For the Quarterly Period Ended April 30, 2016

OR

For the Transition Period from                     to                     

Commission File Number 1-14959

(414) 358-6600

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   ☑     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   ☑     No   ¨

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 the definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of May 18, 2016, there were 46,723,746 outstanding shares of Class A Nonvoting Common Stock and 3,538,628 shares of Class B Voting Common Stock. The Class B Voting Common Stock, all of which is held by affiliates of the Registrant, is the only voting stock.

FORM 10-Q

BRADY CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to Condensed Consolidated Financial Statements.

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in Thousands, Except Per Share Amounts)

See Notes to Condensed Consolidated Financial Statements.

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See Notes to Condensed Consolidated Financial Statements.

BRADY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

See Notes to Condensed Consolidated Financial Statements

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended April 30, 2016

(Unaudited)

(In thousands, except share and per share amounts)

NOTE A - Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the "Company," "Brady," "we," or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of April 30, 2016 and July 31, 2015 , its results of operations and comprehensive income (loss) for the three and nine months ended April 30, 2016 and 2015 , and cash flows for the nine months ended April 30, 2016 and 2015 . The consolidated balance sheet as of July 31, 2015 has been derived from the audited consolidated financial statements of that date. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K for the year ended July 31, 2015 .

The results of operations of the Company's Die-Cut business have been reported as discontinued operations within the condensed consolidated statements of earnings for the nine months ended April 30, 2015 . A portion of the Die-Cut business was divested in fiscal 2014 and the remainder was divested in the first quarter of fiscal 2015. In accordance with the authoritative literature, the Company has elected to not separately disclose the cash flows or other comprehensive income related to discontinued operations. Refer to Note J, "Discontinued Operations" for further discussion regarding the business.

NOTE B - Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended April 30, 2016 , were as follows:

Goodwill at April 30, 2016 and July 31, 2015 included $118,637 and $209,392 of accumulated impairment losses within the Identification Solutions ("IDS") and Workplace Safety ("WPS") segments, respectively, for a total of $328,029 . There were no impairment charges recorded during the nine months ended April 30, 2016 . The increase in the carrying amount of Goodwill as of April 30, 2016 compared to July 31, 2015 was due to the effect of currency fluctuations during the nine-month period.

Other intangible assets include patents, trademarks, customer relationships, non-compete agreements and other intangible assets with finite lives being amortized in accordance with the accounting guidance for other intangible assets. The Company also has unamortized indefinite-lived trademarks that are classified as other intangible assets. The net book value of these assets was as follows:

The increase in the gross carrying amount of other intangible assets as of April 30, 2016 compared to July 31, 2015 was primarily due to the effect of currency fluctuations during the nine-month period.

Amortization expense on intangible assets was $1,838 and $ 2,900 for the three months ended April 30, 2016 and 2015 , respectively, and $7,066 and $9,251 for the nine months ended April 30, 2016 and 2015 , respectively. The amortization expense over each of the next five fiscal years is projected to be $ 8,881 , $ 7,175 , $ 6,471 , $ 6,181 and $ 5,628 for the fiscal years ending July 31, 2016 , 2017 , 2018 , 2019 and 2020 , respectively.

NOTE C - Other Comprehensive Income (Loss)

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

The following table illustrates the changes in the balances of each component of accumulated other comprehensive loss, net of tax, for the nine months ended April 30, 2016 :

The decrease in accumulated other comprehensive loss as of April 30, 2016 compared to July 31, 2015 was primarily due to the depreciation of the U.S. dollar against certain other currencies during the nine-month period. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax. Of the total $1,626 in amounts reclassified from accumulated other comprehensive loss, the $106 gain on cash flow hedges was reclassified into cost of products sold, and the $1,520 gain on post-retirement plans was reclassified into selling, general and administrative expenses ("SG&A") on the condensed consolidated statement of earnings for the nine months ended April 30, 2016 .

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended April 30, 2015 were as follows:

The decrease in accumulated other comprehensive income (loss) as of April 30, 2015 compared to July 31, 2014 was primarily due the appreciation of the U.S. dollar against other currencies, most of which was realized during the six month period ended January 31, 2015. The decrease was also attributable to the accumulated foreign currency translation gains in the China Die-Cut businesses, which were reclassified into net earnings upon the completion of the second phase of the Die-Cut divestiture during the three months ended October 31, 2014. The foreign currency translation adjustments column in the table above includes the impact of foreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax. Of the total $37,365 in amounts reclassified from accumulated other comprehensive income (loss), the $34,697 gain was reclassified to the net loss on the sale of the Die-Cut business, the $337 gain on cash flow hedges was reclassified into cost of products sold, and the $2,331 gain due to curtailment of the post-retirement medical benefit plan was reclassified into SG&A on the condensed consolidated statement of earnings for the nine months ended April 30, 2015 .

The following table illustrates the income tax expense on the components of other comprehensive income (loss) for the three and nine months ended April 30, 2016 and 2015 :

NOTE D - Net Earnings per Common Share

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

Options to purchase approximately 2,480,000 and 2,836,000 shares of Class A Nonvoting Common Stock for the three months ended April 30, 2016 and 2015 , respectively, and 3,525,000 and 3,531,000 shares for the nine months ended April 30, 2016 and 2015 , respectively, were not included in the computation of diluted net earnings or loss per share because the option exercise price was greater than the average market price of the common shares and, therefore, the effect would have been anti-dilutive.

NOTE E - Segment Information

The Company is organized and managed on a global basis within three business platforms, ID Solutions, Workplace Safety, and People Identification ("PeopleID"), which aggregate into two reportable segments: IDS and WPS.

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

Each business platform has a President or Vice-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 three operating segments, which aggregate into two 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 following is a summary of segment information for the three and nine months ended April 30, 2016 and 2015 :

The following is a reconciliation of segment profit to earnings from continuing operations before income taxes for the three and nine months ended April 30, 2016 and 2015 :

NOTE F – Stock-Based Compensation

The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock, restricted stock units ("RSUs"), or restricted and unrestricted shares of Class A Nonvoting Common Stock to employees and non-employee directors.

The options issued under the plan have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest over a three-year service period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan, referred to herein as "service-based" stock options, generally expire 10 years from the date of grant.

RSUs issued under the plan have an issuance price equal to the fair market value of the underlying stock at the date of grant. The RSUs granted under the plan generally vest over a three-year service period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Shares issued under the plan are referred to herein as "service-based" RSUs.

As of April 30, 2016 , the Company has reserved 4,630,354 shares of Class A Nonvoting Common Stock for outstanding stock options, RSUs, and restricted shares and 2,368,731 shares of Class A Nonvoting Common Stock remain for future issuance of stock options, RSUs, and restricted and unrestricted shares under the active plan. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under the plan.

The Company recognizes the compensation cost of all share-based awards at the time it is deemed probable the award will vest. This cost is recognized on a straight-line basis over the vesting period of the award. If it is determined that it is unlikely the award will vest, the expense recognized to date for the award is reversed in the period in which this is evident and the remaining expense is not recorded. Total stock-based compensation expense recognized by the Company during the three months ended April 30, 2016 and 2015 , was $1,678 ( $1,040 net of taxes) and $1,085 ( $673 net of taxes), respectively. Expense recognized during the nine months ended April 30, 2016 and 2015 , was $6,247 ( $3,873 net of taxes) and $3,556 ( $2,205 net of taxes), respectively.

As of April 30, 2016 , total unrecognized compensation cost related to stock-based compensation awards was $17,206 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.6 years.

The Company has estimated the fair value of its service-based stock option awards granted during the nine months ended April 30, 2016 and 2015 , using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:

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

A summary of stock option activity under the Company's share-based compensation plans for the nine months ended April 30, 2016 is presented below:

There were 2,679,527 and 2,706,566 options exercisable with a weighted average exercise price of $30.09 and $30.84 at April 30, 2016 and 2015 , respectively. The cash received from the exercise of options during the three months ended April 30, 2016 and 2015 was $610 and $744 , respectively. The cash received from the exercise of options during the nine months ended April 30, 2016 and 2015 was $663 and $1,591 , respectively. The tax benefit on options exercised during the three months ended April 30, 2016 and 2015 was $37 and $35 , respectively. The tax benefit on options exercised during the nine months ended April 30, 2016 and 2015 was $40 and $79 , respectively.

The total intrinsic value of options exercised during the nine months ended April 30, 2016 and 2015 , based upon the average market price at the time of exercise during the period, was $105 and $202 , respectively. The total fair value of stock options vested during the nine months ended April 30, 2016 and 2015 , was $3,193 and $3,909 , respectively.

The following table summarizes the RSU activity under the Company's share-based compensation plans for the nine months ended April 30, 2016 :

The service-based RSUs granted during the nine months ended April 30, 2015 had a weighted-average grant date fair value of $ 23.59 .

The aggregate intrinsic value of unvested RSUs expected to vest at April 30, 2016 was $19,218 . The total fair value of RSUs vested during the nine months ended April 30, 2016 and 2015 , was $ 1,471 and $ 805 , respectively.

NOTE G – Employee Benefit Plans

The components of net periodic postretirement benefit cost for the three and nine months ended April 30, 2016 and 2015 were as follows:

In March 2015, the Company announced the elimination of postretirement medical benefits for eligible domestic employees retiring on or after January 1, 2016. This amendment resulted in a decrease in the accumulated postretirement benefit obligation liability of $4,490 and a curtailment gain of $4,296 . The curtailment gain was recognized in SG&A on the condensed consolidated statements of earnings, during the three months ended April 30, 2015.

NOTE H - Fair Value Measurements

In accordance with fair value accounting guidance, the Company's assets and liabilities measured at fair market value are classified in one of the following categories:

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

Level 2 - Assets or liabilities for which fair value is based on other significant pricing inputs that are either directly or indirectly observable.

Level 3 - Assets or liabilities for which fair value is based on significant unobservable pricing inputs to the extent little or no market data is available, which result in the use of management's own assumptions.

The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at April 30, 2016 and July 31, 2015 , according to the valuation techniques the Company used to determine their fair values.

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

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

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

There have been no transfers of assets or liabilities between the fair value hierarchy levels outlined above during the nine months ended April 30, 2016 and 2015 . In addition, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the nine months ended April 30, 2016 .

During fiscal 2015, goodwill with carrying amounts of $26,246 and $10,866 in the WPS APAC and WPS Americas reporting units, respectively, was written off entirely, resulting in impairment charges of $37,112 . In order to arrive at the implied fair value of goodwill, the Company calculated the fair value of all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination. After assigning fair value to the assets and liabilities of the reporting unit, it was determined there was no excess fair value of the reporting units over the implied fair value of goodwill and thus, the remaining goodwill balances were impaired in fiscal 2015. The goodwill balances represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to their original recognition.

During fiscal 2015, management evaluated other indefinite-lived intangible assets for recoverability using the income approach. The valuation was based upon current sales projections and profitability for each asset group, and the relief from royalty method was applied. Management evaluated other finite-lived intangible assets for recoverability using an undiscounted cash flow analysis based upon current sales projections and profitability for each asset group. This analysis resulted in an amount that was less than the carrying value of certain finite-lived intangible assets. Management measured the impairment loss of both indefinite and finite-lived intangible assets as the amount by which the carrying amount of the assets exceeded their fair value. As a result, other intangible assets with a carrying amount of $26,194 were written down to their estimated fair value of $19,543 . These represented Level 3 assets measured at fair value on a nonrecurring basis subsequent to their original recognition. These items resulted in a total impairment charge of $6,651 in fiscal 2015.

The Company's financial instruments, other than those presented in the disclosures above, include cash and cash equivalents, accounts receivable, notes payable, accounts payable, and other liabilities. The fair values of these financial instruments approximated carrying values because of their short-term nature.

The estimated fair value of the Company's short-term and long-term debt obligations, excluding notes payable, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities was $243,800 and $252,254 at April 30, 2016 and July 31, 2015 , respectively, as compared to the carrying value of $236,310 and $243,288 at April 30, 2016 and July 31, 2015 , respectively.

NOTE I - Derivatives and Hedging Activities

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of less than 18 months , which qualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objective of the Company's foreign currency exchange risk management program is to minimize the impact of currency movements due to transactions in other than the respective subsidiaries' functional currency and to minimize the impact of currency movements on the Company's net investment denominated in a currency other than the U.S. Dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts. As of April 30, 2016 and July 31, 2015 , the notional amount of outstanding forward exchange contracts was $ 127,105 and $139,300 , respectively.

The Company hedges a portion of known exposures using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Mexican Peso, and Singapore Dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.

Hedge effectiveness is determined by how closely the changes in fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings.

Cash Flow Hedges

The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of April 30, 2016 and 2015 , unrealized losses of $605 and unrealized gains of $813 have been included in OCI, respectively. Balances are reclassified from OCI to earnings when the hedged transactions impact earnings. For the three months ended April 30, 2016 and 2015 , the Company reclassified losses of $169 and gains of $457 from OCI into earnings, respectively. For the nine months ended April 30, 2016 and 2015 , the Company reclassified gains of $174 and $552 from OCI into earnings, respectively. At April 30, 2016 , the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $ 42,850 , including contracts to sell Euros, Canadian Dollars, Australian Dollars, and U.S. Dollars.

Net Investment Hedges

The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. At April 30, 2016 , the Company designated £ 25,036 of intercompany loans as net investment hedges to hedge portions of its net investment in British foreign operations. On May 13, 2010, the Company completed the private placement of €75 million aggregate principal amount of senior unsecured notes to accredited institutional investors. This Euro-denominated debt obligation was designated as a net investment hedge to selectively hedge portions of its net investment in European operations. The Company's foreign denominated debt obligations are valued under a market approach using publicized spot prices.

Non-Designated Hedges

For the three and nine months ended April 30, 2016 , the Company recognized gains of $ 1,410 and $897 respectively, in "Investment and other income" on the condensed consolidated statements of earnings related to non-designated hedges. For the three and nine months ended April 30, 2015 , the Company recognized losses of $667 and gains of $1,287 , respectively.

Fair values of derivative instruments in the condensed consolidated balance sheets were as follows: