Brady Corp (BRC) SEC Annual Report (10-K) for 2013

For the transition period from                    to                    

Commission file number 1-14959

(Exact name of registrant as specified in charter)

(414) 358-6600

(Registrant's telephone number, including area code)

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

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   ý     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   ý

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   ý     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   ý     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):

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

The aggregate market value of the non-voting common stock held by non-affiliates of the registrant as of January 31, 2013, was approximately $1,441,914,982 based on closing sale price of $34.89 per share on that date as reported for the New York Stock Exchange. As of September 24, 2013, there were 48,561,004 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.

INDEX

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 a global manufacturer and supplier of identification solutions, specialty materials, and workplace safety products 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:

In fiscal 2013, we made significant portfolio changes to better align the Company for growth in the future. These changes were a meaningful shift from the more volatile a nd less profitable consumer electronics die-cut business, to an expansion of our core Identification Solutions ("ID Solutions" or "IDS") business to focus on markets with long-term growth trends. In our WPS business, our strategy to return to growth includes a focus on workplace safety critical industries in addition to increased investment in e-commerce expertise.

Key initiatives supporting the strategy in fiscal 2013 included:

In the third quarter of fiscal 2013, the Company announced its plan to divest its Asia Die-Cut business. This is a part of the Company's ongoing efforts to shift its portfolio of businesses to less volatile industries that are supported by positive macro-economic trends. The Asia Die-Cut business platform primarily consists of the sale of high performance products such as gaskets, meshes, heat dissipation materials, antennae, dampers, filters, and similar products sold in the electronics industries, including the mobile handset and hard-disk drive industries. The Company included its Europe-based Die-Cut business, Balkhausen, into the Asia Die-Cut disposal group in the fourth quarter of fiscal 2013. The Balkhausen business consists of the sale of traditional die-cut parts and thermal management products mainly used in the automotive electronics and telecommunications markets. The criteria for classifying the assets and liabilities as held for sale was met in the third quarter of fiscal 2013 for the Asia Die-cut business and the fourth quarter of fiscal 2013 for the Balkhausen business. The assets and liabilities of these businesses are classified as held for sale in the consolidated balance sheet as of July 31, 2013.

The operating results of the Asia Die-Cut and Balkhausen businesses were reflected as discontinued operations in the consolidated statements of earnings for the years ended July 31, 2013, 2012 and 2011. In addition, the following previously divested businesses were reported within discontinued operations: Brady Medical and Varitronics (divested in fiscal 2013), Etimark (divested in fiscal 2012) and Teklynx (divested in fiscal 2011). These divested businesses were part of the IDS business platform.

(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. The financial information contained in Note 7 has been restated to reflect the realignment of the Company's reportable segments implemented in the fourth quarter of fiscal 2013.

(c) Narrative Description of Business

Overview

Effective May 1, 2013, the Company is organized and managed on a global basis within two business platforms: Identification Solutions and Workplace Safety, which are the reportable segments. Prior to May 1, 2013, the Company was organized and managed on a geographic basis within three regions: Americas, EMEA (Europe, the Middle East and Africa), and Asia-Pacific. As such, all segment-related data has been conformed to the new reportable segments.

The IDS segment consists of high-performance and innovative identification and healthcare products that are manufactured internally under the Brady brand, and are primarily sold through distribution to a broad range of MRO and OEM customers.

The WPS segment consists of workplace safety and compliance products, which are sold under multiple brand names through catalog and e-business to a broad range of MRO customers. Approximately half of the business is resale product and half is manufactured internally.

Below is a summary of sales by reportable segments for the fiscal years ended July 31:

ID Solutions

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

More than 75% of ID Solutions products are sold under the Brady brand. In the United States, identification products for the utility industry are marketed under the Electromark brand; spill-control products are marketed under the SPC brand; security and identification badges and systems are marketed in the B.I.G., Identicard/Identicam, STOPware, PromoVision, and Brady People ID brands; and wire identification products are marketed under the Modernotecnica brand in Italy. Lockout/tagout products are offered under the Scafftag brand in the U.K. Custom labels and nameplates are available under the Stickolor brand in Brazil; and identification and patient safety products in the healthcare industry and custom wristbands for the leisure and entertainment industry are available under the PDC Innovative brand.

The ID Solutions platform offers high quality innovative 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, catalog marketing, and the Internet. The businesses' sales force partners with end-users and distributors by providing technical application and product expertise.

ID Solutions serves OEM and MRO customers in many industries, which include industrial manufacturing, electronic manufacturing, healthcare, chemical, oil, gas, food and beverage, aerospace, defense, mass transit, electrical contractors, leisure and entertainment and telecommunications, among others.

The ID Solutions platform manufactures differentiated, proprietary products, most of which have been internally developed. These internally developed products include materials, printing systems, and software. IDS 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 is highly fragmented, ranging from smaller companies offering minimal product variety, to some of the world's largest major adhesive and electrical product companies offering competing products as part of their overall product lines.

Workplace Safety

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

Products within the Workplace Safety platform are sold under a variety of brands including: safety and facility identification products offered under the Seton, Emedco, Signals, Personnel Concepts, Safety Signs Service and Pervaco brands; first aid supplies under the Accidental Health and Safety, Trafalgar, and Securimed brands; industrial, office equipment under the Runelandhs brand; and wire identification products marketed under the Carroll brand.

Workplace Safety markets and sells products through multiple channels, including catalog, telemarketing and e-commerce. The business serves customers in many industries, including process industries, manufacturers, government, education, construction, and utilities.

The Workplace Safety platform manufactures a broad range of stock and custom identification products, and also sells a broad range of related resale products. Historically, both the Company and many of our competitors focused their businesses on direct marketing, often with varying product niches. However, the competitive landscape is changing with the evolution of e-commerce channels. Many of our competitors extensively utilize e-commerce to promote the sale of their products. A consequence of this shift is price transparency, as prices on non-proprietary 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.

Discontinued Operations

The Company announced its plan to divest its Asia Die-Cut business during the three months ended April 30, 2013, and incorporated its Balkhausen business into that plan during the three months ended July 31, 2013. As such, the assets and liabilities of these businesses were classified as held for sale in the consolidated balance sheet as of July 31, 2013. The operating results of the Asia Die-Cut and Balkhausen businesses were reflected as discontinued operations in the consolidated statements of earnings for the years ended July 31, 2013, 2012 and 2011. In addition, the following previously divested businesses were reported within discontinued operations: Brady Medical and Varitronics (divested in fiscal 2013), Etimark (divested in fiscal 2012) and Teklynx (divested in fiscal 2011). These divested businesses were part of the IDS business platform.

The Die-Cut business produces customized precision die-cut products used to seal, dissipate heat, insulate, protect, shield, or provide other mechanical performance properties. Products within the Die-Cut business 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 business serves customers in many industries, including mobile handset, hard disk drive, consumer electronics, and other computing devices, as well as products for the automotive and medical equipment industries.

Research and Development

The Company focuses its research and development ("R&D") efforts on pressure sensitive materials, printing systems and software, and it mainly supports the IDS segment. 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. In addition, the research and development team supports production and marketing efforts by providing application and technical expertise, which creates a competitive advantage through new product innovation for the Company that enables long-term organic sales growth and strong gross margin improvement.

The Company owns patents and tradenames relating to certain products in the United States and internationally. Although the Company believes that patents are a significant driver in maintaining its position for certain products, technology in the areas covered by many of the patents continues to evolve and may limit the value of such patents. The Company's business is not dependent on any single patent or group of patents. Patents applicable to specific products extend for up to 20 years according to the date of patent application filing or patent grant, depending upon the legal term of patents in the various countries where patent protection is obtained. The Company's tradenames are valid ten years from the date of registration, and are typically renewed on an ongoing basis.

The Company spent approximately $33.6 million , $34.5 million , and $38.3 million during the fiscal years ended July 31, 2013 , 2012 , and 2011 , respectively, on its R&D activities related to continuing operations. The reduction in R&D spending in 2013 was primarily due to the consolidation of the product management office, which reduced costs while streamlining processes globally. In addition, variable incentive compensation was lower in fiscal 2013 compared to fiscal 2012. As of July 31, 2013, 188 employees were engaged in research and development activities for the Company.

Operations

The materials used in the products manufactured consist primarily of a variety of plastic and synthetic films, paper, metal and metal foil, cloth, fiberglass, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers, and solvents for consumable identification products in addition to electronic components, molded parts and sub-assemblies for printing systems. The Company operates 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 we believe any 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 45 manufacturing or distribution facilities globally.

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 product is maintained to provide customers with timely delivery. Normal and customary payment terms range from net 30 to 90 days from date of invoice and varies by geographies.

The Company has a broad customer base, and no individual customer is 5% or more of total net sales. Sales to governmental customers represent an immaterial amount of the business.

Average delivery time for customer 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 significant 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 2013 did not have a material impact on the Company's business, financial condition or results of operations.

Employees

As of July 31, 2013 , the Company employed approximately 7,400 individuals. Brady has never experienced a material work stoppage due to a labor dispute and considers its relations with employees to be good.

(d) 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.

(e) 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.

Business Risks

Failure to successfully implement our Workplace Safety strategy, or if successfully implemented, failure to realize the benefits expected from the strategy, may adversely affect our business, sales, results of operations, cash flow and liquidity.

In fiscal 2013, the Workplace Safety platform represented 36.3% of our total sales from continuing operations. Throughout the last two fiscal years, this platform has experienced deterioration in sales and profits due to increased competition and pricing pressure. An increasing number of customers are purchasing products on the Internet instead of through traditional direct marketing channels such as catalogs. The Company's strategy to grow this business includes: investing to improve e-commerce capabilities, pricing structure changes, and the expansion of products offered. There is a risk that the Company will not successfully implement this strategy, or if successfully implemented, not realize its expected benefits, due to the continued levels of increased competition and pricing pressure brought about by the Internet. There is also a risk that the Company may not be able to reverse the downward trends in this business and return the segment to historic levels of sales and profits. If these risks materialize, their effects could adversely impact our business, sales, results of operations, cash flow and liquidity.

Deterioration of or instability in the global economy and financial markets may adversely affect our business, sales, results of operations, cash flow and liquidity.

Our business and operating results have been and will continue to be affected by global economic conditions. In fiscal 2013, sales were negatively impacted by the recession in Europe and Australia. 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. Our sensitivity to economic cycles and any related fluctuations in the businesses of our customers or potential customers could have a material adverse impact on our sales, results of operations, cash flow and liquidity.

Demand for our products may be adversely affected by numerous factors, some of which we cannot predict or control. This could adversely affect our sales, results of operations, cash flow and liquidity.

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

• 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

If any of these factors occur, the demand for our products could suffer, and this could adversely impact our sales, results of operations, cash flows and liquidity.

Price reductions or additional costs may need to be incurred to remain competitive in certain industries, which could have a negative impact on sales, profitability, results of operations, cash flow and liquidity.

We face substantial competition through the Internet in our entire business, but particularly within the Workplace Safety segment. Competition may force us to reduce prices or incur additional costs to remain competitive. We compete on the basis of price, customer support, product innovation, product offering, product quality, production capabilities, and for multinational customers, our global footprint. Present or future competitors may accept lower profit, have greater financial, technical or other resources, lower production costs or other pricing advantages, any of which could put us at a disadvantage by threatening our share of sales or reducing our profit margins, which would adversely impact our results of operations, cash flow and liquidity. 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 sales, results of operations, cash flows, and liquidity.

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

While we have a broad customer base and no individual customer represents 5% or more of total sales, we conduct business with several large customers and distribution companies. Our dependence on these 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, 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 adverse impact on our sales, results of operations, cash flows, and liquidity.

Divestitures could negatively impact our business and contingent liabilities from divested businesses could adversely affect our results of operations, cash flow and liquidity.

We continually assess the strategic fit of our existing businesses and may divest businesses that we determine do not align with our strategic plan, or that are not achieving the desired return on investment. For example, over the last three fiscal years, we have divested our Teklynx, Etimark, Brady Medical, and Varitronics businesses, and have announced plans to divest our Asia Die-Cut and Balkhausen businesses. Divestitures pose risks and challenges that could negatively impact our business. For example, when we decide to sell a business or assets, we may be unable to do so on satisfactory terms and within our anticipated time-frame, and even after reaching a definitive agreement to sell a business the sale is typically subject to satisfaction of pre-closing conditions which may not be satisfied. In addition, the impact of the divestiture on our revenue and net earnings may be larger than projected, which could distract management, and disputes may arise with buyers. In addition, we have retained responsibility for and have agreed to indemnify buyers against some contingent liabilities related to a number of businesses that we have recently sold. The resolution of these contingencies has not had a material adverse impact on our results of operations, cash flow and liquidity, but we cannot be certain that this favorable pattern will continue.

Inability to identify, complete and integrate acquisitions may adversely impact our sales, results of operations, cash flow and liquidity.

Our historical growth has included acquisitions, and our future growth strategy includes acquisition opportunities. For example, in fiscal 2013 the Company acquired Precision Dynamics Corporation ("PDC"), a manufacturer of identification products primarily for the healthcare sector, for $301.2 million. 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 desired financial or operational success. Our financial condition, cash flows, liquidity and results of operations 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.

Failure to successfully complete restructuring plans may adversely impact our sales, results of operations, cash flow and liquidity.

We continue to implement measures to reduce our cost structure, simplify our business structure and standardize our processes. Successful implementation of such initiatives is critical to our future competitiveness and to improve profitability. These actions include reorganization of the Company along global product lines, a restructuring of the global workforce, consolidation of facilities, reorganization and restructuring of resources and standardization of business systems, which impact all functions of the Company. Facility consolidations will result in a higher concentration of operations in certain locations. Risks include customer acceptance of these changes, inability to implement standard processes and systems, resource allocation among competing priorities, employee disruption and turnover, inability to manufacture and supply products in the event of a material casualty event at one of our principal facilities and additional charges related to these actions. These actions to reduce our cost structure and the charges related to these actions could have a material adverse impact on our sales, results of operations, cash flows and liquidity.

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

Approximately 50% 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, results of operations, cash flow and liquidity.

We depend on key employees and the loss of these individuals could have an adverse affect on our operations.

Our success depends to a large extent upon the continued services of our key executives, managers and other skilled employees. We cannot ensure that we will be able to retain our key officers, managers and employees. The departure of our key personnel without adequate replacement could disrupt our business operations. Additionally, we need qualified managers and skilled employees with technical and industry experience to operate our business successfully. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations could be materially adversely affected.

International operations are subject to various U.S. or country-specific regulations which could adversely affect our sales, results of operations, cash flow and liquidity.

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

These events could have an adverse effect on our operations by reducing the demand, decreasing prices, or increasing costs for our products, which could adversely impact our financial condition and results of operations, cash flow and liquidity.

Failure to develop new products or gain acceptance of new products could adversely impact our sales, results of operations, cash flow and liquidity .

Development of proprietary products is a driver of core growth and reasonable gross profit margins both currently and in the future, particularly within our ID Solutions segment. 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 customers do not accept our new products, then our sales, 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 our customers. 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 sales, results of operations, cash flow and liquidity.

Failure to comply with laws and regulations could adversely affect our financial condition, results of operations, cash flow, 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:

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

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 adversely impact our results of operations, cash flow and liquidity and damage our reputation.

Computer systems and technology may be susceptible to cyber threats which could adversely impact results of operations, cash flow and liquidity.

Our exposure to cyber-security threats is growing as we expand and increase our reliance on computers and e-commerce 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.

Product liability claims could adversely impact our financial condition, results of operations, cash flows, and reputation.

Our business exposes us to potential product liability risk, as well as warranty and recall claims that are inherent in the design, manufacture, sale and use of our products, including our healthcare products. We have not to date incurred material costs related to these claims. However, in the event our products actually or allegedly fail to perform as expected and we are subject to such claims above the amount of insurance coverage, our financial condition, results of operations and cash flows, as well as our reputation, could be materially and adversely affected.

Financial/Ownership Risks

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

We have goodwill of $617.2 million and other intangible assets of $156.9 million as of July 31, 2013 , which represents 54% of our total assets. During fiscal 2013, we recorded impairment charges of $204.4 million primarily related to goodwill in the WPS Americas and IDS APAC reporting units. In fiscal 2012, we recorded impairment charges of $115.7 million related to the former North/South Asia reporting unit, which is now included in discontinued operations. 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 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 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 that differ 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/or 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. For example, in fiscal 2013 we repatriated cash to the U.S. in connection with the acquisition of PDC, which resulted in a tax charge of $26.6 million.

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

Substantially all of our voting stock is controlled by Elizabeth P. Pungello, one of the Directors, and William H. Brady III, both of whom are descendants of the Company's founder. All of our publicly traded shares are non-voting. Therefore, Ms. Pungello and Mr. Brady have control in most matters requiring approval or acquiescence by shareholders, including the composition of our Board of Directors and many corporate actions.  Such concentration of ownership may discourage a potential acquirer from making a purchase offer that our public shareholders may find favorable, which in turn could adversely affect the market price of our common stock or prevent our shareholders from realizing a premium over our stock price.  Furthermore, this concentration of voting share ownership may adversely affect the trading price for our non-voting common stock because investors may perceive disadvantages in owning stock in companies whose voting stock is controlled by a limited number of shareholders.

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

As of July 31, 2013, we had $313 million in outstanding indebtedness. In addition, based on the availability under our credit facilities as of July 31, 2013, we had the ability to incur an additional $411 million under our revolving credit agreement. Our current revolving credit agreement and long-term debt obligations also impose certain restrictions on us. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations ("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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company currently operates 45 manufacturing or distribution facilities across the globe and are split by reporting segment as follows:

IDS: Thirty-one facilities are used for our IDS business. Ten of which are located within the United States; four each are located in Belgium and Mexico; three in the United Kingdom; two each in Brazil and China; and one each in Canada, Italy, Hong Kong, Japan, Malaysia, and Singapore.

WPS: Fourteen facilities are used for our WPS business. Three of which are located in France; two each are located in Australia, Germany, and the United States; and one each in Belgium, the Netherlands, Poland, Sweden, and the United Kingdom.

The Company's present operating facilities contain a total of approximately 2.5 million square feet of space, of which approximately 1.5 million square feet is leased. The Company believes that its equipment and facilities are modern, well maintained, and adequate for present needs.

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.

PART II

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

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:

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

As of September 24, 2013 , there were 955 Class A Common Stock shareholders of record and approximately 6,550 beneficial shareholders. There are three Class B Common Stock shareholders.

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. As of July 31, 2012, there remained 334,940 shares to purchase in connection with this share repurchase plan.

On September 6, 2012, the Company's Board of Directors authorized an additional share repurchase program for up to two million additional shares of the Company's Class A Nonvoting Common Stock. During the three months ended October 31, 2012, the Company purchased 188,167 shares of its Class A Nonvoting Common Stock under this plan for $5.1 million . There were no additional shares repurchased during the remainder of the fiscal year. As of July 31, 2013 , there remained 2,146,773 shares to purchase in connection with both repurchase plans.

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.

During the two most recent fiscal years and for the first quarter of fiscal 2014 , the Company declared the following dividends per share on its Class A and Class B Common Stock for the years ended July 31:

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, 2008, 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

Copyright (C) 2013, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.

Item 6. Selected Financial Data

CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATA

Years Ended July 31, 2009 through 2013

discontinued operations. Refer to Note 13 within Item 8 for further information on discontinued operations. The operating data is also impacted by the acquisitive nature of the Company as one, three, one, and three acquisitions were completed in fiscal years ended July 31, 2013, 2012, 2011, and 2010, respectively. There were no acquisitions during fiscal 2009. Refer to Note 2 within Item 8 for further information on the acquisitions that were completed.

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

Overview

In fiscal 2013, the Company posted sales of $1,152.1 million and a net loss from continuing operations of $140.8 million . Sales increased by 7.8% from fiscal 2012. Organic sales decreased by 2.6%, currency fluctuations decreased sales by 0.9% and acquisitions (primarily PDC) increased sales by 11.3%. Fiscal 2013 sales growth was driven by the ID Solutions segment which grew by 15.7% from 2012 to 2013, primarily due to acquisitions, which was partially offset by the decline in sales in the Workplace Safety segment of 3.7%.

The fiscal 2013 net loss from continuing operations of $140.8 million was primarily due to non-cash impairment charges of $204.4 million and restructuring charges of $26.0 million .

The fiscal 2013 operating loss from continuing operations was $85.6 million . Excluding the impairment charges of $204.4 million and restructuring charges of $26.0 million , the Company generated operating income from continuing operations of $144.9 million for fiscal 2013. Fiscal 2012 operating income from continuing operations was $156.4 million . Excluding restructuring charges of $6.1 million , operating income from continuing operations was $162.5 million for fiscal 2012. This decline of $17.6 million was primarily due to the decrease in segment profit in the WPS business segment. The decline in operating results within the WPS business segment was due to increased competition and pricing pressure as customers migrate to the Internet rather than the traditional catalog model, and economic weakness in Europe and Australia. In addition, the Company reduced variable incentive compensation by approximately $10 million in fiscal 2013 compared to fiscal 2012, which was offset by investments to drive key initiative growth in both the IDS and WPS segments.

Results of Operations

A comparison of results of Operating (loss) income from continuing operations for the fiscal years ended July 31, 2013, 2012 and 2011 is as follows:

During fiscal 2013, net sales increased 7.8% from fiscal 2012, which consisted of an organic decline of 2.6% , currency impact of a negative 0.9% and growth from acquisitions of 11.3% . Over 90% of the acquisition growth was from the acquisition of PDC within the IDS segment in fiscal 2013, with the remainder attributable to the prior year acquisitions of Grafo in the IDS segment and Runelandhs and Pervaco in the WPS segment. Organic sales within the IDS segment were up 0.3% , while organic sales within the WPS platform declined by 7.0%.

During fiscal 2012, net sales increased 0.9% from fiscal 2011, which consisted of organic growth of 1.5% , currency impact of a negative 1.4% and growth from acquisitions of 0.8% . The acquisition growth was due to the fiscal 2012 acquisitions of Grafo in the IDS segment, and Runelandhs and Pervaco in the WPS segment during the second half of the fiscal year. Organic sales within the IDS segment grew 2.7% , while organic sales within the WPS segment declined by 0.2% .

Gross margin as a percentage of sales declined to 52.6% in fiscal 2013 from 55.2% in fiscal 2012. Approximately half of the decline was due to the acquisition of PDC within the IDS segment, as it is a lower gross margin business compared to the remainder of the Company. The remaining decline was attributed to the WPS segment in which the sales decline, increased pricing pressures and the challenging global economy equally contributed to the reduced gross margin.

Gross margin as a percentage of sales declined to 55.2% in fiscal 2012 from 55.5% in fiscal 2011. The reason for this decline was sales mix, as we realized no sales growth in the higher margin WPS business and modest growth in the IDS business. This decrease in gross margin was partially offset by a reduction in variable incentive compensation in fiscal 2012.

Research and development expenses decreased to $33.6 million in fiscal 2013 from $34.5 million in fiscal 2012. The decline was primarily due to the global consolidation of the project management office, which reduced costs while streamlining reporting processes globally. R&D expenses decreased to $34.5 million in fiscal 2012 from $38.3 million in 2011 due to a reduction in variable incentive compensation, as well as a reduction in external spending on systems development due to the timing of new product introductions.

Selling, general and administrative ("SG&A") expenses include selling costs directly attributed to the IDS and WPS segments, as well as administrative expenses including finance, information technology, human resources and legal. SG&A expenses increased to $427.7 million in fiscal 2013 compared to $392.5 million in fiscal 2012. The increase was primarily due to the acquisition of PDC in December 2012, which resulted in $6 million of amortization of intangible assets. The total increase in SG&A was partially offset by a reduction in variable incentive compensation from fiscal 2012 to fiscal 2013.

SG&A expense decreased to $392.5 million in fiscal 2012 compared to $397.5 million in fiscal 2011 mainly due to a reduction in variable incentive compensation.

In fiscal 2013, the Company announced a restructuring action to reduce its global workforce by approximately 5-7% in order to address its cost structure, with expected annual savings of approximately $25 million to $30 million exclusive of reinvestments into ongoing business initiatives. In connection with this restructuring action, the Company incurred restructuring charges of $26.0 million in fiscal 2013. These charges consisted of $18.4 million of employee separation costs, $4.1 million of fixed asset write-offs and $3.5 million of other facility closure related costs. The charges for employee separation costs consisted of severance pay, outplacement services, medical and other benefits. Fixed asset write-offs include both the net book value of property, plant and equipment written off in conjunction with facility consolidations, as well as indefinite-lived tradenames written off in conjunction with brand consolidations within the WPS segment.

Restructuring charges were $6.1 million in fiscal 2012 and consisted of costs incurred to consolidate facilities within both the IDS and WPS segments primarily in the Americas. The remaining charges related to severance costs associated with a prior year restructuring program.

Restructuring charges were $6.5 million in fiscal 2011 and consisted of costs incurred to support the continued workforce reduction activities and consolidate facilities within both the IDS & WPS segments. The costs associated with the workforce reduction primarily included employee separation costs, consisting of severance pay, outplacement services, medical, and other related benefits for the Company's work force.

On September 11, 2013, the Company's Board of Directors approved a restructuring plan to consolidate facilities in North America, Europe and Asia. The Company is implementing the restructuring action to improve efficiency of operations, reduce operating expenses and enhance customer service. In connection with the restructuring action, the Company expects to incur pre-tax charges of approximately $30 million, substantially all of which are expected to be incurred during fiscal 2014. The charges include employee severance costs of approximately $13 million, facility shut-down costs and lease termination costs of

approximately $12 million, and non-cash asset write-offs of approximately $5 million. Cash expenditures for these restructuring activities are expected to be approximately $25 million and are being funded with cash generated from operations. The Company expects the restructuring actions to be substantially complete by the end of fiscal 2014.

The Company performed its annual goodwill impairment assessment on May 1, 2013, and subsequently concluded that the WPS Americas and IDS APAC reporting units were impaired. In conjunction with the goodwill impairment analysis, management concluded tradenames and certain fixed assets within the reporting units were impaired. Refer to the Item 7 - Business Segment Operating Results as well as Note 1 - Summary of Significant Accounting Policies for further discussion regarding the impairment charges. Impairment charges in continuing operations were $204.4 million in fiscal 2013 and consisted of the following:

Operating (loss) income of $(85.6) million excluding restructuring charges of $26.0 million and impairment charges of $204.4 million was $144.9 million in fiscal 2013. Operating income of $156.4 million excluding restructuring of $6.1 million was $162.5 million in fiscal 2012. The decrease was mainly due to the decline in segment profit of the WPS business, which is discussed in further detail within the Business Segment Operating Results section. This decline was partially offset by a decrease in variable incentive compensation of approximately $10 million.

Operating income of $156.4 million excluding restructuring of $6.1 million was $162.5 million in fiscal 2012. Operating income of $145.8 million excluding restructuring of $6.5 million was $152.2 million in fiscal 2011. This increase in operating income excluding restructuring was primarily due to the decrease in variable incentive compensation of approximately $20 million over the same period. This was partially offset by a decline in segment profit within the WPS business.

OPERATING INCOME TO NET INCOME

Investment and Other Income

These amounts mainly consist of interest income and gains and losses on foreign currency and securities held in executive deferred compensation plans. Income of $3.5 million in fiscal 2013, $2.1 million in fiscal 2012 and $4.0 million in fiscal 2011 remain relatively consistent with no material changes year over year.

Interest Expense

Interest expense decreased to $16.6 million in fiscal 2013 compared to $19.1 million in fiscal 2012 and $22.1 million in fiscal 2011. The decline since 2011 was due to the Company's declining principal balance under its outstanding debt agreements, along with changes in debt structure resulting in a reduction in the weighted average interest rate.

Income Taxes

The Company's effective tax rate from continuing operations was (42.6)% in fiscal 2013, compared to the effective tax rate from continuing operations of 26.5% in fiscal 2012. The effective tax rate for fiscal 2013 was significantly impacted by the $168.9 million non-deductible portion of the goodwill impairment charge recorded on the WPS Americas and IDS Asia reporting units during the three months ended July 31, 2013, as well as a tax charge of $26.6 million associated with the funding of the PDC acquisition. Excluding these items, our fiscal 2013 effective tax rate from continuing operations would have been 22.0%, slightly lower than the prior year due mainly to fluctuation in profit mix. Refer to Note 1, "Summary of Significant Accounting Policies" within Item 8 for further discussion regarding the goodwill impairment charges.

The effective tax rate from continuing operations for fiscal 2012 was 26.5% as compared to 17.0% in fiscal 2011. The lower tax rate in fiscal 2011 was due primarily to excess foreign tax credits recognized as a benefit to tax expense from continuing operations.

Loss from Discontinued Operations

Discontinued operations consist of the Asia Die-Cut business platform, which was classified as held for sale beginning in the third quarter of fiscal 2013. During the three months ended July 31, 2013, the Company incorporated its European-based die-cut business, Balkhausen, into the Asia Die-Cut disposal group. In addition, the following previously divested businesses were reported within discontinued operations: Brady Medical and Varitronics (divested in fiscal 2013), Etimark (divested in fiscal 2012) and Teklynx (divested in fiscal 2011). These divested businesses were part of the IDS business segment.

The loss from discontinued operations net of income taxes was $13.7 million for fiscal 2013 compared to $120.4 million in fiscal 2012. The loss in fiscal 2013 primarily related to a $15.7 million write-down of the disposal group to estimated fair value less cost to sell. The loss in fiscal 2012 primarily related to the $115.7 million goodwill impairment charge recorded during the second quarter of fiscal 2012, which was related to the Asia Die-Cut disposal group. The profit in fiscal 2011 was due primarily to higher sales and gross margins in the Asia Die-Cut business.

Depreciation and amortization recognized within discontinued operations for fiscal 2013 were $4.0 million and $4.8 million, respectively, compared to $6.0 million and $6.9 million for fiscal 2012.

Business Segment Operating Results

The Company is organized and managed on a global basis within two business platforms: IDS and WPS, which are the reportable segments. Each business platform has a President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each platform has its own distinct operations, which are managed locally by its own management team, maintains its own financial reports and is evaluated based on global segment profit. The Company has determined that these business platforms comprise its operating and reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance.

The segment results have been adjusted to reflect continuing operations in all periods presented. The sales and profit of discontinued operations are excluded from the following information.

ID Solutions

Fiscal 2013 vs. 2012

Net sales increased by 15.7% from fiscal 2012 to fiscal 2013, which consisted of organic growth of 0.3%, currency impact of a negative 0.9% and growth from acquisitions of 16.3%. Acquisition growth within the IDS segment was almost entirely generated by the acquisition of PDC in December 2012, with a small portion contributed by the acquisition of Grafo in March 2012.

The PDC acquisition contributed more than $100.0 million in sales in fiscal 2013 and provides an entry for the Company into the healthcare identification space. We are in the process of integrating PDC into the existing business, and plan to leverage Brady practices in all functional areas.

Organic sales in the IDS segment grew by 0.3% primarily due to growth within the Americas of approximately 1%, which was partially offset by modest declines in Europe and APAC. Within the Americas, North America growth was partially offset by a 10% decline in Brazil. Sales over the Internet increased by more than 15%, and we experienced a positive response to our recent new product launches. In Europe, the decline in the IDS business platform was mainly driven by the economy, partially offset by our increased presence in emerging geographies, new and differentiated product launches, and our strategy to increase share in specific vertical markets. In APAC, sales growth was modest, as the de-consolidation of certain business units from the Asia Die-Cut disposal group impacted sales growth negatively.

Overall, sales globally were driven by new product launches and growth within vertical markets. New products launched include the BBP85 printer, which is a continuous-sleeving wire identification system for high volume applications in the electrical and aerospace markets, and three new high performance materials to address the changing requirements for identification of printed circuit boards and electronic components. Vertical market growth was focused within the chemical, oil, and gas industries, as well as our targeted Strategic Account Management programs.

Segment profit increased to $171.3 million in fiscal 2013 from $159.4 million in fiscal 2012, an increase of $11.9 million or 7.5%. The primary driver of the profit increase was the acquisition of PDC. This profit was partially offset by a decline in profitability in Brazil and Western Europe. Brazil's decline was due to a combination of sales decline, cost increases and expenses associated with the implementation of a new ERP system. In Western Europe, the largest decline in sales and profit was in Italy, where we realized a 25% sales decline partially due to one-time sales in the prior year that did not repeat. In addition, Italy's profitability was impacted by product quality issues associated with a printer introduced in fiscal 2012.

The Company performed its annual goodwill impairment assessment on May 1, 2013, and subsequently concluded that the IDS APAC reporting unit was impaired. Although sales grew from 2012 to 2013, profit declined and neither were as high as anticipated. Specifically, fourth quarter fiscal 2013 gross margin and segment profit declined compared to the prior year, while results were anticipated to increase over the prior year fourth quarter. In addition, projections were not sufficient to support the balance of goodwill remaining within the reporting unit. As such, the Company recorded a goodwill impairment charge of $18.2 million during fiscal 2013, which represents all of the remaining goodwill for this reporting unit.

Fiscal 2012 vs. 2011

Net sales increased by 1.3% from fiscal 2011 to fiscal 2012, which consisted of organic growth of 2.7%, currency impact of a negative 1.6% and growth from acquisitions of 0.2%. The Company acquired Grafo in South Africa as part of the IDS segment in March 2012.

Organic sales in the IDS segment grew 2.7%. Regionally, growth in the Americas was strong at 7.8%, growth in Europe was modest at approximately 1% and APAC declined by more than 10%. Overall, during fiscal 2012 the U.S. economy appeared to be recovering while the European economy was weakening. Within the Americas, the strong growth rates were driven by the execution across multiple key growth initiatives, including a strong focus on our core distributor-based business delivering an improved customer experience, improvements in the e-commerce experience, key customer conversions, and an improved service offering. New product development continued to drive growth globally with the successful launch of portable printers and proprietary consumables. In Europe, despite negative economic growth, we grew modestly as we continued to focus on emerging economies. In Asia, we experienced significant declines in several countries. During fiscal 2012, we began the process to separate the sales and marketing resources between the traditional IDS products and the Die-Cut business platform.

Segment profit increased to $159.4 million in fiscal 2012 from $146.1 million in fiscal 2011, an increase of $13.3 million or 9.1%. The profit increase was attributable to the Americas business mainly due to strong sales growth, selected price increases, operational improvements, focus on lean and strategic sourcing, as well as actions taken to improve our selling expense structure.

Europe maintained its profit levels and we increased investment in the APAC business, which resulted in a decline in profit in Asia. We added an experienced expatriate to the team in Asia to begin building the IDS business teams for future growth.

Workplace Safety

Fiscal 2013 vs. 2012

Net sales decreased by 3.7% from fiscal 2012 to 2013, which consisted of an organic decline of 7.0%, currency impact of a negative 0.7% and growth from acquisitions of 4.0%. The Company acquired Runelandhs and Pervaco in Europe in May 2012.

Organic sales in the WPS segment declined 7.0% within all geographies from fiscal 2012 to 2013, and have declined for the last seven quarters. WPS APAC sales are generated entirely in Australia, and have declined for the last four quarters mainly due to the weakness in the Australian economy. In the Americas and Europe, organic sales declined by 5% and 6%, respectively. Beginning in fiscal 2012, we experienced a deterioration of this business due to increased e-commerce competition and pricing pressures.The Company continues to modify its strategy to grow this business, which includes: investments in e-commerce capabilities, pricing structure changes and expansion of product offerings.

Segment profit decreased in fiscal 2013 to $95.2 million from $117.2 million, a decline of $22.0 million or 18.8%. This was primarily due to volume and price declines as a result of increased competition and reduced catalog advertising. In addition, the Company redirected some of its investment from the traditional catalog model to e-business, the benefits of which are anticipated to be realized in future fiscal years.

Since the global economic recession of 2009, organic growth within the WPS Americas reporting unit has been difficult to achieve, especially within mature markets such as the U.S. and Canada where business-to-business transactions over the Internet are more advanced than many of the European and Australian markets. With the acceleration of the Internet in the business-to-business market, competition and pricing pressure have intensified. As a result, organic sales declined by approximately 7% and segment profit declined by nearly 20% during fiscal 2013 as compared to fiscal 2012.

The Company is modifying its strategy within the WPS platform, including investments in enhanced e-commerce capabilities, expanded product offerings, enhanced industry-specific expertise, and adjusting its pricing strategies. Although management believes the strategy modifications will improve organic sales and profitability of the WPS platform in future years, there is risk associated with any strategy. As such, the Company's annual goodwill impairment analysis ("Step One") reflected the risk in the strategy and the decline in fiscal 2013 sales and profitability, which occurred during a period of time in which the Company was redirecting its investment from the traditional catalog model to e-business. In addition, the rate of decline became more pronounced during the second half of the fiscal year and fell short of internal forecasts, resulting in the conclusion that WPS Americas failed Step One, as the resulting fair value was less than the carrying value of the reporting unit.

Upon completion of the impairment assessment, the Company recognized a goodwill impairment charge of $172.3 million during fiscal 2013. In conjunction with the goodwill impairment test of the WPS Americas reporting unit, indefinite-lived tradenames associated with the reporting unit were revalued and analyzed for impairment. As a result, indefinite-lived tradenames in the amount of $10.6 million primarily associated with the WPS Americas reporting unit were impaired during fiscal 2013.

Fiscal 2012 vs. 2011

Net sales increased by 0.2% from fiscal 2011 to fiscal 2012, which consisted of an organic decline of 0.2%, currency impact of a negative 1.2% and growth from acquisitions of 1.6%. Acquisition growth was driven by the acquisitions of Runelandhs and Pervaco in Europe in May 2012.

Organic sales declined 0.2% within the WPS segment. Regionally, the Americas realized essentially no growth, while Europe declined by 2.3% and Asia-Pacific sales increased by approximately 6%. In the fourth quarter, Asia-Pacific sales began to slow as the Australian economy began to weaken. In the Americas, growth was approximately 3% for the first half of the year, followed by comparable declines in the second half. Europe experienced a similar trend, as first quarter growth of 4.0% was followed by a decline in growth in the subsequent quarters as increased competition and pricing pressure deteriorated sales.

Segment profit for fiscal 2012 was $117.2 million, a slight decline from $118.9 million in fiscal 2011. The growth in profit in the first half of the year due to sales was offset by the profit decline in the second half of the year due to investments in the e-commerce initiative increasing compared to the first half of the year.

Liquidity & Capital Resources

Cash and cash equivalents were $91.1 million at July 31, 2013 , and $305.9 million at July 31, 2012 , a decline of $214.8 million . The decline was primarily due to investing activities, which included the purchase of PDC in the second quarter of fiscal 2013 for $301.2 million.    

Net cash provided by operating activities was $143.5 million during fiscal 2013 compared to $144.7 million in the prior year. Although there was minimal change in total, the cash flow from pre-tax income declined approximately $30 million, primarily due to the decline in sales and profits in our WPS segment. This was offset by the improvement in working capital of approximately $30 million. This improvement was primarily attributable to a positive change in accounts payable and accrued liabilities related to fiscal 2013 working capital initiatives, which significantly improved days payable outstanding.

Net cash used in investing activities was $325.8 million during fiscal 2013, compared to net cash used in investing activities $64.6 million in the prior year. The increase in cash used in investing activities of $261.2 million was primarily due to the purchase of PDC in the second quarter of fiscal 2013 for $301.2 million, and an increase in capital expenditures of $11.5 million for machinery in Brazil and new facilities in Thailand and Australia. This was partially offset by cash received of $10.2 million due to the sales of the Brady Medical and Varitronics businesses in the first quarter of fiscal 2013.

Net cash used in financing activities was $33.1 million during fiscal 2013, compared to $147.8 million during the prior year. The decrease in cash used in financing activities was due to a net draw on the Company's credit revolver and multi-currency line of credit in China, which provided $50.6 million in cash. In addition, cash provided by the issuance of common stock increased by $16.5 million, while cash used to repurchase common shares decreased by $44.8 million compared to 2012.

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 $22.7 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 lower income taxes paid versus expensed 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, from fiscal 2011 to fiscal 2012. See Note 2 within Item 8 for further information regarding acquisitions and divestitures.

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 fiscal year 2012 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.

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.

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 prepaying them prior to maturity. The notes have been fully and unconditionally guaranteed on an unsecured basis by the Company's domestic subsidiaries. These unsecured notes were issued pursuant to a note purchase agreement, dated May 13, 2010.

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 revolving loan 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 upon 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 revolving loan agreement may be increased from $300 million up to $450 million.

In December 2012, the Company drew down $220.0 million from its revolving loan agreement with a group of six banks to fund a portion of the purchase price of the acquisition of PDC. The borrowings bear interest at LIBOR plus 1.125% per annum, which will be reset from time to time based upon changes in the LIBOR rate. Prior to July 31, 2013 , the Company repaid $181.0 million of the borrowing with cash on hand. During fiscal 2013 , the maximum amount outstanding on the revolving loan agreement was $220.0 million . As of July 31, 2013 , the outstanding balance on the credit facility was $39.0 million and there was $261.0 million available for future borrowing under the credit facility, which can be increased to $411.0 million at the Company's option, subject to certain conditions.

In February 2013, the Company entered into an unsecured $26.2 million multi-currency line of credit in China. The line of credit supports USD-denominated or RMB-denominated borrowing to fund working capital and operations for the Company's Chinese entities. Borrowings under this facility may be made for a period up to one year from the date of borrowing with interest on the borrowings incurred equal to US Dollar LIBOR on the date of borrowing plus a margin based upon duration. There is no ultimate maturity on the facility and the facility is subject to periodic review and repricing. The Company is not required to comply with any financial covenants as part of this agreement. During fiscal 2013 , the maximum amount outstanding was $11.6 million, comprised entirely of USD-denominated borrowings, which was the balance outstanding at July 31, 2013 . As of July 31, 2013 , there was $14.6 million available for future borrowing under this 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 month EBITDA, as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio). As of July 31, 2013 , 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 1.6 to 1.0. Additionally, the Company's February 2012 revolving loan agreement requires the Company to maintain a ratio of debt to trailing twelve month 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, 2013 , 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 1.6 to 1.0 and the interest expense coverage ratio equal to 9.2 to 1.0.

Long-term obligations as a percentage of long-term obligations plus stockholders' investment were 19.5% at July 31, 2013 and 20.2% at July 31, 2012. Long-term obligations decreased by $53.8 million from July 31, 2012 to July 31, 2013 , due to the principal payment on debt of $61.3 million, partially offset by the positive impact of foreign currency translation on the Company's Euro-denominated debt of $5.9 million.

Stockholders' investment decreased $178.6 million from July 31, 2012 to July 31, 2013 , primarily due to the net loss of $154.5 million , dividend payments of $39.2 million, and a decrease in additional paid-in capital of $6.8 million , partially offset by a reduction in treasury stock of $22.8 million .

The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2013 , 92.8% of the Company's cash and cash equivalents were 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 flow from operating activities, 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. The Company's fiscal 2013 acquisition of PDC resulted in repatriation of cash to the United States from foreign jurisdictions, which resulted in a $26.6 million tax charge recognized during the fiscal year ended July 31, 2013. 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. However, future cash needs could require the Company to repatriate additional cash to the U.S. from foreign jurisdictions, which could result in material tax charges recognized in the period in which the transactions occur.

Subsequent Events Affecting Financial Condition

On September 12, 2013, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from $0.76 to $0.78 per share. A quarterly dividend of $0.195 will be paid on October 31, 2013, to shareholders of record at the close of business on October 10, 2013. This dividend represents an increase of 2.6% and is the 28th 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 risk factors described in this and other Company filings. However, the following additional information is provided to assist those reviewing the Company's financial statements.

Operating Leases - The 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.

Related-Party Transactions - Based on an evaluation for the year ended July 31, 2013 , 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 in continuing operations at July 31, 2013 for long-term debt, operating lease obligations, purchase obligations, interest obligations and other obligations are as follows (dollars in thousands):

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.

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.

The Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been re-invested indefinitely. These earnings related to ongoing operations have been reinvested in non-U.S. business operations, and the Company does not intend to repatriate these earnings to fund U.S. operations. In fiscal 2013, the Company repatriated approximately $204 million of foreign cash to help fund the acquisition of PDC. Of this amount, approximately $29 million was from earnings that would otherwise be classified as permanently re-invested. The Company determined that given PDC was the largest acquisition in the Company's history, this repatriation was a one-time event, and therefore, in management's judgment, the remaining cumulative earnings have been reinvested indefinitely.

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 $20 million require the use of external valuations.

During the three months ended April 30, 2013, the Company announced its plan to divest its Asia Die-Cut business, and during the three months ended July 31, 2013, the Company added its European-based die-cut business, Balkhausen, to the disposal group. Effective May 1, 2013, the Company reorganized its management structure into three global business platforms: Identification Solutions, Workplace Safety, and Die-Cut. Because the Die-Cut business platform was classified as held for sale as of April 30, 2013, the disposal group was recorded at its estimated fair value less cost to sell, which required a write-down in accordance with ASC 360, "Property, Plant and Equipment" and it was excluded from the fiscal 2013 annual goodwill impairment analysis. The Company has identified two operating segments for the year ended July 31, 2013: Identification Solutions and Workplace Safety. These operating segments are also the Company's reportable segments.

The Company has identified six reporting units within its two operating segments as of July 31, 2013: IDS Americas & Europe, IDS APAC, PeopleID, WPS Americas, WPS Europe, and WPS APAC. 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, fluctuations 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 the 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 charge would be recorded.    

The Company considers a reporting unit's value to be substantially in excess of its fair value at 20% or greater. The annual impairment testing performed on May 1, 2013, in accordance with ASC 350, "Intangibles - Goodwill and Other" ("Step One") indicated that each of the following reporting units had a fair value substantially in excess of its carrying value: IDS Americas & Europe, WPS Europe and WPS APAC. The PeopleID reporting unit passed Step One of the goodwill impairment test, but does not have a fair value substantially in excess of its carrying value. The Company concluded that the WPS Americas and IDS APAC reporting units failed Step One of the goodwill impairment test.

WPS Americas Goodwill Impairment

Management proceeded to measure the amount of the potential impairment ("Step Two") for the WPS Americas reporting unit with the assistance of a third party valuation firm. The Company calculated the fair value of the identifiable assets and liabilities of the reporting unit as if it had been acquired in a business combination, and 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 $172.3 million during the three months ended July 31, 2013.

In conjunction with the goodwill impairment test of the WPS Americas reporting unit, the carrying value of the indefinite-lived tradenames within the reporting unit were compared to the fair value calculated as part of the Step Two analysis described above. Indefinite-lived tradenames in the amount of $10.6 million associated with the WPS segment were impaired during the three months ended July 31, 2013.

IDS APAC Goodwill Impairment

The IDS APAC reporting unit had goodwill remaining of $18.3 million at the annual impairment assessment date. Sales increased within this reporting unit from 2012 to 2013, however, profitability declined, and neither sales nor profitability were as high as anticipated. Projections for the business were not sufficient to support the carrying value of the reporting unit. When management compared the Step One fair value to the carrying value of the reporting unit, a qualitative assessment was completed for Step Two because the amount by which the carrying value exceeded fair value was more than the balance of goodwill remaining. As such, the Company recognized a goodwill impairment charge of the entire remaining goodwill balance of $18.3 million during the three months ended July 31, 2013.

Sensitivity

In performing the fiscal 2013 annual goodwill impairment assessment, the Company completed a sensitivity analysis on the material assumptions used in the discounted cash flow models for each of its reporting units. Even though the fair value was substantially in excess of carrying value, the Company is providing a detailed sensitivity analysis of the WPS Europe and WPS APAC reporting units given the higher level of risk in the overall WPS strategy.

The fair value of the WPS Europe reporting unit was substantially in excess of carrying value at the assessment date, and it had a goodwill balance of $63.1 million as of July 31, 2013. In order to conclude upon the assumptions for the discounted cash flow analysis, the Company considered multiple factors, including (a) macroeconomic conditions, (b) industry and market factors such as competition and changes in the market for the reporting unit's products, (c) overall financial performance such as cash flows, actual and planned revenue, and profitability, and (d) changes in strategy for the reporting unit. The assumption with the most impact on our determination of fair value of the WPS Europe reporting unit is profitability. A reduction in the annual profitability assumption by 100 basis points results in a decrease in the amount of fair value in excess of carrying value of 11%.

The fair value of the WPS APAC reporting unit was substantially in excess of carrying value at the assessment date, and it had a goodwill balance of $36.6 million as of July 31, 2013. In order to conclude upon the assumptions for the discounted cash flow analysis, the Company considered multiple factors, including (a) macroeconomic conditions, (b) industry and market factors such as competition and changes in the market for the reporting unit's products, (c) overall financial performance such as cash flows, actual and planned revenue, and profitability, and (d) changes in strategy for the reporting unit. The assumption with the most impact on our determination of fair value of the WPS APAC reporting unit is profitability. A reduction in the annual profitability assumption by 100 basis points results in a decrease in the amount of fair value in excess of carrying value of 10%.

The fair value of the PeopleID reporting unit was in excess of its carrying value by 2% as of the assessment date. This reporting unit is comprised solely of PDC, which was acquired on December 28, 2012 and had a goodwill balance of $170.2 million as of July 31, 2013. In order to conclude upon the assumptions for the discounted cash flow analysis, the Company considered multiple factors, including (a) macroeconomic conditions, (b) industry and market factors such as competition and changes in the market for the reporting unit's products, (c) overall financial performance such as cash flows, actual and planned revenue, and profitability, and (d) changes in strategy for the reporting unit. If the PeopleID reporting unit does not meet its projections it could become impaired. The assumptions with the most impact on our determination of the fair value of the PeopleID reporting unit are sales growth and profitability. A reduction in the annual sales growth or annual profitability assumptions by 100 basis points results in a failure of Step One of the goodwill impairment test. In connection with the Company's recent change in reportable segments, the existing PeopleID business, which was part of the IDS Americas and Europe reporting unit for the 2013 annual goodwill impairment analysis, was integrated into the PeopleID reporting unit effective August 1, 2013. If these businesses had been combined as of the May 1, 2013 goodwill impairment analysis, the fair value in excess of carrying value would have been 11%.

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.

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:

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.

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 on the Company's 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, Malaysian Ringgit, and Singapore Dollar. As of July 31, 2013 , the Company had no contracts outstanding designated as cash flow hedges. The Company uses Euro-denominated debt of €75.0 million and British Pound-denominated intercompany debt of £25.0 million designated as hedge instruments to hedge portions of the Company's net investments in its European and British Pound denominated foreign operations. The Company's revolving credit facility allows it to borrow up to $100.0 million in currencies other than US Dollars under an alternative currency sub-limit. The Company has periodically borrowed funds in Euro and British Pounds under this sub-limit. Debt issued in currencies other than US Dollars acts as a natural hedge to the Company's exposure to the associated currency.

The Company also faces exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates. 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 2013 sales by 0.9% compared to fiscal 2012 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 first quarter ended October 31, 2012, as sales declined by 2.4% 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 is subject to the risk of change 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. The Company's operating results are principally exposed to changes in exchange rates between the U.S. dollar and the Australian dollar, the Canadian dollar, the Singapore dollar, the Euro, the British Pound, the Brazilian Real, the Korean Won, and the Chinese Yuan. 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 2013 and 2012 as a separate component of stockholders' investment was $2.3 million and $62.8 million unfavorable, respectively. As of July 31, 2013 and 2012 , the Company's foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $245.1 million and $384.2 million, respectively. The potential decrease in net current assets as of July 31, 2013 , from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would be approximately $24.5 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.

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. As of July 31, 2013 , the Company had no interest rate derivatives.

Item 8. Financial Statements and Supplementary Data

BRADY CORPORATION & SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Brady Corporation

Milwaukee, Wisconsin

We have audited the accompanying consolidated balance sheets of Brady Corporation and subsidiaries (the "Company") as of July 31, 2013 and 2012, and the related consolidated statements of earnings, comprehensive income (loss), stockholders' investment, and cash flows for each of the three years in the period ended July 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated 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 as of July 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2013, 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, 2013, based on the criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 30, 2013, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Milwaukee, WI

September 30, 2013

BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

July 31, 2013 and 2012

See Notes to Consolidated Financial Statements

BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended July 31, 2013, 2012 and 2011