e10vq

\n\n\n

\n\n\n\n\n

UNITED STATES SECURITIES AND EXCHANGE COMMISSION\n

\n\n

Washington, DC 20549\n

\n\n

FORM 10-Q\n

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


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

\n\n

For\nthe Quarterly Period Ended January 31, 2008\n

\n\n

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


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

\n\n

For the Transition Period from to \n\n

\n\n

Commission File Number 1-14959

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BRADY CORPORATION\n

\n\n

(Exact name of registrant as specified in its charter)

\n\n\n

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


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

\n\n

6555 West Good Hope Road, Milwaukee, Wisconsin 53223
\n(Address of principal executive offices)
\n(Zip Code)
\n(414) 358-6600

\n\n

(Registrant’s telephone number, including area code)

\n\n

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

\nIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a\nnon-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,”\n“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.\n

\n\n

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


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o \n(Do not check if a smaller reporting company)		Smaller Reporting Company o

\n\n\n\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

\n\n

APPLICABLE ONLY TO CORPORATE ISSUERS

\n\n\n

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of\nthe latest practicable date.\nAs of March 2, 2008, there were outstanding 50,784,181 shares of Class A Nonvoting Common Stock and\n3,538,628 shares of Class B Voting Common Stock. The Class B Common Stock, all of which is held by\naffiliates of the Registrant, is the only voting stock.\n

\n\n\n

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

\n\n

FORM 10-Q
\nBRADY CORPORATION
\nINDEX\n

\n\n


		Page
PART I. Financial Information

	Item 1. Financial Statements (Unaudited)

	Condensed\nConsolidated Balance Sheets		3

	Condensed\nConsolidated Statements of Income		4

	Condensed\nConsolidated Statements of Cash Flows		5

	Notes\nto Condensed Consolidated Financial Statements		6

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		14

	Item 3. Quantitative and Qualitative Disclosures About Market Risk		21

	Item 4. Controls and Procedures		21

PART II. Other Information

	Item 6. Exhibits		22










Brady Corporation Restated Restoration Plan
Certification
Certification
Section 1350 Certification
Section 1350 Certification

\n\n

PART I. FINANCIAL INFORMATION\n\n

\n\n

ITEM 1. FINANCIAL STATEMENTS
\nBRADY CORPORATION AND SUBSIDIARIES\n\n

\n\n

CONDENSED CONSOLIDATED BALANCE SHEETS
\n(DOLLARS IN THOUSANDS)\n\n


	January 31, 2008		July 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	198,439		$	142,846
Short term investments		—			19,200
Accounts receivable, less allowance for losses ($8,960 and $9,109, respectively)		242,394			239,569
Inventories:
Finished products		82,783			80,486
Work-in-process		21,164			21,309
Raw materials and supplies		35,867			37,983

Total inventories		139,814			139,778
Prepaid expenses and other current assets		45,946			42,020


Total current assets		626,593			583,413

Other assets:
Goodwill		768,850			737,450
Other intangible assets		148,468			149,761
Deferred income taxes		31,070			32,508
Other		24,697			21,111

Property, plant and equipment:
Cost:
Land		6,394			6,332
Buildings and improvements		93,938			90,688
Machinery and equipment		264,611			248,356
Construction in progress		14,531			18,107


		379,474			363,483
Less accumulated depreciation		205,240			188,869


Net property, plant and equipment		174,234			174,614


Total	$	1,773,912		$	1,698,857


LIABILITIES AND STOCKHOLDERS’ INVESTMENT

Current liabilities:
Accounts payable	$	96,220		$	91,596
Wages and amounts withheld from employees		62,065			73,622
Taxes, other than income taxes		7,789			8,461
Accrued income taxes		12,804			24,677
Other current liabilities		53,129			60,254
Short-term borrowings and current maturities on long-term obligations		21,436			21,444


Total current liabilities		253,443			280,054

Long-term obligations, less current maturities		478,572			478,575
Other liabilities		62,899			49,216


Total liabilities		794,914			807,845

Stockholders’ investment:

\n\n\n

BRADY\nCORPORATION AND SUBSIDIARIES

\n\n

\nCONDENSED CONSOLIDATED STATEMENTS OF INCOME
\n(Dollars in Thousands, Except Per Share 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 \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n\n\n\n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n \n \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 January 31,			Six Months Ended January 31,
	(Unaudited)			(Unaudited)
								Percentage											Percentage
	2008			2007			Change		2008			2007			Change

Net sales	$	364,124			$	321,275			13.3	%		$	744,258			$	653,534				13.9	%
Cost of products sold		189,101				171,114			10.5	%			381,567				339,245				12.5	%

Gross margin		175,023				150,161			16.6	%			362,691				314,289				15.4	%

Operating expenses:
Research and development		10,071				9,082			10.9	%			19,050				17,614				8.2	%
Selling, general and administrative		122,508				108,355			13.1	%			242,859				212,010				14.6	%

Total operating expenses		132,579				117,437			12.9	%			261,909				229,624				14.1	%

Operating income		42,444				32,724			29.7	%			100,782				84,665				19.0	%

Other income (expense):
Investment and other\nincome(expense) — net		2,269				(106	)	NM			2,387				532				348.7	%
Interest expense		(6,747	)			(5,244	)		28.7	%			(13,467	)			(9,979	)			35.0	%


Income before income taxes		37,966				27,374			38.7	%			89,702				75,218				19.3	%

Income taxes		11,276				7,665			47.1	%			26,642				21,061				26.5	%


Net income	$	26,690			$	19,709			35.4	%		$	63,060			$	54,157				16.4	%


Per Class A Nonvoting Common Share:
Basic net income	$	0.49			$	0.37			32.4	%		$	1.16			$	1.01				14.9	%
Diluted net income	$	0.48			$	0.36			33.3	%		$	1.14			$	0.99				15.2	%
Dividends	$	0.15			$	0.14			7.1	%		$	0.30			$	0.28				7.1	%

Per Class B Voting Common Share:
Basic net income	$	0.49			$	0.37			32.4	%		$	1.14			$	0.99				15.2	%
Diluted net income	$	0.48			$	0.36			33.3	%		$	1.13			$	0.97				16.5	%
Dividends	$	0.15			$	0.14			7.1	%		$	0.28			$	0.26				7.7	%

Weighted average common shares\noutstanding (in thousands):

Basic		54,510				53,894							54,430				53,814
Diluted		55,228				54,789							55,175				54,697

\n\n

NM = Not Meaningful\n

\n\n

See Notes to Condensed Consolidated Financial Statements.\n

\n\n\n

4\n

\n\n

BRADY\nCORPORATION AND SUBSIDIARIES

\n\n

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


	Six Months Ended
	January 31,
	(Unaudited)
	2008			2007
Operating activities:
Net income	$	63,060			$	54,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,669				26,096
Deferred income taxes		(1,527	)			(542	)
Loss on disposal of property, plant & equipment		1,010				305
Non-cash portion of stock-based compensation expense		6,382				3,669
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable		7,080				(14,036	)
Inventories		7,571				(14,787	)
Prepaid expenses and other assets		(7,339	)			(8,590	)
Accounts payable and accrued liabilities		(17,117	)			(8,316	)
Income taxes		(1,266	)			(3,411	)
Other liabilities		325				2,514

Net cash provided by operating activities		87,848				37,059

Investing activities:
Acquisition of businesses, net of cash acquired		(24,552	)			(90,418	)
Payments of contingent consideration		(5,798	)			(9,329	)
Purchases of short-term investments		(10,350	)			—
Sales of short-term investments		29,550				11,500
Purchases of property, plant and equipment		(14,358	)			(31,901	)
Other		(3,259	)			(5,831	)

Net cash used in investing activities		(28,767	)			(125,979	)
Financing activities:
Payment of dividends		(16,285	)			(15,014	)
Proceeds from issuance of common stock		7,980				3,837
Principal payments on debt		(9	)			(26,231	)
Proceeds from issuance of debt		—				97,020
Excess income tax benefit from the exercise of stock options\nand deferred compensation distribution		4,093				763

Net cash (used in) provided by financing activities		(4,221	)			60,375
Effect of exchange rate changes on cash		733				1,945

Net increase (decrease) in cash and cash equivalents		55,593				(26,600	)
Cash and cash equivalents, beginning of period		142,846				113,008

Cash and cash equivalents, end of period	$	198,439			$	86,408


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	13,153			$	9,754
Income taxes, net of refunds		26,381				23,983
Acquisitions:
Fair value of assets acquired, net of cash and goodwill	$	17,279			$	50,042
Liabilities assumed		(6,371	)			(15,617	)
Goodwill		13,644				55,993

Net cash paid for acquisitions	$	24,552			$	90,418

\n\n

See Notes to Condensed Consolidated Financial Statements.\n

\n\n\n\n

5\n

\n\n\n

BRADY CORPORATION AND SUBSIDIARIES\n

\n\n

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

\n\n\n

Six Months Ended January 31, 2008

\n\n\n

(Unaudited)

\n\n\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\nBrady Corporation and subsidiaries (the “Company” or “Brady”) without audit, pursuant to the rules\nand regulations of the Securities and Exchange Commission. In the opinion of the Company, the\nforegoing statements contain all adjustments, consisting only of normal recurring adjustments and\nthe impact of adopting Financial Accounting Standards Board (“FASB”) Interpretation No. 48,\n“Accounting for Uncertainty in Income Taxes” (“FIN 48”) (see Note I for further information) as of\nAugust 1, 2007, necessary to present fairly the financial position of the Company as of January 31,\n2008 and July 3l, 2007, its results of operations for the three and six months ended January 31,\n2008 and 2007, and its cash flows for the six months ended January 31, 2008 and 2007. The condensed\nconsolidated balance sheet as of July 31, 2007 has been derived from the audited consolidated\nfinancial statements of that date. The preparation of financial statements in conformity with\naccounting principles generally accepted in the United States of America (“GAAP”) requires\nmanagement to make estimates and assumptions that affect the reported amounts therein. Due to the\ninherent uncertainty involved in making estimates, actual results in future periods may differ from\nthe estimates.\n

\n\n

Certain information and footnote disclosures normally included in financial statements\nprepared in accordance with GAAP have been omitted pursuant to rules and regulations of the\nSecurities and Exchange Commission. Accordingly, the condensed consolidated financial statements do\nnot include all of the information and footnotes required by GAAP for complete financial statement\npresentation. It is suggested that these condensed consolidated financial statements be read in\nconjunction with the consolidated financial statements and the notes thereto included in the\nCompany’s latest annual report on Form 10-K for the year ended July 31, 2007.\n

\n\n

NOTE B — Goodwill and Intangible Assets\n

\n\n\n

Changes in the carrying amount of goodwill for the six months ended January 31, 2008, are\nas follows:\n


					Direct
					Marketing
	Brady			& People ID
	Americas			Americas			Europe		Asia-Pacific		Total
Balance as of July 31, 2007	$	143,775			$	260,299		$	163,699		$	169,677	$	737,450
Goodwill acquired during the period		—				—			13,644			—		13,644
Adjustments for prior year acquisitions		(392	)			700			(246	)		3,765		3,827
Translation adjustments		653				847			6,434			5,995		13,929

Balance as of January 31, 2008	$	144,036			$	261,846		$	183,531		$	179,437	$	768,850

\n\n\n

Goodwill increased $31,400 during the six months ended January 31, 2008. A significant\ncomponent of the increase related to the November 2007 acquisitions of Transposafe Systems B.V. and\nHolland Mounting Systems B.V. (collectively “Transposafe”), which added $13,644. Goodwill also\nincreased as a result of adjustments to the preliminary allocation of purchase price for the\nacquisitions completed in fiscal 2007, of which the largest adjustment related to the final\npurchase price adjustments for Comprehensive Identification Products, Inc (“CIPI”) which added\n$3,668. Of the $3,668 increase in goodwill attributed to the allocation of the purchase price for\nCIPI, $1,609 related to the adoption of FIN 48 (see Note I), $1,250 related to the accrual for\nemployee termination costs, and the remaining $809 related to various exit costs associated with\nthe closure of a facility. Additionally, during the six months ended January 31, 2008, goodwill\nincreased by $13,929 due the effects of foreign currency translation.\n

\n\n

6\n

\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


	January 31, 2008		July 31, 2007
	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		$	8,424		$	(6,238	)	$	2,186			15		$	8,392	$	(5,913	)	$	2,479
Trademarks and\nother		4			6,063			(4,225	)		1,838			5			4,510		(3,250	)		1,260
Customer\nrelationships		7			144,295			(47,516	)		96,779			7			134,125		(36,674	)		97,451
Non-compete\nagreements		4			11,821			(7,345	)		4,476			4			11,364		(6,294	)		5,070
Other		5			3,298			(2,868	)		430			5			3,297		(2,554	)		743
Unamortized other\nintangible assets:
Trademarks		N/A			42,759			—			42,759			N/A			42,758		—			42,758

Total				$	216,660		$	(68,192	)	$	148,468					$	204,446	$	(54,685	)	$	149,761

\n\n\n

The value of goodwill and other intangible assets in the Condensed Consolidated Balance\nSheet at January 31, 2008 differs from the value assigned to them in the allocation of purchase\nprice 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 January 31, 2008.\n

\n\n

Amortization expense on intangible assets was $6,838 and $5,720 for the three-month\nperiods ended January 31, 2008 and 2007, respectively and $12,743 and $10,960 for the six-month\nperiods ended January 31, 2008 and 2007, respectively. Annual amortization is projected to be\n$26,560, $24,803, $23,920, $20,207 and $11,084 for the years ending July 31, 2008, 2009, 2010, 2011\nand 2012, respectively.\n

\n\n

NOTE C — Comprehensive Income\n

\n\n\n

Total comprehensive income, which was comprised of net income, foreign currency\nadjustments, net unrealized gains and losses from cash flow hedges and other investments, the\nunrealized gain on the post-retirement medical, dental, and vision plans, and their related tax\neffects amounted to $25,675 and $10,536 for the three months ended January 31, 2008 and 2007,\nrespectively and $86,719 and $40,811 for the six months ended January 31, 2008 and 2007,\nrespectively.\n

\n\n

7\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 January 31,		Six Months Ended January 31,
	2008		2007			2008		2007
Numerator:
Net income (numerator for basic and\ndiluted Class A net income per share)	$	26,690		$	19,709		$	63,060		$	54,157
Less:
Preferential dividends		—			—			(846	)		(836	)
Preferential dividends on\ndilutive stock options		—			—			(13	)		(15	)

Numerator for basic and diluted\nClass B net income per share	$	26,690		$	19,709		$	62,201		$	53,306


Denominator:
Denominator for basic net income per\nshare for both Class A and Class B		54,510			53,894			54,430			53,814
Plus: Effect of dilutive stock options		718			895			745			883

Denominator for diluted net income\nper share for both Class A and\nClass B		55,228			54,789			55,175			54,697


Class A Nonvoting Common Stock net income\nper share:
Basic	$	0.49		$	0.37		$	1.16		$	1.01
Diluted	$	0.48		$	0.36		$	1.14		$	0.99

Class B Voting Common Stock net income per\nshare:
Basic	$	0.49		$	0.37		$	1.14		$	0.99
Diluted	$	0.48		$	0.36		$	1.13		$	0.97

\n\n

Options to purchase 2,171,000 and 1,725,750 shares of Class A Nonvoting Common Stock for the\nthree and six months ended January 31, 2008, respectively, and 1,269,500 and 949,500 shares of\nClass A Nonvoting Common Stock for the three and six months ended January 31, 2007, respectively,\nwere not included in the computations of diluted net income per share because the option exercise\nprice was greater than the average market price of the common shares and, therefore, the effect\nwould be anti-dilutive.\n

\n\n\n

8\n

\n\n\n\n\n

NOTE E — Segment Information\n

\n\n\n

The Company’s reportable segments are businesses that are each managed separately. As a\nresult of continuing organizational changes within the executive leadership team in which\nmanagement of the manufacturing facilities was aligned with the geographic region of the facility,\nthe Company has revised its reportable segments and has restated the corresponding segment\ninformation from its previous geographical based structure for the prior year. The Company has\nfour reportable segments: Brady Americas, Direct Marketing & People ID Americas, Europe and\nAsia-Pacific. The Brady Americas reportable segment includes businesses that focus on MRO market\nproducts and OEM market products sold to customers in North and South America through distributors\nor a direct sales force. The Direct Marketing & People ID Americas reportable segment includes\nbusinesses that market their products through business-to-business direct mail, catalogs, and\ntelemarketing, distribution and a direct sales force in North and South Americas. The Europe and\nAsia-Pacific reportable segments have not changed from prior year disclosures. Following is a\nsummary of segment information for the three and six months ended January 31, 2008 and 2007:\n


				Direct
				Marketing &										Corporate
	Brady		People ID									And
	Americas		Americas	Europe		Asia-Pacific	Sub-Totals		Eliminations	Totals
Three months ended\nJanuary 31, 2008:
Revenues from\nexternal customers	$	95,303		$	61,318		$	122,615		$	84,888	$	364,124		$	—		$	364,124
Intersegment revenues		15,316			572			2,261			6,247		24,396			(24,396	)		—
Segment profit		19,517			12,519			31,067			12,660		75,763			(2,347	)		73,416
Three months ended\nJanuary 31, 2007:
Revenues from\nexternal customers	$	80,510		$	59,478		$	98,846		$	82,441	$	321,275		$	—		$	321,275
Intersegment revenues		13,124			780			1,664			4,703		20,271			(20,271	)		—
Segment profit		14,473			14,920			22,604			12,394		64,391			(2,828	)		61,563
Six months ended\nJanuary 31, 2008:
Revenues from\nexternal customers	$	200,538		$	130,858		$	231,529		$	181,333	$	744,258		$	—		$	744,258
Intersegment revenues		29,902			1,192			5,253			12,461		48,808			(48,808	)		—
Segment profit		43,975			32,167			60,967			32,050		169,159			(4,583	)		164,576
Six months ended\nJanuary 31, 2007:
Revenues from\nexternal customers	$	163,269		$	123,662		$	191,211		$	175,392	$	653,534		$	—		$	653,534
Intersegment revenues		25,342			1,492			2,450			10,693		39,977			(39,977	)		—
Segment profit		35,188			31,723			45,609			34,531		147,051			(5,638	)		141,413

\n\n

Following is a reconciliation of segment profit to net income for the three months and six months\nended January 31, 2008 and 2007:\n

\n\n


	Three months ended:			Six months ended:
	January 31,			January 31,
	2008			2007			2008		2007
Total profit from reportable segments	$	75,763			$	64,391		$	169,159		$	147,051
Corporate and eliminations		(2,347	)			(2,828	)		(4,583	)		(5,638	)
Unallocated amounts:
Administrative costs		(30,972	)			(28,839	)		(63,794	)		(56,748	)
Investment and other income (expense)		2,269				(106	)		2,387			532
Interest expense		(6,747	)			(5,244	)		(13,467	)		(9,979	)

Income before income taxes		37,996				27,374			89,702			75,218
Income taxes		(11,276	)			(7,665	)		(26,642	)		(21,061	)

Net income	$	26,690			$	19,709		$	63,060		$	54,157

\n\n\n

9\n

\n\n

NOTE F — 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 or restricted\nshares of Class A Nonvoting Common Stock to employees. Additionally, the Company has a nonqualified\nstock option plan for non-employee directors under which stock options to purchase shares of\nClass A Nonvoting Common Stock are available for grant. The options have an exercise price equal to\nthe fair market value of the underlying stock at the date of grant and generally vest ratably over\na three-year period, with one-third becoming exercisable one year after the grant date and\none-third additional in each of the succeeding two years. Options issued under these plans,\nreferred to herein as “service-based” options, generally expire 10 years from the date of grant.\nThe Company also grants stock options to certain executives and key management employees that vest\nupon meeting certain financial performance conditions over the vesting schedule described above.\nThese options are referred to herein as “performance-based” options. Performance-based options\ngranted in fiscal 2007 and forward expire 10 years from the date of grant. Restricted shares have\nan issuance price equal to the fair market value of the underlying stock at the date of grant.\nThey vest at the end of a five-year period and upon meeting certain financial performance\nconditions. These shares are referred to herein as “performance-based restricted shares.”\n

\n\n

As of January 31, 2008, the Company has reserved 4,768,201 shares of Class A Nonvoting\nCommon Stock for outstanding stock options and restricted shares and 887,500 shares of Class A\nNonvoting Common Stock for future issuance of stock options and restricted shares under the various\nplans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver\nshares under these plans.\n

\n\n

The Company accounts for share-based compensation awards in accordance with SFAS\nNo. 123(R), “Share Based Payment”. In accordance with this standard, the Company recognizes the\ncompensation cost of all share-based awards on a straight-line basis over the vesting period of the\naward. Total stock compensation expense recognized by the Company during the three months ended\nJanuary 31, 2008 and 2007 was $3,125 ($1,906 net of taxes) and $2,110 ($1,287 net of taxes),\nrespectively, and expense recognized during the six months ended January 31, 2008 and 2007 was\n$6,382 ($3,893 net of taxes) and $3,669 ($2,238 net of taxes), respectively. As of January 31,\n2008, total unrecognized compensation cost related to share-based compensation awards was\napproximately $23,656 pre-tax, net of estimated forfeitures, which the Company expects to recognize\nover a weighted-average period of approximately 2.9 years.\n

\n\n

The Company has estimated the fair value of its service-based and performance-based\noption awards granted during the six months ended January 31, 2008 and 2007 using the Black-Scholes\noption valuation model. The weighted-average assumptions used in the Black-Scholes valuation model\nare reflected in the following table:\n


	Six Months Ended		Six Months Ended
	January 31, 2008		January 31, 2007
	Service-Based		Performance-				Performance-
	Option		Based Option	Service-Based		Based Option
Black-Scholes Option Valuation Assumptions	Awards		Awards	Option Awards		Awards
Expected term (in years)		6.04			6.57			6.07			6.57
Expected volatility		32.05	%		33.68	%		34.01	%		34.66	%
Expected dividend yield		1.62	%		1.58	%		1.46	%		1.51	%
Risk-free interest rate		3.44	%		4.66	%		4.52	%		4.90	%
Weighted-average market value of\nunderlying stock at grant date	$	38.22		$	35.35		$	38.19		$	33.32
Weighted-average exercise price	$	38.22		$	35.35		$	38.19		$	33.32
Weighted-average fair value of options\ngranted during the period	$	11.94		$	12.83		$	13.57		$	12.57

\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 and\nhistorical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect\non the grant date for the length of time corresponding to the expected term of the option. The\nmarket value is obtained by taking the average of the high and the low stock price on the date of\nthe grant.\n

\n\n

The Company granted 210,000 performance-based restricted shares during the six months ended\nJanuary 31, 2008 with a grant price and fair value of $32.83. As of January 31, 2008, 210,000\nperformance-based restricted shares were outstanding.\n

\n\n

10\n

\n\n

A summary of stock option activity under the Company’s share-based compensation plans for\nthe six months ended January 31, 2008 is presented below:\n


									Weighted
									Average
					Weighted			Remaining			Aggregate
					Average			Contractual			Intrinsic
Options	Shares			Exercise Price			Term			Value
Outstanding at July 31, 2007		4,182,739			$	26.36
New grants		954,500			$	37.44
Exercised		(446,363	)		$	18.10
Forfeited or expired		(132,675	)		$	36.44

Outstanding at January 31, 2008		4,558,201			$	29.20				7.0		$	22,106

Exercisable at January 31, 2008		2,606,364			$	25.17				5.8		$	18,670

\n\n\n

The total intrinsic value of options exercised during the six months ended January 31, 2008\nand 2007, based upon the average market price during the period, was $9,628 and $4,597,\nrespectively. The total fair value of stock options vested during the six months ended January 31,\n2008 and 2007, was $6,554 and $4,592, respectively.\n

\n\n

NOTE G — Stockholders’ Equity\n

\n\n\n

In September 2007, the Company announced that the Board of Directors of the Company authorized\na share repurchase plan for up to 1 million shares of the Company’s Class A Nonvoting Common Stock.\nThe share repurchase plan may be implemented by purchasing shares on the open market or in\nprivately negotiated transactions, with repurchased shares available for use in connection with the\nCompany’s stock-based plans and for other corporate purposes. During the six months ended January\n31, 2008, the Company did not reacquire any shares under the repurchase plan.\n

\n\n

NOTE H — Employee Benefit Plans\n

\n\n\n

The Company provides postretirement medical, dental and vision benefits for eligible\nregular full and part-time domestic employees (including spouses) outlined by the plan.\nPostretirement benefits are provided only if the employee was hired prior to April 1, 2008 and\nretires on or after attainment of age 55 with 15 years of credited service. Credited service\nbegins accruing at the later of age 40 or date of hire. All active employees first eligible to\nretire after July 31, 1992, are covered by an unfunded, contributory postretirement healthcare plan\nwhere employer contributions will not exceed a defined dollar benefit amount, regardless of the\ncost of the program. Employer contributions to the plan are based on the employee’s age and service\nat retirement.\n

\n\n

The Company accounts for postretirement benefits other than pensions in accordance with SFAS\nNo. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” The\nCompany funds benefit costs on a pay-as-you-go basis. There have been no changes to the components\nof net periodic benefit cost or the amount that the Company expects to fund in fiscal 2008 from\nthose reported 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, 2007.\n

\n\n

11\n

\n\n

NOTE I — Income Taxes\n

\n\n\n

On August 1, 2007, the Company adopted FIN 48. FIN 48 prescribes a recognition threshold that\na tax position is required to meet before being recognized in the financial statements and provides\nguidance on derecognition, measurement, classification, interest and penalties, accounting in\ninterim periods, and disclosure and transition issues.\n

\n\n

The adoption of FIN 48 resulted in a $900 charge to earnings retained in the business as of\nAugust 1, 2007 and a change in the classification of the liability on the balance sheet from\naccrued income taxes to other liabilities. As of August 1, 2007, the Company’s liability for\nuncertain tax positions was $15,900. Unrecognized tax benefits of $10,500 would affect the\nCompany’s effective tax rate if recognized. As of January 31, 2008 the Company’s liability for\nuncertain tax positions was $17,500.\n

\n\n

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax\nbenefits in income taxes on the accompanying condensed consolidated statement of income. At August\n1, 2007, the Company had accrued $2,200 for the potential payment of interest which is included in\nthe $15,900 liability for uncertain tax positions. During the six months ended January 31, 2008\nthe Company recognized $500 in potential interest associated with uncertain tax positions. The\ntotal accrual for potential payment of interest is $2,700.\n

\n\n

The Company and its subsidiaries file income tax returns in the US federal jurisdiction, and\nvarious state and foreign jurisdictions. The following table summarized the open tax years for the\nCompany’s major jurisdictions:\n

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


Jurisdiction		Open Tax Years
United States — Federal\n		F’04 — F’07
France\n		F’04 — F’07
Germany\n		F’03 — F’07
United Kingdom\n		F’05 — F’07

\n\n\n

Approximately $2,000 of unrecognized tax benefits relate to items that are affected by\nexpiring statute of limitations within the next 12 months.\n

\n\n\n

12\n

\n\n\n

NOTE J — New Accounting Pronouncements\n

\n\n\n

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement\nprovides guidance on how to measure the fair value of assets and liabilities utilizing a fair value\nhierarchy to classify the sources of information used in the measurement calculation. SFAS No. 157\nalso provides new disclosure rules for assets and liabilities measured at fair value based on their\nlevel in the fair value hierarchy. This new statement will be effective for fiscal years beginning\nafter November 15, 2007. The Company is in the process of evaluating the impact that will result\nfrom adopting SFAS No. 157 and therefore is unable to disclose the impact SFAS No. 157 will have on\nits financial position and results of operations when such statement is adopted.\n

\n\n

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets\nand Financial Liabilities.” This statement permits entities to choose the fair value option to\nmeasure many financial instruments and certain other items at fair value that are not currently\nrequired to be measured at fair value. The objective is to improve financial reporting by\nproviding entities with the opportunity to mitigate volatility in earnings caused by measuring\nrelated assets and liabilities differently without having to apply complex hedge accounting. This\nnew statement will be effective for fiscal years beginning after November 15, 2007. The Company is\nin the process of evaluating the impact that will result from adopting SFAS No. 159 and therefore\nis unable to disclose the impact SFAS No. 159 will have on its financial position and results of\noperations when such statement is adopted.\n

\n\n

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R)\nrequires acquiring entities to recognize all the assets and liabilities assumed in a transaction at\nfair values as of the acquisition date, but changes the accounting treatment for certain items,\nincluding:\n

\n\n

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

	a)		Acquisition costs will generally be expensed as incurred;

	b)		Noncontrolling interests will be valued at fair value at the acquisition date;

	c)		Liabilities related to contingent consideration will be re-measured at fair value in each\nsubsequent reporting period;

	d)		Restructuring costs associated with a business combination will generally be expensed\nafter the acquisition date; and

	e)		In-process research and development will be recorded at fair value as an indefinite-lived\nintangible asset at the acquisition date

SFAS No. 141(R) applies to business combinations for which the acquisition date is on or after the\nbeginning of the first annual reporting period beginning on or after December 15, 2008. The Company\nis in the process of evaluating the impact that will result from adopting SFAS No.141(R), and\ntherefore, the Company is unable to disclose the impact SFAS No. 141(R) will have on its financial\nposition and results of operations when such statement is adopted.\n

\n\n\n

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated\nFinancial Statements.” SFAS No. 160 establishes new accounting and reporting standards for the\nnoncontrolling interest in a subsidiary. This statement requires the recognition of a\nnoncontrolling interest (minority interest) as equity in the consolidated financial statements and\nseparate from the parent’s equity. The amount of net income attributable to the noncontrolling\ninterest will be included in consolidated net income on the face of the income statement. This new\nstatement will be effective for fiscal years beginning after December 15, 2008. The Company\nexpects that the adoption of SFAS No. 160 will not have a material effect on its consolidated\nfinancial statements.\n

\n\n

13\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 distributor sales, direct 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, Japan, Korea, Malaysia, Mexico, the Netherlands, Norway,\nPoland, Singapore, Slovakia, Sweden, Thailand, the United Kingdom and the United States. Brady\nsells through subsidiaries or sales offices in these countries, with additional sales through a\ndedicated team of international sales representatives in the Philippines, Spain, Taiwan, Turkey,\nand the United Arab Emirates and further markets it products to parts of Eastern Europe, the Middle\nEast, Africa and Russia. The Company believes that its reputation for innovation, commitment to\nquality and service, and dedicated employees have made it a world leader in the markets it serves.\n

\n\n\n

Sales for the three months ended January 31, 2008, were up 13.3% compared to the same period\nin fiscal 2007. The sales growth was comprised of a decline in organic sales of 1.0%, an increase\nof 8.2% due to the acquisitions listed in the above table, and an increase of 6.1% due to the\neffect of currencies on sales. The decline in organic sales for the quarter ended January 31,\n2008, was the result of the contraction of the Asia-Pacific and Direct Marketing and People ID\nAmericas segments by 4.6% and 4.1%, respectively, partially offset by growth in the Brady Americas\nand Europe segments of 2.0% and 1.6%, respectively. The decline in the Direct Marketing Americas\nsegment was attributed to a softening in the manufacturing sector of the U.S. economy, while the\ncontraction in the Asia-Pacific segment was primarily due to a shift in the mobile handset market\nto low-end phones with lower average selling prices as well as the Company’s conscious choice to\ndeemphasize low-profit business. Top-line revenue in the Asia-Pacific segment was also impacted by\ncontinued pricing pressures within the supply chain.\n

\n\n

Sales for the six months ended January 31, 2008, increased 13.9% compared to the same period\nin fiscal 2007. The increase was comprised of an increase of 0.3% attributed to organic growth, an\nincrease of 7.9% due to the acquisitions listed above, and an increase of 5.7% due to the effect of\ncurrencies on sales. The organic growth was primarily due to growth in the Brady Americas segment\nof 5.1% and Europe of 0.9%, offset by a decline in the organic business in the Asia-Pacific and\nDirect Marketing and People ID Americas segments of 3.9% and 0.8%, respectively. Organic growth in\nthe Brady Americas segment for the six months ended January 31, 2008 was driven by strong results\nacross many markets, including safety and industrial identification, laboratory, aerospace, and\ndefense. The decrease in organic sales in the Asia-Pacific segment was the result of declines in\nthe mobile phone market as discussed above.\n

\n\n

Gross margin as a percentage of sales increased to 48.1% from 46.7% for the quarter and to\n48.7% from 48.1% for the six months ended January 31, 2008, compared to the same periods of the\nprevious year. This increase in gross margin as a percentage of sales was primarily the result of\ncost reduction actions taken during fiscal 2007.\n

\n\n

Research and development (“R&D”) expenses increased 10.9% to $10.1 million for the quarter and\n8.2% to $19.1 million for the six months ended January 31, 2008, compared to $9.1 million and $17.6\nmillion for the same periods in the prior year, respectively. In the second quarter of fiscal 2008,\nR&D expenses as a percentage of sales remained flat compared to the same period in the previous\nyear, at 2.8% of sales. For the first half of fiscal 2008, R&D expense as a percentage of sales\ndeclined slightly to 2.6% from 2.7% in the same period of the prior year.\n

\n\n

Selling, general and administrative (“SG&A”) expenses increased 13.1% to $122.5 million for\nthe three months ended January 31, 2008, compared to $108.4 million for the same period in the\nprior year and 14.6% to $242.9 million for the six months ended January 31, 2008, compared to\n$212.0 million for the same period in the prior year. The increase in SG&A expenses was primarily\nthe result of acquisitions made during fiscal 2007 and 2008. As a percentage of sales, SG&A\nexpenses decreased slightly to 33.6% from 33.7% for the second quarter, and increased to 32.6% from\n32.4% for the six months ended January 31, 2008, compared to the same periods in the prior year.\n

\n\n

Interest expense increased to $6.7 million from $5.2 million for the quarter and to $13.5\nmillion from $10.0 million for the six months ended January 31, 2008, compared to the same periods\nin the prior year. The increase in interest expense was due to interest on the $150 million\nprivate placement of senior notes that the Company completed in the third quarter of fiscal 2007.\n

\n\n

Other income and expense increased to $2.3 million of income for the quarter and to $2.4\nmillion of income for the six months ended January 31, 2008, compared to $0.1 million of expense\nand $0.5 million of income for the same periods in the prior year, respectively. Of the $2.3\nmillion in other income for the three months ended January 31, 2008, $1.8 million was the result of\ninterest income generated from investments of excess cash and $0.4 million related to foreign\nexchange gains during the quarter. Other income and expense for the three months ended January 31,\n2007 consisted primarily of $0.4 million of interest income,\noffset by $0.6 million of foreign exchange\nloss. For the six months ended January 31, 2008, of the $2.4 million of other income, $2.9 million\nwas related to interest income generated from investments, partially offset by $0.6 million in\nforeign exchange loss. Of the $0.5 million of other income for the six months ended January 31,\n2007, $0.8 million was related to interest income, partially offset by $0.4 million of foreign\nexchange loss.\n

\n\n

The Company’s effective tax rate was 29.7% for the three and six months ended January 31,\n2008, compared to 28.0% for the three and six months ended January 31, 2007. The increased tax\nrate in fiscal 2008 is primarily due to increased profits in higher tax countries. The Company\nexpects the full year effective tax rate for fiscal 2008 to be approximately 29%.\n

\n\n

Net income for the three months ended January 31, 2008, increased 35.4% to $26.7 million,\ncompared to $19.7 million for the same quarter of the previous year. Net income as a percentage of\nsales increased to 7.3% from 6.1% for the quarter ended January 31, 2008, compared to the same\nperiod in the prior year, due to the factors noted above. For the six months ended January 31,\n2008, net income increased 16.4% to $63.1 million, compared to $54.2 million for the same period in\nthe previous year. As a percentage of sales, net income increased to 8.5% from 8.3% for the six\nmonths ended January 31, 2008, compared to the same period in the previous year.\n

\n\n

15\n

Business\nSegment Operating Results

\nEffective August 1, 2007, the Company revised its reportable segments as a result of organizational\nchanges within the executive leadership team. Management of the Company now evaluates results\nbased on the following businesses: Brady Americas, Direct Marketing & People ID Americas, Europe,\nand Asia-Pacific.\n

\n\n

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


				Direct
				Marketing &											Corporate
	Brady		People ID				Asia-					and
(Dollars in thousands)	Americas		Americas	Europe		Pacific	Subtotals		Eliminations	Total
SALES TO EXTERNAL CUSTOMERS
Three months ended:
January 31, 2008	$	95,303		$	61,318		$	122,615		$	84,888		$	364,124		$	—		$	364,124
January 31, 2007		80,510			59,478			98,846			82,441			321,275			—			321,275

Six months ended:
January 31, 2008	$	200,538		$	130,858		$	231,529		$	181,333		$	744,258		$	—		$	744,258
January 31, 2007		163,269			123,662			191,211			175,392			653,534			—			653,534

SALES GROWTH INFORMATION
Three months ended January 31, 2008
Base		2.0	%		-4.1	%		1.6	%		-4.6	%		-1.0	%		—			-1.0	%
Currency		2.7	%		1.9	%		10.4	%		7.2	%		6.1	%		—			6.1	%
Acquisitions		13.7	%		5.3	%		12.1	%		0.4	%		8.2	%		—			8.2	%
Total		18.4	%		3.1	%		24.1	%		3.0	%		13.3	%		—			13.3	%

Six months ended January 31, 2008
Base		5.1	%		-0.8	%		0.9	%		-3.9	%		0.3	%		—			0.3	%
Currency		2.2	%		1.6	%		10.1	%		6.9	%		5.7	%		—			5.7	%
Acquisitions		15.5	%		5.0	%		10.1	%		0.4	%		7.9	%		—			7.9	%
Total		22.8	%		5.8	%		21.1	%		3.4	%		13.9	%		—			13.9	%

SEGMENT PROFIT
Three months ended:
January 31, 2008	$	19,517		$	12,519		$	31,067		$	12,660		$	75,763		$	(2,347	)	$	73,416
January 31, 2007		14,473			14,920			22,604			12,394			64,391			(2,828	)		61,563
Percentage increase		34.9	%		-16.1	%		37.4	%		2.1	%		17.7	%		-17.0	%		19.3	%

Six months ended:
January 31, 2008	$	43,975		$	32,167		$	60,967		$	32,050		$	169,159		$	(4,583	)	$	164,576
January 31, 2007		35,188			31,723			45,609			34,531			147,051			(5,638	)		141,413
Percentage increase		25.0	%		1.4	%		33.7	%		-7.2	%		15.0	%		-18.7	%		16.4	%

\n\n\n

SEGMENT PROFIT RECONCILIATION (Dollars in thousands)\n

\n\n


	Three months ended:			Six months ended:
	January 31,			January 31,			January 31,		January 31,
	2008			2007			2008		2007
Total profit from reportable segments	$	75,763			$	64,391		$	169,159		$	147,051
Corporate and eliminations		(2,347	)			(2,828	)		(4,583	)		(5,638	)
Unallocated amounts:
Administrative costs		(30,972	)			(28,839	)		(63,794	)		(56,748	)
Investment and other income (expense)		2,269				(106	)		2,387			532
Interest expense		(6,747	)			(5,244	)		(13,467	)		(9,979	)

Income before income taxes		37,966				27,374			89,702			75,218
Income taxes		(11,276	)			(7,665	)		(26,642	)		(21,061	)

Net income	$	26,690			$	19,709		$	63,060		$	54,157

\n\n\n

The Company evaluates performance of the businesses using sales and segment profit. Segment\nprofit or loss does not include certain administrative costs, such as the cost of finance, stock\noptions, information technology and human resources, which are managed as global functions.\nCorporate research and development, interest, investment and other income and income taxes are also\nexcluded when evaluating performance.\n

\n\n

16\n

\n\n

Brady Americas:\n\n

\n\n

Brady Americas sales increased 18.4% for the quarter and 22.8% for the six months ended\nJanuary 31, 2008, compared to the same periods in the prior year. Organic growth accounted for 2.0%\nand 5.1% of the growth in the quarter and year-to-date, respectively, as compared to the same\nperiods in the previous year. Fluctuations in the exchange rates used to translate financial\nresults into the United States dollar had a modest impact on sales, increasing it by 2.7% in the\nquarter and 2.2% for the six-month period. Sales were also aided by the prior year acquisitions of\nPrecision Converters, Scafftag, Asterisco and SPC, which increased sales by 13.7% for the quarter\nand 15.5% for the six-month period. The organic growth of 2.0% for the quarter within the segment\nwas driven by strong results in the laboratory and aerospace/defense markets, partially offset by a\nslowing in the manufacturing and utility markets. On a year-to-date basis, the 5.1% organic growth\nwas the result of strong sales across most of the major markets, including laboratory, aerospace,\ndefense, mass transit, and safety and facility identification.\n

\n\n

Segment profit increased 34.9% to $19.5 million from $14.5 million for the quarter and 25.0%\nto $44.0 million from $35.2 million for the six months ended January 31, 2008, compared to the same\nperiods in the prior year. The increase in segment profit was driven by increased sales volume\nfrom both the base business and acquisitions discussed above. As a percentage of sales, segment\nprofit increased to 20.5% from 18.0% in the second quarter of fiscal 2008 and to 21.9% from 21.6%\nin the six months ended January 31, 2008, compared to the same periods in the prior year. The\nincrease in segment profit as a percentage of sales over the prior year was the result of cost\ncontrol efforts and improvements made in the prior year to lower performing businesses.\n

\n\n

Direct Marketing and People ID Americas:\n\n

\n\n

Direct Marketing and People ID Americas sales increased 3.1% for the quarter and 5.8% for the\nsix months ended January 31, 2008, compared to the same periods in the prior year. Organic sales\nfor the segment declined 4.1% and 0.8% in the second quarter and year-to-date, respectively, as\ncompared to the same periods in the previous year. The decline in the organic sales of the Direct\nMarketing and People ID Americas segment was due to a large one-time order in the previous year,\nsoftness in the manufacturing and construction sectors which particularly impacted the Company’s\nEmedco business, and the SAP implementation at Emedco. Fluctuations in the exchange rates used to\ntranslate financial results into the United States dollar contributed to sales, increasing it by\n1.9% in the quarter and 1.6% for the six-month period. Sales in the region were also increased by\nthe prior year acquisitions of CIPI and Clement, which increased sales by 5.3% for the quarter and\n5.0% for the six-month period.\n

\n\n

Segment profit declined 16.1% to $12.5 million from $14.9 million for the quarter and\nincreased 1.4% to $32.2 million from $31.7 million for the six months ended January 31, 2008,\ncompared to the same periods in the prior year. The decrease in segment profit in the second\nquarter was driven by a lower than expected sales volume in the base business, in addition to\nunplanned costs and business interruption associated with the move of manufacturing in People ID in\nChina. As a percentage of sales, segment profit decreased to 20.4% from 25.1% in the second\nquarter of fiscal 2008 and to 24.6% from 25.7% in the six months ended January 31, 2008, compared\nto the same periods in the prior year. The decline in segment profit as a percentage of sales\ncompared to the prior year was due to the decline in high margin organic sales during the second\nquarter.\n

\n\n

Europe:\n\n

\n\n

Europe sales increased 24.1% for the quarter and 21.1% for the six months ended January 31,\n2008, compared to the same periods in the prior year. Organic growth accounted for 1.6% and 0.9% of\nthe increase for the quarter and year-to-date, respectively, compared to the same periods in the\nprevious year. Sales were positively affected by fluctuations in the exchange rates used to\ntranslate financial results into the United States dollar, which increased sales in the segment by\n10.4% in the quarter and 10.1% for the six-month period. The fiscal 2008 acquisition of Transposafe\nand the fiscal 2007 acquisitions of CIPI, Scafftag, Moderno, and SPC increased sales by 12.1% for\nthe quarter and 10.1% for the six-month period. The lower organic growth in the quarter was due to\na slowing in the European economy and the sales from the prior year implementation of “No Smoking”\nlegislation in France that did not recur in fiscal 2008.\n

\n\n

Segment profit increased 37.4% to $31.1 million from $22.6 million for the quarter and 33.7%\nto $61.0 million from $45.6 million for the six months ended January 31, 2008, compared to the same\nperiods in the prior year. As a percentage of sales, segment profit increased to 25.3% from 22.9%\nin the second quarter of fiscal 2008 and to 26.3% from 23.9% in the six months ended January 31,\n2008, compared to the same periods in the prior year. The increase in segment profit was driven by\na favorable mix towards the MRO market from the acquisitions of Scafftag and Moderno and continued\ngrowth in the direct marketing business, and the realization of benefits from cost reduction\nactivities taken at the end of fiscal 2007.\n

\n\n

17\n

\n\n

Asia-Pacific:\n\n

\n\n

Asia-Pacific sales increased 3.0% for the quarter and 3.4% for the six months ended January\n31, 2008, compared to the same periods in the prior year. Organic sales in local currency decreased\n4.6% in the quarter and 3.9% year-to-date, compared to the same periods in the previous year.\nSales were positively affected by fluctuations in the exchange rates used to translate financial\nresults into the United States dollar, which increased sales within the region by 7.2% for the\nquarter and 6.9% for the six-month period. The fiscal 2007 acquisitions of CIPI, Scafftag, and SPC\nincreased sales by 0.4% for the quarter and 0.4% for the six-month period. The decline in organic\nsales for the quarter was primarily due to a shift in the mobile handset market to low-end phones\nwith lower average selling prices as well as the Company’s conscious choice to deemphasize\nlow-profit business. Top-line revenue was also impacted by continued pricing pressures within the\nsupply chain.\n

\n\n

Segment profit increased 2.1% to $12.7 million from $12.4 million for the quarter and declined\n7.2% to $32.1 million from $34.5 million for the six months ended January 31, 2008, compared to the\nsame periods in the prior year. As a percentage of sales, segment profit decreased slightly to\n14.9% from 15.0% in the second quarter of fiscal 2008 and to 17.7% from 19.7% in the six months\nended January 31, 2008, compared to the same periods in the prior year. The decline in segment\nprofit as a percentage of sales was due to the industry mix shift from high-end, feature rich\nmobile phones to low-end basic mobile phones and continued pricing pressures within the mobile\nhandset supply chain, partially offset by cost reduction activities\ninitiated in fiscal 2007.\n

\n\n

Financial Condition\n\n

\n\n

The Company’s current ratio as of January 31, 2008, was 2.5 compared to 2.1 at July 31, 2007.\nCash and cash equivalents were $198.4 million at January 31, 2008, compared to $142.8 million at\nJuly 31, 2007. There were no short-term investments outstanding at January 31, 2008, compared to\n$19.2 million outstanding at July 31, 2007. Working capital increased $69.8 million during the six\nmonths ended January 31, 2008, to $373.2 million from $303.4 million at July 31, 2007. Accounts\nreceivable increased $2.8 million for the six months ended January 31, 2008 due to the acquisition\nof Transposafe and foreign currency translation, partially offset by a lower receivable balance at\nJanuary 31, 2008 due to fewer billing days in the quarter. Inventories remained flat at $139.9\nmillion as the decline in inventory due to working capital initiatives was offset by the\nacquisition of Transposafe and foreign currency translation. The net decrease in current\nliabilities was $26.6 million for the current year. The decrease was composed of a significant\ndecrease in accrued wages due to the payment of incentives in the first quarter of fiscal 2008\nrelated to the incentives earned in the year ended July 31, 2007, and a decrease in accrued income\ntaxes as the adoption of FIN 48 required a reclassification of a portion of the current payable\nrecorded at July 31, 2007 to long-term liabilities, partially offset by an increase in accounts\npayable due to foreign currency translation.\n

\n\n

Cash flow from operating activities totaled $87.8 million for the six months ended January 31,\n2008, compared to $37.1 million for the same period last year. The increase was the result of the\nimpact of working capital initiatives on accounts receivable and inventory balances as compared to\nthe changes reported for the six months ended January 31, 2007, an increase in net income of $8.9\nmillion, and a $3.6 million increase in depreciation and amortization on the intangible assets\nacquired in fiscal 2007.\n

\n\n

The acquisitions of businesses used $24.6 million of cash for the six months ended January 31,\n2008, compared to $90.4 million for the same period in the prior year. Payments of $4.4 million,\n$1.2 million, and $0.2 million were paid during the six months ended January 31, 2008 to satisfy\nthe earnout and holdback liabilities of the Daewon Industry Corporation, STOPware, Inc., and\nAsterisco acquisitions, respectively. Capital expenditures were $14.4 million for the six months\nended January 31, 2008, compared to $31.9 million in the same period last year. Fiscal 2007\ncapital expenditures included the implementation of SAP and expansions in China, Canada, India,\nSlovakia, and other locations which were not repeated in fiscal 2008. Net cash used in financing\nactivities was $4.2 million for the six months ended January 31, 2008, due to the payment of\ndividends, partially offset by the proceeds from the issuance of common stock. Net cash provided\nby financing activities for the same period last year was $60.4 million due to net borrowings of\n$70.8 million on the revolving loan agreement, partially offset by the payment of dividends and the\nissuance of common stock.\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 two\nfinancial covenants. As of January 31, 2008, the Company was in compliance with the covenants of\nthe 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 six months ended January 31, 2008, the Company did not borrow or repay any amounts under\nthe credit agreement. As of January 31, 2008, there were no outstanding borrowings under the\ncredit agreement.\n

\n\n

18\n

\n\n

On March 23, 2007, the Company completed the private placement of $150 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 2011 with interest payable on the notes semiannually on\nSeptember 23 and March 23, beginning in September 2007. The notes have been fully and\nunconditionally guaranteed on an unsecured basis by the Company’s domestic subsidiaries. The\nCompany used the net proceeds of the offering to reduce outstanding indebtedness under the\nCompany’s revolving loan agreement and fund its ongoing strategic growth plan. This private\nplacement was exempt from the registration requirements of the Securities Act of 1933. The notes\nwere not registered for resale and may not be resold absent such registration or an applicable\nexemption from the registration requirements of the Securities Act of 1933 and applicable state\nsecurities laws. The notes have certain prepayment penalties for repaying them prior to the\nmaturity date. The agreement also requires the Company to maintain a financial covenant. As of\nJanuary 31, 2008, the Company was in compliance with this covenant.\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 January 31, 2008, 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 notes\nwill 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 January 31, 2008, the Company was in compliance with this covenant.\n

\n\n

On February 19, 2008, the Board of Directors declared a quarterly cash dividend to\nshareholders of the Company’s Class A Common Stock of $0.15 per share payable on April 30, 2008 to\nshareholders of record at the close of business on April 10, 2008.\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,\nsuch as 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,\nservices, and 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. In\nconnection with the adoption of FIN 48 as of August 1, 2007, the Company is unable to determine the\nperiod in which the cash settlement of the liability associated with FIN 48 will occur with the\nrespective taxing authority.\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

19\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 Form10-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,\n2007. 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

20\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, with the approval of the Board of Directors, if there is a desire to\nmodify the Company’s exposure to interest rates. As of January 31, 2008, the Company had no\ninterest 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\nrecorded, processed, summarized and reported on a timely basis. The Company’s Chief Executive\nOfficer and Chief Financial Officer have reviewed and evaluated the Company’s disclosure controls\nand procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of\n1934, as 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 system, SAP, to\nmany of its locations around the world. This implementation has resulted in certain changes to\nbusiness processes and internal controls impacting financial reporting. Management is taking the\nnecessary steps to monitor and maintain appropriate internal controls during 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

21\n

\n\n\n\n\n

TABLE OF CONTENTS\n

\n\n


			Page
ARTICLE I INTRODUCTION		1

1.1	Establishment and Effective Date			1
1.2	Purpose			1
1.3	Section 409A			1

ARTICLE II DEFINITIONS		2

2.1	Account			2
2.2	Additional Employer Contribution			2
2.3	Additional Matching Contribution			2
2.4	Affiliate			2
2.5	Beneficiary			2
2.6	Board			2
2.7	Code			2
2.8	Committee			2
2.9	Compensation			2
2.10	Elective Deferral			3
2.11	Elective Deferral Account			3
2.12	Eligible Employee			3
2.13	Employee			3
2.14	Employer			3
2.15	Employer Contribution			3
2.16	Employer Contribution Account			3
2.17	Excess Compensation			3
2.18	Matching Contribution			3
2.19	Matching Contribution Account			3
2.20	Participant			3
2.21	Plan			3
2.22	Plan Year			3
2.23	Qualified 401(k) Plan			3
2.24	Separation from Service			3
2.25	Specified Employee			6
2.26	Unforeseeable Emergency			7

ARTICLE III PARTICIPATION		8

3.1	Eligibility to Participate			8
3.2	Continuation of Eligibility			8

\n\n\n

i\n

\n\n


			Page
ARTICLE IV DEFERRALS		9

4.1	Elective Deferrals			9
4.2	Additional Rules Governing Deferral Elections			9
4.3	Matching Contribution			10
4.4	Employer Contribution			10
4.5	Additional Matching Contribution			10
4.6	Additional Employer Contribution			10

ARTICLE V ACCOUNTS AND CREDITS		11

5.1	Credits to Accounts			11
5.2	No Funding			11
5.3	Deemed Investment of Accounts			11
5.4	Reports to Participants			12

ARTICLE VI VESTING		13

ARTICLE VII MANNER AND TIMING OF DISTRIBUTION		14

7.1	Payment of Benefits			14
7.2	Payment Election			15
7.3	Financial Hardship			16
7.4	Delayed Distribution			16
7.5	Inclusion in Income Under Section 409A			17
7.6	Domestic Relations Order			17
7.7	De Minimis Amounts			18

ARTICLE VIII PLAN OPERATION AND ADMINISTRATION		19

8.1	Administrator			19
8.2	Committee			19
8.3	Authority to Act			19
8.4	Information from Participants			19
8.5	Committee Discretion			19
8.6	Committee Members’ Conflict of Interest			20
8.7	Governing Law			20
8.8	Expenses			20
8.9	Minor or Incompetent Payees			20
8.10	Withholding			20
8.11	Indemnification			21

ARTICLE IX CLAIMS PROCEDURE		22

9.1	Claims			22

\n\n\n

ii\n

\n\n\n

ARTICLE I\n

\n\n\n

INTRODUCTION\n

\n\n\n

1.1 Establishment and Effective Date\n

\n\n\n

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

Brady Corporation established the Brady Corporation Restoration Plan effective as of January\n1, 2000, and it is hereby restated effective as of January 1, 2008. This document describes\nhow this Plan has been administered for periods after 2004 and prior to January 1, 2008 and\nhow it shall be administered for periods after 2007.

\n\n

1.2 Purpose\n

\n\n\n

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

The Plan is intended to restore to key management employees of Brady and its affiliates\nincome deferral opportunities and employer contributions they would have had under the\nCompany’s tax qualified Brady Matched 401(k) Plan and Brady Funded Retirement Plan but for\nthe limitations of the Internal Revenue Code of 1986, as amended and to provide certain\nadditional benefits.

\n\n

1.3 Section 409A\n

\n\n\n

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

This document is intended to comply with the provisions of Section 409A of the Internal\nRevenue Code and shall be interpreted accordingly. If any provision or term of this\ndocument would be prohibited by or inconsistent with the requirements of Section 409A of the\nCode, then such provision or term shall be deemed to be reformed to comply with Section 409A\nof the Code.

\n\n\n

\n\n\n\n

\n\n

ARTICLE II\n

\n\n\n

DEFINITIONS\n\n

The following terms, when used in the Plan with initial capital letters, shall have the meaning\ngiven to them in this Article.\n

\n\n\n

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

2.1		Account shall mean the account maintained to record a Participant’s interest in the Plan and\nshall be composed of the following subaccounts: Elective Deferral Account, Matching\nContribution Account and Employer Contribution Account.

2.2		Additional Employer Contribution shall mean the amount credited to a Participant pursuant to\nSection 4.6.

2.3		Additional Matching Contribution shall mean the amount credited to a Participant pursuant to\nSection 4.5.

2.4		Affiliate shall mean each incorporated or unincorporated trade or business in which Brady\nCorporation directly or indirectly owns, as applicable, eighty percent (80%) of the voting\nstock or eighty percent (80%) of the capital or profits interest.

2.5		Beneficiary means the person, persons, or entity designated by the Participant to receive any\nbenefits payable under the Plan on or after the Participant’s death. Each Participant shall\nbe permitted to name, change or revoke the Participant’s designation of a Beneficiary in\nwriting on a form and in the manner prescribed by the Employer; provided, however, that the\ndesignation on file with the Employer at the time of the Participant’s death shall be\ncontrolling. Should a Participant fail to make a valid Beneficiary designation or leave no\nnamed Beneficiary surviving, any benefits due shall be paid to such Participant’s spouse, if\nliving; or if not living, then any benefits due shall be paid to such Participant’s estate. A\nParticipant may designate a primary beneficiary and a contingent beneficiary; provided,\nhowever, that the Employer may reject any such instrument tendered for filing if it contains\nsuccessive beneficiaries or contingencies unacceptable to it. If all Beneficiaries who\nsurvive the Participant shall die before receiving the full amounts payable hereunder, then\nthe payments shall be paid to the estate of the Beneficiary last to die.

2.6		Board shall mean the Board of Directors of Brady Corporation.

2.7		Code shall mean the Internal Revenue Code of 1986, as amended, and any regulations issued\nthereunder.

2.8		Committee shall mean the Compensation Committee of the Board.

2.9		Compensation shall mean the total compensation payable to a Participant by the Employer for\nany period (prior to elective deferrals under this Plan or any other plan or deferral\nagreement) required to be reported as wages on the Employee’s Form W-2 for income tax\npurposes, but reduced by all of the following items (even if includable in

2\n

\n\n\n

\n\n\n\n

\n\n

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

gross income): reimbursements or other expense allowances, fringe benefits (cash and\nnon-cash), moving expenses and welfare benefits.

\n\n

2.10		Elective Deferral shall mean the portion of a Participant’s Compensation that is reduced and\ncredited to his Elective Deferral Account pursuant to his election under Section 4.1.

2.11		Elective Deferral Account shall mean the account maintained to record a Participant’s\ninterest in the Plan attributable to his Elective Deferrals.

2.12		Eligible Employee shall mean an Employee eligible under Section 3.1 and 3.2(a).

2.13		Employee shall mean an employee of the Employer.

2.14		Employer shall mean Brady Corporation and any Affiliate that adopts the Plan with the\napproval of the Board.

2.15		Employer Contribution shall mean the amount credited to a Participant pursuant to Section\n4.4.

2.16		Employer Contribution Account shall mean the account maintained to record a Participant’s\ninterest in the Plan attributable to Employer Contributions and Additional Employer\nContributions on his behalf.

2.17		Excess Compensation shall mean the portion of Compensation earned by a Participant during a\nPlan Year after the date the Compensation he has earned during the Plan Year equals the limit\nin Code Section 401(a)(17) for such Plan Year.

2.18		Matching Contribution shall mean the amount credited to a Participant pursuant to Section\n4.3.

2.19		Matching Contribution Account shall mean the account maintained to record a Participant’s\ninterest in the Plan attributable to Matching Contributions and Additional Matching\nContributions on his behalf.

2.20		Participant shall mean (i) an Eligible Employee under Section 3.1 and 3.2(a) or (ii) a former\nEligible Employee who has an Account under the Plan.

2.21		Plan shall mean the Brady Corporation Restoration Plan, as set forth in this document, as the\nsame may be amended or restated from time to time.

2.22		Plan Year shall mean the calendar year.

2.23		Qualified 401(k) Plan shall mean the Brady Matched 401(k) Plan (or any successor plan thereto\nqualified under Code §§ 401(a) and 401(k)).

2.24		Separation from Service shall have the meaning set forth in IRS Regulation Section 1.409A-1\nthe requirements of which are summarized in part as follows:

3\n

\n\n\n

\n\n\n\n

\n\n

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

	(a)		In General. The Participant shall have a Separation from Service with\nthe Employer if the Participant dies, retires, or otherwise has a termination of\nemployment with the Employer. However, for purposes of this Section 2.24, the\nemployment relationship is treated as continuing intact while the individual is on\nmilitary leave, sick leave, or other bona fide leave of absence if the period of such\nleave does not exceed six months, or if longer, so long as the individual retains a\nright to reemployment with the Employer under an applicable statute or by contract. For\npurposes of this paragraph (a) of this Section 2.24, a leave of absence constitutes a\nbona fide leave of absence only if there is a reasonable expectation that the\nParticipant will return to perform services for the Employer. If the period of leave\nexceeds six months and the individual does not retain a right to reemployment under an\napplicable statute or by contract, the employment relationship is deemed to terminate\non the first date immediately following such six-month period. Notwithstanding the\nforegoing, where a leave of absence is due to any medically determinable physical or\nmental impairment that can be expected to result in death or can be expected to last\nfor a continuous period of not less than six months, where such impairment causes the\nParticipant to be unable to perform the duties of his or her position of employment or\nany substantially similar position of employment, a 29-month period of absence may be\nsubstituted for such six-month period.

	(b)		Termination of Employment. Whether a termination of employment has\noccurred is determined based on whether the facts and circumstances indicate that the\nEmployer and Participant reasonably anticipated that no further services would be\nperformed after a certain date or that the level of bona fide services the Participant\nwould perform after such date (whether as an employee or as an independent contractor)\nwould permanently decrease to no more than 20 percent of the average level of bona fide\nservices performed (whether as an employee or an independent contractor) over the\nimmediately preceding 36-month period (or, the full period of services to the Employer\nif the Participant has been providing services to the Employer less than 36 months).\nFacts and circumstances to be considered in making this determination include, but are\nnot limited to, whether the Participant continues to be treated as an employee for\nother purposes (such as continuation of salary and participation in employee benefit\nprograms), whether similarly situated service providers have been treated consistently,\nand whether the Participant is permitted, and realistically available, to perform\nservices for other service recipients in the same line of business. The Participant is\npresumed to have Separated from Service where the level of bona fide services performed\ndecreases to a level equal to 20 percent or less of the average level of services\nperformed by the employee during the immediately preceding 36-month period. The\nParticipant will be presumed not to have Separated from Service where the level of bona\nfide services performed continues at a level that is 50 percent or more of the average\nlevel of service performed by the Participant during the immediately preceding\n36-month period. No presumption applies to a decrease in the level of bona fide\nservices performed to a level that is more than 20 percent and less than 50 percent\nof the average level of bona fide services performed during the immediately

4\n

\n\n\n

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

preceding 36-month period. The presumption is rebuttable by demonstrating that the\nEmployer and the Participant reasonably anticipated that as of a certain date the\nlevel of bona fide services would be reduced permanently to a level less than or\nequal to 20 percent of the average level of bona fide services provided during the\nimmediately preceding 36-month period or the full period of services to the Employer\nif the Participant has been providing services to the Employer less than 36 months\n(or that the level of bona fide services would not be so reduced). For example, the\nParticipant may demonstrate that the Employer and the Participant reasonably\nanticipated that the Participant would cease providing services, but that, after the\noriginal cessation of services, business circumstances such as termination of the\nParticipant’s replacement caused the Participant to return to employment. Although\nthe Participant’s return to employment may cause the Participant to be presumed to\nhave continued in employment because the Participant is providing services at a rate\nequal to the rate at which the Participant was providing services before the\ntermination of employment, the facts and circumstances in this case would\ndemonstrate that at the time the Participant originally ceased to provide services,\nthe Employer reasonably anticipated that the Participant would not provide services\nin the future. For purposes of this paragraph (b), for periods during which the\nParticipant is on a paid bona fide leave of absence (as defined in paragraph (a) of\nthis Section 2.24) and has not otherwise terminated employment pursuant to paragraph\n(a) of this Section 2.24, the Participant is treated as providing bona fide services\nat a level equal to the level of services that the Participant would have been\nrequired to perform to receive the compensation paid with respect to such leave of\nabsence. Periods during which the Participant is on an unpaid bona fide leave of\nabsence (as defined in paragraph (a) of this Section 2.24) and has not otherwise\nterminated employment pursuant to paragraph (a) of this Section 2.24, are\ndisregarded for purposes of this paragraph (b) of this Section 2.24 (including for\npurposes of determining the applicable 36-month (or shorter) period).

\n\n

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

(c)

Asset Purchase Transactions. Where as part of a sale or other\ndisposition of assets by the Employer as seller to an unrelated service recipient\n(buyer), a Participant of the Employer would otherwise experience a Separation from\nService with the Employer, the Employer and the buyer may retain the discretion to\nspecify, and may specify, whether a Participant providing services to the Employer\nimmediately before the asset purchase transaction and providing services to the buyer\nafter and in connection with the asset purchase transaction has experienced a\nSeparation from Service, provided that the asset purchase transaction results from bona\nfide, arm’s length negotiations, all service providers providing services to the\nEmployer immediately before the asset purchase transaction and providing services to\nthe buyer after and in connection with the asset purchase transaction are treated\nconsistently (regardless of position at the Employer) for purposes of applying the\nprovisions of any nonqualified deferred\ncompensation plan, and such treatment is specified in writing no later than the\nclosing date of the asset purchase transaction. For purposes of this paragraph (c),\nreferences to a sale or other disposition of assets, or an asset purchase\ntransaction,

5\n

\n\n\n

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

refer only to a transfer of substantial assets, such as a plant or\ndivision or substantially all the assets of a trade or business.

\n\n

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

(d)

Dual Status. If a Participant provides services both as an employee of\nthe Employer and as an independent contractor of the Employer, the Participant must\nseparate from service both as an employee and as an independent contractor to be\ntreated as having Separated from Service. If a Participant ceases providing services\nas an independent contractor and begins providing services as an employee, or ceases\nproviding services as an employee and begins providing services as an independent\ncontractor, the Participant will not be considered to have a Separation from Service\nuntil the Participant has ceased providing services in both capacities.\nNotwithstanding the foregoing, if a Participant provides services both as an employee\nof the Employer and a member of the board of directors of the Employer, the services\nprovided as a director are not taken into account in determining whether the\nParticipant has a Separation from Service as an employee for purposes of this Plan\nunless this Plan is aggregated with any plan in which the Participant participates as a\ndirector under IRS Regulation Section 1.409A-1(c)(2)(ii).

\n\n

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

2.25

Specified Employee shall have the meaning set forth in IRS Regulation Section 1.409A-1 the\nrequirements of which are summarized in part as follows:

\n\n

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

	(a)		In General. “Specified Employee” means a Participant who as of the\ndate of his separation from service is a “key employee” as defined in Code Section\n416(i) (disregarding Section 416(i)(5)), i.e., an employee who at any time during the\n12 month period ending on an identification date is an officer of the Employer or one\nof its affiliates having an annual compensation as defined in IRS Regulation Section\n1.409A-1(i)(2) greater than $130,000, a 5% owner of the Employer or one of its\naffiliates or a 1% owner of the Employer or one of its affiliates having compensation\nof more than $150,000. The $130,000 amount described in the preceding sentence shall\nbe adjusted for cost of living increases in such amounts and at such times as specified\nby the Internal Revenue Service. Further, no more than 50 employees (or, if lesser,\nthe greater of 3 or 10% of the employees) shall be treated as officers. The foregoing\ndefinition shall be interpreted at all times in a manner consistent with such\nregulations as may be adopted from time to time by the Internal Revenue Service for\npurposes of applying the key employee definition of Section 416(i) to the requirements\nof Code Section 409A. If a person is a key employee as of an identification date, the\nperson is treated as a Specified Employee for the 12-month period beginning on the\nfirst day of the fourth month following the identification date. The “identification\ndate” is December 31.

	(b)		In the event of a public offering, merger, acquisition, spin-off,\nreorganization or other corporate transaction, “Specified Employees” shall be\ndetermined as provided in IRS Reg. Section 1.409A-(1)(i)(6).

6\n

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\n\n\n\n

\n\n

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

2.26

Unforeseeable Emergency means a severe financial hardship to a Participant resulting from an\nillness or accident of the Participant or the Participant’s spouse or dependent (as defined in\nSection 152(a) of the Code), loss of the Participant’s property due to casualty (including the\nneed to rebuild a home following damage to a home not otherwise covered by insurance, for\nexample, as a result of a natural disaster), or other similar extraordinary and unforeseeable\ncircumstances arising as a result of events beyond the control of the Participant. For\nexample, the imminent foreclosure of or eviction from the Participant’s primary residence may\nconstitute an Unforeseeable Emergency. In addition, the need to pay for medical expenses,\nincluding non-refundable deductibles, as well as for the costs of prescription drug\nmedication, may constitute an Unforeseeable Emergency. Finally, the need to pay for funeral\nexpenses of a spouse or a dependent (as defined in Code section 152(a)) may also constitute an\nUnforeseeable Emergency. Except as otherwise provided above, the purchase of a home and the\npayment of college tuition are not Unforeseeable Emergencies. Whether a Participant is faced\nwith an Unforeseeable Emergency is to be determined based on the relevant facts and\ncircumstances of each case.

\n\n\n

7\n

\n\n

ARTICLE IV\n

\n\n\n

DEFERRALS\n\n

\n\n

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

4.1

Elective Deferrals

\n\n

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

	(a)		An Eligible Employee may elect an Elective Deferral of up to four percent (4%)\nof his Excess Compensation for services performed during a Plan Year by completing and\nfiling such forms as may be required by the Employer.

	(b)		An Eligible Employee’s Elective Deferral election under paragraph (a) of this\nSection shall apply to and reduce his Excess Compensation, i.e., the portion of his\nCompensation earned during a Plan Year after the date the Compensation he has earned\nduring the Plan Year equals the limit in Code Section 401(a)(17) for such Plan Year.

\n\n

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

4.2

Additional Rules Governing Deferral Elections

\n\n

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

	(a)		An Eligible Employee’s election under Section 4.1 shall (i) if made within the\nthirty (30) day period following the date he is first eligible to participate in the\nPlan, be effective for that portion of his Excess Compensation to be paid for services\nperformed subsequent to the election, and (ii) if not made within said thirty (30) day\nperiod, be effective for Excess Compensation paid for services performed during the\nPlan Year following the date the election is received by the Employer, or its designee.

	(b)		An Eligible Employee’s election for a Plan Year under this Article IV shall be\nirrevocable after the last day upon which such election is permitted to be made for\nsuch Plan Year and shall continue in effect for subsequent Plan Years until changed or\nrevoked pursuant to paragraph (c) below.

	(c)		An Eligible Employee may change or revoke his election which would otherwise be\neffective for a Plan Year by completing and filing such forms as may be required by the\nEmployer by the last day of the preceding Plan Year.

	(d)		Notwithstanding paragraphs (a), (b) and (c), in the event that a Participant\nmakes application for a hardship distribution under Section 7.3 and the Administrator\ndetermines that an Unforeseeable Emergency exists, his deferral election otherwise in\neffect under this Article IV and any other nonqualified deferred compensation plan of\nthe account balance type shall immediately terminate upon such determination. To\nresume deferrals thereafter, a Participant must make an election satisfying the\nprovisions of paragraph (c).

	(e)		Notwithstanding paragraphs (a), (b) and (c), if an Eligible Employee receives a\nwithdrawal of his elective contributions under the Qualified 401(k) Plan or any other\n401(k) plan (i.e., a qualified cash or deferred arrangement) of the Employer (or any\naffiliate treated under the Code as a single employer with the Employer\n

9\n

\n\n

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

for purposes of the 401(k) plan) due to financial hardship pursuant to IRS\nRegulation Section 1.40(k)-1(d)(3) or its successor, his deferral election under\nthis Section 4.1 shall be revoked automatically (effective on the date such hardship\nwithdrawal is paid). In addition, such Eligible Employee shall not be eligible to\nhave another deferral election in effect until the first day of the Plan Year which\nbegins after a six month suspension period that begins on the first day of the\ncalendar month following the date the hardship withdrawal is paid. Such Eligible\nEmployee may then resume deferrals by making an election, pursuant to the rules of\nparagraph (c) above, effective for any Plan Year which begins after the end of such\nsuspension period.

\n\n

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

4.3		Matching Contribution

		An Eligible Employee shall be credited with a Matching Contribution for a Plan Year in an\namount equal to the amount of the Elective Deferral made on the Eligible Employee’s behalf\nfor the Plan Year.

4.4		Employer Contribution

		An Eligible Employee shall be credited with an Employer Contribution for a Plan Year in an\namount equal to 4% of the Eligible Employee’s Excess Compensation for the Plan Year;\nprovided the Eligible Employee remains in the Employer’s employ on the last day of such Plan\nYear.

4.5		Additional Matching Contribution

		There shall be credited to the Participant’s Matching Contribution Account for a Plan Year\nan amount in addition to amounts credited under Section 4.3 for the same year. The amount\ncredited under this Section 4.5 shall be equal to .04(X-(Y-Z)) where X is the limit in Code\nSection 401(a)(17) for such Plan Year, Y is the Participant’s Compensation for the Plan Year\nas defined in Section 2.9 and Z is the amount of elective deferrals for the Plan Year under\nall nonqualified deferred compensation plans and agreements (including this Plan) of the\nEmployer covering the Participant. No amount shall be credited under this Section if X does\nnot exceed the remainder of Y minus Z.

4.6		Additional Employer Contribution

		As of the last day of a Plan Year, there shall be credited to the Participant’s Employer\nContribution Account an amount in addition to amounts credited under Section 4.4 for the\nsame year. The amount credited under this Section 4.6 shall be equal to .04(X-(Y-Z)) where\nX is the limit in Code Section 401(a)(17) for such Plan Year, Y is the Participant’s\nCompensation for the Plan Year as defined in Section 2.9 and Z is the amount of elective\ndeferrals for the Plan Year under all nonqualified deferred compensation plans and\nagreements (other than this Plan) of the Employer covering the Participant. No amount shall\nbe credited under this Section if X does not exceed the remainder of Y minus Z.

\n\n

10\n

\n\n

ARTICLE V\n

\n\n\n

ACCOUNTS AND CREDITS\n\n

\n\n

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

5.1

Credits to Accounts

\n\n

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

	(a)		An amount equal to the amount by which a Participant’s Compensation has been\nreduced pursuant to his deferral election under Section 4.1 shall be credited to his\nElective Deferral Account.

	(b)		Matching Contributions and Additional Matching Contributions on a Participant’s\nbehalf shall be credited to his Matching Contribution Account.

	(c)		Employer Contributions and Additional Employer Contributions on a Participant’s\nbehalf shall be credited to his Employer Contribution Account.

	(d)		Said credits shall be made at times established by the Committee but no later\nthan 60 days after the last day of the Plan Year to which they relate.

	(e)		Each Account shall also be credited or charged with deemed earnings and losses\nas if it were invested in accordance with Section 5.3.

\n\n

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

5.2

No Funding

\n\n

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

	(a)		The right of any individual to receive payment under the provisions of this\nPlan shall be an unsecured claim against the general assets of the Employer, and no\nprovisions contained in this Plan, nor any action taken pursuant to this Plan, shall be\nconstrued to give any individual at any time a security interest in any asset of the\nEmployer, of any affiliated company, or of the stockholders of the Employer. The\nliabilities of the Employer to any individual pursuant to this Plan shall be those of a\ndebtor pursuant to such contractual obligations as are created by this Plan and, to the\nextent any person acquires a right to receive payment from the Employer under this\nPlan, such right shall be no greater than the right of any unsecured general creditor\nof the Employer.

	(b)		The Employer may establish a grantor trust (but shall not be required to do so)\nto which shall be contributed (subject to the claims of the general creditors of the\nEmployer) the amounts credited to the Accounts. If a grantor trust is so established,\nexcept as specifically provided otherwise by the terms of the trust agreement for the\ntrust, payment by the trust of the amounts due to a Participant or his Beneficiary\nunder the Plan shall be considered a payment by the Employer for purposes of the Plan.

\n\n

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

5.3

Deemed Investment of Accounts

\n\n

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

(a)

The Committee shall select one or more investment funds for the deemed\ninvestment of Accounts. However, in no event shall the Employer be required to

11\n

\n\n\n

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

make any such investment in the investment funds, and to the extent such investments\nare made, such investments shall remain an asset of the Employer subject to the\nclaims of its general creditors.

\n\n

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

	(b)		On the date credited to the respective Account, a Participant’s Elective\nDeferrals, Matching Contributions, Additional Matching Contributions, Employer\nContributions and Additional Employer Contributions shall be deemed to be invested in\none or more of the investment funds designated by the Participant for such deemed\ninvestment. Once made, the Participant’s investment designation shall continue in\neffect for all future Elective Deferrals, Matching Contributions, Additional Matching\nContributions, Employer Contributions and Additional Employer Contributions until\nchanged by the Participant. Any such change may be elected by the Participant at the\ntimes established by the Committee, which shall be no less frequently than quarterly,\nand shall be effective only for Elective Deferrals, Matching Contributions, Additional\nMatching Contributions, Employer Contributions and Additional Employer Contributions\ncredited from and after its effective date.

	(c)		A Participant may elect to reallocate the balance of his Accounts deemed to be\ninvested in the investment funds under this Section at the times established by the\nCommittee, which shall be no less frequently quarterly.

	(d)		All elections and designations under this Section shall be made in accordance\nwith procedures prescribed by the Committee. The Committee may prescribe uniform\npercentages for such elections and designations.

	(e)		Any distribution of a Participant’s Account which is not a distribution of the\nentire account shall be taken pro rata from each of the investment funds in which the\naccount is deemed to be invested.

\n\n

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

5.4		Reports to Participants

		The Employer shall provide annual reports to each Participant showing (a) the value of the\nAccount as of the most recent December 31st (b) the amount of contributions made by the\nEmployer for the year ending on such date and (c) the amount of any investment earnings or\nloss credited or debited to the Participant’s Account.\n

12\n

\n\n\n\n

ARTICLE VII\n

\n\n\n

MANNER AND TIMING OF DISTRIBUTION\n\n

\n\n

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

7.1

Payment of Benefits

\n\n

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

(a)

After a Participant’s Separation from Service the Participant’s Account shall\nbe paid to the Participant (or in the event of the Participant’s death, to the\nParticipant’s Beneficiary). Payment shall be made in one of the following forms as\nspecified in the Participant’s payment election pursuant to Section 7.2:

\n\n

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

	(i)		Single Sum. A single sum distribution of the value of\nthe balance of the Account on the first day of the second month following the\nParticipant’s Separation from Service; or

	(ii)		Installments. This subparagraph (ii) shall only be\napplicable after April 30, 2006. The value of the balance of the Account shall\nbe paid in annual installments with the first of such installment to be paid on\nthe first day of the second month following the Participant’s Separation from\nService and with subsequent annual installments to be paid on an anniversary of\nthe payment of the first installment. Annual installments shall be paid in one\nof the alternative methods specified below over the number of years selected by\nthe Participant in the payment election made pursuant to Section 7.2, but not\nto exceed 10. The earnings (or losses) provided for in Section 5.1(e) shall\ncontinue to accrue on the balance remaining in the Account during the period of\ninstallment payments. The alternative methods available are as follows:

\n\n\n

(A) Fractional Method. The annual installment shall be\ncalculated by multiplying the most recent value of the Account by a\nfraction, the numerator of which is one, and the denominator of which is the\nremaining number of annual payments due the Participant. By way of example,\nif the Participant elects a 10 year annual installment method, the first\npayment shall be one-tenth (1/10) of the Account balance. The following\nyear, the payment shall be one-ninth (1/9) of the Account balance.\n

\n\n\n

(B) Percentage or Fixed Dollar Method. The annual installment\nshall be calculated by multiplying the most recent value of the Account, in\nthe case of the percentage method, by the percentage selected by the\nParticipant and paying out the resulting amount or, in the case of the fixed\ndollar method, by paying out the fixed dollar amount selected by the\nParticipant for the number of years selected by the Participant. However,\nin the event the dollar amount selected is more than the value of the\nAccount in any given year, the entire value of the Account will be\ndistributed. Further, regardless of the method selected by the Executive,\n

\n\n

14\n

\n\n\n\n

the final installment payment will include 100% of the then remaining\nAccount value.\n

\n\n

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

(b)

In the case of a Participant who is a Specified Employee, payment pursuant to\nparagraph (a) above shall commence no earlier than the first day of the seventh month\nfollowing the Participant’s Separation from Service. This delay in distribution rule\ndoes not apply if the payment is being made as a result of the Participant’s death or\ndisability. For this purpose, “disability” means that the Participant:

\n\n

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

	(i)		is unable to engage in any substantial gainful activity by\nreason of any medically determinable or physical or mental impairment which can\nbe expected to result in death or can be expected to last for a continuous\nperiod of not less than 12 months, or

	(ii)		is, by reason of any medically determinable physical or mental\nimpairment which can be expected to result in death or can be expected to last\nfor a continued period of not less than 12 months, receiving income replacement\nbenefits for a period of not less than three months under an accident and\nhealth plan covering the employees of the Employer or one of its affiliates in\nwhich the Participant is covered.

\n\n

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

7.2		Payment Election

		An individual who first becomes a Participant at the beginning of a Plan Year shall, prior\nto his date of participation, complete a payment election form specifying the form of\npayment applicable to such Participant’s Account under the Plan. Absent an actual election\nby such Participant by the effective date of participation, the Participant shall be deemed\nto have elected the five (5) annual installment payment form. An individual who first\nbecomes a Participant other than on the first day of a Plan Year shall, no later than 30\ndays after the effective date of participation, complete a payment election form specifying\nthe form of payment applicable to such Participant’s Account. In the event such a\nParticipant does not make an actual election within such 30 day period, the Participant\nshall be deemed to have elected the five (5) annual installment payment form; provided,\nhowever, that if such Participant is already a participant in any other nonqualified plan or\nplans sponsored by the Employer of the account balance type, the most recent payment\nelection prior to the date he became a Participant in this Plan with respect to any one of\nthose plans shall be the payment election form deemed elected under this Plan regardless of\nwhether the individual elects a different payment election form during that initial 30 day\nperiod. Elections shall be made on a “payment election form” – the form established from\ntime to time by the Committee which a Participant completes, signs and returns to the\nCommittee to make an election under the Plan. To the extent authorized by the Committee,\nsuch form may be provided electronically and, in such case, need not be signed by the\nParticipant. A Participant may change the form of payment by completing and filing a new\npayment election form with the Committee, and the payment election form on file with the\nCommittee as of the date of the Participant’s

15\n

\n\n\n

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

Separation from Service shall be controlling. Notwithstanding the foregoing, a payment\nelection form changing the Participant’s form of payment shall not be effective if the\nParticipant has a Separation from Service within twelve months after the date on which the\nelection change is filed with the Committee. Any change in payment method must have the\neffect of delaying the commencement of payments to a date which is at least five (5) years\nfollowing the initially scheduled commencement date of payment previously in effect. For\npurposes of compliance with Code Section 409A, a series of installment payments is\ndesignated as a single payment rather than a right to a series of separate payments;\ntherefore, a Participant who has elected (or is deemed to have elected) any option available\nunder Section 7.1(a)(i) or (ii) may substitute any of the other options for the option\noriginally selected as long as the foregoing one-year and five year rules are satisfied. A\nswitch from the percentage method to the fixed dollar method or vice versa and a switch from\neither of those methods to the fractional method or vice versa is considered a substitution\nof a new option for the original option for purposes of this rule even if the number of\nyearly installments is not changed. The five year delay rule does not apply if the revised\npayment method applies only upon the Participant’s death or disability. For this purpose,\ndisability has the same meaning as in Section 7.1(b). In the event that the Participant’s\nnew payment election would not be effective under the foregoing rules, the payment election\npreviously in effect shall be controlling.

\n\n

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

7.3		Financial Hardship

		A partial or total distribution of the Participant’s Account shall be made prior to\nSeparation from Service upon the Participant’s request and a demonstration by the\nParticipant of severe financial hardship as a result of an Unforeseeable Emergency. Such\ndistribution shall be made in a single sum as soon as administratively practicable following\nthe Committee’s determination that the foregoing requirements have been met. In any case, a\ndistribution due to Unforeseeable Emergency may not be made to the extent that such\nemergency is or may be relieved through reimbursement or compensation from insurance or\notherwise, by liquidation of the Participant’s assets, to the extent the liquidation of such\nassets would not cause severe financial hardship, or by cessation of deferrals under Article\nIV and any other nonqualified deferred compensation plan of the account balance type\nsponsored by the Employer. Distributions because of an Unforeseeable Emergency must be\nlimited to the amount reasonably necessary to satisfy the emergency need (which may include\namounts necessary to pay any Federal, state, or local income taxes or penalties reasonably\nanticipated to result from the distribution). Determinations of amounts reasonably\nnecessary to satisfy the emergency need must take into account any additional compensation\nthat is available because of cancellation of a deferral election under Article IV and any\nother nonqualified deferred compensation plan of the account balance type sponsored by the\nEmployer upon a payment due to an Unforeseeable Emergency. The payment may be made from any\narrangement in which the Participant participates that provides for payment upon an\nUnforeseeable Emergency, provided that the arrangement under which the payment was made must\nbe designated at the time of payment.

7.4		Delayed Distribution

\n\n

\n\n\n\n

16\n

\n\n\n

\n\n\n\n

\n\n

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

	(a)		A payment otherwise required to be made pursuant to the provisions of this\nArticle VII shall be delayed if the Employer reasonably anticipates that the Employer’s\ndeduction with respect to such payment would be limited or eliminated by application of\nCode Section 162(m); provided, however that such payment shall be made on the earliest\ndate on which the Employer anticipates that the deduction of the payment of the amount\nwill not be limited or eliminated by application of Code Section 162(m). In any event,\nsuch payment shall be made no later than the last day of the calendar year in which the\nParticipant has a Separation from Service or, in the case of a Specified Employee, the\nlast day of the calendar year in which occurs the six (6) month anniversary of such\nSeparation from Service.

	(b)		A payment otherwise required under this Article VII shall be delayed if the\nEmployer reasonably determines that the making of the payment will jeopardize the\nability of the Employer to continue as a going concern; provided, however, that\npayments shall be made on the earliest date on which the Employer reasonably determines\nthat the making of the payment will not jeopardize the ability of the Employer to\ncontinue as a going concern.

	(c)		A payment otherwise required under this Article VII shall be delayed if the\nEmployer reasonably anticipates that the making of the payment will violate federal\nsecurities laws or other applicable law; provided, however, that payments shall\nnevertheless be made on the earliest date on which the Employer reasonably anticipates\nthat the making of the payment will not cause such violation. (The making of a payment\nthat would cause inclusion in gross income or the applicability of any penalty\nprovision or other provision of the Code is not treated as a violation of applicable\nlaw.)

	(d)		A payment otherwise required under this Article VII shall be delayed upon such\nother events and conditions as the Internal Revenue Service may prescribe in generally\napplicable guidance published in the Internal Revenue Bulletin.

\n\n

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

7.5		Inclusion in Income Under Section 409A

		Notwithstanding any other provision of this Article VII, in the event this Plan fails to\nsatisfy the requirements of Code Section 409A and regulations thereunder with respect to any\nParticipant, there shall be distributed to such Participant as promptly as possible after\nthe Administrator becomes aware of such fact of noncompliance such portion of the\nParticipant’s Account balance hereunder as is included in income as a result of the failure\nto comply, but no more.

7.6		Domestic Relations Order

		Notwithstanding any other provision of this Article VII, payments shall be made from the\nAccount of a Participant in this Plan to such individual or individuals (other than the

17\n

\n\n

\n\n\n

\n\n

ARTICLE VIII\n

\n\n\n

PLAN OPERATION AND ADMINISTRATION\n\n

\n\n

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

8.1		Administrator

		The Committee shall be the plan administrator and shall be responsible for and perform the\nduties imposed on a plan administrator.

8.2		Committee

		The Committee shall have the power and duty to administer the Plan in accordance with its\nterms, including, but not limited to, the following:

\n\n

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

	(a)		to make and enforce such rules and regulations as it may deem necessary or\ndesirable for the efficient administration of the Plan;

	(b)		to interpret the Plan, including the right to remedy possible ambiguities,\ninconsistencies or omissions;

	(c)		to decide all questions related to participation in, and payment of amounts\nunder, the Plan, including all factual questions related thereto; and

	(d)		to maintain all necessary records for the administration of the Plan.

\n\n

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

8.3		Authority to Act

		Brady Corporation or the Committee may authorize one or more of Brady Corporation’s\nemployees, members, representatives or agents, as applicable, to execute on its behalf\ninstructions or directions to any interested party, and any such interested party may rely\nthereupon and the information contained therein.

8.4		Information from Participants

		Each Participant and Beneficiary shall furnish the Committee in the form prescribed by it\nand at its request, such personal data, affidavits, authorizations to obtain information, or\nother information as the Committee deems necessary or desirable for the administration of\nthe Plan.

8.5		Committee Discretion

		The Committee has full and complete discretionary authority to determine eligibility for\nbenefits, to construe the terms of the Plan and to decide any matter presented through the\nclaims review procedure. Any final determination by the Committee (including claims\ndecisions made pursuant to Article IX) shall be binding on all parties and afforded the\nmaximum deference allowed by law. If challenged in court, such determination shall not be\nsubject to de novo review and shall not be overturned unless proven to be\narbitrary and

19\n

\n\n\n

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

capricious upon the evidence considered by the Committee at the time of such determination.

\n\n

8.6		Committee Members’ Conflict of Interest

		A member of the Committee who is covered hereunder may not vote or decide upon any matter\nrelating solely to himself or vote in any case in which his individual right to any benefit\nunder the Plan is particularly involved. Decisions shall be made by remaining Committee or\nBoard members even if there is no quorum under normal Committee or Board rules.

8.7		Governing Law

		This Plan shall be construed in accordance with the laws of the State of Wisconsin to the\nextent not preempted by the provisions of the Employee Retirement Income Security Act of\n1974, as amended, or other federal law.

8.8		Expenses

		All expenses and costs incurred in connection with the administration and operation of the\nPlan shall be borne by the Employer and/or the Trust.

8.9		Minor or Incompetent Payees

		If a person to whom a benefit is payable is a minor or is otherwise incompetent by reason of\na physical or mental disability, the Committee may cause the payments due to such person to\nbe made to another person for the first person’s benefit without any responsibility to see\nto the application of such payment. Such payments shall operate as a complete discharge of\nthe obligations to such person under the Plan.

8.10		Withholding

		The Employer shall comply with all applicable tax and governmental withholding requirements.\nTo the extent required by law, the Employer shall withhold any taxes required to be\nwithheld by the federal or any state or local government from payments made hereunder or\nfrom any other amounts paid to a Participant by the Employer. If FICA taxes must be\nwithheld in connection with amounts credited hereunder before payments are otherwise due\nhereunder and if there are no other wages from which to withhold them, the Employer shall\npay such FICA taxes generated by such payment (and taxes under Code Section 3401 triggered\nthereby and additional taxes under Section 3401 attributable to pyramiding of Section 3401\nwages and taxes) but no more and the Participant’s Account hereunder shall be reduced by an\namount equal to the payments made by the Employer.

\n\n

20\n

\n\n

\n\n\n

\n\n

ARTICLE IX\n

\n\n\n

CLAIMS PROCEDURE\n\n

\n\n

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

9.1		Claims

		If the Participant or the Participant’s Beneficiary (hereinafter referred to as a\n“Claimant”) is denied all or a portion of an expected benefit under the Plan for any reason,\nhe or she may file a claim with the Committee or its designee. The Committee or its\ndesignee shall notify the Claimant within 60 days of allowance or denial of the claim,\nunless the Claimant receives written notice prior to the end of the sixty (60) day period\nstating that special circumstances require an extension of the time for decision and\nspecifying the expected date of decision. The notice of the such decision shall be in\nwriting, sent by mail to the Claimant’s last known address, and if a denial of the claim,\nmust contain the following information:

\n\n

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

	(a)		the specific reasons for the denial;

	(b)		specific reference to pertinent provisions of the Plan on which the denial is\nbased;

	(c)		if applicable, a description of any additional information or material\nnecessary to perfect the claim, an explanation of why such information or material is\nnecessary, and an explanation of the claims review procedure; and

	(d)		a description of the Plan’s claims review procedure, including a statement of\nthe Claimant’s right to bring a civil action under Section 502 of ERISA if the\nClaimant’s claim is denied upon review.

\n\n

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

9.2		Review

		A Claimant is entitled to request a review of any denial of his claim. The request for\nreview must be submitted in writing to the Committee within 60 days after receipt of the\nnotice of the denial. The timely filing of such a request is necessary to preserve any\nlegal recourse which may be available to the Claimant and, absent the submission of request\nfor review within the 60-day period, the claim will be deemed to be conclusively denied.\nUpon submission of a written request for review, the Claimant or his representative shall be\nentitled to review all pertinent documents, and to submit issues and comments in writing for\nconsideration by the Committee. The Committee shall fully and fairly review the matter and\nshall consider all information submitted in the review request, without regard to whether or\nnot such information was submitted or considered in the initial claim determination. The\nCommittee shall promptly respond to the Claimant, in writing, of its decision within 60 days\nafter receipt of the review request. However, due to special circumstances, if no response\nhas been provided within the first 60 days, and notice of the need for additional time has\nbeen furnished within such period, the review and response may be made within the following\n60 days. The Committee’s decision shall include specific reasons for the decision,\nincluding references to the particular Plan provisions upon which the decision is based,\nnotification that the Claimant can receive or review

22\n

\n\n

\n\n\n

\n\n

ARTICLE X\n

\n\n\n

AMENDMENT AND TERMINATION\n\n

\n\n

Brady Corporation (through its Board of Directors or authorized officers or employees and/or\nthe Committee) reserves the right to alter or amend the Plan, or any part thereof, in such manner\nas it may determine, at any time and for any reason. Further, the Board of Directors of Brady\nCorporation reserves the right to terminate the Plan, at any time and for any reason.\nNotwithstanding the foregoing, in no event shall any amendment or termination deprive any\nParticipant or Beneficiary of any amounts credited to him under this Plan as of the date of such\namendment or termination; provided, however, that Brady Corporation may prospectively change the\nmanner in which earnings are credited or discontinue the crediting of earnings and, further, Brady\nCorporation may make any amendment it deems necessary or desirable for purposes of compliance with\nthe requirements of Code Section 409A and regulations thereunder.\n

\n\n\n

If the Plan is amended to freeze benefit accruals, no additional deferrals or contributions\nshall be credited to any Participant Account hereunder. Following such a freeze of benefit\naccruals, Participants’ Accounts shall be paid at such time and in such form as provided under\nArticle VII of the Plan. If the Employer terminates the Plan and if the termination is of the type\ndescribed in regulations issued by the Internal Revenue Service pursuant to Code Section 409A, then\nthe Employer shall distribute the then existing Account balances of Participants and beneficiaries\nin a lump sum within the time period specified in such regulations and, following such\ndistribution, there shall be no further obligation to any Participant or beneficiary under this\nPlan. However, if the termination is not of the type described in such regulations, then following\nPlan termination Participants’ Accounts shall be paid at such time and in such form as provided\nunder Article VII of the plan.\n

\n\n

24\n

\n\n\n\n

ARTICLE XI\n

\n\n\n

MISCELLANEOUS PROVISIONS\n\n

\n\n

11.1		Headings

		The headings of the Plan have been inserted for convenience of reference and shall be\nignored in the construction of the provisions herein.

11.2		No Contract of Employment

		The existence of the Plan shall not create or change any contract, express or implied,\nbetween the Employer and its employees and shall not affect the Employer’s right to take any\naction with respect to its employees.

11.3		Rights of Participants and Beneficiaries

		The interest and rights of a Participant and Beneficiary under the Plan shall be those of a\ngeneral unsecured creditor of the Employer, and with respect to the creditors of the\nEmployer, no Participant or Beneficiary shall have any preferred claims on, or any\nbeneficial ownership in, the assets of the Employer, including any assets in which the\nEmployer may invest to aid in meeting its obligations under the Plan.

11.4		Nonalienation of Benefits

		All benefits payable hereunder are for the sole use and benefit of the Participants and\ntheir Beneficiaries and, to the extent permitted by law, shall be free, clear and discharged\nof and from, and are not to be in any way liable for, debts, contracts or agreements, now\ncontracted or which may hereafter be contracted and from all claims and liabilities now or\nhereafter incurred by any Participant or Beneficiary covered by this Plan. No Participant\nor Beneficiary covered by this Plan shall have the right to anticipate, surrender, encumber,\nalienate or assign, whether voluntarily or involuntarily, any of the benefits to become due\nhereunder unto any person or person upon any terms whatsoever, and any attempt to do so\nshall be void.

11.5		Tax Treatment

		There is no commitment or guarantee with respect to the tax treatment to be accorded to a\nParticipant or Beneficiary under the Plan.

11.6		Other Plans and Agreements

\n\n

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

(a)

Participation in the Plan shall not affect a Participant’s rights to\nparticipate in and receive benefits under any other plans of the Employer, nor shall it\naffect his rights under any other agreement entered into with the Employer, unless\nexplicitly provided otherwise by such agreement.

25\n

\n\n\n

\n\n\n\n

\n\n

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

(b)

Any amount credited under or paid pursuant to the Plan shall not be treated as\nwages, salary or any other type of compensation or otherwise taken into account in the\ndetermination of the Participant’s benefits under any other plans of the Employer,\nunless explicitly provided otherwise by such plan.

\n\n

11.7		Number and Gender

		The use of the singular shall be interpreted to include the plural and the plural the\nsingular, as the context shall require. The use of the masculine, feminine or neuter shall\nbe interpreted to include the masculine, feminine or neuter, as the context shall require.

11.8		Plan Provisions Controlling

		In the event of any conflict between the provisions of the Plan and the provisions of a\nsummary or description of the Plan or the terms of any agreement or instrument related to\nthe Plan, the provisions of the Plan shall be controlling.

11.9		Severability

		If any provisions of the Plan shall be held illegal or invalid for any reason, such\nillegality or invalidity shall not affect the remaining parts of the Plan, but this Plan\nshall be construed and enforced as if the illegal and invalid provisions had never been\nincluded herein.

11.10		Evidence Conclusive

		The Employer, the Committee and any person or persons involved in the administration of the\nPlan shall be entitled to rely upon any certification, statement, or representation made or\nevidence furnished by any person with respect to any facts required to be determined under\nany of the provisions of the Plan, and shall not be liable on account of the payment of any\nmonies or the doing of any act or failure to act in reliance thereon. Any such\ncertification, statement, representation, or evidence, upon being duly made or furnished,\nshall be conclusively binding upon the person furnishing it but not upon the Employer, the\nCommittee or any other person involved in the administration of the Plan. Nothing herein\ncontained shall be construed to prevent any of such parties from contesting any such\ncertification, statement, representation, or evidence or to relieve any person from the duty\nof submitting satisfactory proof of any fact.

11.11		Status of Plan Under ERISA

		The Plan is intended to be an unfunded plan maintained by an Employer primarily for the\npurpose of providing deferred compensation for a select group of management or highly\ncompensated employees, as described in Section 201(2), Section 301(a)(3), Section 401(a)(1)\nand Section 4021(b)(6) of the Employee Retirement Income Security Act of 1974, as amended.

\n\n

26\n

\n\n

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

11.12		Name and Address Changes

		Each Participant shall keep his name and address on file with the Employer and shall\npromptly notify the Employer of any changes in his name or address. All notices required or\ncontemplated by this Plan shall be deemed to have been given to a Participant if mailed with\nadequate postage prepaid thereon addressed to him at his last address on file with the\nEmployer. If any check in payment of a benefit hereunder (which was mailed to the last\naddress of the payee as shown on the Employer’s records) is returned unclaimed, further\npayments shall be discontinued unless evidence is furnished that the recipient is still\nalive.

11.13		Assignability by Corporation

		The Employer shall have the right to assign all of its right, title and obligation in and\nunder this Plan upon a merger or consolidation in which the Employer is not the surviving\nentity or to the purchaser of substantially its entire business or assets or the business or\nassets pertaining to a major product line, provided such assignee or purchaser assumes and\nagrees to perform after the effective date of such assignment all of the terms, conditions\nand provisions imposed by this Plan upon the Employer. Upon such assignment, all of the\nrights, as well as all obligations, of the Employer under this Plan shall thereupon cease\nand terminate.

11.14		Special rule for 2005-2007.

		Notwithstanding the usual rules regarding distribution elections contained in Article VII, a\nParticipant, on or before December 31, 2007, may make an election as to distribution of his\nAccount from among the choices described in Section 7.1 hereof without complying with the\nrules described in Section 7.2 hereof as long as the effect of the election is not to\naccelerate payments into 2006 or to defer payments which would otherwise have been made in\n2006 or to accelerate payments into 2007 or to defer payments which would otherwise have\nbeen made in 2007. Such election shall become effective after the last day upon which it is\npermitted to be made. In order to change any such election after it has become effective,\nthe requirements of Section 7.2 hereof must be satisfied.

\n\n

IN WITNESS WHEREOF, the Employer has caused its duly authorized officer to execute this Plan\ndocument on its behalf this 19th day of February, 2008.\n

\n\n\n

BRADY CORPORATION\n\n

\n\n

By: /s/ FRANK M. JAEHNERT\n\n

\n\n

Attested: /s/ HOYT R. STASTNEY\n\n

\n\n\n

27\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

(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\nmaterial fact or omit to state a material fact necessary to make the statements made, in light of\nthe circumstances 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

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 relating\nto the registrant, including its consolidated subsidiaries, is made known to us by others within\nthose entities, particularly during the period in which this report is being prepared;\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

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 and\nprocedures, as of the end of the period covered by this report based on such evaluation; and\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 affected,\nor is reasonably likely to materially affect, the registrant’s internal control over financial\nreporting; and\n

\n\n\n\n\n

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

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: March 7, 2008\n\n

\n\n

\n\n\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, Thomas J. Felmer, 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: March 7, 2008\n

\n\n\n\n\n

/s/ THOMAS J. FELMER
\n Thomas J. Felmer\n\n

\n\n

Senior Vice President and Chief
\nFinancial Officer\n\n

\n\n

EXHIBIT 32.1\n

\n\n\n

SECTION 1350 CERTIFICATION\n

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

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

\n\n

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended\nJanuary 31, 2008 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\nrespects, the financial conditions and results of operations of the Company.\n

\n\n\n

Date: March 7, 2008\n

\n\n\n\n\n

/s/ FRANK M. JAEHNERT
\n Frank M. Jaehnert\n\n

\n\n

President and Chief Executive Officer\n\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

EXHIBIT 32.2\n

\n\n\n

SECTION 1350 CERTIFICATION\n

\n\n\n

\n\n

\n\n\n

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

\n\n\n

Date: March 7, 2008\n

\n\n\n\n\n

/s/ THOMAS J. FELMER
\nThomas J. Felmer\n\n

\n\n

Senior Vice President and Chief
\nFinancial Officer\n\n

\n\n

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


	January 31, 2008		July 31, 2007
	(Unaudited)
Class A nonvoting common stock — Issued and outstanding 51,032,887 and\n50,586,524 shares, respectively		510			506
Class B voting common stock — Issued and outstanding 3,538,628 shares		35			35
Additional paid-in capital		284,761			266,203
Earnings retained in the business		586,111			540,238
Accumulated other comprehensive income		107,035			83,376
Other		546			654


Total stockholders’ investment		978,998			891,012

Total	$	1,773,912		$	1,698,857


Acquisitions	Segment	Date Completed
Comprehensive Identification Products, Inc. (“CIPI”)\n	Direct Marketing &\nPeople ID Americas,\nEurope and\nAsia-Pacific\n	August 2006

Precision Converters, L.P. (“Precision Converters”)\n	Brady Americas\n	October 2006

Scafftag, Ltd., Safetrak, Ltd. and Scafftag Pty., Ltd.\n(collectively “Scafftag”)\n	Brady Americas,\nEurope and\nAsia-Pacific\n	December 2006

Asterisco Artes Graficas Ltda. (“Asterisco”)\n	Brady Americas\n	December 2006

Modernotecnica SpA (“Moderno”)\n	Europe\n	December 2006

Clement Communications, Inc. (“Clement”)\n	Direct Marketing & \nPeople ID Americas\n	February 2007

Sorbent Products Co., Inc. (“SPC”)\n	Brady Americas,\nEurope and\nAsia-Pacific\n	April 2007

Transposafe Systems B.V. and Holland Mounting Systems B.V.\n(collectively “Transposafe”)\n	Europe\n	November 2007


10.1\n		Restated Brady Corporation Restoration Plan
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 Thomas J. Felmer
32.1\n		Section 1350 Certification of Frank M. Jaehnert
32.2\n		Section 1350 Certification of Thomas J. Felmer


	BRADY CORPORATION \n
Date: March 7, 2008	/s/ F. M. Jaehnert\n
	F. M. Jaehnert
	President & Chief Executive Officer


Date: March 7, 2008	/s/ Thomas J. Felmer\n
	Thomas J. Felmer
	Senior Vice President & Chief Financial Officer \n(Principal Accounting Officer) \n(Principal Financial Officer)

3.1		Eligibility to Participate

		An Employee shall be eligible to elect deferrals and receive Employer contributions in\naccordance with the provisions of Article IV beginning on the date the Committee advises the\nEmployee he is eligible because the Committee in its discretion has determined that the\nEmployee may reasonably be anticipated to earn Compensation from the Employer in excess of\nthe limit described in Code Section 401(a)(17).

3.2		Continuation of Eligibility

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			Page
9.2	Review			22
9.3	Disability			23

ARTICLE X AMENDMENT AND TERMINATION		24

ARTICLE XI MISCELLANEOUS PROVISIONS		25

11.1	Headings			25
11.2	No Contract of Employment			25
11.3	Rights of Participants and Beneficiaries			25
11.4	Nonalienation of Benefits			25
11.5	Tax Treatment			25
11.6	Other Plans and Agreements			25
11.7	Number and Gender			26
11.8	Plan Provisions Controlling			26
11.9	Severability			26
11.10	Evidence Conclusive			26
11.11	Status of Plan Under ERISA			26
11.12	Name and Address Changes			27
11.13	Assignability by Corporation			27
11.14	Special rule for 2005-2007			27

	(a)		An Employee shall continue to be eligible to elect deferrals and receive\nEmployer contributions in accordance with the provisions of Article IV only for so long\nas he continues in employment with the Employer.

	(b)		An individual who has a Separation from Service shall cease to be eligible and\nshall again be eligible to elect deferrals and receive Employer contributions in\naccordance with the provisions of Article IV only in accordance with Section 3.1.

7.7		De Minimis Amounts

		Notwithstanding any other provision of this Article VII hereof, a Participant’s Account\nbalance under this Plan and all other nonqualified deferred compensation plans of the\naccount balance type shall automatically be distributed to the Participant on or before the\nlater of December 31 of the calendar year in which occurs the Participant’s Separation from\nService or the 15^th day of the third month following the Participant’s Separation\nfrom Service if the total amount in such Account balance at the time of distribution, when\naggregated with all other amounts payable to the Participant under all arrangements\nbenefiting the Participant described in IRS Regulations Section 1.409A-1(c) (or any\nsuccessor thereto), do not exceed the amount described in Code Section 402(g)(1)(B). The\nforegoing lump sum payment shall be made automatically and any other distribution elections\notherwise applicable with respect to the individual in the absence of this provision shall\nnot apply.\n

8.11		Indemnification

		Except as otherwise provided by law, neither the Board nor the Committee nor any individual\nmember of the Board or the Committee, nor the Employer, nor any officer, shareholder or\nemployee of the Employer shall be liable for any error of judgment, action or failure to act\nhereunder or for any good faith exercise of discretion, excepting only liability for gross\nnegligence or willful misconduct. Such individuals and entities shall be indemnified and\nheld harmless by the Employer against any and all claims, damages, liabilities, costs and\nexpenses (including attorneys’ fees) arising by reason of any good faith error of omission\nor commission with respect to any responsibility, duty or action hereunder. Nothing herein\ncontained shall preclude the Employer from purchasing insurance to cover potential liability\nof one or more persons who serve in an administrative capacity with respect to the Plan.\n

9.3		Disability

		If a determination of disability for purposes of Section 7.1(b) or 7.2 becomes necessary and\nif such determination is considered to be with respect to a claim for benefits based on\ndisability for purposes of 29 CFR Section 2560.503-1, then the Committee shall adopt and\nadminister a special procedure for considering such disability claims meeting the\nrequirements of 29 CFR Section 2560.503-1 for disability benefit claims.\n