabilities

Foreign exchange contracts

-   2 -   2

Other current liabilities

Foreign currency denominated debt - net investment hedge

-   107,985 -   107,985

Long term obligations, less current maturities

Total Liabilities

$ -   $ 114,112 $ -   $ 114,112

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The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Trading Securities: The Company's deferred compensation investments consist of investments in mutual funds. These investments were classified as Level 1 as the shares of these investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

Foreign currency exchange contacts: The Company's foreign currency exchange contracts were classified as Level 2, as the fair value was based on the present value of the future cash flows using external models that use observable inputs, such as interest rates, yield curves and foreign currency exchange rates. See Note 12, "Derivatives and Hedging Activities" for additional information.

Foreign currency denominated debt - net investment hedge: The Company's foreign currency denominated debt designated as a net investment hedge was classified as Level 2, as the fair value was based on the present value of the future cash flows using external models that use observable inputs, such as interest rates, yield curves and foreign currency exchange rates. See Note 12, "Derivatives and Hedging Activities" for additional information.

There have been no transfers of assets or liabilities between the fair value hierarchy levels, outlined above, during the fiscal years ended July 31, 2012 and 2011.

The Company's financial instruments, other than those presented in the disclosures above, include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term and long-term debt. See Note 5, "Long-Term Obligations" for fair value of long-term debt. The fair values of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximated carrying values because of the short-term nature of these instruments.

During fiscal 2012, goodwill with a carrying amount of $163,702 in the former North/South Asia reporting unit was written down to its estimated implied fair value of $48,014, resulting in a non-cash impairment charge of $115,688. In order to arrive at the implied fair value of goodwill, the Company assigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Intangible assets consisted of customer lists, and were valued using the income approach based upon customers in existence at the valuation date. After assigning fair value to the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of $48,014, which represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to its original recognition.

11. Restructuring

In fiscal 2010, the Company continued the execution of its restructuring actions announced in fiscal 2009. As a result of these actions, the Company recorded restructuring charges of $15,314 in fiscal 2010. The restructuring charges included $10,850 of employee separation costs, $2,260 of non-cash fixed asset write-offs, $1,493 of other facility closure related costs, and $711 of contract termination costs. Of the $15,314 of restructuring charges recorded during the fiscal year ended July 31, 2010, $7,158 was incurred in the Americas, $5,350 was incurred in EMEA, and $2,806 was incurred in Asia-Pacific.

In fiscal 2011, the Company continued executing its restructuring actions initiated in the prior periods and recorded restructuring charges of $9,188. The fiscal 2011 restructuring charges consisted of $6,341 of employee separation costs, $2,155 of non-cash fixed asset write-offs, $449 of other facility closure related costs, and $243 of contract termination costs. Of the $9,188 of restructuring charges recorded during the fiscal year ended July 31, 2011, $5,445 was incurred in the Americas, $3,340 was incurred in EMEA, and $403 was incurred in Asia-Pacific. The costs related to these restructuring activities have been recorded on the consolidated statements of income as restructuring charges.

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During fiscal 2012, the Company took various measures to address its cost structure in response to weaker sales forecasts across the Company. As a result of these actions, the Company recorded restructuring charges of $12,110, which consisted of $10,944 of employee separation costs, $458 of fixed asset write-offs, $521 of other facility closure related costs, and $187 of contract termination costs. Of the $12,110 of restructuring charges recorded during fiscal 2012, $3,531 was incurred in the Americas, $6,898 was incurred in EMEA, and $1,681 was incurred in Asia-Pacific. The increase in restructuring charges in EMEA during fiscal 2012 compared to fiscal 2011 was related to the die-cut facility in Sweden. The costs related to these restructuring activities have been recorded on the consolidated statements of income as restructuring charges. The Company expects the majority of the remaining cash payments to be made during the next twelve months.

A reconciliation of the Company's restructuring activity for fiscal 2010, 2011 and 2012 is as follows:

Employee
Related
Asset
Write-offs
Other Total

Beginning balance, July 31, 2009

$ 4,445 $ -   $ 877 $ 5,322

Restructuring charge

10,850 2,260 2,204 15,314

Non-cash write-offs

-   (2,260 -   (2,260

Cash payments

(9,240 -   (2,975 (12,215

Ending balance, July 31, 2010

$ 6,055 $ -   $ 106 $ 6,161

Restructuring charge

6,341 2,155 692 9,188

Non-cash write-offs

-   (2,155 -   (2,155

Cash payments

(10,189 -   (749 (10,938

Ending balance, July 31, 2011

$ 2,207 $ -   $ 49 $ 2,256

Restructuring charge

$ 10,944 $ 458 $ 708 $ 12,110

Non-cash write-offs

-   (458 -   (458

Cash payments

(4,342 -   (492 (4,834

Ending balance, July 31, 2012

$ 8,809 $ -   $ 265 $ 9,074

12. Derivatives and Hedging Activities

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions and net investments. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of 18 months or less, which qualify as either cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objectives of the Company's foreign currency exchange risk management are to minimize the impact of currency movements due to transactions in other than the respective subsidiaries' functional currency and to minimize the impact of currency movements on the Company's net investment denominated in a currency other than the U.S. dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts. As of July 31, 2012 and July 31, 2011, the notional amount of outstanding forward exchange contracts was $61,169 and $80,807, respectively.

Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not significant for the twelve-month periods ended July 31, 2012 and 2011.

The Company hedges a portion of known exposure using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Japanese Yen, Swiss Franc, Malaysian Ringgit and Singapore Dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to protect against exposure resulting from sales and identified inventory or other asset purchases.

The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the Consolidated Balance Sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income ("OCI") and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At July 31, 2012 and 2011, unrealized gains of $1,348 and unrealized losses of $1,535 have been included in OCI, respectively. All balances are expected to be reclassified from OCI to earnings during the next fifteen months when the hedged transactions impact earnings.

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At July 31, 2012 and July 31, 2011, the Company had $1,156 and $16, respectively, of forward exchange contracts designated as cash flow hedges included in "Prepaid expenses and other current assets" on the accompanying Consolidated Balance Sheets. At July 31, 2012 and July 31, 2011, the Company had $210 and $830, respectively, of forward exchange contracts designated as cash flow hedges included in "Other current liabilities" on the accompanying Consolidated Balance Sheets. At July 31, 2012 and July 31, 2011, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $39,458 and $30,519, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds and U.S. Dollars.

The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. During the year ended July 31, 2012, the Company designated €4,581 of intercompany loans as net investment hedges to hedge portions of its net investment in European foreign operations. No intercompany loans were designated as net investment hedges as of July 31, 2011. On May 13, 2010, the Company completed the private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited institutional investors. This Euro-denominated debt obligation was designated as a net investment hedge to hedge portions of the Company's net investment in Euro-denominated foreign operations. As net investment hedges, the currency effects of the debt obligations are reflected in the foreign currency translation adjustments component of accumulated other comprehensive income where they offset gains and losses recorded on the Company's net investment in Euro-denominated operations. The Company's foreign denominated debt obligations are valued under a market approach using published spot prices.

During the three and twelve month period ended July 31, 2012, the Company used forward foreign exchange currency contracts designated as net investment hedges to hedge portions of the Company's net investments in Euro denominated, Singapore Dollar denominated, and Malaysian Ringgit denominated foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign exchange translation adjustment component of accumulated other comprehensive income where it offsets gains and losses recorded on the Company's net investment in these foreign operations. Any ineffective portions are recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At July 31, 2012 and July 31, 2011, the Company had $71 and $5,295, respectively, of forward foreign exchange currency contracts designated as net investment hedges included in "Other current liabilities" on the Consolidated Balance Sheet. At July 31, 2012 and July 31, 2011, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $10,650 and $50,000, respectively.

Fair values of derivative instruments in the Consolidated Balance Sheets were as follows:

Asset Derivatives

Liability Derivatives

July 31, 2012

July 31, 2011

July 31, 2012

July 31, 2011

Derivatives designated as

hedging instruments

Balance Sheet

Location

Fair Value

Balance Sheet

Location

Fair Value

Balance Sheet

Location

Fair Value

Balance Sheet

Location

Fair Value

Cash flow hedges

Foreign exchange contracts

Prepaid expenses and other current assets $ 1,156 Prepaid expenses and other current assets $ 16 Other current liabilities $ 210 Other current liabilities $ 830

Net investment hedges

Foreign exchange contracts

Prepaid expenses and other current assets $ -   Prepaid expenses and other current assets $
-

Other current liabilities $ 71 Other current liabilities $ 5,295

Foreign currency denominated debt

Prepaid expenses and other current assets $ -   Prepaid expenses and other current assets $
-

Long term obligations, less current maturities $ 99,081 Long term obligations, less current maturities $ 107,985

Total derivatives designated as hedging instruments

$ 1,156 $ 16 $ 99,362 $ 114,110

Derivatives not designated as hedging instruments

Foreign exchange contracts

Prepaid expenses and other current assets $ 78 Prepaid expenses and other current assets $ 3 Other current liabilities $ -   Other current liabilities $ 2

Total derivatives not designated as hedging instruments

$ 78 $ 3 $ -   $ 2

The pre-tax effects of derivative instruments designated as cash flow hedges on the Consolidated Statements of Income consisted of the following:

Derivatives in

Amount of Gain or  (Loss)
Recognized in OCI on
Derivative
(Effective Portion)

Location of Gain or

(Loss) Reclassified

From Accumulated

Amount of Gain
or (Loss)
Reclassified From
Accumulated OCI
Into Income
(Effective Portion)

Location of

Gain or (Loss)

Recognized in

Income on

Derivative

Amount of Gain
or (Loss)
Recognized in
Income on Derivative
(Ineffective Portion)

Cash Flow Hedging

Year Ended July 31, OCI into Income Year Ended July 31, (Ineffective Year Ended July 31,

Relationships

2012 2011 (Effective Portion) 2012 2011 Portion) 2012 2011

Foreign exchange contracts

$ 1,348 $ (1,535

Cost of goods sold

$ 494 $ (1,781

Cost of goods sold

$ -   $ -  

Total

$ 1,348 $ (1,535 $ 494 $ (1,781 $ -   $ -  

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The pre-tax effects of derivative instruments designated as net investment hedges on the Consolidated Balance Sheet consisted of the following:

Derivatives in

Net Investment

Amount of Gain or  (Loss)
Recognized in OCI on
Derivative
(Effective Portion)

Location of Gain or

(Loss) Reclassified

From Accumulated

Amount of Gain
or (Loss)
Reclassified From
Accumulated  OCI
Into Income
(Effective Portion)

Location of

Gain or (Loss)

Recognized in

Income on

Derivative

Amount of Gain
or (Loss)
Recognized in
Income on Derivative
(Ineffective Portion)

Hedging

Year Ended July 31, OCI into Income Year Ended July 31, (Ineffective Year Ended July 31,

Relationships

2012 2011 (Effective Portion) 2012 2011 Portion) 2012 2011

Foreign exchange contracts

$ (1,041 $ (4,589

Investment and other
income - net

$ -   $ -  

Investment and other
income - net

$ -   $ -  

Foreign currency intercompany debt

$ 547 $ -  

Investment and other
income - net

$ -   $ -  

Investment and other
income - net

$ -   $ -  

Foreign currency denominated debt

$ 15,705 $ (13,070

Investment and other
income - net

$ -   $ -  

Investment and other
income - net

$ -   $ -  

Total

$ 15,211 $ (17,659 $ -   $ -   $ -   $ -  

The pre-tax effects of derivative instruments not designated as hedging instruments on the Consolidated Statements of Income consisted of the following:

Derivatives Not

Designated as

Location of Gain or
(Loss) Recognized
in Income on
Amount of Gain  or
(Loss) Recognized in
Income on Derivative

Hedging Instruments

Derivative 2012 2011

Foreign exchange contracts

Other income (expense)

$ 131 $ (945

Total

$ 131 $ (945

13. Unaudited Quarterly Financial Information

Quarters
First Second Third Fourth Total

2012

Net Sales

$ 349,508 $ 320,584 $ 331,629 $ 322,548 $ 1,324,269

Gross Margin

167,831 153,305 160,047 155,123 636,306

Operating Income (Loss)*

49,090 (77,198 40,953 26,913 39,758

Net Income (Loss)

32,732 (89,954 27,652 11,659 (17,911

Net Income (Loss) Per

Class A Common Share:

Basic

$ 0.62 $ (1.72 $ 0.53 $ 0.22 $ (0.35

Diluted **

0.62 (1.72 0.52 0.22 (0.35

2011

Net Sales

$ 329,588 $ 329,009 $ 337,896 $ 343,104 $ 1,339,597

Gross Margin

164,512 159,010 167,638 165,036 656,196

Operating Income*

41,603 37,080 40,871 42,638 162,192

Net Income

26,281 24,199 28,589 29,583 108,652

Net Income Per

Class A Common Share:

Basic

$ 0.50 $ 0.46 $ 0.54 $ 0.56 $ 2.06

Diluted ***

0.50 0.46 0.54 0.56 2.04

*

Fiscal 2012 had before tax restructuring charges of $3,440 for the third quarter ended April 30, 2012, and $8,670 for the fourth quarter ended July 31, 2012, for a total of $12,110. Fiscal 2011 had before tax restructuring charges by quarter of $3,641, $2,134, $1,211, and $2,202 for a total of $9,188.

**

As a result of the $115.7 million goodwill impairment charge recorded during the second quarter ended January 31, 2012, the Company recorded a net loss in the quarter of $90.0 million. Because of this loss, the sum of quarterly EPS does not equal the year-to-date total for fiscal 2012 due to the impact of dilution.

***

The sum of the quarters does not equal the year-to-date total for fiscal 2011 due to rounding.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

Disclosure Controls and Procedures:

Brady Corporation maintains a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed by the Company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports the Company files under the Exchange Act is accumulated and communicated to the Company's management, including the Company's principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Company's President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this report.

Management's Report on Internal Control Over Financial Reporting:

The management of Brady Corporation and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

With the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2012, based on the framework and criteria established in Internal Control - Integrated Framework , issued by the Committee of Sponsoring Organizations of the Treadway Commission . Based on the assessment, management concluded that, as of July 31, 2012, the Company's internal control over financial reporting is effective based on those criteria. The Company's internal control over financial reporting, as of July 31, 2012, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting:

There were no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Brady Corporation

Milwaukee, WI

We have audited the internal control over financial reporting of Brady Corporation and subsidiaries (the "Company") as of July 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report (Management's Report on Internal Control over Financial Reporting). Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2012, of the Company and our report dated September 27, 2012, expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Milwaukee, WI

September 27, 2012

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Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Name

Age

Title

Frank M. Jaehnert

54

President, CEO and Director

Thomas J. Felmer

50

Senior V.P., CFO

Stephen Millar

51

President - Brady Asia-Pacific and V.P., Brady Corporation

Peter C. Sephton

53

President - Brady EMEA and V.P., Brady Corporation

Matthew O. Williamson

56

President - Brady Americas and V.P., Brady Corporation

Allan J. Klotsche

47

Senior V.P. - Human Resources

Robert L. Tatterson

47

V.P. and Chief Technology Officer

Bentley N. Curran

50

V.P. and Chief Information Officer

Kathleen M. Johnson

58

V.P. and Chief Accounting Officer

Aaron J. Pearce

41

V.P. and Treasurer

Patrick W. Allender

65

Director

Gary S. Balkema

57

Director

Chan W. Galbato

49

Director

Conrad G. Goodkind

68

Director

Frank W. Harris

70

Director

Elizabeth Pungello

45

Director

Bradley C. Richardson

54

Director

Frank M. Jaehnert - Mr. Jaehnert has served on the Company's Board of Directors and as the Company's President and CEO since 2003. Mr. Jaehnert joined the Company in 1995 and served in leadership positions in a variety of different functions and businesses, including that of CFO from 1996 to 2002, before his promotion to President and CEO in 2003. Previously, he served in a variety of financial roles at Robert Bosch, GmbH, including treasurer of a subsidiary. His broad operating and functional experience and in-depth knowledge of Brady's businesses are particularly valuable given the diverse nature of Brady's portfolio. These experiences, combined with Mr. Jaehnert's talent for leadership and his long-term strategic perspective, have helped drive the Company's growth and performance during his tenure as Director and CEO. He currently sits on the Board of Regents of the Milwaukee School of Engineering; the Board of Trustees of the Manufacturers Alliance/MAPI; and the Business Advisory Council of the Sheldon B. Lubar School of Business at the University of Wisconsin - Milwaukee. In 2012, Mr. Jaehnert was elected to the Board of Directors for Nordson Corporation (NASDAQ:NDSN).

Thomas J. Felmer - Mr. Felmer joined the Company in 1989 and has held several sales and marketing positions until being named Vice President and General Manager of Brady's U.S. Signmark Division in 1994. In 1999, Mr. Felmer moved to Europe where he led the European Signmark business for two years, then gained additional responsibility for the European direct marketing business platforms, which he also led for two years. In 2003, Mr. Felmer returned to the United States where he was responsible for Brady's global sales and marketing processes, Brady Software businesses, and integration leader of the EMED acquisition. In June 2004, he was appointed President-Direct Marketing Americas, and was named Chief Financial Officer in January 2008.

Stephen Millar - Mr. Millar joined the Company in 1999 as Managing Director of Brady Australia, a position he held until 2008 when he joined Brady Americas' leadership team as Vice-President and General Manager responsible for its portfolio of people identification, medical and education businesses. In 2010, he returned to Asia in the role of MRO Director for the region. He was appointed to his current position, President-Brady Asia Pacific in March 2011. Prior to joining Brady, Mr. Millar served in a variety of leadership positions in Australia and New Zealand with GNB Technologies, a global manufacturer of automotive and industrial batteries. He holds a Bachelor of Commerce and Administration degree from Victoria University of Wellington, New Zealand and is a member of the institute of Chartered Accountants of New Zealand.

Peter C. Sephton - Mr. Sephton joined the Company in 1997 as Managing Director of Seton-U.K. In 2000 he additionally became responsible for the UK Signmark division, and from 2001 to 2003 he served as Managing Director for Brady's Identification Solutions Business in Europe. In April 2003, he was appointed to his current position, President-Brady EMEA. Before joining Brady, Mr. Sephton served in a variety of international leadership roles with leading industrial publicly traded FTSE 250 organizations such as Tate and Lyle Plc, Sutcliffe Speakman Plc and Morgan Crucible Plc. He is a graduate in accountancy and law from The University of Wales (UCC) and serves as a Non Executive Director of Constantine PLC, a UK domiciled company involved in specialized manufacturing and logistics and property.

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Matthew O. Williamson - Mr. Williamson joined the Company in 1979. From 1979 to 1994, he served in a variety of sales and marketing leadership roles. From 1995 to 2003, Mr. Williamson served as the V.P. and General Manager of Brady's specialty tape and identification solution businesses. From 1996 to 1998, Mr. Williamson served as the V.P. and General Manager of the Identification Solutions and Specialty Tapes Division. From 1998 to 2001, he served as V.P. and General Manager of the Identification Solutions Division. From 2001 to 2003, he served as V.P. and General Manager of the Global High Performance Identification Business. In April 2003, he was appointed President of the Brady Americas business. In addition to his role as President of the Brady Americas business, in January of 2008, Mr. Williamson assumed responsibility for the Direct Marketing Americas, and is currently serving as President of the Americas region. He holds a BBA in marketing from the University of Wisconsin-Milwaukee.

Allan J. Klotsche - Mr. Klotsche joined the Company in 1989. He served in a variety of sales, marketing, technical, and management roles until 1998, when he was appointed V.P. and General Manager of the Precision Tapes Group. He served as President - Brady Asia Pacific from 2003 until his current appointment as Senior Vice President leading Brady's global human resource function in October 2010. Mr. Klotsche also serves as President of the Brady Corporation Foundation. He holds an MBA from the University of Wisconsin-Milwaukee.

Robert L. Tatterson - Dr. Tatterson joined the Company in 2006 as Vice President and Chief Technology Officer. Before joining Brady, he held a variety of positions with increasing responsibility at GE since 1992. Most recently, Dr. Tatterson served as Technology General Manager for GE Plastics' Display and Optical Film business in Mt. Vernon, Indiana. He is a 6 Sigma Master Blackbelt and holds a Ph.D. in chemical engineering from the University of Michigan in Ann Arbor.

Bentley N. Curran - Mr. Curran joined the Company in 1999 and has held several technology leadership positions until being named Vice President of Information Technology in 2005. In October 2007, he was appointed Chief Information Officer of Brady globally. In February 2012, he was appointed to his current position, Vice President of Digital Business and Chief Information Officer. Prior to joining Brady, Mr. Curran served in a variety of technology leadership roles for Compucom and the Speed Queen Company. He holds a Bachelor of business administration from Marian University and holds an associate of science degree in electronics and engineering systems.

Kathleen M. Johnson - Ms. Johnson joined the Company in 1989 as controller of a division of Brady and became group finance director in 1996. In 2000 she was appointed Vice President. In 2008 she was appointed Chief Accounting Officer. Prior to joining Brady, she spent six years with Kraft Food Service. She started her career as a CPA with Deloitte & Touche LLP. She holds a bachelor's degree in accounting from the University of Wisconsin-Whitewater.

Aaron J. Pearce - Mr. Pearce joined the Company in 2004 as Director of Internal Audit. From 2006 to 2008, he served as Finance Director for Brady's Asia Pacific Region. From 2008 to 2009, he served as the Global Tax Director. In January 2010, he assumed the role of Treasurer and Director of Investor Relations. Prior to Brady, Mr. Pearce was with Deloitte & Touche LLP and started his career in banking. He holds a bachelors degree in business administration from the University of Wisconsin-Milwaukee and is a certified public accountant.

Patrick W. Allender - Mr. Allender was elected to the Board of Directors in 2007. He serves as the Chair of the Finance Committee and as a member of the Audit and Corporate Governance Committees. He served as Executive Vice President and CFO of Danaher Corporation from 1998 to 2005 and Executive Vice President from 2005 to 2007. Additionally, he served as a public accountant at Arthur Andersen LLC from 1968 to 1985. He has served as a director of Colfax Corporation since 2008 and Diebold, Inc. since May 2011. Mr. Allender's strong background in finance and accounting, as well as his past experience as the CFO of a public company, provides the Board with financial expertise and insight.

Gary S. Balkema - Mr. Balkema was elected to the Board of Directors in 2010. He currently serves as the Chair of the Management Development and Compensation Committee and is a member of the Technology Committee. From 2000 to 2011, he served as the President of Bayer Healthcare LLC and Worldwide Consumer Care Division, which has four billion dollars in sales and over 5,400 employees. He was also responsible for overseeing Bayer LLC USA's compliance program. He has over 20 years of general management experience. Mr. Balkema brings strong experience in consumer marketing skills and mergers and acquisitions and integrations. His broad operating and functional experience are valuable to the Company given the diverse nature of the Company's portfolio.

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Chan W. Galbato - Mr. Galbato was elected to the Board of Directors in 2006. He currently serves as Brady's Lead Independent Director and as a member of the Audit, Management Development and Compensation, and Technology Committees. He has extensive executive leadership experience including his current role as Chief Executive Officer of Cerberus Operations and Advisory Company, LLC. Mr. Galbato was President and CEO of the Controls division of Invensys plc. Prior to that, Mr. Galbato held positions as President of Services at The Home Depot, President and CEO of Armstrong Floor Products, CEO of Choice Parts LLC, and CEO of Coregis Insurance Company, a GE Capital company. Mr. Galbato is Chairman of the Board of YP Holdings, Blue Bird Corporation, and North American Bus Industries, Inc., and NewPage Corporation and is a member of the Board of Tower International, Inc. His public company leadership experience gives him insight into business strategy, leadership and executive compensation and his public company and private equity experience give him insight into technology trends, acquisition strategy and financing, each of which represents an area of key strategic opportunity for the Company.

Conrad G. Goodkind - Mr. Goodkind was elected to the Board of Directors in 2007. He currently serves as the Chair of the Corporate Governance Committee and as a member of the Finance and Audit Committees. He previously served as Secretary of the Company from 1999 to 2007. Mr. Goodkind was a partner in the law firm of Quarles & Brady, LLP, where his practice concentrated in corporate and securities law from 1979 to 2009. Prior to 1979, he served as Wisconsin's Deputy Commissioner of Securities. Mr. Goodkind previously served as a director of Cade Industries, Inc. and Able Distributing, Inc. His extensive experience in advising companies on a broad range of transactional matters, including mergers and acquisitions and securities offerings, and historical knowledge of the Company provides the Board with expertise and insight into governance, business and compliance issues that the Company encounters.

Frank W. Harris, Ph.D - Dr. Harris was elected to the Board of Directors in 1991. He serves as the Chair of the Technology Committee and as a member of the Management Development and Compensation Committee. He served as the Distinguished Professor of Polymer Science and Biomedical Engineering at the University of Akron from 1983 to 2008 and Professor of Chemistry at Wright State University from 1970 to 1983. He is the founder of several technology based companies including Akron Polymer Systems where he serves as President and CEO. Dr. Harris is the inventor of several commercialized products including an optical film that realized over one billion dollars in sales. His extensive experience in technology and engineering solutions provides the Board with important expertise in new product development.

Elizabeth Pungello, Ph. D - Dr. Pungello was elected to the Board of Directors in 2003. She serves as a member of the Management Development and Compensation, Corporate Governance, and Technology Committees. Dr. Pungello is a Scientist at the Frank Porter Graham Development Institute, a Research Assistant Professor in the Developmental Psychology Program at the University of North Carolina at Chapel Hill, and Mentor Faculty at the Center for Developmental Science. She serves on the editorial board of the Journal of Marriage and Family and as a reviewer for several other journals. Dr. Pungello is the President of the Brady Education Foundation in Chapel Hill, N.C. and serves on a number of other non-profit boards. She is the granddaughter of William H. Brady, Jr., the founder of Brady Corporation. As a result of her substantial ownership stake in the Company, as well as her family's history with the Company, she is well positioned to understand, articulate and advocate for the rights and interests of the Company's shareholders.

Bradley C. Richardson - Mr. Richardson was elected to the Board of Directors in 2007. He serves as the Chair of the Audit Committee and is a member of the Corporate Governance and Finance Committees. He is the Executive Vice President and CFO of Diebold, Inc. He previously served as the Executive Vice President Corporate Strategy and CFO of Modine Manufacturing from 2003 to 2009. Prior to Modine, he spent 21 years with BP Amoco serving in various financial and operational roles with assignments in North America, South America, and Europe. Mr. Richardson has served on the boards of Modine Manufacturing and Tronox, Inc. He brings to the Company extensive knowledge and experience in the areas of operations, strategy, accounting, tax accounting, and finance, which are areas of critical importance to the Company as a global public company.

All directors serve until their respective successors are elected at the next annual meeting of shareholders. Officers serve at the discretion of the Board of Directors. None of the Company's directors or executive officers has any family relationship with any other director or executive officer.

Board Leadership Structure - The Board does not have a formal policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board currently has not appointed a Chairman of the Board. In fiscal 2010, the Board formalized the position of Lead Independent Director, which is elected on an annual basis from among the independent Directors of the Board based upon the recommendation of the Corporate Governance Committee. In fiscal 2011, upon the recommendation of the Corporate Governance Committee, the Board enhanced the duties of the Lead Independent Director, which include, among others, chairing executive sessions of the non-management Directors, meeting periodically with the Chief Executive Officer and consulting as necessary with management on current significant issues facing the Company, facilitating effective communication among the Chief Executive Officer and all members of the Board, and overseeing the Board's shareholder communication policies and procedures. Mr. Galbato currently serves as the Lead Independent Director.

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The Board believes that its current leadership structure has enhanced the Board's oversight of, and independence from, Company management; the ability of the Board to carry out its roles and responsibilities on behalf of our shareholders; and our overall corporate governance.

Risk Oversight - The Board oversees the Company's risk management processes directly and through its committees. In general, the Board oversees the management of risks inherent in the operation of the Company's businesses, the implementation of its strategic plan, its acquisition and capital allocation program and its organizational structure. Each of the Board's committees also oversees the management of Company risks that fall within the committee's areas of responsibility. The Company's management is responsible for reporting significant risks to executives at the quarterly disclosure committee meeting. The significance of the risk is assessed by executive management and escalation to the respective board committee and Board of Directors is determined. The Company reviews its risk assessment with the Audit Committee annually.

Audit Committee Financial Expert - The Company's Board of Directors has determined that at least one Audit Committee financial expert is serving on its Audit Committee. Messrs. Richardson, Chair of the Audit Committee, and Allender and Galbato, members of the Audit Committee, are financial experts and are independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

Director Independence - A majority of the directors must meet the criteria for independence established by the Board in accordance with the rules of the New York Stock Exchange. In determining the independence of a director, the Board must find that a director has no relationship that may interfere with the exercise of his or her independence from management and the Company. Based on these guidelines all directors, with the exception of Mr. Jaehnert, President and CEO, are deemed independent. All members of the Audit, Management Development and Compensation, and Corporate Governance Committees are deemed independent.

Meetings of Non-management Directors - The non-management directors of the Board regularly meet alone without any members of management present. The Lead Independent Director, currently Mr. Galbato, is the presiding Director at these sessions. In fiscal 2012, there were 6 executive sessions. Interested parties can raise concerns to be addressed at these meetings by calling the confidential Brady hotline at 1-800-368-3613.

Audit Committee Members - The Audit Committee, which is a separately-designated standing committee of the Board of Directors, is composed of Messrs. Richardson (Chairman), Galbato, Goodkind and Allender. Each member of the Audit Committee has been determined by the Board to be independent under the rules of the SEC and NYSE. The charter for the Audit Committee is available on the Company's corporate website at www.bradycorp.com.

Code of Ethics - For a number of years, the Company has had a code of ethics for its employees. This code of ethics applies to all of the Company's employees, officers and Directors. The code of ethics can be viewed at the Company's corporate website, www.bradycorp.com, or may be obtained in print by any person, without charge, by contacting Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201. The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics by placing such information on its Internet website.

Corporate Governance Guidelines - Brady's Corporate Governance Principles, as well as the charters for the Audit Committee, Corporate Governance Committee, and Management Development and Compensation Committee, are available on the Company's Corporate website, www.bradycorp.com. Shareholders may request printed copies of these documents from Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201.

Director Qualifications - Brady's Corporate Governance Committee reviews the individual skills and characteristics of the Directors, as well as the composition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, expertise, and industry backgrounds in the context of the needs of the Board and the Company. Although the Company has no policy regarding diversity, the Corporate Governance Committee seeks a broad range of perspectives and considers both the personal characteristics and experience of Directors and prospective nominees to the Board so that, as a group, the Board will possess the appropriate talent, skills, and expertise to oversee the Company's businesses.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Executive officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended July 31, 2012, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with, other than with respect to the following:

Elizabeth Pungello's Form 4 filing on February 3, 2012, contained three transactions made on January 1, 2012 that were inadvertently reported late.

Item 11. Executive Compensation

Compensation Discussion and Analysis

Overview

Our Compensation Discussion and Analysis focuses upon the Brady Corporation total compensation philosophy, the role of the Management Development & Compensation Committee (for purposes of the Compensation Discussion and Analysis section, the "Committee"), total compensation components, market and peer group data, and the approach used by the Committee when determining each element of the total compensation package inclusive of base salary, short-term incentives, long-term incentives, benefits, perquisites and employment agreements for our executive officers.

For fiscal 2012, the following executive officers' compensation is disclosed and discussed in this section (the "named executive officers" or "NEOs"):

Frank M. Jaehnert, President, Chief Executive Officer and Director

Thomas J. Felmer, Senior Vice President and Chief Financial Officer

Allan J. Klotsche, Senior Vice President-Human Resources

Peter C. Sephton, President-Brady Europe and Vice President, Brady Corporation

Matthew O. Williamson, President-Brady Americas and Vice President, Brady Corporation

Executive Summary

Our Business

Since our founding in 1914, we have grown the company by developing innovative high-performing products, participating in growing markets, delivering on-time solutions and leveraging our core competencies across our businesses. Our strategy is to be the market leader in each of the geographic segments we are focused on.

Our passion around market leadership is tempered only by the fact that when we win, we win the right way. Our values have been, and will be, the cornerstone of everything that we do at Brady. Focus on the Customer, Invest in our People, Embrace Teamwork, Excel at Everything We Do, Be Bold and Decisive, Protect Our Future and Win the Right Way describe the behaviors that we expect and reward at Brady.

In order to achieve our goals, we recognize it is critical to assemble and maintain a leadership team with the integrity, skills, and dedication needed to execute our strategic growth plan. We design and use our compensation plans to help us achieve these objectives and align our rewards with the intended behaviors and outcomes.

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Our Fiscal 2012 Performance and Link to Pay Decisions

Despite the headwinds of challenging global economic conditions, we believe we positioned ourselves in 2012 for greater future cash returns to stockholders:

We continued to generate strong cash flow during fiscal 2012. During fiscal 2012, we generated free cash flow of $120.6 million, which equates to 112% of net income, exclusive of the impairment charge and restructuring-related expenses.

Our consistently strong cash flow enabled us to repurchase 1.9 million shares for $49.9 million and pay $38.9 million to our shareholders in the form of dividends. Recently, we announced an annual dividend rate of $0.76 per share, our 27th consecutive year of annual dividend increases, and announced an additional two million share repurchase program. We have 2.1 million shares authorized and available for repurchase as of the date of the new share repurchase program. Returning funds to our shareholders will continue to be an important use of our capital.

Challenging Fiscal 2012 Resulted in Below Target Cash Bonuses and No Performance-Based Stock Option or Restricted Stock Vesting for NEOs

Our fiscal 2012 results, summarized below, reflect among other things the uncertainties surrounding the European economy, compressed margins in the mobile handset industry, and the depreciation of certain foreign currencies versus the U.S. dollar:

On a GAAP basis, we incurred a fiscal 2012 net loss of $17.9 million. Net income, excluding the non-cash Asia goodwill impairment charge and restructuring charges, was down 1.3% to $107.3 million in fiscal 2012.

Our sales for the full year were $1,324.3 million, down 1.1% from fiscal 2011. Organic sales were down 0.4%, the net impact of acquisitions and divestitures added 0.3% to sales, and foreign currency translation decreased sales by 1.0%.

During fiscal 2012, our gross margin was 48.0% of sales compared with 49.0% in fiscal 2011, and SG&A decreased to 32.5% of sales in fiscal 2012 from 33.0% of sales in fiscal 2011.

With the exception of our President and Chief Executive Officer, Mr. Jaehnert, base salaries for the other four NEOs increased two percent (2%) over fiscal 2011 levels. Mr. Jaehnert did not receive an increase in his base salary for fiscal 2012. No other changes were made to the target levels of annual cash incentive compensation or annual equity award values given to any of the NEOs for fiscal 2012 relative to fiscal 2011.

Net income and corporate sales growth financial metrics served as performance objectives under our fiscal 2012 bonus plan. Since we did not achieve the threshold level of performance relative to objectives, our NEOs did not receive the portions of bonus related to these metrics for fiscal 2012. Likewise, the regional sales and income from operations goals for the Europe, Middle East and Africa region were not achieved; therefore no bonus for components relative to this region was earned by Mr. Sephton. The achievement of the regional sales and income from operations goals for the Americas were above the threshold levels required for a bonus payment, but below the level required for a target level bonus payment. Accordingly, Mr. Williamson received a bonus payment equal to 33 percent (33%) of his target.

Finally, the earning per share goal established by the Committee for the 2008 award of performance-based restricted stock was not achieved; therefore, none of the shares have vested. The NEOs have an additional opportunity for these awards to vest through earnings per share growth for the fiscal years ending July 31, 2013, or July 31, 2014 and a service vesting requirement through July 31, 2014.

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Stockholders Approve 2012 Omnibus Incentive Stock Plan

By unanimous written consent effective September 26, 2011, the holders of the Company's Class B Common Stock approved the Brady Corporation 2012 Omnibus Incentive Stock Plan (the "2012 Omnibus Plan"). Under the terms of the 2012 Omnibus Plan, pursuant to which 5,500,000 shares of the Company's Class A Common Stock have been authorized for issuance, the Company may grant unrestricted stock, nonqualified stock options, incentive stock options, shares of restricted stock and restricted stock units to eligible employees and Directors of the Company and its affiliates. The 2012 Omnibus Plan, which became effective upon shareholder approval, provides that no further grants will be made under the Company's 2010 Omnibus Incentive Stock Plan after December 31, 2011.

Executive Compensation Practices

As part of the Company's pay for performance philosophy, the Company's compensation program includes several features that maintain alignment with shareholders:

Emphasis on Variable Compensation

Over 70% of the named executive officers' possible compensation is tied to Company performance which the Company believes drives shareholder value.

Ownership Requirements

The chief executive officer is required to own at least 100,000 shares of stock in the Company and all other named executive officers are required to hold at least 30,000 shares of stock.

Clawback Provisions

Upon review of the Committee, the Company is in the process of establishing recoupment policies in the event of financial fraud and/or material inaccuracies for named executive officers.

Performance Thresholds and Caps

Generally, 100% of annual cash and more than 50% of annual equity incentive programs require the achievement of performance goals in order to result in any payment. In addition, the annual cash incentive plan has a maximum payment cap.

Securities Trading Policy

We prohibit executive officers from trading during certain periods at the end of each quarter until after we disclose our financial and operating results. We may impose additional restricted trading periods at any time if we believe trading by executives would not be appropriate because of developments that are, or could be, material.

Annual Risk Reviews

The Company conducts an annual risk review and presents findings and suggested risk mitigation actions to both the Audit and Management Development and Compensation Committees.

The Company's compensation programs also maintain alignment with shareholders by not including certain features:

No Excessive Change in Control Severance

For the chief executive officer, the maximum cash benefit is equal to 3x salary and the average bonus payment received in the three years immediately prior to the date the change of control occurs. For all other named executive officers, the maximum cash benefit is equal to 2x salary and the average bonus payment received in the three years immediately prior to the date the change of control occurs.

No Employment Agreements

The Company does not maintain any employment agreements with its executives.

No Reloads, Repricing, or Options Issued at a Discount

Options issued are not repriced, replaced, or regranted through cancellation or by lowering the option price of a previously granted option.

Compensation Philosophy and Objectives

We seek to align the interests of our executives with those of our investors by evaluating performance on the basis of key financial measurements which we believe closely correlate to long-term shareholder value. To this end, we have structured our compensation program around the following principles:

Provide a competitive total compensation package targeted at the median of our compensation peers;

Incentivize long-term shareholder value creation by encouraging behaviors which facilitate long-term success without undue risk taking; and

Reinforce top-tier company performance through a merit-based, pay-for-performance culture that is aligned with our Company values.

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Determining Compensation

Management Development and Compensation Committee's Role

The Management Development and Compensation Committee of the Board of Directors is responsible for monitoring and approving the compensation of the Company's named executive officers. The Committee approves compensation and benefit policies and strategies; approves corporate goals and objectives relative to the chief executive officer and other executive officer compensation; oversees the development process and reviews development plans of key executives; reviews compensation-related risk; administers our equity incentive plans including compliance with executive share ownership requirements; approves all severance policies; and consults with management regarding employee compensation generally. With respect to executive officers, at the beginning of each year, the Committee sets base salaries, approves the cash and equity incentive awards, and establishes the objective performance targets to be achieved for the year.

Consultants' Role

The Committee has historically utilized the services of an independent executive compensation consulting firm, Pearl Meyer, to assist with the review and evaluation of compensation levels and policies on a bi-annual basis. Their expertise may also be utilized in modifying any existing or proposing any new compensation arrangements. The Committee last met with Pearl Meyer in fiscal 2011.

Management's Role

Our Chief Executive Officer makes recommendations to the Committee concerning compensation for each named executive officer other than himself. The Committee takes these recommendations, along with the results of the Company during the fiscal year, and the level of responsibility, demonstrated leadership capability and the external value of their experience as estimated with market data into consideration when approving compensation changes. Our chief executive officer does not attend the portion of any committee meeting during which the committee discusses matters related specifically to his compensation. In addition, in setting compensation for our executive officers, the Committee considers the results of our annual performance reviews which, for our chief executive officer, includes feedback from his direct reports and a self-appraisal.

Tally Sheets

The Committee reviews executive officer compensation tally sheets each year. These summaries set forth the dollar amount of all components of each named executive officer's compensation, including base salary, annual target and actual cash incentive compensation, annual equity incentive compensation, value of outstanding equity, stock option exercises during the year, value of Brady's contribution to retirement plans, value of company-provided health and welfare benefits and taxes. Reviewing this information allows the Committee to see what an executive officer's total compensation is and how a potential change to an element of our compensation program would affect an executive officer's overall compensation.

Components of Compensation

Our total compensation program includes five components: base salary, annual cash incentives, long-term equity incentives, employee benefits and perquisites. Each component serves a particular purpose and, therefore, each is considered independent of the other components, although all five components combine to provide a holistic total compensation approach. We use these components of compensation to attract, retain, motivate, develop and reward our executives.

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The base salary, annual cash and long-term equity incentive components are determined through a pay-for-performance approach, targeted at market median for the achievement of performance goals with an opportunity for upper quartile pay when top-tier performance is achieved. The following table describes the purpose of each performance-based component and how that component is related to our pay-for-performance approach:

Compensation

Component

Purpose of Compensation

Component

Compensation Component in Relation

to Performance

Base salary

A fixed level of income security used to attract and retain employees by compensating them for the primary functions and responsibilities of the position.

The base salary increase an employee receives depends upon the employee's individual performance, and the employee's displayed skills and competencies.

Annual cash incentive awards

To attract, retain, motivate and reward employees for achieving or exceeding annual performance goals at company and regional levels.

Financial performance determines the actual amount of the executive's annual cash incentive award. Award amounts are "self-funded" because they are included in the financial performance results when determining actual financial performance.

Annual Equity Incentive Awards: Time-based Stock Options and Performance-based Stock Options

To attract, retain, motivate and reward top talent for the successful creation of long-term stockholder value.

Market competitive grant levels are used to determine the amount of equity granted to each executive, established within an equity grant budget. All of the equity granted is subject to Company performance. Stock options are inherently performance-based in that the stock price must increase over time to provide compensation value to the executive. Additional performance criteria are added to the performance-based stock options to further align our executive's interests with those of our shareholders.

Establishing Our Total Compensation Component Levels

In addition to the nationally recognized compensation surveys, the Committee has historically used peer group data for similar positions nationally to test the reasonableness and competitiveness of several components of compensation, including base salaries, annual cash incentives, and long-term equity incentives by position. A total compensation benchmarking analysis of peer companies selected on the basis of revenue size, industry and financial performance relative to the S&P 600 was conducted by Pearl Meyer for fiscal 2011. A repeat study was not performed for fiscal 2012; however, no material changes were made to the levels of executive compensation. The peer group used for the fiscal 2011 analysis included the following companies:

Brady's 2011-2012 Peer Group

A.O. Smith Corporation

Graco Inc.

MSC Industrial Direct Company, Inc.

Actuant Corporation

Greif, Inc.

Plexus Corporation

Ameron International Corporation

Herman Miller Inc.

Rayonier Inc.

AMETEK, Inc.

Hexcel Corporation

Regal Beloit Corporation

Bio-Rad Laboratories, Inc.

HNI Corporation

Snap-On Inc.

Cubic Corporation

IDEX Corporation

Temple Inland Inc.

Curtiss-Wright Corporation

Lincoln Electric Holdings Inc.

Thomas & Betts Corporation

Dentsply International Inc.

Matthews International Corporation

Toro Corporation

Donaldson Company, Inc.

MetroPCS Communications Inc.

Tupperware Brands Corporation

Garmin Ltd.

Mine Safety Appliances Company

Warnaco Group Inc.

Based on our last analysis, the base salaries of our named executive officers were at the 50th percentile of our peers, and target total compensation of our named executive officers was generally above the 50th percentile of our peers, although certain of the named executive officers were above and others were below such mark.

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Fiscal 2012 Named Executive Officer Compensation

Base Salaries

Mr. Jaehnert recommended and the Committee agreed to provide a two percent (2%) increase in salary for each of the named executive officers for fiscal 2012, an increase aligned with the fiscal year budget. Additionally, Mr. Jaehnert requested and the Committee accepted his request to forgo an increase to his annual salary in light of economic conditions and a reduced merit budget for all employees for fiscal 2012.

Named Executive Officer

Fiscal 2011 Fiscal 2012 Percentage Increase Effective Date

Frank M. Jaehnert

$ 800,000 $ 800,000 0.0 11/01/2011

Thomas J. Felmer

$ 370,000 $ 377,500 2.0 11/01/2011

Allan J. Klotsche

$ 315,000 $ 321,500 2.1 11/01/2011

Peter C. Sephton

$ 354,202 $ 361,270 2.0 11/01/2011

Matthew O. Williamson

$ 365,000 $ 372,500 2.1 11/01/2011

Note: The salary detail in the table above reflects the annualized 12-month salary for each executive. The salaries in the Summary Compensation Table reflect fiscal year compensation earned including three (3) months at fiscal 2011 rates and nine (9) months at fiscal 2012 rates.

Annual Cash Incentive Awards

Effective September 1, 2011, the holders of the Company's Class B Common Stock approved an amendment to the Brady Corporation Incentive Compensation Plan for Elected Corporate Officers increasing the annual limitation on bonus awards granted to any participant under such plan from $1.5 million to $2.0 million. In addition, the holders of the Company's Class B Common Stock approved the Brady Corporation Incentive Compensation Plan for Senior Executives, which replaced the prior plan beginning with fiscal 2012 awards.

All named executive officers participate in an annual cash incentive plan, which is based on fiscal year financial results. For fiscal 2012, the Company placed greater emphasis on core sales growth than in prior fiscal years. As a result, the corporate and regional bonus plans were modified to increase the weight of the core sales component, remove working capital improvement as a component of the plan and replace earnings per share growth with net income growth. Set forth below is a description of the fiscal 2012 terms:

Core Sales Growth: Core sales are defined as total sales adjusted for: foreign currency exchanges; acquisitions and divestitures in the last 12 months. Core sales are also known as "organic sales" and "base sales." Regional and total company core sales growth is reported quarterly and annually in the Company's 10-Q and 10-K SEC filings.

Net Income Growth: Net income is defined as SEC reported net income. Net income growth is reported net income at actual exchange rates for the current year compared to reported net income for the prior year. Net income is reported quarterly and annually in the Company's 10-Q and 10-K SEC filings.

Income from Operations (IFO) before R&D Growth: Total Company and regional IFO is defined as total company sales less cost of goods sold, selling and group leadership expenses. IFO growth excludes currency translation. IFO for the prior year and the current year is restated at the current budgeted exchange rates for the growth calculation.

Messrs. Jaehnert, Felmer and Klotsche

The cash incentive payments to Messrs. Jaehnert, Felmer and Klotsche for fiscal 2012 were based on core sales growth and net income growth. We use core sales growth because we believe that the long-term value of our enterprise depends on our ability to grow revenue without regard for acquisitions and we use net income growth to focus on effectively managing our costs while growing our revenue. For 2012, we set the target core sales growth performance goal at five percent (5%) and the target net income growth goal at 10 percent (10%). We increased the weight given to core sales growth from 10 percent (10%) in fiscal 2011 to 30 percent (30%) in fiscal 2012 while reallocating the remaining 70 percent (70%) to net income growth from earnings per share and working capital improvement.

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For fiscal 2012, the threshold, target, maximum and actual amounts for Messrs. Jaehnert, Felmer, and Klotsche were as follows:

Performance Measure (weighting)

Threshold Target Maximum Actual
(% of Salary)
Actual
($)

Net Income Growth (70%)

0 10 30% or more

Core Sales Growth (30%)

0 5 12.5% or more

Award as a Percentage of Base Salary

F. Jaehnert

0 100 200% 0 $ 0

T. Felmer

0 70 140% 0 $ 0

A. Klotsche

0 70 140% 0 $ 0

Messrs. Sephton and Williamson

The cash incentive payment to Messrs. Sephton and Williamson for fiscal 2012 was based on achievement of core sales growth, net income growth and Income from Operations (IFO) before R&D growth. We use IFO before R&D growth because we believe it aligns Messrs. Sephton and Williamson to the management of sales and expenses directly within their control as the President of Brady Europe and Brady Americas, respectively. Similar to the other named executive officers, the company-wide performance measures for Messrs. Sephton and Williamson focused on driving greater Company core sales growth and overall profitability. Mr. Sephton did not earn a bonus payout for fiscal 2012 because the Europe operating segment did not achieve the IFO before R&D and core sales growth thresholds set for the region. Mr. Williamson earned a bonus payout for fiscal 2012 relative to the achievement of the Americas operating segment achieved regional IFO before R&D and core sales growth of 3.5% and 9.3%, respectively. Neither Messrs. Sephton nor Williamson received a bonus payout for the portion based upon the achievement of net income because the Company did not achieve the threshold level of net income for the year. For 2012, the threshold, target, maximum and actual amounts for Messrs. Sephton and Williamson were as follows:

Performance Measure (weighting)

Threshold Target Maximum Actual
(% of Salary)
Actual
($)

Net Income Growth (40%)

0 10 30% or more

Core Sales Growth (30%)

0 5 12.5% or more

IFO before R&D Growth (30%)

0 10 30% or more

Award as a Percentage of Base Salary

P. Sephton

0 70 140% 0 $ 0

M. Williamson

0 70 140% 33.0 $ 122,148

The target annual cash incentive award that would be payable to each executive officer is calculated as a percentage of the officer's eligible compensation defined as base salary in effect during the fiscal year, pro-rated to reflect base salary adjustments throughout the fiscal year.

For fiscal 2012, the Management Development and Compensation Committee reviewed the impact of impairment charges on the payout of bonuses and determined that fiscal 2012 impairment charges would be counted against the net income results used to calculate bonus payouts. In general, the Committee regularly reviews and makes decisions on the impact of unusual events on a case-by-case basis and continually evaluates compensation policies and practices in light of ongoing developments and best practices in the area of incentive compensation.

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Long-Term Equity Incentive Awards

The Company utilizes a combination of performance-based stock options, time-based stock options and performance-based restricted shares to attract, retain, and motivate key employees who directly impact the long-term performance of the Company. A combination of performance-based stock options, time-based stock options and performance-based restricted shares is utilized to provide a balance between annual Company performance and the generation of long-term shareholder value. Equity-based awards are influenced by Brady's stock price, which directly affects the amount of compensation the executive receives upon exercising any options.

The size and type of equity awards for executives other than the chief executive officer are determined by the Management Development and Compensation Committee with input from the chief executive officer. With regard to the award size given to the chief executive officer, the Committee uses its discretion in combination with market competitive information obtained periodically from its outside consultant. For fiscal 2012, the Committee reviewed the Black-Scholes valuations of historical grants and the estimated value of the proposed grants, then determined the 2012 grant sizes would be consistent with the award sizes granted in fiscal 2011.

By unanimous written consent effective September 26, 2011, the holders of the Company's Class B Common Stock approved the Brady Corporation 2012 Omnibus Incentive Stock Plan (the "2012 Omnibus Plan"). Under the terms of the 2012 Omnibus Plan, pursuant to which 5,500,000 shares of the Company's Class A Common Stock have been authorized for issuance, the Company may grant unrestricted stock, nonqualified stock options, incentive stock options, shares of restricted stock and restricted stock units to eligible employees and Directors of the Company and its affiliates. The 2012 Omnibus Plan, which became effective upon shareholder approval, provides that no further grants will be made under the Company's 2010 Omnibus Incentive Stock Plan after December 31, 2011.

Performance-based Stock Options: Although stock options are inherently performance-based in that options have no value unless the stock price increases, the Committee believes that using additional performance criteria for vesting of stock options can serve as an additional motivator for executives to further drive company performance. Performance-based stock options were granted in fiscal 2012 with two vesting criteria based upon year-over-year diluted EPS growth and an additional opportunity to vest over a two- or three-year period if the compound annual growth rate exceeds the annual target.

Time-based Stock Options: Time-based stock option grants in fiscal 2012 were reviewed and approved by the Committee on September 7, 2011, with an effective grant date of September 30, 2011. The grant price was the fair market value of the stock on the grant date, which was calculated as the average of the high and low stock price on that date. The time-based stock options generally vest one-third each year for the first three years and have a ten-year life.

Performance-based Restricted Stock: Periodically, the Company issues restricted stock grants to key executives as an element of their overall compensation. In January 2008, the Management Development and Compensation Committee approved the issuance of performance-based restricted stock awards to six of Brady's senior executives. A total of 210,000 restricted shares were issued and included both a performance vesting requirement (earnings per share) and a service vesting requirement (five years). In addition to the original vesting criteria, the restricted stock awards were amended effective July 20, 2011, to include an additional vesting opportunity based upon earnings per share growth for the fiscal years ending July 31, 2013 or July 31, 2014, and a service vesting requirement through July 31, 2014.

Based upon input from an external compensation consultant and the Committee's desire to provide an incentive for retention and improved Company performance, effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert. This grant of performance-based restricted stock included both a performance vesting requirement based upon earnings per share growth and a service vesting requirement prorated at July 31, 2013, July 31, 2014 and July 31, 2015.

As of July 31, 2012, none of the performance-based restricted stock awards have vested.

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Fiscal 2012 Annual Equity Grants

Named Officers

Grant Date
Fair Value
Number of Performance-Based
Stock Options
Number of Time-Based
Stock Options

F. Jaehnert

$ 2,087,000 130,000 90,000

T. Felmer

$ 756,000 45,000 30,000

A. Klotsche

$ 662,300 40,000 30,000

P. Sephton

$ 662,300 40,000 30,000

M. Williamson

$ 662,300 40,000 30,000

Other Elements of Compensation

Health and Welfare Benefits: We provide subsidized health and welfare benefits which include medical, dental, life and accidental death or dismemberment insurance, disability insurance and paid time off. Executive officers are entitled to participate in our health and welfare plans on generally the same terms and conditions as other employees, subject to limitations under applicable law. In addition, the Company provides employer-paid long-term care insurance and maintains a supplemental executive disability policy for executives. The supplemental disability policy provides for Group Long Term Disability insurance (LTD) of up to 60% of pre-tax base salary and bonus, up to a monthly maximum benefit of $25,000. Brady Corporation pays the premiums for these benefits; therefore, these benefits are taxable to the executive.

Retirement Benefits: Brady employees (including named executive officers) in the United States and certain expatriate employees working for its international subsidiaries are eligible to participate in the Brady Corporation Matched 401(k) Plan (the "Employee 401(k) Plan"). In addition, named executive officers in the United States and employees at many of our United States locations are also eligible to participate in the Brady Corporation's Funded Retirement Plan ("Funded Retirement Plan").

Under the Funded Retirement Plan, the Company contributes 4% of the eligible earnings of each employee covered by the Funded Retirement Plan. In addition, participants may elect to have their annual pay reduced by up to 5% and have the amount of this reduction contributed to their 401(k) Plan and matched by an additional 4% contribution by the Company. Participants may also elect to have up to another 45% of their eligible earnings contributed to the Employee 401(k) Plan (without an additional matching contribution by the Company). The assets of the Employee 401(k) Plan and Funded Retirement Plan credited to each participant are invested by the trustee of the Plans as directed by each plan participant in a variety of investment funds as permitted by the Employee 401(k) Plan and the Funded Retirement Plan.

Due to the IRS income limitations for participating in the Employee 401(k) Plan and the Funded Retirement Plan, the named executive officers are eligible to participate in the Brady Restoration Plan, which is a non-qualified deferred compensation plan that allows an equivalent benefit to the Employee 401(k) Plan and the Funded Retirement Plan for their income above the IRS participation limits.

Benefits are generally payable upon the death, disability, or retirement of the participant, or upon termination of employment before retirement, although benefits may be withdrawn from the employee 401(k) Plan and paid to the participant if required for certain emergencies. Under certain specified circumstances, the employee 401(k) Plan allows loans to be drawn on a participant's account. The participant is immediately fully vested with respect to employee contributions; all other contributions become fully vested over a two-year period of continuous service for the employee 401(k) Plan and after six years of continuous service for the Funded Retirement Plan.

Deferred Compensation Arrangements: During fiscal 2002, the Company adopted the Brady Corporation Executive Deferred Compensation Plan ("Executive Deferred Compensation Plan"), under which executive officers, corporate staff officers and certain key management employees of the Company are permitted to defer portions of their salary and bonus into a plan account, the value of which is measured by the fair value of the underlying investments. The assets of the Executive Deferred Compensation Plan are held in a Rabbi Trust and are invested by the trustee as directed by the participant in several investment funds as permitted by the Executive Deferred Compensation Plan. The investment funds available in the Executive Deferred Compensation Plan include Brady Corporation Class A Nonvoting Common Stock and various mutual funds that are provided in the Employee 401(k) Plan. On May 1, 2006, the plan was amended to require that deferrals into the Company's Class A Nonvoting Common Stock must remain in the Company's Class A Nonvoting Common Stock and be distributed in shares of the Company's Class A Nonvoting Common Stock.

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At least one year prior to termination of employment, the executive must elect whether to receive their account balance following termination of employment in a single lump sum payment or by means of distribution under an Annual Installment Method. If the executive does not submit an election form or has not submitted one timely, then payment shall be made each year for a period of ten years. The first payment must be one-tenth of the balance held; the second one-ninth; and so on, with the balance held in the Rabbi Trust reduced by each payment. Distributions of the Company Class A Nonvoting Common Stock are made in-kind; distributions of other assets are in cash.

Effective January 1, 2008, the Executive Deferred Compensation Plan was amended and restated to comply with the provisions of Section 409A of the Internal Revenue Code. Amounts deferred prior to January 1, 2005 (which were fully vested under the terms of the plan), including past and future earnings credited thereon, will remain subject to the terms in place prior to January 1, 2005.

Perquisites: Brady provides the named executive officers with the following perquisites that are not available to other non-executive employees:

Annual allowance for financial and tax planning

Company car

Long-term care insurance

Personal liability insurance

Stock Ownership Guidelines

We believe that the interests of shareholders and executives become aligned when executives become shareholders in possession of a meaningful amount of Company stock. Furthermore, this stock ownership encourages positive performance behaviors and discourages executive officers from taking undue risk. In order to encourage our executive officers and directors to acquire and retain ownership of a significant number of shares of the Company's stock, stock ownership guidelines have been established.

The Board of Directors has established the following stock ownership guidelines for our named executive officers:

F. Jaehnert

100,000 shares

T. Felmer

30,000 shares

A. Klotsche

30,000 shares

P. Sephton

30,000 shares

M. Williamson

30,000 shares

The stock ownership guideline for each director is 5,000 shares of Company stock.

Mr. Jaehnert met and retained his respective ownership levels prior to fiscal 2012. Named executive officers other than Mr. Jaehnert have until fiscal year 2013 to achieve their respective ownership levels. If an executive does not meet the above ownership level or certain interim levels, the Committee may direct that the executive's after-tax payout on any incentive plans will be in Class A Nonvoting Common Stock to bring the executive up to the required level. The Committee reviews the actual stock ownership levels of each of the named executive officers on an annual basis to ensure the guidelines are met.

For purposes of determining whether an executive meets the required ownership level, Company stock owned outright, Company stock held in the Executive Deferred Compensation Plan and Company stock owned in the Employee 401(k) Plan or pension plan is included. In addition, 20% of any vested stock options that are "in the money" are included.

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Employment and Change of Control Agreements

The Company does not have employment agreements with our executives. The Board of Directors of Brady Corporation approved change of control agreements for certain executive officers of the Company, including all the named executive officers. The agreements applicable to all of the named executive officers other than Mr. Jaehnert provide a payment of an amount equal to two times their annual base salary and two times the average bonus payment received in the three years immediately prior to the date the change of control occurs in the event of termination or resignation upon a change of control. The agreements also provide for reimbursement of any excise taxes imposed and up to $25,000 of attorney fees to enforce the executive's rights under the agreement. Payments under the agreement will be spread over two years.

In May 2003, the Board approved a Change of Control Agreement for Mr. Jaehnert, which was subsequently amended and restated in December 2008 to comply with Internal Revenue Code Section 409A. The agreement applicable to Mr. Jaehnert provides a payment of an amount equal to three times his annual base salary and three times the average bonus payment received in the three years immediately prior to the date the change of control occurs in the event of termination or resignation upon a change of control. The agreement will also reimburse a maximum of $25,000 of legal fees incurred by Mr. Jaehnert in order to enforce the change of control agreement, in which he prevails. Payments under the agreement will be spread over three years.

Compliance with Tax Regulations Regarding Executive Compensation

Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget Reconciliation Act of 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to the Company's chief executive officer or the other named executive officers. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Company's executive compensation program, as currently constructed, is not likely to generate significant nondeductible compensation in excess of these limits. The Management Development and Compensation Committee will continue to review these tax regulations as they apply to the Company's executive compensation program. It is the Committee's intent to preserve the deductibility of executive compensation to the extent reasonably practicable and to the extent consistent with its other compensation objectives.

Management Development and Compensation Committee Interlocks and Insider Participation

During fiscal 2012, the Board's Management Development and Compensation Committee was composed of board members Balkema, Galbato, Harris and Pungello. None of these persons has at any time been an employee of the Company or any of its subsidiaries. There are no relationships among the Company's executive officers, members of the Management Development and Compensation Committee or entities whose executives serve on the Board that require disclosure under applicable SEC regulations.

Management Development and Compensation Committee Report

The Management Development & Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management; and based on the review and discussions, the Management Development & Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's annual report on Form 10-K.

Gary Balkema, Chairman

Chan Galbato

Frank Harris

Elizabeth P. Pungello

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Compensation Policies and Practices

The Company's compensation policies for executive officers and all other employees are designed to avoid incentives to create undue risks to the Company. The Company's compensation programs are weighted towards offering long-term incentives that reward sustainable performance; do not offer significant short-term incentives that might drive high-risk investments at the expense of the long-term Company value; and are set at reasonable and sustainable levels, as determined by a review of the Company's economic position, as well as the compensation offered by comparable companies. The Company's compensation policies and practices were evaluated to ensure that they do not foster risk taking above the level of risk associated with the Company's business model. The Company has also reviewed its compensation policies and practices and determined they will not create risk that is reasonably likely to have a material adverse effect on the Company.

Summary Compensation Table

The following table sets forth compensation awarded to, earned by, or paid to the named executive officers, who served as executive officers during the fiscal year ended July 31, 2012, for services rendered to the Company and its subsidiaries during the fiscal years ended July 31, 2012, July 31, 2011 and July 31, 2010.

Name And Principal Position

Fiscal
Year
Salary
($)
Restricted
Stock  Awards
($)(1)
Option
Awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
All Other
Compensation
($)(4)
Total
($)

F.M. Jaehnert

2012 800,000 -   2,086,727 -   254,136 3,140,863

President & Chief Executive Officer

2011 793,269 2,803,500 2,470,157 1,632,548 223,329 7,922,803
2010 768,269 -   1,868,047 1,193,891 127,590 3,957,797

T.J. Felmer

2012 375,481 -   755,909 -   105,811 1,237,200

Senior Vice President & Chief Financial Officer

2011 363,285 (22,050 914,386 523,349 93,163 1,872,133
2010 339,659 -   833,224 369,481 65,242 1,607,606

A.J. Klotsche

2012 319,750 -   662,218 -   77,358 1,059,326

Senior Vice President - Human Resources

2011 311,002 (22,050 790,878 348,353 77,148 1,505,331
2010 297,417 -   833,224 359,027 51,275 1,540,943

P.C. Sephton (5)

2012 361,244 -   662,218 -   109,486 1,132,948

President - Brady EMEA

2011 356,818 (22,050 790,878 341,190 106,249 1,573,084
2010 334,827 -   833,224 188,441 133,170 1,489,662

M.O. Williamson

2012 370,481 -   662,218 122,148 92,492 1,247,339

President - Brady Americas

2011 360,071 (22,050 790,878 462,461 73,093 1,664,453
2010 343,244 -   833,224 234,505 53,695 1,464,668

(1)

Represents the grant date fair value computed in accordance with accounting guidance for equity grants made or modified in the applicable year for restricted stock awards. The grant date fair value is calculated based on the number of shares of Common Stock underlying the restricted stock awards, times the average of the high and low trade prices of Brady Common Stock on the date of grant. The actual value of a restricted stock award will depend on the market value of the Company's Common Stock on the date the stock is sold. The restricted stock award granted on January 8, 2008, was amended effective July 20, 2011, so that the shares will vest upon meeting a performance vesting requirement based upon earnings per share growth at either July 31, 2013 or July 31, 2014, provided that the senior executives remain employed through July 31, 2014. The reduction in the incremental fair value of the restricted share grant as of the modification date is included in the table above.

Effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert, which included both a performance vesting requirement based upon earnings per share growth and a service vesting requirement prorated at July 31, 2013, July 31, 2014 and July 31, 2015.

(2)

Represents the grant date fair value computed in accordance with accounting guidance for equity grants made or modified in the applicable year for performance-based and time-based stock options. The assumptions used to determine the value of the awards, including the use of the Black-Scholes method of valuation by the Company, are discussed in Note 1 of the Notes to Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K, for the fiscal year ended July 31, 2012. The actual value, if any, which an option holder will realize upon the exercise of an option will depend on the excess of the market value of the Company's Common Stock over the exercise price on the date the option is exercised, which cannot be forecasted with any accuracy.

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(3)

Reflects incentive plan compensation earned during the listed fiscal years, which was paid during the next fiscal year.

(4)

The amounts in this column for Messrs. Jaehnert, Felmer, Klotsche, Sephton, and Williamson include: matching contributions to the Company's Matched 401(k) Plan, Funded Retirement Plan and Restoration Plan, the costs of group term life insurance for each named executive officer, use of a Company car and associated expenses, the cost of long-term care insurance, the cost of personal liability insurance, the cost of disability insurance and other perquisites. The perquisites may include an annual allowance for financial and tax planning and the cost of an annual physical health exam. The amounts in this column for Mr. Sephton include: contributions for the Brady U.K. Pension Plan, the cost of group term life insurance, vehicle allowance and associated expenses and other perquisites as listed above.

Name

Fiscal
Year
Retirement
Plan
Contributions
($)
Group Term
Life
Insurance
($)
Company
Car
($)
Long-term
Care
Insurance
($)
Personal
Liability
Insurance
($)
Temporary/
Total
Disability
($)
Other
($)
Total
($)

F.M. Jaehnert

2012 195,835 2,925 18,966 5,141 2,654 23,760 4,855 254,136
2011 158,281 2,740 24,057 5,141 2,654 23,760 6,696 223,329
2010 61,923 3,042 28,070 5,141 2,654 23,760 3,000 127,590

T.J. Felmer

2012 72,759 478 24,761 3,737 -   -   4,076 105,811
2011 57,931 828 25,311 3,737 -   -   5,356 93,163
2010 27,157 713 29,995 3,737 -   -   3,640 65,242

A.J. Klotsche

2012 53,747 407 15,509 3,506 -   -   4,189 77,358
2011 53,191 709 14,606 3,506 -   -   5,135 77,148
2010 23,910 629 19,455 3,506 -   -   3,775 51,275

P.C. Sephton(4)

2012 57,231 12,156 32,508 4,967 -   -   2,624 109,486
2011 57,091 12,323 31,800 5,035 -   -   -   106,249
2010 85,162 12,114 30,944 4,950 -   -   -   133,170

M. O. Williamson

2012 67,001 471 15,188 5,501 -   -   4,332 92,492
2011 47,059 820 14,436 5,501 -   -   5,277 73,093
2010 27,648 724 16,422 5,501 -   -   3,400 53,695

(5)

The amounts in this table for Mr. Sephton, who works and lives in the United Kingdom, were paid to him in British Pounds. The amounts shown in U.S. dollars in the table above were converted from British Pounds at the average exchange rate for fiscal 2012: $1 =£0.6336, 2011: $1 = £0.6250, 2010: $1 = £0.6358.

Grants of Plan-Based Awards for 2012

The following table summarizes grants of plan-based awards made during fiscal 2012 to the named executive officers.

Grant Compensation
Committee Approval
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (1)

All Other

Option

Awards:

Number of

Securities

Under-

lying

Options

Exercise

or Base

Price of

Stock

or

Option

Awards

Options

Grant

Date Fair
Value

of

Stock and

Option

Awards

Name

Date Date Threshold ($) Target ($) Maximum ($) (#) (2)(3) (#) ($)

F.M. Jaehnert

8/1/2011 7/20/2011 -   800,000 1,600,000
8/1/2011 7/20/2011 -   -   -   130,000 29.55 1,300,954
9/30/2011 9/7/2011 -   -   -   90,000 27.00 785,774

T.J. Felmer

8/1/2011 7/20/2011 -   262,837 525,673
8/1/2011 7/20/2011 -   -   -   45,000 29.55 450,330
9/30/2011 9/7/2011 -   -   -   35,000 27.00 305,579

A.J. Klotsche

8/1/2011 7/20/2011 -   223,825 447,650
8/1/2011 7/20/2011 -   -   -   40,000 29.55 400,293
9/30/2011 9/7/2011 -   -   -   30,000 27.00 261,925

P.C. Sephton

8/1/2011 7/20/2011 -   252,870 505,741
8/1/2011 7/20/2011 -   -   -   40,000 29.55 400,293
9/30/2011 9/7/2011 -   -   -   30,000 27.00 261,925

M.O. Williamson

8/1/2011 7/20/2011 -   259,337 518,673
8/1/2011 7/20/2011 -   -   -   40,000 29.55 400,293
9/30/2011 9/7/2011 -   -   -   30,000 27.00 261,925

(1)

The awards were made under the Company's annual cash incentive plan. The structure of the plan is described in the Compensation Discussion and Analysis above. Award levels are set prior to the beginning of the fiscal year and payouts can range from 0 to 200 percent of the target.

(2)

The performance-based stock options granted on August 1, 2011 become exercisable in equal annual installments over a three-year period, with the vesting date being the date the Audit Committee accepts the results of the fiscal year audit confirming the achievement of annual 15 percent EPS growth. In the event the annual EPS growth goal is not achieved with respect to any fiscal year, the options may vest in full at the end of either fiscal 2013 or fiscal 2014 if the Corporation's Compounded Annual Growth Rate ("CAGR") for EPS over fiscal 2011 is 15 percent or more. These options have a term of ten years and were calculated using the grant date fair value.

(3)

The exercise price is the average of the high and low sale prices of the Company's Class A Common Stock as reported by the New York Stock Exchange on the date of the grant. The average of the high and low sale prices of the Company's Class A Common Stock as reported by the New York Stock Exchange on the grant dates was $29.55 per share on August 1, 2011 and $27.00 on September 30, 2011.

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Outstanding Equity Awards at 2012 Fiscal Year End

Option Awards (1) Stock Awards

Name

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price
($)
Option
Expiration  Date
Equity Incentive
Plan Awards;
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
(#)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)

F.M. Jaehnert

125,000 13.31 2/24/2013
72,000 17.33 11/20/2013
60,000 22.63 8/2/2014
60,000 28.84 11/18/2014
60,000 33.89 8/1/2015
50,000 37.83 11/30/2015
50,000 38.19 11/30/2016
50,000 38.31 12/4/2017
50,000 20.95 12/4/2018
56,667 70,833 (2)  29.78 8/3/2019
46,667 23,333 (3)  28.73 9/25/2019
33,334 116,666 (5)  28.35 8/2/2020
33,334 66,666 (6)  29.10 9/24/2020
130,000 (7)  29.55 8/1/2021
90,000 (9)  27.00 9/30/2021
50,000 (4)  1,326,500
100,000 (8)  2,653,000

T.J. Felmer

10,000 16.39 11/14/2012
10,000 17.33 11/20/2013
20,000 22.63 8/2/2014
30,000 28.84 11/18/2014
30,000 33.89 8/1/2015
25,000 37.83 11/30/2015
25,000 38.19 11/30/2016
25,000 38.31 12/4/2017
25,000 20.95 12/4/2018
23,334 29,166 (2)  29.78 8/3/2019
23,333 11,666 (3)  28.73 9/25/2019
11,667 40,833 (5)  28.35 8/2/2020
13,334 26,666 (6)  29.10 9/24/2020
45,000 (7)  29.55 8/1/2021
35,000 (9)  27.00 9/30/2021
35,000 (4)  928,550

A.J. Klotsche

10,000 16.39 11/14/2012
10,000 17.33 11/20/2013
30,000 22.63 8/2/2014
30,000 28.84 11/18/2014
30,000 33.89 8/1/2015
25,000 37.83 11/30/2015
25,000 38.19 11/30/2016
25,000 38.31 12/4/2017
25,000 20.95 12/4/2018
23,334 29,166 (2)  29.78 8/3/2019
23,334 11,666 (3)  28.73 9/25/2019
10,000 35,000 (5)  28.35 8/2/2020
11,667 23,333 (6)  29.10 9/24/2020
40,000 (7)  29.55 8/1/2021
30,000 (9)  27.00 9/30/2021
35,000 (4)  928,550

P.C. Sephton

14,000 17.33 11/20/2013
30,000 22.63 8/2/2014
30,000 28.84 11/18/2014
30,000 33.89 8/1/2015
25,000 37.83 11/30/2015
25,000 38.19 11/30/2016
25,000 38.31 12/4/2017
25,000 20.95 12/4/2018
23,334 29,166 (2)  29.78 8/3/2019
23,334 11,666 (3)  28.73 9/25/2019
10,000 35,000 (5)  28.35 8/2/2020
11,667 23,333 (6)  29.10 9/24/2020
40,000 (7)  29.55 8/1/2021
30,000 (9)  27.00 9/30/2021
35,000 (4)  928,550

M.O. Williamson

14,000 17.33 11/20/2013
30,000 22.63 8/2/2014
30,000 28.84 11/18/2014
30,000 33.89 8/1/2015
25,000 37.83 11/30/2015
25,000 38.19 11/30/2016
25,000 38.31 12/4/2017
25,000 20.95 12/4/2018
23,334 29,166 (2)  29.78 8/3/2019
23,334 11,666 (3)  28.73 9/25/2019
10,000 35,000 (5)  28.35 8/2/2020
11,667 23,333 (6)  29.10 9/24/2020
40,000 (7)  29.55 8/1/2021
30,000 (9)  27.00 9/30/2021
35,000 (4)  928,550

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(1)

Adjusted for a two-for-one stock split in the form of a 100% stock dividend, effective December 31, 2004.

(2)

Two-thirds of the options vest in equal annual installments over a three-year period, with the vesting date being the date the Audit Committee accepts the results of the fiscal year audit confirming the achievement of annual EPS growth levels. The remaining one-third of the options vest at plan year three depending upon the Corporation's EPS growth for fiscal 2012 over fiscal 2008 in comparison with other corporations in the S&P 600 Index.

(3)

The remaining options will vest on September 25, 2012.

(4)

Effective July 20, 2011, the Management Development & Compensation Committee of the Board of Directors of the Company approved an amendment to the granting agreement under which the Company issued performance-based restricted stock on January 8, 2008. Pursuant to the amendment, the shares will vest upon meeting a financial performance vesting requirement based upon the Company's EPS growth at either July 31, 2013 or July 31, 2014, provided that the senior executives remain employed through July 31, 2014.

(5)

Two-thirds of the shares vest in equal installments over a three-year period, with the vesting date being the date the Audit Committee accepts the results of the fiscal year audit confirming the achievement of annual EPS growth levels. The remaining one-third of the shares vest at plan year three depending upon the Company's EPS growth for fiscal 2013 over fiscal 2010 in comparison with other corporations in the S&P 600 Index.

(6)

One-half of the options vest on September 24, 2012 and the remaining options vest on September 24, 2013.

(7)

The performance-based stock options granted on August 1, 2011 become exercisable in equal annual installments over a three-year period, with the vesting date being the date the Audit Committee accepts the results of the fiscal year audit confirming the achievement of annual 15 percent EPS growth. In the event the annual EPS growth goal is not achieved with respect to any fiscal year, the options may vest in full at the end of either fiscal 2013 or fiscal 2014 if the Corporation's Compounded Annual Growth Rate ("CAGR") for EPS over fiscal 2011 is 15 percent or more.

(8)

Effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert, which included both a performance vesting requirement based upon earnings per share growth and a service vesting requirement prorated at July 31, 2013, July 31, 2014 and July 31, 2015.

(9)

One-third of the options vest on September 30, 2012, one-third of the options vest on September 30, 2013, and one-third of the options vest on September 30, 2014.

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Option Exercises for Fiscal 2012

The following table summarizes option exercises completed during fiscal 2012 to the named executive officers. No shares of restricted stock held by the named executive officers vested in fiscal 2012.

Option Awards

Name

Number of Shares
Acquired on
Exercise (#)
Value Realized
on Exercise ($)

F.M. Jaehnert

75,000 1,469,250

T.J. Felmer

8,000 96,462

A.J. Klotsche

5,400 68,284

P.C. Sephton

None None

M.O. Williamson

7,500 124,594

Non-Qualified Deferred Compensation for Fiscal 2012

The following table summarizes the activity within the Executive Deferred Compensation Plan and the Brady Restoration Plan during fiscal 2012 for the named executive officers.

Name

Executive
Contributions  in
Last Fiscal Year
($)
Registrant
Contributions  in
Last Fiscal Year
($)
Aggregate
Earnings  in
Last Fiscal Year
($)
Aggregate
Withdrawals/
Distributions
($)
Aggregate
Balance at
Last Fiscal Year
End ($)

F.M. Jaehnert

88,533 176,035 (170,018 -   3,939,233

T.J. Felmer

299,654 51,960 88,265 -   1,772,218

A.J. Klotsche

19,829 33,548 (7,735 -   484,314

P.C. Sephton

-   -   -   -   -  

M.O. Williamson

115,837 46,689 3,198 -   879,143

See discussion of the Company's nonqualified deferred compensation plan in the Compensation Discussion and Analysis. The executive contribution amounts reported here are derived from the salary and non-equity incentive plan compensation columns of the Summary Compensation Table. The registrant contribution amounts reported here are reported in the all other compensation columns of the Summary Compensation Table.

Potential Payments Upon Termination or Change in Control

As described in the Employment and Change of Control Agreements section of the Compensation Discussion and Analysis above, the Company has entered into change of control agreements with each of the named executive officers. The terms of the change of control agreement are triggered if, within a 24 month period beginning with the date a change of control occurs, (i) the executive's employment with the Company is involuntarily terminated other than by reason of death, disability or cause or (ii) the executive's employment with the Company is voluntarily terminated by the executive subsequent to (a) any reduction in the total of the executive's annual base salary, exclusive of fringe benefits, and the executive's target bonus in comparison with the executive's annual base salary and target bonus immediately prior to the date the change of control occurs, (b) a significant diminution in the responsibilities or authority of the executive in comparison with the executive's responsibility and authority immediately prior to the date the change of control occurs, or (c) the imposition of a requirement by the Company that the executive relocate to a principal work location more than 50 miles from the executive's principal work location immediately prior to the date the change of control occurs.

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Following termination due to a change in control, executives shall be paid a multiplier of their annual base salary in effect immediately prior to the date the change of control occurs, plus a multiplier of their average bonus payment received over a three-year period prior to the date the change of control occurs. The Company will also reimburse the executive for any excise tax incurred by the executive as a result of Section 280(G) of the Internal Revenue Code. The Company will also reimburse a maximum of $25,000 of legal fees incurred by the executive in order to enforce the change of control agreement, in which the executive prevails.

The following information and tables set forth the amount of payments to each named executive officer in the event of termination of employment as a result of a change of control. No other employment agreements have been entered into between the Company and any of the named executive officers.

Assumptions and General Principles.

The following assumptions and general principles apply with respect to the tables that follow in this section.

The amounts shown in the tables assume that each named executive officer terminated employment on July 31, 2012. Accordingly, the tables reflect amounts earned as of July 31, 2012, and include estimates of amounts that would be paid to the named executive officer upon the occurrence of a change in control. The actual amounts that would be paid to a named executive officer can only be determined at the time of termination.

The tables below include amounts the Company is obligated to pay the named executive officer as a result of the executed change in control agreement. The tables do not include benefits that are paid generally to all salaried employees or a broad group of salaried employees. Therefore, the named executive officers would receive benefits in addition to those set forth in the tables.

A named executive officer is entitled to receive base salary earned during his term of employment regardless of the manner in which the named executive officer's employment is terminated. As such, this amount is not shown in the tables.

Frank M. Jaehnert

The following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2012 and the named executive officer had to legally enforce the terms of the agreement.

Base Salary ($)(1)

Bonus ($) (2) Restricted Stock
Award  Acceleration
Gain $(3)
Stock  Option
Acceleration
Gain $ (4)
Excise Tax
Reimbursement
($)
Legal Fee
Reimbursement
($) (5)
Total ($)

2,400,000

2,826,439 3,979,500 -   1,690,977 25,000 10,921,916

(1)

Represents three times the base salary in effect at July 31, 2012.

(2)

Represents three times the average bonus payment received in the last three fiscal years ended July 31.

(3)

Represents the closing market price of $26.53 on 150,000 unvested awards that would vest due to the change in control.

(4)

There are no unvested stock options that are in-the-money based upon the closing market price of $26.53 at July 31, 2012.

(5)

Represents the maximum reimbursement of legal fees allowed.

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Thomas J. Felmer

The following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2012 and the named executive officer had to legally enforce the terms of the agreement.

Base Salary ($)(1)

Bonus ($) (2) Restricted Stock
Award  Acceleration
Gain $(3)
Stock  Option
Acceleration
Gain $ (4)
Excise Tax
Reimbursement
($)
Legal Fee
Reimbursement
($) (5)
Total ($)

755,000

446,415 928,550 -   340,435 25,000 3,068,951

(1)

Represents two times the base salary in effect at July 31, 2012.

(2)

Represents two times the average bonus payment received in the last three fiscal years ended July 31.

(3)

Represents the closing market price of $26.53 on 35,000 unvested awards that would vest due to the change in control.

(4)

There are no unvested stock options that are in-the-money based upon the closing market price of $26.53 at July 31, 2012.

(5)

Represents the maximum reimbursement of legal fees allowed.

Allan J. Klotsche

The following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2012 and the named executive officer had to legally enforce the terms of the agreement.

Base Salary ($)(1)

Bonus ($) (2) Restricted Stock
Award  Acceleration
Gain $(3)
Stock  Option
Acceleration
Gain $ (4)
Excise Tax
Reimbursement
($)
Legal Fee
Reimbursement
($) (5)
Total ($)

643,000

353,690 928,550 -   321,487 25,000 2,710,042

(1)

Represents two times the base salary in effect at July 31, 2012.

(2)

Represents two times the average bonus payment received in the last three fiscal years ended July 31.

(3)

Represents the closing market price of $26.53 on 35,000 unvested awards that would vest due to the change in control.

(4)

There are no unvested stock options that are in-the-money based upon the closing market price of $26.53 at July 31, 2012.

(5)

Represents the maximum reimbursement of legal fees allowed.

Peter C. Sephton

The following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2012 and the named executive officer had to legally enforce the terms of the agreement.

Base Salary ($)(1)

Bonus ($) (2) Restricted Stock
Award  Acceleration
Gain $(3)
Stock  Option
Acceleration
Gain $ (4)
Excise Tax
Reimbursement
($)
Legal Fee
Reimbursement
($) (5)
Total ($)

726,038

264,815 928,550 -   249,726 25,000 2,541,830

(1)

Represents two times the base salary in effect at July 31, 2012. As Mr. Sephton works and lives in the United Kingdom, his base salary is paid to him in British Pounds. The amount shown in U.S. dollars was converted from British Pounds at the average fiscal 2012 exchange rate: $1 = £0.6336.

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(2)

Represents two times the average bonus payment received in the last three fiscal years ended July 31.

(3)

Represents the closing market price of $26.53 on 35,000 unvested awards that would vest due to the change in control.

(4)

There are no unvested stock options that are in-the-money based upon the closing market price of $26.53 at July 31, 2012.

(5)

Represents the maximum reimbursement of legal fees allowed.

Matthew O. Williamson

The following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2012 and the named executive officer had to legally enforce the terms of the agreement.

Base Salary ($) (1)

Bonus ($) (2) Restricted Stock
Award  Acceleration
Gain $ (3)
Stock  Option
Acceleration
Gain $ (4)
Excise Tax
Reimbursement
($)
Legal Fee
Reimbursement
($) (5)
Total ($)

745,000

348,483 928,550 -   334,174 25,000 2,842,035

(1)

Represents two times the base salary in effect at July 31, 2012

(2)

Represents two times the average bonus payment received in the last three fiscal years ended July 31.

(3)

Represents the closing market price of $26.53 on 35,000 unvested awards that would vest due to the change in control.

(4)

There are no unvested stock options that are in-the-money based upon the closing market price of $26.53 at July 31, 2012.

(5)

Represents the maximum reimbursement of legal fees allowed.

Potential Payments Upon Termination Due to Death or Disability

In the event of termination due to death or disability, all unexercised, unexpired stock options would immediately vest and all restricted stock awards would immediately become unrestricted and fully vested. The following table shows the amount payable to the named executive officers should this event occur on July 31, 2012.

Name

Unvested Shares
of Restricted
Stock
as of
July 31, 2012
Restricted Stock
Award  Acceleration
Gain $ (1)
Unvested  Stock
Options
In-the
Money as of
July 31, 2012
Stock  Option
Acceleration
Gain $ (2)

F.M. Jaehnert

150,000 3,979,500 -   -  

T.J. Felmer

35,000 928,550 -   -  

A.J. Klotsche

35,000 928,550 -   -  

P.C. Sephton

35,000 928,550 -   -  

M.O. Williamson

35,000 928,550 -   -  

(1)

Represents the closing market price of $26.53 on unvested awards that would vest due to the change in control.

(2)

There are no unvested stock options that are in-the-money based upon the closing market price of $26.53 at July 31, 2012.

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Compensation of Directors

To ensure competitive compensation for the Directors, surveys prepared by various consulting firms and the National Association of Corporate Directors are reviewed by the Corporate Governance Committee and the Management Development and Compensation Committee in making recommendations to the Board of Directors regarding Director compensation. Directors who are employees of the Company receive no additional compensation for service on the Board or on any committee of the Board. The annual cash retainer paid to non-management Directors is $45,000. The remaining components of Director compensation include $10,000 for each committee chair ($15,000 for the Audit Committee Chair) and $1,500 plus expenses for each meeting of the Board or any committee thereof, which they attend and are a member or $1,000 for single issue telephonic committee meetings of the Board. Directors also receive $1,000 for each meeting they attend of any committee of which they are not a member. In addition, non-management Directors are eligible to receive compensation of up to $1,000 per day for special assignments required by management or the Board of Directors, so long as the compensation does not impair independence and is approved as required by the Board.

On September 9, 2011, the Corporation's Board of Directors authorized an increase in compensation paid to its non-management Directors. Effective with the annual Board of Directors meeting to be held on November 17, 2011, the annual committee chair fees increased from $6,000 to $10,000 for each of the Chairs of the Management Development and Compensation, Corporate Governance, Finance, and Technology Committees and from $10,000 to $15,000 for the Chair of the Audit Committee.

On November 19, 2011, the Board of Directors of the Corporation, upon the recommendation of its Corporate Governance Committee, increased the annual Lead Independent Director fee from $15,000 to $46,500, consistent with the evolving role of independent board leadership and the enhanced responsibilities of the position. Mr. Chan Galbato was appointed Lead Independent Director on November 19, 2011, and is currently serving in that position.

By unanimous written consent effective September 26, 2011, the holders of the Company's Class B Common Stock approved the Brady Corporation 2012 Omnibus Incentive Stock Plan (the "2012 Omnibus Plan"). Under the terms of the 2012 Omnibus Plan, pursuant to which 5,500,000 shares of the Company's Class A Common Stock have been authorized for issuance, the Board has full and final authority to designate the non-management Directors to whom awards will be granted, the date on which awards will be granted and the number of shares of stock covered by each grant.

On September 9, 2011, the Board approved an annual stock-based compensation award of 4,250 time-based stock options (having a grant date fair value of $8.92 per share) and 1,250 unrestricted shares of Class A Common Stock (having a grant date fair value of $26.43 per share), for each non-management Director effective September 30, 2011.

Directors are also eligible to defer portions of their fees into the Brady Corporation Director Deferred Compensation Plan ("Director Deferred Compensation Plan"), the value of which is measured by the fair value of the underlying investments. On September 9, 2011, the Board approved an amendment to the Director Deferred Compensation Plan to incorporate rules for the deferral of compensation payable in the form of Brady Corporation common stock. The assets of the Director Deferred Compensation Plan are held in a Rabbi Trust and are invested by the trustee as directed by the participant in several investment funds as permitted by the Director Deferred Compensation Plan. The investment funds available in the Director Deferred Compensation Plan include Brady Corporation Class A Nonvoting Common Stock and various mutual funds that are provided in the Employee 401(k) Plan.

At least one year prior to termination from the Board, the Director must elect whether to receive his/her account balance following termination in a single lump sum payment or by means of distribution under an Annual Installment Method. If the Director does not submit an election form or has not submitted one timely, then payment shall be made each year for a period of ten years. The first payment must be one-tenth of the balance held; the second one-ninth; and so on, with the balance held in the Trust reduced by each payment. Distributions of the Company Class A Nonvoting Common Stock are made in-kind; distributions of other assets are in cash.

Effective January 1, 2008, the Director Deferred Compensation Plan was amended and restated to comply with the provisions of Section 409A of the Internal Revenue Code.

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Director Compensation Table - Fiscal 2012

Name

Fees Earned
or Paid in
Cash ($)
Option
Awards ($)  (1)
Stock
Awards ($)  (2)
Total ($)

Patrick W. Allender

114,000 37,910 33,038 184,948

Gary S. Balkema

89,250 37,910 33,038 160,198

Chan W. Galbato

150,250 37,910 33,038 221,198

Conrad G. Goodkind

109,500 37,910 33,038 180,448

Frank W. Harris

89,500 37,910 33,038 160,448

Elizabeth P. Pungello

80,500 37,910 33,038 151,448

Bradley C. Richardson

113,500 37,910 33,038 184,448

(1)

Represents the grant date fair value computed in accordance with accounting guidance for equity grants made in fiscal 2012 for time-based stock options. The assumptions used to determine the value of the option awards, including the use of the Black-Scholes method of valuation by the Company, are discussed in Note 1 of the Notes to Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K for the fiscal year ended July 31, 2012.

The actual value, if any, which an option holder will realize upon the exercise of an option will depend on the excess of the market value of the Company's common stock over the exercise price on the date the option is exercised, which cannot be forecasted with any accuracy. Outstanding option awards at July 31, 2012 for each individual serving as a director on that date include the following: Ms. Pungello, 58,500 shares; Mr. Harris, 58,500 shares; Mr. Galbato, 44,500 shares; Mr. Allender, 44,500 shares; Mr. Goodkind, 44,500 shares; Mr. Richardson, 38,500 shares; and Mr. Balkema, 24,100.

(2)

Represents the fair value of shares of Brady Corporation Class A Non-Voting Common Stock granted in fiscal 2012 as compensation for their services. The shares were valued at the closing market price of $26.43 on September 30, 2011, the date of grant.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a) Security Ownership of Certain Beneficial Owners

The following table sets forth the current beneficial ownership of shareholders who are known by the Company to own more than five percent (5%) of any class of the Company's voting shares on August 15, 2012. As of that date, nearly all of the voting stock of the Company was held by two trusts controlled by direct descendants of the Company's founder, William H. Brady, as follows:

Title of Class

Name and Address of Beneficial Owner

Amount of
Beneficial
Ownership
Percent of
Ownership(2)

Class B Common Stock

EBL GST Non-Exempt Stock B Trust(1)

1,769,304 50

c/o Elizabeth P. Pungello

2002 S. Hawick Ct.

Chapel Hill, NC 27516

William H. Brady III Revocable Trust of 2003(3)

1,769,304 50

c/o William H. Brady III

249 Rosemont Ave.

Pasadena, CA 91103

(1)

The trustee is Elizabeth P. Pungello, who has sole voting and dispositive power and who is the remainder beneficiary. Elizabeth Pungello is the great-granddaughter of William H. Brady and currently serves on the Company's Board of Directors.

(2)

An additional 20 shares are owned by a third trust with different trustees.

(3)

William H. Brady III is special trustee of this trust and has sole voting and dispositive powers with respect to these shares. William H. Brady III is the grandson of William H. Brady.

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(b) Security Ownership of Management

The following table sets forth the current beneficial ownership of each class of equity securities of the Company by each Director or Nominee and by all Directors and Officers of the Company as a group as of July 31, 2012. Unless otherwise noted, the address for each of the listed persons is c/o Brady Corporation, 6555 West Good Hope Road, Milwaukee, Wisconsin 53223. Except as otherwise indicated, all shares are owned directly.

Title of Class

Name of Beneficial Owner & Nature of Beneficial Ownership

Amount of
Beneficial
Ownership(4)
Percent of
Ownership

Class A Common Stock

Elizabeth P. Pungello(1)

1,351,812 2.8

Frank M. Jaehnert(2)

955,712 2.0

Peter C. Sephton

337,068 0.7

Thomas J. Felmer

324,739 0.7

Matthew O. Williamson

310,499 0.6

Allan J. Klotsche

312,710 0.6