e10vq

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION\n

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Washington, DC 20549\n

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FORM 10-Q\n

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þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)\nOF THE SECURITIES EXCHANGE ACT OF 1934

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For\nthe Quarterly Period Ended October 31, 2006\n\n

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

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For the Transition Period from to \n\n

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Commission File Number 1-14959

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BRADY CORPORATION\n

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(Exact name of registrant as specified in its charter)

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Wisconsin\n		39-0178960
\n
(State or other jurisdiction of \nincorporation or organization)\n		(I.R.S. Employer \nIdentification No.)

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6555 West Good Hope Road, Milwaukee, Wisconsin 53223\n

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(Address of principal executive offices)
\n(Zip Code)

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(414) 358-6600
\n

(Registrant’s telephone number, including area code)

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

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,\nor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in\nRule 12b-2 of the Exchange Act.\n

Large accelerated filer þ Accelerated filer o\nNon-accelerated filer o\n

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the\nExchange Act). Yes o No þ\n

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APPLICABLE ONLY TO CORPORATE ISSUERS

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as\nof the latest practicable date.\n

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As of December 1, 2006, there were outstanding 50,389,008 shares of Class A Nonvoting Common\nStock and 3,538,628 shares of Class B Voting Common Stock. The Class B Common Stock, all of which\nis held by affiliates of the Registrant, is the only voting stock.\n

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FORM 10-Q\n

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BRADY CORPORATION\n\n

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INDEX\n\n


	Page
PART I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of\nIncome		4

Condensed Consolidated Statements of Cash Flows		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial\nCondition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures About Market Risk		20

Item 4. Controls and Procedures		20

PART II. Other Information

Item 6. Exhibits		21
Certification
Certification
Section 1350 Certification
Section 1350 Certification

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PART I. FINANCIAL INFORMATION\n

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ITEM 1. FINANCIAL STATEMENTS

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BRADY CORPORATION AND SUBSIDIARIES

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CONDENSED CONSOLIDATED BALANCE SHEETS
\n(DOLLARS IN THOUSANDS)

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\n\n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n\n\n\n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n


	October 31, 2006			July 31, 2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	87,509			$	113,008
Short term investments		—				11,500
Accounts receivable, less allowance for losses ($6,934\nand $6,390, respectively)		217,021				187,907
Inventories:
Finished products		67,321				59,365
Work-in-process		14,241				12,850
Raw materials and supplies		42,177				37,702

Total inventories		123,739				109,917
Prepaid expenses and other current assets		38,368				36,825


Total current assets		466,637				459,157

Other assets:
Goodwill		615,527				587,642
Other intangible assets		138,669				134,111
Deferred income taxes		34,455				34,135
Other		11,281				10,235

Property, plant and equipment:
Cost:
Land		6,554				6,548
Buildings and improvements		80,096				78,418
Machinery and equipment		210,703				198,426
Construction in progress		17,850				12,098


		315,203				295,490
Less accumulated depreciation		162,513				155,584


Net property, plant and equipment		152,690				139,906


Total	$	1,419,259			$	1,365,186


LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable	$	94,301			$	78,585
Wages and amounts withheld from employees		39,098				61,778
Taxes, other than income taxes		6,636				6,231
Accrued income taxes		29,296				25,243
Other current liabilities		43,266				46,763
Short-term borrowings and current maturities on long-term obligations		16				20


Total current liabilities		212,613				218,620

Long-term obligations, less current maturities		375,017				350,018
Other liabilities		52,178				50,502


Total liabilities		639,808				619,140

Stockholders’ investment:
Class A nonvoting common stock – Issued 50,481,743 and 50,481,743\nshares, respectively and outstanding 50,216,742 and 50,188,842\nshares, respectively		505				505
Class B voting common stock – Issued and outstanding 3,538,628 shares		35				35
Additional paid-in capital		260,150				258,922
Earnings retained in the business		487,975				460,991
Treasury stock – 265,001and 292,901 shares, respectively of Class A\nnonvoting common stock, at cost		(9,841	)			(10,865	)
Accumulated other comprehensive income		39,869				35,696
Other		758				762


Total stockholders’ investment		779,451				746,046


Total	$	1,419,259			$	1,365,186

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See Notes to Condensed Consolidated Financial Statements\n

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3\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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(Dollars in Thousands, Except Per Share Amounts)

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\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n\n\n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n


	Three Months Ended October 31,
	(Unaudited)
								Percentage
	2006			2005			Change
Net sales	$	332,259			$	232,635			42.8	%
Cost of products sold		168,131				108,644			54.8	%

Gross margin		164,128				123,991			32.4	%

Operating expenses:
Research and development		8,532				6,534			30.6	%
Selling, general and administrative		103,655				73,328			41.4	%

Total operating expenses		112,187				79,862			40.5	%

Operating income		51,941				44,129			17.7	%

Other income (expense):
Investment and other income — net		638				392			62.8	%
Interest expense		(4,735	)			(1,989	)		138.1	%


Income before income taxes		47,844				42,532			12.5	%

Income taxes		13,396				12,334			8.6	%


Net income	$	34,448			$	30,198			14.1	%


Per Class A Nonvoting Common Share:
Basic net income	$	0.64			$	0.61			4.9	%
Diluted net income	$	0.63			$	0.60			5.0	%
Dividends	$	0.14			$	0.13			7.7	%

Per Class B Voting Common Share:
Basic net income	$	0.63			$	0.60			5.0	%
Diluted net income	$	0.62			$	0.59			5.1	%
Dividends	$	0.12			$	0.11			9.1	%

Weighted average common shares\noutstanding (in thousands):
Basic		53,734				49,250
Diluted		54,605				50,206

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See Notes to Condensed Consolidated Financial Statements.\n

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4\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
\n(Dollars in Thousands)

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\n\n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n\n\n \n \n \n \n\n\n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n\n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n


	Three Months Ended
	October 31,
	(Unaudited)
	2006			2005
Operating activities:
Net income	$	34,448			$	30,198
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,927				7,360
Deferred income taxes		(542	)			187
Loss on disposal of property, plant & equipment		204				33
Provision for losses on accounts receivable		692				366
Non-cash portion of stock-based compensation expense		1,559				924
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable		(21,811	)			(10,391	)
Inventories		(6,539	)			(8,613	)
Prepaid expenses and other assets		(4,818	)			468
Accounts payable and accrued liabilities		(9,638	)			(20,465	)
Income taxes		4,437				5,999
Other liabilities		1,443				1,990

Net cash provided by operating activities		12,362				8,056

Investing activities:
Acquisition of businesses, net of cash acquired		(45,173	)			(20,217	)
Payments of contingent consideration		(7,500	)			—
Purchases of short-term investments		—				(3,800	)
Sales of short-term investments		11,500				10,900
Purchases of property, plant and equipment		(14,544	)			(8,537	)
Proceeds from sale of property, plant and equipment		124				21
Other		(663	)			(1,126	)

Net cash used in investing activities		(56,256	)			(22,759	)

Financing activities:
Payment of dividends		(7,463	)			(5,938	)
Proceeds from issuance of common stock		531				374
Principal payments on debt		(23,226	)			(121,515	)
Proceeds from issuance of debt		48,220				131,630
Purchase of treasury stock		—				(9,416	)
Income tax benefit from the exercise of stock options		162				—

Net cash provided by (used in) financing activities		18,224				(4,865	)

Effect of exchange rate changes on cash		171				(274	)


Net decrease in cash and cash equivalents		(25,499	)			(19,842	)
Cash and cash equivalents, beginning of period		113,008				72,970


Cash and cash equivalents, end of period	$	87,509			$	53,128


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	5,368			$	(43	)
Income taxes, net of refunds		9,393				4,956
Acquisitions:
Fair value of assets acquired, net of cash	$	27,589			$	12,300
Liabilities assumed		(6,610	)			(6,390	)
Goodwill		24,194				14,307

Net cash paid for acquisitions	$	45,173			$	20,217

\n\n\n

See Notes to Condensed Consolidated Financial Statements.\n

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5\n

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BRADY CORPORATION AND SUBSIDIARIES\n

\n\n

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

\n\n\n

Three Months Ended October 31, 2006
\n(Unaudited)
\n(In thousands, except share and per share amounts)

\n\n\n\n

NOTE A — Basis of Presentation\n

\n\n\n

The condensed consolidated financial statements included herein have been prepared by Brady\nCorporation and subsidiaries (the “Company” or “Brady”) without audit, pursuant to the rules and\nregulations of the Securities and Exchange Commission. In the opinion of the Company, the\nforegoing statements contain all adjustments, consisting only of normal recurring adjustments,\nnecessary to present fairly the financial position of the Company as of October 31, 2006 and July\n3l, 2006, and its results of operations and cash flows for the three months ended October 31, 2006\nand 2005. The condensed consolidated balance sheet as of July 31, 2006 has been derived from the\naudited consolidated financial statements of that date and condensed. The preparation of financial\nstatements in conformity with accounting principles generally accepted in the United States of\nAmerica (“GAAP”) requires management to make estimates and assumptions that affect the reported\namounts therein. Due to the inherent uncertainty involved in making estimates, actual results in\nfuture periods may differ from the estimates.\n

\n\n

Certain information and footnote disclosures normally included in financial statements\nprepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations\nof the Securities and Exchange Commission. Accordingly, the condensed consolidated financial\nstatements do not include all of the information and footnotes required by GAAP for complete\nfinancial statement presentation. It is suggested that these condensed consolidated financial\nstatements be read in conjunction with the consolidated financial statements and the notes thereto\nincluded in the Company’s latest annual report on Form 10-K for the year ended July 31, 2006.\n

\n\n

Reclassifications – Certain prior period amounts have been reclassified to conform with the\ncurrent period presentation.\n

\n\n

NOTE B\n— Goodwill and Intangible Assets\n

\n\n\n

Changes in the carrying amount of goodwill for the quarter ended October 31, 2006, are as\nfollows:\n


	Americas		Europe			Asia-Pacific		Total
Balance as of July 31, 2006	$	322,759		$	111,792		$	153,091	$	587,642
Goodwill acquired during the period		24,147			(12	)		59		24,194
Adjustments for prior year acquisitions		191			171			1,607		1,969
Translation adjustments and other		180			43			1,499		1,722

Balance as of October 31, 2006	$	347,277		$	111,994		$	156,256	$	615,527

\n\n\n

The following acquisitions completed during the three months ended October 31, 2006 increased\ngoodwill by the following amounts:\n

\n\n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n\n\n\n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n\n\n


	Segment	Goodwill
Comprehensive Identification\nProducts, Inc. (“CIPI”)\n	Americas, Europe and\nAsia-Pacific\n	$	16,863
Precision Converters, Inc. (“PCI”)\n	Americas\n		7,331
\n
Total\n		$	24,194
\n

\n\n\n\n\n\n

6\n

\n\n\n\n\n

Goodwill also increased $1,969 during the three months ended October 31, 2006 as a result of\nadjustments to the preliminary allocation of the purchase price for acquisitions completed in\nfiscal 2006. The largest components of the increase related to Daewon Industry Corporation\n(“Daewon”) and Tradex Converting AB (“Tradex”), which added $1,467 and $233, respectively. The\nremaining $1,722 increase to goodwill during the quarter was attributable to the effects of foreign\ncurrency translation and other.\n

\n\n

Other intangible assets include patents, trademarks, customer relationships, purchased\nsoftware, non-compete agreements and other intangible assets with finite lives being amortized in\naccordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other\nIntangible Assets.” The net book value of these assets was as follows:\n

\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n\n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n


	October 31, 2006		July 31, 2006
	Weighted												Weighted
	Average												Average
	Amortization		Gross									Amortization		Gross
	Period		Carrying			Accumulated		Net Book		Period			Carrying		Accumulated		Net Book
	(Years)		Amount			Amortization		Value		(Years)			Amount		Amortization		Value
Amortized other\nintangible assets:
Patents		15		$	8,289		$	(5,350	)	$	2,939			15		$	7,885	$	(5,134	)	$	2,751
Trademarks and\nother		6			3,344			(2,403	)		941			6			3,328		(2,106	)		1,222
Customer\nrelationships		7			118,232			(21,957	)		96,275			7			109,955		(17,693	)		92,262
Purchased software		5			3,288			(2,053	)		1,235			5			3,288		(1,887	)		1,401
Non-compete\nagreements		4			10,634			(4,886	)		5,748			4			9,757		(4,448	)		5,309
Unamortized other\nintangible assets:
Trademarks		N/A			31,531			—			31,531			N/A			31,166		—			31,166

Total				$	175,318		$	(36,649	)	$	138,669					$	165,379	$	(31,268	)	$	134,111

\n\n\n

The acquisitions completed during the three months ended October 31, 2006 (see Note E for\nmore information) contributed to the increases in each of the categories of other intangible assets\nlisted above. The increase in customer relationships relates to the acquisitions of CIPI and PCI,\nwhich added $5,633 and $2,040, respectively. These assets will be amortized over a weighted\naverage amortization period of six years.\n

\n\n

The value of goodwill and other intangible assets in the Condensed Consolidated Financial\nStatements at October 31, 2006 differs from the value assigned to them in the allocation of\npurchase price due to the effect of fluctuations in the exchange rates used to translate financial\nstatements into the United States Dollar between the date of acquisition and October 31, 2006.\n

\n\n

Amortization expense on intangible assets was $5,240 and $2,404 for the three-month periods\nended October 31, 2006 and 2005, respectively. The amortization over each of the next five fiscal\nyears is projected to be $20,975, $20,080, $19,441, $18,417 and $15,152 for the years ending July\n31, 2007, 2008, 2009, 2010 and 2011, respectively.\n

\n\n

NOTE C — Comprehensive Income\n

\n\n\n

Total comprehensive income, which was comprised of net income, foreign currency adjustments\nand net unrealized gains and losses from cash flow hedges, amounted to approximately $30,275 and\n$28,974 for the three months ended October 31, 2006 and 2005, respectively.\n

\n\n

7\n

\n\n\n\n\n

NOTE D — Net Income Per Common Share\n

\n\n\n

Reconciliations of the numerator and denominator of the basic and diluted per share\ncomputations for the Company’s Class A and Class B common stock are summarized as follows:\n


	Three Months Ended October 31,
	2006			2005
Numerator:
Net income (numerator for basic and\ndiluted Class A net income per share)	$	34,448			$	30,198
Less:
Preferential dividends		(836	)			(758	)
Preferential dividends on dilutive\nstock options		(15	)			(16	)

Numerator for basic and diluted Class B\nnet income per share	$	33,597			$	29,424


Denominator:
Denominator for basic net income per\nshare for both Class A and Class B		53,734,000				49,250,000
Plus: Effect of dilutive stock options		871,000				956,000

Denominator for diluted net income per\nshare for both Class A and Class B		54,605,000				50,206,000


Class A Nonvoting Common Stock net income per\nshare:
Basic	$	0.64			$	0.61
Diluted	$	0.63			$	0.60

Class B Voting Common Stock net income per\nshare:
Basic	$	0.63			$	0.60
Diluted	$	0.62			$	0.59

\n\n\n

Options to purchase 629,500 and 361,000 shares of Class A Nonvoting Common Stock were not\nincluded in the computation of diluted net income per share for the quarters ended October 31, 2006\nand 2005, respectively, because the option exercise price was greater than the average market price\nof the common shares and, therefore, the effect would be anti-dilutive.\n

\n\n

NOTE E — Acquisitions\n

\n\n\n

During the three months ended October 31, 2006, the Company acquired the following companies\nfor a total combined purchase price, net of cash acquired, of $45,173. A brief description of each\ncompany acquired during the quarter is included below.\n

\n\n

\n\n\n\n \n \n \n \n\n\n\n \n\n \n\n\n \n \n\n\n

	§		CIPI is headquartered in Burlington, Massachusetts, with operations in Hong Kong, China\nand the Netherlands. CIPI is a market leader in badging accessories used to identify and\ntrack employees and visitors in a variety of settings including businesses, healthcare\nfacilities, special events and government buildings. CIPI was acquired in August 2006.

	§		PCI is located in Dallas, Texas and is a supplier of die-cut products to the medical\nmarket with a specific focus on disposable, advanced wound-care products. PCI was acquired\nin October 2006.

\n\n

8\n

\n\n\n\n\n

The allocation of the purchase price of each company acquired during the quarter ended October\n31, 2006, is preliminary pending the final valuation of intangible assets as well as certain\ntangible assets and liabilities. The following table summarizes the combined estimated fair values\nof the assets acquired and liabilities assumed as of the date of the acquisitions.\n


Current assets	$	14,291
Property, plant & equipment		4,682
Goodwill		24,194
Customer relationships		7,673
Non-compete agreements		280
Patents		300
Trademarks and other intangible assets		363

Total assets acquired		51,783
Liabilities assumed		(6,610	)

Net assets acquired	$	45,173

\n\n\n

Of the $24,194 allocated to goodwill, $7,524 is expected to be deductible for tax purposes\nbased on preliminary analysis.\n

\n\n

NOTE F — Segment Information\n

\n\n\n

The Company’s reportable segments are geographical regions that are each managed separately.\nThe Company has three reportable segments: Americas, Europe and Asia-Pacific. Following is a\nsummary of segment information for the three months ended October 31, 2006 and 2005:\n


												Corporate
												and
	Americas		Europe	Asia-Pacific		Subtotals	Eliminations		Totals
Three months ended October 31,\n2006:
Revenues from external customers	$	146,943		$	92,365		$	92,951		$	332,259		—		$	332,259
Intersegment revenues		11,994			786			5,991			18,771		($18,771	)		—
Segment profit (loss)		36,905			23,005			22,137			82,047		(2,197	)		79,850

Three months ended October 31,\n2005:
Revenues from external customers	$	116,059		$	73,762		$	42,814		$	232,635		—		$	232,635
Intersegment revenues		16,187			1,213			2,011			19,411		($19,411	)		—
Segment profit (loss)		32,194			20,778			13,010			65,982		(2,386	)		63,596

\n\n\n

Following is a reconciliation of segment profit to income before income taxes for the three\nmonths ended October 31, 2006 and 2005:\n


	Three months ended:
	October 31,
	2006			2005
Total profit from reportable segments	$	82,047			$	65,982
Corporate and eliminations		(2,197	)			(2,386	)
Unallocated amounts:
Administrative costs		(27,909	)			(19,467	)
Investment and other income		638				392
Interest expense		(4,735	)			(1,989	)

Income before income taxes		47,844				42,532
Income taxes		(13,396	)			(12,334	)

Net income	$	34,448			$	30,198

\n\n\n\n

9\n

\n\n\n\n\n\n

NOTE G –Stock-Based Compensation\n

\n\n\n

The Company has an incentive stock plan under which the Board of Directors may grant\nnonqualified stock options to purchase shares of Class A Nonvoting Common Stock to employees.\nAdditionally, the Company has a nonqualified stock option plan for non-employee directors under\nwhich stock options to purchase shares of Class A Nonvoting Common Stock are available for grant.\nThe options have an exercise price equal to the fair market value of the underlying stock at the\ndate of grant and vest ratably over a three-year period, with one-third becoming exercisable one\nyear after the grant date and one-third additional in each of the succeeding two years. Options\nissued under these plans, referred to herein as “service-based” options, generally expire 10 years\nfrom the date of grant. The Company also grants stock options to certain executives and key\nmanagement employees that vest upon meeting certain financial performance conditions over the\nvesting schedule described above. These options are referred to herein as “performance-based”\noptions. All performance-based options that were granted in fiscal 2006 and in prior years expire\n5 years from the date of grant. Beginning in fiscal 2007, any performance options granted expire\n10 years from the date of grant.\n

\n\n

As of October 31, 2006, the Company has reserved 4,039,985 shares of Class A Nonvoting Common\nStock for outstanding stock options and 610,134 shares of Class A Nonvoting Common Stock for future\nissuance of stock options under the various plans. The Company uses treasury stock or will issue\nnew Class A Nonvoting Common Stock to deliver shares under these plans.\n

\n\n

The Company accounts for share-based compensation awards in accordance with Statement of\nFinancial Accounting Standards No. 123(R), “Share Based Payment”. In accordance with this\nstandard, the Company recognizes the compensation cost of all share-based awards on a straight-line\nbasis over the vesting period of the award. Total stock compensation expense recognized by the\nCompany during the three months ended October 31, 2006 and 2005 was $1,559 ($951 net of taxes) and\n$924 ($566 net of taxes), respectively. As of October 31, 2006, total unrecognized compensation\ncost related to share-based compensation awards was approximately $11,015 pre-tax, net of estimated\nforfeitures, which the Company expects to recognize over a weighted-average period of approximately\n2.0 years.\n

\n\n

The Company has estimated the fair value of its performance-based option awards granted during\nthe three months ended October 31, 2006 and 2005 using the Black-Scholes option valuation model.\nThe weighted-average assumptions used in the Black-Scholes valuation model are reflected in the\nfollowing table:\n


Black-Scholes Option Valuation Assumptions	October 31, 2006		October 31, 2005
Expected term (in years)		6.57			3.39
Expected volatility		34.66	%		31.10	%
Expected dividend yield		1.51	%		1.50	%
Risk-free interest rate		4.90	%		4.09	%
Weighted-average market value of\nunderlying stock at grant date	$	33.32		$	33.89
Weighted-average exercise price	$	33.32		$	33.89
Weighted-average fair value of options\ngranted during the period	$	12.57		$	8.34

\n\n\n

The Company uses historical data regarding stock option exercise behaviors to estimate the\nexpected term of options granted based on the period of time that options granted are expected to\nbe outstanding. Expected volatilities are based on the historical volatility of the Company’s\nstock. The expected dividend yield is based on the Company’s historical dividend payments. The\nrisk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for\nthe length of time corresponding to the expected term of the option. The market value is obtained\nby taking the average of the high and the low stock price on the date of the grant.\n

\n\n

The Company did not grant any service-based options during the three months ended October 31,\n2006 and 2005.\n

\n\n\n

10\n

\n\n\n\n\n

A summary of stock option activity under the Company’s share-based compensation plans for the\nthree months ended October 31, 2006 is presented below:\n


									Weighted
									Average
					Weighted			Remaining			Aggregate
					Average			Contractual			Intrinsic
Options	Shares			Exercise Price			Term			Value

Outstanding at July 31, 2006		3,815,052			$	23.27
New grants		265,000			$	33.32
Exercised		(35,567	)		$	18.72
Forfeited or expired		(4,500	)		$	28.93

Outstanding at October 31, 2006		4,039,985			$	23.90				7.0		$	53,372

Exercisable at October 31, 2006		2,137,983			$	18.42				5.8		$	39,732

\n\n\n

The total intrinsic value of options exercised during the three months ended October 31, 2006\nand 2005, based upon the average market price during the period, was approximately $634 and $363,\nrespectively. The total fair value of stock options vested during the three months ended October\n31, 2006 and 2005, was approximately $59 and $63, respectively.\n

\n\n

NOTE H: Debt\n

\n\n\n

On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan\nagreement with a group of five banks that replaced the Company’s previous credit facility. At the\nCompany’s option, and subject to certain standard conditions, the available amount under the new\ncredit facility may be increased from $200 million up to $300 million. Under the new 5-year\nagreement, which has a final maturity date of October 5, 2011, the Company has the option to select\neither a base interest rate (based upon the higher of the federal funds rate plus one-half of 1% or\nthe prime rate of Bank of America) or a Eurocurrency interest rate (at the LIBOR rate plus a margin\nbased on the Company’s consolidated leverage ratio). A commitment fee is payable on the unused\namount of the facility. The agreement requires the Company to maintain two financial covenants.\nAs of October 31, 2006, the Company was in compliance with the covenants of the new agreement. The\nnew agreement restricts the amount of certain types of payments, including dividends, which can be\nmade annually to $50 million plus an amount equal to 75% of consolidated net income for the prior\nfiscal year of the Company. The Company believes that based on historic dividend practice, this\nrestriction would not impede the Company in following a similar dividend practice in the future.\nAs of October 31, 2006, there were $25.0 million of outstanding borrowings under the credit\nfacility.\n

\n\n

NOTE I: Employee Benefit Plans\n

\n\n\n

The Company provides postretirement medical, dental and vision benefits (the “Plan”) for all\nregular full and part-time domestic employees (including spouses) who retire on or after attainment\nof age 55 with 15 years of credited service. Credited service begins accruing at the later of age\n40 or date of hire. All active employees first eligible to retire after July 31, 1992, are covered\nby an unfunded, contributory postretirement healthcare plan where employer contributions will not\nexceed a defined dollar benefit amount, regardless of the cost of the program. Employer\ncontributions to the plan are based on the employee’s age and service at retirement.\n

\n\n\n\n\n

11\n

\n\n\n\n\n

The Company accounts for postretirement benefits other than pensions in accordance with SFAS\nNo. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” The Company funds\nbenefit costs on a pay-as-you-go basis. There have been no changes to the components of net\nperiodic benefit cost or the amount that the Company expects to fund in fiscal 2007 from those\nreported thereto in Note 3 to the consolidated financial statements included in the Company’s\nlatest annual report on Form 10-K for the year ended July 31, 2006.\n

\n\n

NOTE J: New Accounting Pronouncements\n

\n\n\n

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FIN 48, “Accounting for\nUncertainty in Income Taxes.” This interpretation clarifies the accounting for uncertainty in\nincome taxes recognized in an enterprise’s financial statements in accordance with FASB Statement\nNo. 109, “Accounting for Income Taxes.” This interpretation establishes a threshold condition that\na tax position must meet for any part of the benefit of that position to be recognized in the\nfinancial statements. This interpretation also provides guidance on de-recognition,\nclassification, interest and penalties, accounting in interim periods, disclosure and transition.\nThis interpretation is effective for fiscal years beginning after December 15, 2006. The Company\nhas not yet completed the process of evaluating the impact that will result from adopting FIN 48\nand therefore is unable to disclose the impact that adopting FIN 48 will have on its financial\nposition and results of operations when such statement is adopted.\n

\n\n

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,\n“Fair Value Measurements” (“SFAS No. 157”). This statement provides guidance on how to measure the\nfair value of assets and liabilities utilizing a fair value hierarchy to classify the sources of\ninformation used in the measurement calculation. SFAS No. 157 also provides new disclosure rules\nfor assets and liabilities measured at fair value based on their level in the fair value hierarchy.\nThis new statement will be effective for fiscal years beginning after November 15, 2007. The\nCompany expects that the adoption of SFAS No. 157 will not have a material effect on its\nconsolidated financial statements.\n

\n\n

In October 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit\nPension and Other Postretirement Plans” (“SFAS No. 158”). This statement requires full recognition\nof the funded status of defined benefit and other postretirement plans on the balance sheet as an\nasset or a liability. SFAS No. 158 also continues to require that unrecognized prior service\ncosts/credits, gains/losses, and transition obligations/assets be recorded in Accumulated Other\nComprehensive Income, thus not changing the income statement recognition rules for such plans.\nThis new statement will be effective for fiscal years ending after December 15, 2006. The Company\nexpects that the adoption of SFAS No. 158 will not have a material effect on its consolidated\nfinancial statements.\n

\n\n\n

NOTE K: Subsequent Event\n

\n\n

On\nDecember 8, 2006, the Company announced that it acquired Scafftag\nLtd. (“Scafftag”) and its affiliate Safetrak, Ltd., both in Barry, Wales, U.K. The acquisition also includes the purchase of Scafftag Pty., Ltd. in Perth, Australia. Scafftag is an industry leader in safety identification and facility management products in the U.K., specializing in products that help companies meet legislative\nrequirements for safety standards in the oil and gas, construction and scaffolding industries. Founded in 1983, Scafftag had annual sales of approximately $7 million in 2006.\n

\n\n

12\n

\n\n\n\n

\n\n

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
\n

\n\n

Overview\n

\n\n\n

Brady is an international manufacturer and marketer of identification solutions and specialty\nmaterials that identify and protect premises, products, and people. Its products include\nhigh-performance labels and signs, printing systems and software, label-application and\ndata-collection systems, safety devices and precision die-cut materials. Founded in 1914, the\nCompany serves customers in electronics, telecommunications, manufacturing, electrical,\nconstruction, laboratory, education, governmental, public utility, computer, transportation and a\nvariety of other industries. The Company manufactures and sells products domestically and\ninternationally through multiple channels including direct sales, distributor sales, mail-order\ncatalogs, telemarketing, retail and electronic access through the Internet. The Company operates\nmanufacturing or distribution facilities in Australia, Belgium, Brazil, Canada, China, Denmark,\nFrance, Germany, Hong Kong, India, Italy, Korea, Malaysia, Mexico, Norway, Singapore, Slovakia,\nSweden, Thailand, the United Kingdom and the United States. Brady sells through subsidiaries or\nsales offices in these countries, with additional sales through a dedicated team of international\nsales representatives in Japan, the Netherlands, the Philippines, Spain, Taiwan and Turkey and\nfurther markets it products to parts of Eastern Europe, the Middle East, Africa and Russia. The\nCompany believes that its reputation for innovation, commitment to quality and service, and\ndedicated employees have made it a world leader in the markets it serves.\n

\n\n

Sales for the quarter ended October 31, 2006, were up 42.8% to $332.3 million, compared to\n$232.6 million in the same period of fiscal 2006. Of the increase in sales, organic growth\naccounted for 5.7%, acquisitions added 34.6% and the effects of fluctuations in the exchange rates\nused to translate financial results into the United States Dollar added 2.5%. Net income for the\nquarter ended October 31, 2006, was $34.4 million or $0.63 per diluted Class A Nonvoting Common\nShare, up 14.1% from $30.2 million or $0.60 per diluted Class A Nonvoting Common Share reported in\nthe first quarter of last fiscal year.\n

\n\n

Results of Operations\n

\n\n\n

The comparability of the operating results for the three months ended October 31, 2006 to the\nprior year has been significantly impacted by the following acquisitions completed in fiscal 2007\nand fiscal 2006.\n


Acquisitions	Segment	Date Completed
STOPware, Inc. (“Stopware”)\n	Americas\n	August 2005
Texit Danmark AS and Texit Norge AS\n(collectively “Texit”)\n	Europe\n	September 2005
TruMed Technologies, Inc. (“TruMed”)\n	Americas\n	October 2005
QDP Thailand Co., Ltd (“QDPT”)\n	Asia-Pacific\n	October 2005
J.A.M. Plastics Inc. (“J.A.M.”)\n	Americas\n	January 2006
Personnel Concepts\n	Americas\n	February 2006
IDenticard Systems, Inc. and Identicam Systems\n(collectively “Identicard”)\n	Americas\n	February 2006
Accidental Health & Safety Pty. Ltd and Trafalgar First\nAid Pty. Ltd. (collectively “Accidental Health”)\n	Asia-Pacific\n	March 2006
Tradex Converting AB (“Tradex”)\n	Americas, Europe\nand Asia-Pacific\n	May 2006
Carroll Australasia Pty. Ltd. (“Carroll”)\n	Asia-Pacific\n	June 2006
Daewon Industry Corporation (“Daewon”)\n	Asia-Pacific\n	July 2006
Comprehensive Identification Products, Inc. (“CIPI”)\n	Americas, Europe\nand Asia-Pacific\n	August 2006
Precision Converters, Inc. (“PCI”)\n	Americas\n	October 2006

\n\n\n\n

13\n

\n\n\n\n\n

Sales for the three months ended October 31, 2006 were up 42.8% compared to the same period in\nfiscal 2006. The increase was comprised of an increase of 5.7% attributed to organic growth, an\nincrease of 2.5% due to the effect of currencies on sales, and an increase of 34.6% due to the\nacquisitions listed in the above table. The organic growth for the quarter ended October 31, 2006,\nwas due primarily to an 11.9% increase in Asia-Pacific base sales which was aided by the continued\ntransfer of die cut business from the Americas to the region, partially offset by the loss of\ncertain programs with a disk-drive customer in the region. Additionally, the Company continues to\nexperience solid growth in many of its mature markets in the Americas and Europe, with organic\ngrowth of 2.6% and 6.8%, respectively, partly offset by the transfer of some of the existing\nbusiness from the Americas to the Asia-Pacific region.\n

\n\n

Gross margin as a percentage of sales decreased from 53.3% to 49.4% for the quarter ended\nOctober 31, 2006, compared to the same period of the previous year. This decline was driven by the\nacquisitions that Brady completed in the last 12 months, which were more heavily weighted towards\nthe precision die cut business which is generally characterized by lower gross margins and lower selling, general and administrative (“SG&A”) expenses. If Brady\nretains the current mix, we would expect to continue to see lower gross margins, and over time\nlower SG&A expenses as we gradually integrate the\nacquisitions.\n

\n\n

Research and development (“R&D”) expenses increased 30.6% to $8.5 million for the three months\nended October 31, 2006, compared to $6.5 million for the same period in the prior year. As a\npercentage of sales, R&D expenses represented a lower percentage of sales, declining from 2.8% in\nthe first quarter of fiscal 2006 to 2.6% in the first quarter for fiscal 2007. Brady continues to\nfund new product development at increasing rates.\n

\n\n

SG&A expenses increased 41.4% to $103.7 million for the three months ended October 31, 2006,\nas compared to $73.3 million for the same period in the prior year. This expected increase was due\nto acquisitions and the number of initiatives taking place this year, such as the continued\nintegration of the acquisitions completed in fiscal 2006 and 2007, roll-out of SAP to many of our\nlocations around the world, creation of a business process shared service center in India,\ndevelopment of a customer call center in the Philippines, and geographic expansions in Slovakia,\nSweden, Turkey, India, China and Mexico. The increase was more pronounced due to relatively low\nSG&A expenses in the first quarter of fiscal 2006. As a percentage of sales, SG&A expenses\ndeclined from 31.5% in the first quarter of fiscal 2006 to 31.2% in the same period of fiscal 2007,\ndespite the increase described above.\n

\n\n

Interest expense increased from $2.0 million for the quarter ended October 31, 2005, to $4.7\nmillion for the quarter ended October 31, 2006. The increase in interest expense was due to the\ninterest on the $200 million private placement of senior notes that was completed in the third\nquarter of fiscal 2006, as well as interest on the borrowings under our revolving credit facility\nin the first quarter of fiscal 2007.\n

\n\n

The Company’s effective tax rate was 28.0% for the quarter ended October 31, 2006, and 29.0%\nfor the same period of the previous year. The improvement in the effective rate was due to a\ncontinuing shift of a higher percentage of the Company’s pre-tax income to lower tax rate\ncountries.\n

\n\n

Net income for the three months ended October 31, 2006, increased 14.1% to $34.4 million,\ncompared to $30.2 million for the same quarter of the previous year. Net income as a percentage of\nsales decreased from 13.0% to 10.4% for the quarter ended October 31, 2006, compared to the same\nperiod in the prior year. The decrease was due to the factors noted above and a comparison to the\nOctober 2005 quarter that had exceptionally strong results.\n

\n\n\n

14\n

\n\n\n\n\n\n

Business Segment Operating Results\n

\n\n\n

Management of the Company evaluates results based on the following geographic regions:\nAmericas, Europe, and Asia-Pacific.\n


															Corporate
								Asia-						and
(Dollars in thousands)	Americas			Europe			Pacific		Subtotals		Eliminations			Total
SALES TO EXTERNAL CUSTOMERS
Three months ended:
October 31, 2006	$	146,943			$	92,365		$	92,951		$	332,259				—		$	332,259
October 31, 2005	$	116,059			$	73,762		$	42,814		$	232,635				—		$	232,635

SALES GROWTH INFORMATION
Three months ended October 31, 2006
Base		2.6	%			6.8	%		11.9	%		5.7	%			—			5.7	%
Currency		0.8	%			5.3	%		2.5	%		2.5	%			—			2.5	%
Acquisitions		23.2	%			13.1	%		102.7	%		34.6	%			—			34.6	%
Total		26.6	%			25.2	%		117.1	%		42.8	%			—			42.8	%

SEGMENT PROFIT (LOSS)
Three months ended
October 31, 2006	$	36,905			$	23,005		$	22,137		$	82,047			$	(2,197	)	$	79,850
October 31, 2005	$	32,194			$	20,778		$	13,010		$	65,982			$	(2,386	)	$	63,596
Percentage increase		14.6	%			10.7	%		70.2	%		24.3	%			-7.9	%		25.6	%

\n\n\n

SEGMENT\nPROFIT RECONCILIATION (Dollars in thousands)\n

\n\n


	Three months ended:
	October 31,			October 31,
	2006			2005
Total profit from reportable segments	$	82,047			$	65,982
Corporate and eliminations		(2,197	)			(2,386	)
Unallocated amounts:
Administrative costs		(27,909	)			(19,467	)
Investment and other income		638				392
Interest expense		(4,735	)			(1,989	)
Income before income taxes		47,844				42,532
Income taxes		(13,396	)			(12,334	)

Net income	$	34,448			$	30,198

\n\n\n

The Company evaluates regional performance using sales and segment profit. Segment\nprofit or loss does not include certain administrative costs, interest, investment and other income\nand income taxes.\n

\n\n\n

15\n

\n\n\n\n\n\n

Americas:\n

\n\n\n

Americas sales increased 26.6% for the quarter ended October 31, 2006, compared to the same\nperiod in the prior year. Base sales in local currency increased 2.6% in the quarter compared to\nthe same period last year. Fluctuations in the exchange rates used to translate financial results\ninto the U.S. dollar had a slight impact on sales, increasing it by 0.8% in the quarter. Sales in\nthe region were also aided by the current year acquisitions of CIPI and PCI and the prior year\nacquisitions of TruMed, J.A.M, Personnel Concepts and Identicard, which increased sales by 23.2%\nfor the quarter. The organic growth in the quarter was driven by continued growth in both the Brady\nbrand business and the direct marketing business, with a partial offset from the planned transfer\nof die-cut business to the Asia-Pacific segment.\n

\n\n

Segment profit for the region increased 14.6% to $36.9 million for the quarter ended October\n31, 2006, compared to $32.2 million for the same period in the prior year. As a percentage of\nsales, segment profit decreased from 27.7% in the first quarter of fiscal 2006 to 25.1% in the\nfirst quarter of fiscal 2007. The decline was due to the effect of recent acquisitions. As\nexpected, the segment’s recent acquisitions have produced an initial rate of profit that is below\nthe average rate of profit of the segment. As we integrate the businesses and achieve synergies,\nthe profit percentages are expected to increase. Although the segment continues to experience cost\nincreases in utilities and materials, the costs were mitigated by increased sales volume and price\nincreases.\n

\n\n

Europe:\n

\n\n\n

Europe sales increased 25.2% for the quarter ended October 31, 2006, compared to the same\nperiod in the prior year. Base sales in local currency increased 6.8% in the quarter compared to\nthe same period last year. Sales were positively affected by fluctuations in the exchange rates\nused to translate financial results into United States currency, which increased sales within the\nregion by 5.3% in the quarter. The fiscal 2007 acquisition of CIPI and the fiscal 2006\nacquisitions of Texit and Tradex increased sales by 13.1%. The organic growth in the quarter was\ndue to increases in the Brady brand business, as there is continued growth in central Europe and a\nmore focused market strategy in the more mature geographies, and also increases in the direct\nmarketing business due to the addition of new customers and product expansion.\n

\n\n

Segment profit for the region increased 10.7% to $23.0 million for the quarter ended October\n31, 2006, compared to $20.8 million for the same period of the prior year. As a percentage of\nsales, segment profit decreased from 28.2% in the first quarter of fiscal 2006 to 24.9% in the\nfirst quarter of fiscal 2007. The decline was due to continued integration costs of recent\nacquisitions and the headquarter costs of Tradex, as well as expenses incurred related to the\nexpansion into new geographies such as Slovakia, Spain, Turkey and Sweden.\n

\n\n

Asia-Pacific:\n

\n\n\n

Asia-Pacific sales increased 117.1% for the quarter ended October 31, 2006, compared to the\nsame period in the prior year. Base sales in local currency increased 11.9% in the quarter\ncompared to the same period last year. Sales were positively affected by fluctuations in the\nexchange rates used to translate financial results into United States currency, which increased\nsales within the region by 2.5% in the quarter. The fiscal 2007 acquisition of CIPI and the fiscal\n2006 acquisitions of QDPT, Accidental Health, Tradex, Carroll and Daewon increased sales by 102.7%\nfor the quarter. The strong organic growth for the quarter was due to strong mobile handset\nbusiness in North Asia and the planned transfer of die cut business from the Americas segment,\npartially offset by the loss of certain programs in the hard disk drive business due to recent\nindustry consolidations.\n

\n\n\n

16\n

\n\n\n\n\n\n

Segment profit for the region was up 70.2% to $22.1 million for the quarter ended October 31,\n2006, compared to $13.0 million for the same period in the prior year. The increase was due\nprimarily to increased sales volume. As a percentage of sales, segment profit decreased from 30.4%\nin the first quarter of fiscal 2006 to 23.8% in the first quarter of fiscal 2007. The decline was\nprimarily due to the expected lower profitability of the segment’s recent acquisitions. Also,\nBrady continues to experience pricing pressure from customers in the region, which is a\ncharacteristic of the businesses that are served in the OEM electronics markets. Brady’s strategy\ncontinues to be to mitigate pricing pressures through manufacturing efficiencies, new product\ndevelopment and strategic material alliances.\n

\n\n

Brady continues to invest in the expansion of the Asia-Pacific region. In the first quarter\nof fiscal 2007, a new larger facility in Malaysia was opened, production began in India and the\nThailand operations moved into larger facilities. Brady’s eleventh facility in China is expected\nto begin production in the second quarter of fiscal 2007.\n

\n\n

Financial Condition\n

\n\n\n

The Company’s current ratio as of October 31, 2006, was 2.2 compared to 2.1 at July 31, 2006.\nCash and cash equivalents were $87.5 million at October 31, 2006, compared to $113.0 million at\nJuly 31, 2006. Additionally, there were no short-term investments outstanding at October 31, 2006,\ncompared to $11.5 million outstanding at July 31, 2006. Working capital increased $13.5 million\nduring the quarter ended October 31, 2006, to $254.0 million from $240.5 million at July 31, 2006.\nAccounts receivable increased $29.1 million for the quarter due to increased sales volume, seasonal\nbuild-up from our OEM customers, acquisitions and foreign currency translation. Inventories\nincreased $13.8 million for the quarter, due to acquisitions and increased inventory levels in Asia\nto meet seasonal demand. We expect that during the second half of the fiscal year the accounts\nreceivable and inventory levels associated with seasonal demand will decline. The net decrease in\ncurrent liabilities was $6.0 million for the quarter. The decrease was composed of a significant\ndecrease in accrued wages due to the payment of incentives in the quarter related to the year ended\nJuly 31, 2006, partially offset by an increase in accounts payable from the fiscal 2007\nacquisitions and an increase in accrued income taxes due to improved profitability.\n

\n\n

Cash flow from operating activities totaled $12.4 million for the quarter ended October 31,\n2006, compared to $8.1 million for the same period last year. The increase was the result of a\n$4.3 million increase in net income and a $5.6 million increase in depreciation and amortization on\nthe intangible assets acquired in fiscal 2006 and 2007, partially offset by an increase in accounts\nreceivable balances and prepaid expenses and other assets.\n

\n\n

The acquisitions of businesses used $45.2 million of cash for the quarter ended October 31,\n2006. Contingent consideration payments of $7.5 million were paid during the quarter ended October\n31, 2006 to satisfy the $6.5 million holdback requirement of the ID Technologies acquisition\ncompleted in fiscal 2005 and the $1.0 million earnout liability of the Stopware acquisition\ncompleted in fiscal 2006. Capital expenditures were $14.5 million for the quarter ended October\n31, 2006, compared to $8.5 million in the same period last year, driven by approximately $9 million\nspent on the expansions in China, Canada, India, Slovakia, and other locations; approximately $3\nmillion spent for cost reduction projects; and approximately $1 million spent on implementing SAP\nacross Brady’s global operations. Net cash provided by financing activities was $18.2 million for\nthe quarter ended October 31, 2006, due to net borrowings on the revolving loan agreement,\npartially offset by the payment of dividends. Net cash used in financing activities for the same\nperiod last year\nwas $4.9 million related to the repurchase of the Company’s stock and the payment of dividends,\npartially offset by net borrowings on the revolving loan agreement.\n

\n\n\n\n\n

17\n

\n\n\n\n\n

On October 5, 2006, the Company entered into a $200 million multi-currency revolving loan\nagreement with a group of five banks that replaced the Company’s previous credit agreement. At the\nCompany’s option, and subject to certain standard conditions, the available amount under the new\ncredit facility may be increased from $200 million up to $300 million.\n

\n\n

Under the 5-year agreement, which has a final maturity date of October 5, 2011, the Company\nhas the option to select either a base interest rate (based upon the higher of the federal funds\nrate plus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency interest rate (at\nthe LIBOR rate plus a margin based on the Company’s consolidated leverage ratio). A commitment fee\nis payable on the unused amount of the facility. The agreement requires the Company to maintain\ntwo financial covenants. As of October 31, 2006, the Company was in compliance with the covenants\nof the agreement.\n

\n\n

The credit agreement restricts the amount of certain types of payments, including dividends,\nwhich can be made annually to $50 million plus an amount equal to 75% of consolidated net income\nfor the prior fiscal year. The Company believes that based on historic dividend practice, this\nrestriction would not impede the Company in following a similar dividend practice in the future.\nDuring the quarter ended October 31, 2006, the Company borrowed and repaid $48.2 million and $23.2\nmillion, respectively. As of October 31, 2006, there was $25.0 million of outstanding borrowings\non the credit agreement.\n

\n\n

On February 14, 2006, the Company completed the private placement of $200 million in ten-year\nfixed notes at 5.3% interest to institutional investors. The notes will be amortized in equal\ninstallments over seven years, beginning in 2010 with interest payable on the notes semiannually on\nAugust 14 and February 14, beginning in August 2006. The notes have been fully and unconditionally\nguaranteed on an unsecured basis by the Company’s domestic subsidiaries. The Company used the net\nproceeds of the offering to finance acquisitions completed in fiscal 2006 and fiscal 2007. This\nprivate placement was exempt from the registration requirements of the Securities Act of 1933. The\nnotes were not registered for resale and may not be resold absent such registration or an\napplicable exemption from the registration requirements of the Securities Act of 1933 and\napplicable state securities laws. The notes have certain prepayment penalties for repaying them\nprior to the maturity date. The agreement also requires the Company to maintain a financial\ncovenant. As of October 31, 2006, the Company was in compliance with this covenant.\n

\n\n

On June 30, 2004, the Company finalized a debt offering of $150 million of 5.14% unsecured\nsenior notes due in 2014 in an offering exempt from the registration requirements of the Securities\nAct of 1933. The debt offering was in conjunction with the Company’s acquisition of EMED. The\nnotes will be amortized over seven years beginning in 2008, with interest payable on the notes\nsemiannually on June 28 and December 28, beginning in December 2004. The Company used the proceeds\nof the offering to reduce outstanding indebtedness under the Company’s revolving credit facilities\nused to initially fund the EMED acquisition. The debt has certain prepayment penalties for repaying\nthe debt prior to its maturity date. The agreement also requires the Company to maintain a\nfinancial covenant. As of October 31, 2006, the Company was in compliance with this covenant.\n

\n\n

On November 16, 2006, the Board of Directors declared a quarterly cash dividend to\nshareholders of the Company’s Class A Common Stock of $0.14 per share payable on January 31, 2007\nto shareholders of record at the close of business on January 10, 2007.\n

\n\n

The Company believes that its continued strong cash flows from operations and existing\nborrowing capacity will enable it to execute its long-term strategic plan. This strategic plan\nincludes investments, which expand its current market share, open new markets and geographies,\ndevelop new products and distribution channels and continue to improve our processes. This\nstrategic plan also includes executing key acquisitions.\n

\n\n\n

Subsequent\nEvent Affecting Financial Condition\n

\n\n\n

\n\n

18\n

\n\n\n\n\n

Off-Balance Sheet Arrangements – The Company does not have material off-balance sheet\narrangements or related-party transactions. The Company is not aware of factors that are reasonably\nlikely to adversely affect liquidity trends, other than the risk factors described in this and\nother Company filings. However, the following additional information is provided to assist those\nreviewing the Company’s financial statements.\n

\n\n

Operating Leases – These leases generally are entered into for investments in facilities, such\nas manufacturing facilities, warehouses and office buildings, computer equipment and Company\nvehicles, for which the economic profile is favorable.\n

\n\n

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

\n\n

Other Contractual Obligations – The Company does not have material financial guarantees or\nother contractual commitments that are reasonably likely to adversely affect liquidity.\n

\n\n

Related-Party Transactions – The Company does not have any related-party transactions that\nmaterially affect the results of operations, cash flow or financial condition.\n

\n\n

Forward-Looking Statements\n

\n\n\n

Brady believes that certain statements in this Form 10-Q are “forward-looking statements”\nwithin the meaning of the Private Securities Litigation Reform Act of 1995. All statements related\nto future, not past, events included in this Form 10-Q, including, without limitation, statements\nregarding Brady’s future financial position, business strategy, targets, projected sales, costs,\nearnings, capital expenditures, debt levels and cash flows, and plans and objectives of management\nfor future operations are forward-looking statements. When used in this Form 10-Q, words such as\n“may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or\n“plan” or similar terminology are generally intended to identify forward-looking statements. These\nforward-looking statements by their nature address matters that are, to different degrees,\nuncertain and are subject to risks, assumptions and other factors, some of which are beyond Brady’s\ncontrol, that could cause actual results to differ materially from those expressed or implied by\nsuch forward-looking statements. For Brady, uncertainties arise from future financial performance\nof major markets Brady serves, which include, without limitation, telecommunications,\nmanufacturing, electrical, construction, laboratory, education, governmental, public utility,\ncomputer, transportation; difficulties in making and integrating acquisitions; risks associated\nwith newly acquired businesses; Brady’s ability to retain significant contracts and customers;\nfuture competition; Brady’s ability to develop and successfully market new products; changes in the\nsupply of, or price for, parts and components; increased price pressure from suppliers and\ncustomers; interruptions to sources of supply; environmental, health and safety compliance costs\nand liabilities; Brady’s ability to realize cost savings from operating initiatives; Brady’s\nability to attract and retain key talent; difficulties associated with exports; risks associated\nwith international operations; fluctuations in currency rates versus the US dollar; technology\nchanges; potential write-offs of Brady’s substantial intangible assets; risks associated with\nobtaining governmental approvals and maintaining regulatory compliance for new and existing\nproducts; business interruptions due to implementing business systems; and numerous other matters\nof national, regional and global scale, including those of a political, economic, business,\ncompetitive and regulatory nature contained from time to time in Brady’s U.S. Securities and\nExchange Commission filings, including, but not limited to, those factors listed in the “Risk\nFactors” section located in Item 1A of Part I of Brady’s Form 10-K for the year ended July 31,\n2006. These uncertainties may cause Brady’s actual future results to be materially different than\nthose expressed in its forward-looking statements. Brady does not undertake to update its\nforward-looking statements.\n

\n\n\n\n\n

19\n

\n\n\n\n

\n\n

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n

\n\n\n

The Company’s business operations give rise to market risk exposure due to changes in foreign\nexchange rates. To manage that risk effectively, the Company enters into hedging transactions,\naccording to established guidelines and policies, that enable it to mitigate the adverse effects of\nthis financial market risk.\n

\n\n

The global nature of the Company’s business requires active participation in the foreign\nexchange markets. As a result of investments, production facilities and other operations on a\nglobal scale, the Company has assets, liabilities and cash flows in currencies other than the U.S.\nDollar. The primary objective of the Company’s foreign currency exchange risk management is to\nminimize the impact of currency movements on intercompany transactions and foreign raw-material\nimports. To achieve this objective, the Company hedges a portion of known exposures using forward\ncontracts. Main exposures are related to transactions denominated in the British Pound, the Euro,\nCanadian Dollar, Australian Dollar, Singapore Dollar, Swedish Krona, Korean Won and Chinese Yuan\ncurrency.\n

\n\n

The Company could be exposed to interest rate risk through its corporate borrowing activities.\nThe objective of the Company’s interest rate risk management activities is to manage the levels of\nthe Company’s fixed and floating interest rate exposure to be consistent with the Company’s\npreferred mix. The interest rate risk management program allows the Company to enter into approved\ninterest rate derivatives if there is a desire to modify the Company’s exposure to interest rates.\nAs of October 31, 2006, the Company had no interest rate derivatives.\n

\n\n

ITEM 4. CONTROLS AND PROCEDURES\n

\n\n\n

The Company maintains disclosure controls and procedures designed to ensure that the\ninformation the Company must disclose in its filings with the Securities and Exchange Commission is recorded,\nprocessed, summarized and reported on a timely basis. The Company’s Chief Executive Officer and\nChief Financial Officer have reviewed and evaluated the Company’s disclosure controls and\nprocedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,\nas amended (the “Exchange Act’’) as of the end of the period covered by this report (the\n“Evaluation Date’’). Based on such evaluation, such officers have concluded that, as of the\nEvaluation Date, the Company’s disclosure controls and procedures are effective in bringing to\ntheir attention on a timely basis material information relating to the Company required to be\nincluded in the Company’s periodic filings under the Exchange Act.\n

\n\n

The Company is in the process of implementing its enterprise resource planning\nsystem, SAP, to many of its locations around the world. This implementation has resulted in\ncertain changes to business processes and internal controls impacting financial reporting.\nManagement is taking the necessary steps to monitor and maintain appropriate internal controls\nduring this period of change.\n

\n\n

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

\n\n\n\n\n

20\n

\n\n\n\n\n

EXHIBIT 31.1\n

\n\n\n

RULE 13a-14(a)/15d-14(a) CERTIFICATION\n

\n\n\n

I, Frank M. Jaehnert, certify that:\n

\n\n\n\n

(1) I have reviewed this quarterly report on Form 10-Q of Brady Corporation;\n

\n\n

(2) Based on my knowledge, this report does not contain any untrue statement of a material\nfact or omit to state a material fact necessary to make the statements made, in light of the\ncircumstances under which such statements were made, not misleading with respect to the period\ncovered by this report;\n

\n\n

(3) Based on my knowledge, the financial statements, and other financial information\nincluded in this report, fairly present in all material respects the financial condition, results\nof operations and cash flows of the registrant as of, and for, the periods presented in this\nreport;\n

\n\n

(4) The registrant’s other certifying officer and I are responsible for establishing and\nmaintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and\n15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules\n13a-15(f) and 15d-15(f)) for the registrant and have:\n

\n\n\n

a) Designed such disclosure controls and procedures, or caused such disclosure controls\nand procedures to be designed under our supervision, to ensure that material information\nrelating to the registrant, including its consolidated subsidiaries, is made known to us by\nothers within those entities, particularly during the period in which this report is being\nprepared;\n

\n\n\n

b) Designed such internal control over financial reporting, or caused such internal\ncontrol over financial reporting to be designed under our supervision to provided reasonable\nassurance regarding the reliability of financial reporting and the preparation of financial\nstatements for external purposes in accordance with generally accepted accounting principles;\n

\n\n\n

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and\npresented in this report our conclusions about the effectiveness of the disclosure controls\nand procedures, as of the end of the period covered by this report based on such evaluation;\nand\n

\n\n\n

d) Disclosed in this report any change in the registrant’s internal control over\nfinancial reporting that occurred during the registrant’s most recent fiscal quarter (the\nregistrant’s fourth fiscal quarter in the case of an annual report) that has materially\naffected, or is reasonably likely to materially affect, the registrant’s internal control over\nfinancial reporting; and\n

\n\n

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent\nevaluation of internal control over financial reporting, to the registrant’s auditors and the\naudit committee of the registrant’s board of directors (or persons performing the equivalent\nfunctions):\n

\n\n\n

a) All significant deficiencies and material weaknesses in the design or operation of\ninternal control over financial reporting which are reasonably likely to adversely affect the\nregistrant’s ability to record, process, summarize and report financial information; and\n

\n\n\n

b) Any fraud, whether or not material, that involves management or other employees who\nhave a significant role in the registrant’s internal control over financial reporting.\n

\n\n

Date: December 8, 2006\n

\n\n

\n\n\n\n \n\n\n\n\n \n\n\n \n\n\n

/s/ FRANK M. JAEHNERT\n

Frank\nM. Jaehnert

President and Chief Executive Officer

\n\n\n\n\n

23\n

\n\n\n\n\n

EXHIBIT 31.2\n

\n\n\n

RULE 13a-14(a)/15d-14(a) CERTIFICATION\n

\n\n\n

I, David Mathieson, certify that:\n

\n\n\n

(1) I have reviewed this quarterly report on Form 10-Q of Brady Corporation;\n

\n\n

\n\n\n

\n\n

\n\n\n

b) Any fraud, whether or not material, that involves management or other employees who\nhave a significant role in the registrant’s internal control over financial reporting.\n

\n\n

Date: December 8, 2006\n

\n\n

\n\n\n\n \n\n\n\n\n \n\n\n \n\n\n

/s/ DAVID MATHIESON\n

David\nMathieson

Vice President and Chief Financial Officer

\n\n\n\n\n

24\n

\n\n\n\n\n

EXHIBIT 32.1\n

\n\n\n

SECTION 1350 CERTIFICATION\n

\n\n\n

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley\nAct of 2002, the undersigned officer of Brady Corporation (the “Company”) certifies to his\nknowledge that:\n

\n\n\n

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended October\n31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities\nExchange Act of 1934; and\n

\n\n\n

(2) The information contained in that Form 10-Q fairly presents, in all material respects,\nthe financial conditions and results of operations of the Company.\n

\n\n

Date: December 8, 2006\n

\n\n

\n\n\n\n \n\n\n\n\n \n\n\n \n\n\n

/s/ FRANK M. JAEHNERT\n

Frank\nM. Jaehnert

President and Chief Executive Officer

\n\n\n

A signed original of this written statement required by Section 906, or other document\nauthenticating, acknowledging, or otherwise adopting the signature that appears in typed form\nwithin the electronic version of this written statement required by Section 906, has been provided\nto the Company and will be retained by the Company and furnished to the Securities and Exchange\nCommission or its staff upon request. This certification accompanies this report pursuant to\nSection 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for\npurposes of Section 18 of the Securities Exchange Act of 1934, as amended.\n

\n\n\n\n\n

25\n

\n\n\n\n\n

EXHIBIT 32.2\n

\n\n\n

SECTION 1350 CERTIFICATION\n

\n\n\n

(2) The information contained in that Form 10-Q fairly presents, in all material respects,\nthe financial conditions and results of operations of the Company.\n

\n\n

Date: December 8, 2006\n

\n\n

\n\n\n\n \n\n\n\n\n \n\n\n \n\n\n

/s/ DAVID MATHIESON\n

David\nMathieson

Vice President and Chief Financial Officer

\n\n\n

\n\n\n\n

26\n


31.1\n		Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert
31.2\n		Rule 13a-14(a)/15d-14(a) Certification of David Mathieson
32.1\n		Section 1350 Certification of Frank M. Jaehnert
32.2\n		Section 1350 Certification of David Mathieson


	BRADY CORPORATION \n
Date: December 8, 2006	/s/ F. M. Jaehnert\n
	F. M. Jaehnert
	President & Chief Executive Officer


Date: December 8, 2006	/s/ David Mathieson\n
	David Mathieson
	Vice President & Chief Financial Officer \n(Principal Accounting Officer) \n(Principal Financial Officer)

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