e10vq

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION\n

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Washington, DC 20549\n

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FORM 10-Q\n

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

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For the Quarterly Period Ended January 31, 2009\n\n

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OR\n

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

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For the Transition Period from to \n\n

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Commission File Number 1-14959

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BRADY CORPORATION\n

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(Exact name of registrant as specified in its charter)

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

\n\n

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

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(414) 358-6600

\n\n

(Registrant’s telephone number, including area code)

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

\n\n\n

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

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


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

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

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APPLICABLE ONLY TO CORPORATE ISSUERS\n\n

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

\n\n

As of March 2, 2009, there were outstanding 47,745,180 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

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FORM 10-Q
\nBRADY CORPORATION
\nINDEX\n

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	Page
PART I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets\n		3

Condensed Consolidated Statements of Income\n		4

Condensed Consolidated Statements of Cash Flows\n		5

Notes to Condensed Consolidated Financial Statements\n		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations\n		14

Item 3. Quantitative and Qualitative Disclosures About Market Risk\n		22

Item 4. Controls and Procedures\n		22

PART II. Other Information

Item 1A. Risk Factors\n		23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds\n		24

Item 5. Other Information\n		25

Item 6. Exhibits\n		25
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I. FINANCIAL INFORMATION\n

\n\n

ITEM 1. FINANCIAL STATEMENTS\n\n

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BRADY CORPORATION AND SUBSIDIARIES\n\n

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CONDENSED CONSOLIDATED BALANCE SHEETS\n\n

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(DOLLARS IN THOUSANDS)\n\n


	January 31, 2009			July 31, 2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	185,091			$	258,355
Accounts receivable, less allowance for losses ($7,905 and $10,059, respectively)		191,335				262,461
Inventories:
Finished products		65,646				75,665
Work-in-process		18,499				21,187
Raw materials and supplies		37,537				37,767

Total inventories		121,682				134,619
Prepaid expenses and other current assets		43,577				43,650

Total current assets		541,685				699,085
Other assets:
Goodwill		719,431				789,107
Other intangible assets		118,532				144,791
Deferred income taxes		27,196				25,943
Other		15,815				21,381
Property, plant and equipment:
Cost:
Land		6,183				6,490
Buildings and improvements		92,579				98,646
Machinery and equipment		271,541				282,232
Construction in progress		7,248				6,040

		377,551				393,408
Less accumulated depreciation		224,455				223,202

Net property, plant and equipment		153,096				170,206
Total	$	1,575,755			$	1,850,513

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable	$	71,327			$	118,209
Wages and amounts withheld from employees		50,339				82,354
Taxes, other than income taxes		6,487				10,234
Accrued income taxes		1,603				21,523
Other current liabilities		46,689				54,810
Current maturities on long-term obligations		21,429				21,431

Total current liabilities		197,874				308,561
Long-term obligations, less current maturities		457,143				457,143
Other liabilities		55,066				63,001

Total liabilities		710,083				828,705
Stockholders’ investment:
Class A nonvoting common stock — Issued 51,261,487 and 51,261,487 shares,\nrespectively and outstanding 48,745,180 and 50,005,296 shares, respectively		513				513
Class B voting common stock — Issued and outstanding 3,538,628 shares		35				35
Additional paid-in capital		296,342				292,769
Earnings retained in the business		654,034				639,059
Treasury stock - 2,306,307 and 1,046,191 shares, respectively of Class A\nnonvoting common stock, at cost		(70,917	)			(33,234	)
Accumulated other comprehensive (loss) income		(9,427	)			128,161
Other		(4,908	)			(5,495	)

Total stockholders’ investment		865,672				1,021,808

Total	$	1,575,755			$	1,850,513

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See Notes to Condensed Consolidated Financial Statements.\n

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3\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME\n\n

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


	Three Months Ended January 31,			Six Months Ended January 31,
	(Unaudited)			(Unaudited)
								Percentage										Percentage
	2009			2008			Change		2009		2008			Change
Net sales	$	266,449			$	364,124			(26.8	%)	$	644,766			$	744,258			(13.4	%)
Cost of products sold		140,307				189,101			(25.8	%)		337,478				381,567			(11.6	%)

Gross margin		126,142				175,023			(27.9	%)		307,288				362,691			(15.3	%)

Operating expenses:
Research and development		8,503				10,071			(15.6	%)		17,559				19,050			(7.8	%)
Selling, general and administrative		93,613				122,508			(23.6	%)		207,870				242,859			(14.4	%)
Restructuring charge — (See Note K)		19,408				—			N/A			21,047				—			N/A

Total operating expenses		121,524				132,579			(8.3	%)		246,476				261,909			(5.9	%)

Operating income		4,618				42,444			(89.1	%)		60,812				100,782			(39.7	%)

Other (expense) income:
Investment and other (expense)\nincome — net		(1,698	)			2,269			(174.8	%)		154				2,387			(93.5	%)
Interest expense		(6,314	)			(6,747	)		(6.4	%)		(12,675	)			(13,467	)		(5.9	%)


(Loss) income before income taxes		(3,394	)			37,966			(108.9	%)		48,291				89,702			(46.2	%)

Income taxes		756				11,276			(93.3	%)		15,331				26,642			(42.5	%)


Net (loss) income	$	(4,150	)		$	26,690			(115.5	%)	$	32,960			$	63,060			(47.7	%)


Per Class A Nonvoting Common Share:
Basic net (loss) income	$	(0.08	)		$	0.49			(116.3	%)	$	0.62			$	1.16			(46.6	%)
Diluted net (loss) income	$	(0.08	)		$	0.48			(116.7	%)	$	0.62			$	1.14			(45.6	%)
Dividends	$	0.17			$	0.15			13.3	%	$	0.34			$	0.30			13.3	%

Per Class B Voting Common Share:
Basic net (loss) income	$	(0.08	)		$	0.49			(116.3	%)	$	0.61			$	1.14			(46.5	%)
Diluted net (loss) income	$	(0.08	)		$	0.48			(116.7	%)	$	0.60			$	1.13			(46.9	%)
Dividends	$	0.17			$	0.15			13.3	%	$	0.32			$	0.28			14.3	%

Weighted average common shares\noutstanding (in thousands):
Basic		52,350				54,510						52,821				54,430
Diluted		52,350				55,228						53,144				55,175

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See Notes to Condensed Consolidated Financial Statements.\n

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4\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS\n\n

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(Dollars in Thousands)\n\n


	Six Months Ended
	January 31,
	(Unaudited)
	2009			2008
Operating activities:
Net income	$	32,960			$	63,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		27,193				29,669
Non-cash portion of restructuring charges		1,916				—
Non-cash portion of stock-based compensation expense		4,244				6,382
Other		1,274				(517	)
Changes in operating assets and liabilities (net of effects of business acquisitions):
Accounts receivable		42,156				7,080
Inventories		(548	)			7,571
Prepaid expenses and other assets		(3,648	)			(7,339	)
Accounts payable and accrued liabilities		(64,413	)			(17,117	)
Income taxes		(17,428	)			(1,266	)
Other liabilities		(1,689	)			325

Net cash provided by operating activities		22,017				87,848

Investing activities:
Acquisition of businesses, net of cash acquired		—				(24,552	)
Purchase price adjustment		3,514				—
Payments of contingent consideration		(1,405	)			(5,798	)
Purchases of short-term investments		—				(10,350	)
Sales of short-term investments		—				29,550
Purchases of property, plant and equipment		(12,948	)			(14,358	)
Other		1,998				(3,259	)

Net cash used in investing activities		(8,841	)			(28,767	)

Financing activities:
Payment of dividends		(17,985	)			(16,285	)
Proceeds from issuance of common stock		1,284				7,980
Principal payments on debt		(2	)			(9	)
Purchase of treasury stock		(40,267	)			—
Excess income tax benefit from the exercise of stock options\nand deferred compensation distribution		847				4,093

Net cash used in financing activities		(56,123	)			(4,221	)

Effect of exchange rate changes on cash		(30,317	)			733

Net (decrease) increase in cash and cash equivalents		(73,264	)			55,593
Cash and cash equivalents, beginning of period		258,355				142,846
Cash and cash equivalents, end of period	$	185,091			$	198,439

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	12,563			$	13,153
Income taxes, net of refunds		27,384				26,381
Acquisitions:
Fair value of assets acquired, net of cash and goodwill	$	—			$	17,279
Liabilities assumed		—				(6,371	)
Goodwill		—				13,644

Net cash paid for acquisitions	$	—			$	24,552

\n\n

See Notes to Condensed Consolidated Financial Statements.\n

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5\n

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BRADY CORPORATION AND SUBSIDIARIES\n

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

\n\n\n

Six Months Ended January 31, 2009

\n\n\n

(Unaudited)

\n\n\n

(In thousands, except share and per share amounts)

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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\nnecessary to present fairly the financial position of the Company as of January 31, 2009 and July\n3l, 2008, its results of operations for the three and six months ended January 31, 2009 and 2008,\nand its cash flows for the six months ended January 31, 2009 and 2008. The condensed consolidated\nbalance sheet as of July 31, 2008 has been derived from the audited consolidated financial\nstatements of that date. The preparation of financial statements in conformity with accounting\nprinciples generally accepted in the United States of America (“GAAP”) requires management to make\nestimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty\ninvolved in making estimates, actual results in future periods may differ from the estimates.\n

\n\n

Certain information and footnote disclosures normally included in financial statements\nprepared in accordance with GAAP have been 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, 2008.\n

\n\n

NOTE B — Summary of Significant Accounting Policies\n

\n\n\n

Investments in Securities — The Company accounts for investments related to its deferred\ncompensation plan in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and\nEquity Securities”. During the three months ended January 31, 2009, the Company assessed the\ndecline in value of these investments, and determined that the decline was other than temporary.\nAs a result, the Company recorded the decline of $2,428 as expense in “Investment and other\n(expense) income — net” on the Condensed Consolidated Statement of Income.\n

\n\n

NOTE C — Goodwill and Intangible Assets\n

\n\n\n

Changes in the carrying amount of goodwill for the six months ended January 31, 2009, are\nas follows:\n


	Americas			Europe			Asia-Pacific		Total
Balance as of July 31, 2008	$	412,977			$	189,650		$	186,480		$	789,107
Adjustments for prior\nyear acquisitions		275				(52	)		(2,713	)		(2,490	)
Translation adjustments		(6,673	)			(42,446	)		(18,067	)		(67,186	)

Balance as of January 31, 2009	$	406,579			$	147,152		$	165,700		$	719,431

\n\n\n

In November 2008, the Company reached a settlement with the former owners of Tradex Converting\nAB (“Tradex”) relating to the final purchase price adjustments. The Company acquired Tradex in May\n2006. Goodwill decreased approximately $3,514 as a result of the cash settlement. Goodwill\nincreased $1,024 during the six months ended January 31, 2009 as a result of adjustments to the\npreliminary allocation of the purchase price for the acquisitions of Transposafe Systems B.V. and\nHolland Mounting Systems B.V. (collectively, “Transposafe”) and Sorbent Products Company (“SPC”).\nOf the $1,024 increase in goodwill relating to prior year acquisitions, $703 related to the payment\nof an earnout to the former owners of Transposafe and $275 related to the final tax adjustment for\nthe SPC acquisition. Goodwill decreased $67,186 during the six months ended January 31, 2009 due\nto the effects of foreign currency translation.\n

\n\n

6\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, 2009		July 31, 2008
	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		$	8,537		$	(6,714	)	$	1,823			15		$	8,603	$	(6,592	)	$	2,011
Trademarks and\nother		7			7,192			(4,512	)		2,680			7			8,079		(4,688	)		3,391
Customer\nrelationships		7			134,831			(63,703	)		71,128			7			151,704		(59,101	)		92,603
Non-compete\nagreements		4			10,595			(8,302	)		2,293			4			12,222		(8,446	)		3,776
Other		4			3,296			(3,293	)		3			4			3,299		(3,294	)		5
Unamortized other\nintangible assets:
Trademarks		N/A			40,605			—			40,605			N/A			43,005		—			43,005

Total				$	205,056		$	(86,524	)	$	118,532					$	226,912	$	(82,121	)	$	144,791

\n\n\n

The value of goodwill and other intangible assets in the Condensed Consolidated Balance\nSheet at January 31, 2009 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, 2009.\n

\n\n

Amortization expense on intangible assets was $5,601 and $6,838 for the three-month\nperiods ended January 31, 2009 and 2008, respectively and $11,529 and $12,743 for the six-month\nperiods ended January 31, 2009 and 2008, respectively. Annual amortization is projected to be\n$22,278, $21,319, $17,871, $10,847 and $7,681 for the years ending July 31, 2009, 2010, 2011, 2012\nand 2013, respectively.\n

\n\n

NOTE D — Comprehensive Income (Loss)\n

\n\n\n

Total comprehensive income (loss), 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 ($4,738) and $25,675 for the three months ended January 31, 2009 and 2008,\nrespectively and ($104,628) and $86,719 for the six months ended January 31, 2009 and 2008,\nrespectively. The decrease in total comprehensive income for the three months ended January 31,\n2009 as compared to the same period in the previous year was primarily due to the reduction in net\nincome. The decrease in total comprehensive income for the six months ended January 31, 2009 as\ncompared to the same period in the previous year was primarily the result of the appreciation of\nthe U.S. dollar against other currencies and a reduction in net income.\n

\n\n

7\n

\n\n

NOTE E — 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,
	2009			2008			2009		2008
Numerator:
Net (loss) income (numerator for basic and diluted\nClass A net income per share)	$	(4,150	)		$	26,690		$	32,960		$	63,060
Less:
Preferential dividends		—				—			(823	)		(846	)
Preferential dividends on dilutive stock options		—				—			(11	)		(13	)

Numerator for basic and diluted Class B net income\nper share	$	(4,150	)		$	26,690		$	32,126		$	62,201


Denominator:
Denominator for basic net income per share for both\nClass A and Class B		52,350				54,510			52,821			54,430
Plus: Effect of dilutive stock options		—				718			323			745

Denominator for diluted net income per share for both\nClass A and Class B		52,350				55,228			53,144			55,175


Class A Nonvoting Common Stock net (loss) income per share:
Basic	$	(0.08	)		$	0.49		$	0.62		$	1.16
Diluted	$	(0.08	)		$	0.48		$	0.62		$	1.14

Class B Voting Common Stock net (loss) income per share:
Basic	$	(0.08	)		$	0.49		$	0.61		$	1.14
Diluted	$	(0.08	)		$	0.48		$	0.60		$	1.13

\n\n\n

For the three months ended January 31, 2009, the Company was in a net loss position. As a\nresult of the Company’s net loss position, and in accordance with SFAS No. 128, “Earnings per\nShare”, no additional shares were included in the diluted per-share amount for the three months\nended January 31, 2009.\n

\n\n

Options to purchase approximately 3,700,000 and 2,657,000 shares of Class A Nonvoting Common\nStock for the three and six months ended January 31, 2009, respectively, and 2,171,000 and\n1,725,750 shares of Class A Nonvoting Common Stock for the three and six months ended January 31,\n2008, respectively, were not included in the computations of diluted net income per share because\nthe option exercise price was greater than the average market price of the common shares and,\ntherefore, the effect would be anti-dilutive.\n

\n\n

8\n

\n\n

NOTE F — Segment Information\n

\n\n\n

The Company evaluates segment performance based on segment profit or loss and customer\nsales. Segment profit or loss does not include certain administrative costs, restructuring\ncharges, interest, foreign exchange gain or loss, other expenses not allocated to a segment, and\nincome taxes.\n

\n\n

The Company is organized and managed on a geographic basis by region. Each of these regions,\nBrady Americas, Brady Europe and Brady Asia-Pacific, has a President that reports directly to the\nCompany’s chief operating decision maker, its Chief Executive Officer. Each region has its own\ndistinct operations, is managed locally by its own management team, maintains its own financial\nreports and is evaluated based on regional results. In applying the criteria set forth in SFAS No.\n131 “Disclosures about Segments of an Enterprise and Related Information”, the Company has\ndetermined that these regions comprise its reportable segments based on the information used by the\nChief Executive Officer to allocate resources and assess performance.\n

\n\n

Subsequent to the first quarter of fiscal 2008, the Company made several reporting and\norganizational changes in which the leadership, operations, and administrative functions of the two\nbusinesses in the Americas region were consolidated. As a result of the changes, the Company\nchanged the number of reporting segments from four to three during the fourth quarter of fiscal\n2008. Following is a summary of segment information for the three and six months ended January 31,\n2009 and 2008:\n


												Corporate
												And
	Americas		Europe	Asia-Pacific		Sub-Totals	Eliminations		Totals
Three months ended January 31, 2009:
Revenues from external customers	$	122,970		$	87,201		$	56,278		$	266,449		—		$	266,449
Intersegment revenues		9,536			1,286			5,070			15,892		(15,892	)		—
Segment profit		22,041			22,945			4,122			49,108		(2,607	)		46,501

Three months ended January 31, 2008:
Revenues from external customers	$	156,621		$	122,615		$	84,888		$	364,124		—		$	364,124
Intersegment revenues		15,888			2,261			6,247			24,396		(24,396	)		—
Segment profit		32,036			31,067			12,660			75,763		(2,347	)		73,416

Six months ended January 31, 2009:
Revenues from external customers	$	283,886		$	195,416		$	165,464		$	644,766		—		$	644,766
Intersegment revenues		23,917			2,797			13,058			39,772		(39,772	)		—
Segment profit		57,564			54,084			26,523			138,171		(4,914	)		133,257

Six months ended January 31, 2008:
Revenues from external customers	$	331,396		$	231,529		$	181,333		$	744,258		—		$	744,258
Intersegment revenues		31,094			5,253			12,461			48,808		(48,808	)		—
Segment profit		76,142			60,967			32,050			169,159		(4,583	)		164,576

\n\n

Following is a reconciliation of segment profit to net (loss) income for the three months and six\nmonths ended January 31, 2009 and 2008:\n

\n\n


	Three months ended:			Six months ended:
	January 31,			January 31,
	2009			2008			2009		2008
Total profit from reportable segments	$	49,108			$	75,763		$	138,171		$	169,159
Corporate and eliminations		(2,607	)			(2,347	)		(4,914	)		(4,583	)
Unallocated amounts:
Administrative costs		(22,475	)			(30,972	)		(51,398	)		(63,794	)
Restructuring charges		(19,408	)			—			(21,047	)		—
Investment and other (expense) income		(1,698	)			2,269			154			2,387
Interest expense		(6,314	)			(6,747	)		(12,675	)		(13,467	)

(Loss) income before income taxes		(3,394	)			37,966			48,291			89,702
Income taxes		(756	)			(11,276	)		(15,331	)		(26,642	)

Net (loss) income	$	(4,150	)		$	26,690		$	32,960		$	63,060

\n\n\n

9\n

\n\n\n

NOTE G\n— 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 that\nwere granted in fiscal 2006 expire five years from the date of grant. All other performance-based\noptions expire 10 years from the date of grant. Restricted shares have an issuance price equal to\nthe fair market value of the underlying stock at the date of grant. They vest at the end of a\nfive-year period and upon meeting certain financial performance conditions; these shares are\nreferred to herein as “performance-based restricted shares”.\n

\n\n

As of January 31, 2009, the Company has reserved 4,271,611 shares of Class A Nonvoting\nCommon Stock for outstanding stock options and restricted shares and 500,662 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, 2009 and 2008 was $2,152 ($1,313 net of taxes) and $3,125 ($1,906 net of taxes),\nrespectively, and expense recognized during the six months ended January 31, 2009 and 2008 was\n$4,244 ($2,589 net of taxes) and $6,382 ($3,893 net of taxes), respectively. As of January 31,\n2009, total unrecognized compensation cost related to share-based compensation awards was\napproximately $16,416 pre-tax, net of estimated forfeitures, which the Company expects to recognize\nover a weighted-average period of approximately 2.5 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, 2009 and 2008 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, 2009		January 31, 2008
				Performance-					Performance-
	Service-Based		Based Option	Service-Based		Based Option
Black-Scholes Option Valuation Assumptions	Option Awards		Awards	Option Awards		Awards
Expected term (in years)		5.97			N/A			6.04			6.57
Expected volatility		36.01	%		N/A			32.05	%		33.68	%
Expected dividend yield		1.75	%		N/A			1.62	%		1.58	%
Risk-free interest rate		2.03	%		N/A			3.44	%		4.66	%
Weighted-average market value of underlying stock at grant date	$	21.31			N/A		$	38.22		$	35.35
Weighted-average exercise price	$	21.31			N/A		$	38.22		$	35.35
Weighted-average fair value of options\ngranted during the period	$	6.32			N/A		$	11.94		$	12.83

\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 fiscal 2008, with a\ngrant price and fair value of $32.83. The Company did not grant any performance-based restricted\nshares during the six months ended January 31, 2009. As of January 31, 2009, 210,000\nperformance-based restricted shares were outstanding.\n

\n\n

10\n

A summary of stock option activity under the Company’s share-based compensation plans for the six\nmonths ended January 31, 2009 is presented below:\n

\n\n


									Weighted
									Average
					Weighted			Remaining			Aggregate
					Average			Contractual			Intrinsic
Options	Shares			Exercise Price			Term			Value
Outstanding at July 31, 2008		3,985,205			$	29.43
New grants		605,000			$	21.31
Exercised		(89,434	)		$	16.03
Forfeited or expired		(229,160	)		$	35.20

Outstanding at January 31, 2009		4,271,611			$	28.96				6.8		$	6,102

Exercisable at January 31, 2009		2,885,483			$	27.27				5.6		$	5,859

\n\n\n

There were 2,885,483 and 2,606,364 options exercisable with a weighted average exercise price\nof $27.27 and $25.17 at January 31, 2009 and 2008, respectively. The cash received from the\nexercise of options during the three months ended January 31, 2009 and 2008 was $271 and $3,947,\nrespectively. The cash received from the exercise of options during the six months ended January\n31, 2009 and 2008 was $1,434 and $8,080, respectively. The cash received from the tax benefit on\noptions exercised during the quarters ended January 31, 2009 and 2008 was $1,284 and $7,980,\nrespectively. The cash received from the tax benefit on options exercised during the six months\nended January 31, 2009 and 2008 was $847 and $4,093, respectively.\n

\n\n

The total intrinsic value of options exercised during the six months ended January 31, 2009\nand 2008, based upon the average market price during the period, was $1,702 and $9,628,\nrespectively. The total fair value of stock options vested during the six months ended January 31,\n2009 and 2008, was $7,194 and $6,554, respectively.\n

\n\n

NOTE H — Stockholders’ Investment\n

\n\n\n

In September 2008, 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 three and six months\nended January 31, 2009, the Company acquired 193,800 and 693,800 shares of its Class A Nonvoting\nCommon Stock for $3,759 and $18,728, respectively. As of January 31, 2009, there remained 306,200\nshares to purchase in connection with this share repurchase plan.\n

\n\n

NOTE I — 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 2009 from\nthose reported in Note 3 to the consolidated financial statements included in the Company’s latest\nannual report on Form 10-K for the year ended July 31, 2008.\n

\n\n

11\n

\n\n

NOTE J — Fair Value Measurements\n

\n\n\n

The Company adopted SFAS No. 157, “Fair Value Measurements”, on August 1, 2008 as it relates\nto financial assets and liabilities. The impact of this adoption has not been material to the\nCompany’s financial statements. SFAS No. 157 will be effective for the Company’s nonfinancial\nassets and liabilities on August 1, 2009, the first day of the Company’s next fiscal year. SFAS\nNo. 157 applies to other accounting pronouncements that require or permit fair value measurements,\ndefines fair value based upon an exit price model, establishes a framework for measuring fair\nvalue, and expands the applicable disclosure requirements. SFAS No. 157 indicates, among other\nthings, that a fair value measurement assumes that a transaction to sell an asset or transfer a\nliability occurs in the principal market for the asset or liability or, in the absence of a\nprincipal market, the most advantageous market for the asset or liability.\n

\n\n

SFAS No. 157 establishes a fair market value hierarchy for the pricing inputs used to measure\nfair market value. The Company’s assets and liabilities measured at fair market value are\nclassified in one of the following categories:\n

\n\n\n

Level 1 — Assets or liabilities for which fair value is based on quoted market prices\nin active markets for identical instruments as of the reporting date. At January 31, 2009,\n$6,658 of the mutual funds held for the Company’s deferred compensation plans were valued\nusing Level 1 pricing inputs. The Company’s deferred compensation investments are included\nin “Other assets” on the accompanying Condensed Consolidated Balance Sheets.\n

\n\n\n

Level 2 — Assets or liabilities for which fair value is based on valuation models for\nwhich pricing inputs were either directly or indirectly observable. At January 31, 2009,\n$1,006 of the Company’s forward exchange contracts were valued using Level 2 pricing inputs.\nThe Company’s forward exchange contracts are included in “Prepaid expenses and other current\nassets” on the accompanying Condensed Consolidated Balance Sheets.\n

\n\n\n

Level 3 — Assets or liabilities for which fair value is based on valuation models\nwith significant unobservable pricing inputs and which result in the use of management\nestimates. As of January 31, 2009, none of the Company’s assets or liabilities were valued\nusing Level 3 pricing inputs.\n

\n\n

NOTE K: New Accounting Pronouncements\n

\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 in subsidiaries will be valued at fair value at the acquisition\ndate and classified as a separate component of equity;

	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\nAugust 1, 2009. The impact of SFAS No. 141(R) on our future consolidated financial statements will\ndepend on the size and nature of future acquisitions.\n

\n\n\n

In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and\nHedging Activities.” SFAS No. 161 requires expanded quantitative, qualitative, and credit-risk\ndisclosures about an entity’s derivative instruments and hedging activities. This statement will\nbe effective for fiscal years and interim periods beginning after November 15, 2008. The Company\nexpects that the adoption of SFAS No. 161 will not have a material impact on its financial position\nand results of operations. The Company is in the process of evaluating the impact that will result\nfrom adopting SFAS No. 161 on the Company’s financial disclosures when such statement is adopted.\n

\n\n

12\n

\n\n

In June 2008, the FASB issued Staff Position on EITF Issue 03-6 (“FSP 03-6”), “Determining\nWhether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP\n03-6 requires that all outstanding unvested share-based payment awards that contain rights to\nnonforfeitable dividends be considered participating securities in undistributed earnings with\ncommon shareholders. This staff position will be effective for fiscal years and interim periods\nbeginning after December 15, 2008. The Company is in the process of evaluating the impact that\nwill result from adopting FSP 03-6 on the Company’s results of operations and financial disclosures\nwhen such statement is adopted.\n

\n\n

NOTE L: Restructuring\n

\n\n\n

In November 2008, in response to the global economic recession, the Company announced it would\ntake several measures to address its cost structure. In addition to a company-wide salary freeze\nand a reduction in discretionary spending, the Company announced it would reduce its workforce by\napproximately 10 percent.\n

\n\n

The Company implemented its plan to reduce its workforce through voluntary and involuntary\nseparation programs, voluntary retirement programs, and facility consolidations. As a result of\nthese actions, the Company recorded restructuring charges of $1,639 and $21,047 during the three\nand six months ended January 31, 2009, respectively. The year-to-date restructuring charges\nconsisted of $17,725 of employee separation costs, $1,548 of non-cash fixed asset write-offs, $757\nof other facility closure related costs, $649 of contract termination costs, and $368 of non-cash\nstock option expense. Of the $21,047 of restructuring charges recorded during the six months ended\nJanuary 31, 2009, $10,908 was incurred in the Americas, $7,256 was recorded in Europe, and $2,883\nwas expensed in Asia-Pacific. The charges for employee separation costs consisted of severance\npay, outplacement services, medical and other related benefits for approximately 10 percent of its\nemployees. The costs related to these restructuring activities have been recorded on the condensed\nconsolidated statement of income as restructuring charges. The Company expects to incur\napproximately $30,000 of restructuring charges during fiscal year 2009 and expects to complete its\nrestructuring activities during the remainder of fiscal 2009. The Company expects the majority of\nthe cash payments to be made within the next twelve months.\n

\n\n

A reconciliation of the Company’s restructuring activity for fiscal 2009 is as follows:\n


	Employee			Asset
	Related			Write-offs			Other		Total
Beginning balance, July 31, 2008	$	—			$	—		$	—		$	—
Restructuring charge		1,058				335			246			1,639
Non-cash write-offs		—				(335	)		—			(335	)
Cash payments		(595	)			—			(116	)		(711	)

Ending balance, October 31, 2008	$	463			$	—		$	130		$	593

Restructuring charge		17,035				1,213			1,160			19,408
Non-cash write-offs		(368	)			(1,213	)		—			(1,581	)
Cash payments		(5,486	)			—			(451	)		(5,937	)

Ending balance, January 31, 2009	$	11,644			$	—		$	839		$	12,483

\n\n\n

13\n

\n\n

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

\n\n\n

Overview
\n\n

\n\n

Brady is an international manufacturer and marketer of identification solutions and\nspecialty materials that identify and protect premises, products, and people. Its products include\nhigh-performance labels and signs, printing systems and software, safety devices, precision die-cut\nmaterials, and label-application and data-collection systems. Founded in 1914, the Company serves\ncustomers in manufacturing, electrical, telecommunications, electronics, construction, laboratory,\neducation, governmental, public utility, computer, transportation and a variety of other\nindustries. The Company manufactures and sells products domestically and internationally through\nmultiple channels including distributor sales, direct sales, mail-order catalogs, telemarketing,\nretail and electronic access through the Internet. The Company believes that its reputation for\ninnovation, commitment to quality and service, and dedicated employees have made it a world leader\nin the markets it serves. The Company operates manufacturing or distribution facilities in\nAustralia, Belgium, Brazil, Canada, China, Denmark, France, Germany, India, Italy, Japan, Malaysia,\nMexico, the Netherlands, Norway, Poland, Singapore, South Korea, Sweden, Thailand, the United\nKingdom and the United States. Brady sells through subsidiaries or sales offices in these\ncountries, with additional sales through a dedicated team of international sales representatives in\nHong Kong, the Philippines, Slovakia, Spain, Taiwan, Turkey, and the United Arab Emirates and\nfurther markets its products to parts of Eastern Europe, the Middle East, Africa and Russia.\n

\n\n

Sales for the quarter ended January 31, 2009, were down 26.8% to $266.4 million, compared\nto $364.1 million in the same period of fiscal 2008. Of the 26.8% decline in sales, organic sales\ndecreased 20.8%, acquisitions added 0.2% and the effects of fluctuations in the exchange rates used\nto translate financial results into the United States dollar negatively impacted sales 6.2%. Net\nloss for the quarter ended January 31, 2009, was $4.2 million or $0.08 per diluted Class A\nNonvoting Common Share, down from $26.7 million of net income, or $0.48 per diluted Class A\nNonvoting Common Share reported in the second quarter of last fiscal year.\n

\n\n

Sales for the six months ended January 31, 2009, decreased 13.4% to $644.8 million, compared\nto $744.3 million in the same period of fiscal 2008. Organic sales declined 11.5%, acquisitions\nadded 1.2% and the effects of fluctuations in the exchange rates used to translate financial\nresults into the United States dollar lowered sales 3.1%. Net income for the six months ended\nJanuary 31, 2009 was $33.0 million or $0.62 per diluted Class A Nonvoting Common Share, down 47.7%\nfrom $63.1 million, or $1.14 per diluted Class A Nonvoting Common Share reported in the same period\nof the prior fiscal year.\n

\n\n

Results of Operations\n

\n\n\n

The comparability of the operating results for the three and six months ended January 31,\n2009, to the prior year has been impacted by the following acquisitions completed in fiscal 2008.\n

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


Acquisitions	Segment		Date Completed
Transposafe Systems B.V. and Holland Mounting\nSystems B.V. (collectively\n“Transposafe”)	Europe	November 2007
DAWG, Inc. (“DAWG”)	Americas	March 2008

\n\n\n

14\n

\n\n\n

Sales for the three months ended January 31, 2009, were down 26.8% compared to the same\nperiod in fiscal 2008. The sales decline was comprised of a decrease in organic sales of 20.8%, a\nslight increase of 0.2% due to the acquisition of DAWG, and a decrease of 6.2% due to the effect of\ncurrencies on sales. The significant decline in organic sales for the quarter ended January 31,\n2009, was primarily the result of the global economic recession. Organic sales were adversely\nimpacted during the second quarter of fiscal 2009 across each of the Company’s three segments, with\ndeclines of 19.5%, 16.9%, and 28.9% for the Americas, Europe, and Asia-Pacific segments,\nrespectively.\n

\n\n

Sales for the six months ended January 31, 2009, decreased 13.4% compared to the same period\nin fiscal 2008. The decline was comprised of an 11.5% decrease in organic sales, an increase of\n1.2% due to the acquisitions listed above, and a decrease of 3.1% due to the effect of currencies\non sales. The decrease in organic sales was due to declines of 13.5% in the Americas segment,\n11.5% in Europe, and 7.7% in Asia-Pacific. The decline in organic sales in the Americas segment\nwas primarily driven by weakness in the manufacturing sector. Organic sales were adversely\nimpacted in Europe by the automotive and electronics industries. The decrease in organic sales in\nthe Asia-Pacific segment was the result of declines experienced in the electronics industry,\nprimarily during the second quarter of fiscal 2009. All segments were negatively impacted by the\ncurrent economic recession.\n

\n\n

Gross margin as a percentage of sales decreased to 47.3% from 48.1% for the quarter and\nto 47.7% from 48.7% for the six months ended January 31, 2009, compared to the same periods of the\nprevious year. This decrease in gross margin as a percentage of sales was primarily the result of\ndecreased sales volumes, partially offset by savings generated from the reduction of contract\nlabor, restructuring activities that took place during the second quarter of fiscal 2009, and\nefficiencies gained from the implementation of the Brady Business Performance System (“BBPS”)\nthroughout the Company.\n

\n\n

Research and development (“R&D”) expenses decreased 15.6% to $8.5 million for the quarter\nand 7.8% to $17.6 million for the six months ended January 31, 2009, compared to $10.1 million and\n$19.1 million for the same periods in the prior year, respectively. While R&D expenses declined\nprimarily due to reductions in incentive compensation and discretionary spending, the Company\nremains committed to funding new product development initiatives. In the second quarter of fiscal\n2009, R&D expenses as a percentage of sales increased to 3.2% as compared to 2.8% in the same\nperiod of the previous year. For the first half of fiscal 2009, R&D expense as a percentage of\nsales increased slightly to 2.7% from 2.6% in the same period of the prior year.\n

\n\n

Selling, general and administrative (“SG&A”) expenses decreased 23.6% to $93.6 million\nfor the three months ended January 31, 2009, compared to $122.5 million for the same period in the\nprior year, and decreased 14.4% to $207.9 million for the six months ended January 31, 2009,\ncompared to $242.9 million for the same period in the prior year. The decrease in SG&A expenses\nwas primarily the result of a decline in discretionary spending, reduced incentive compensation\nexpense compared to the prior year, and the savings resulting from restructuring activities that\ntook place during the second quarter of fiscal 2009. As a percentage of sales, SG&A expenses\nincreased to 35.1% from 33.6% for the second quarter, and decreased slightly to 32.2% from 32.6%\nfor the six months ended January 31, 2009, compared to the same periods in the prior year.\n

\n\n

Restructuring expenses were $19.4 million and $21.0 million for the three and six months ended\nJanuary 31, 2009, respectively. In response to the global recession, the Company implemented a\nplan to address its cost structure. During the three and six months ended January 31, 2009, the\nCompany incurred costs related to the reduction of its workforce and facility consolidations.\nRestructuring costs related primarily to employee separation costs, consisting of severance pay,\noutplacement services, medical and other related benefits for approximately 10 percent of its\nemployees. The Company expects to complete its restructuring activities during the remainder of\nfiscal 2009.\n

\n\n

Interest expense decreased to $6.3 million from $6.7 million for the quarter and to $12.7\nmillion from $13.5 million for the six months ended January 31, 2009, compared to the same periods\nin the prior year. In June 2008, the Company paid the first installment of $21.4 million related\nto the debt securities issued in June 2004. As a result of a lower principal balance under the\nrelated debt agreement, the Company’s interest expense decreased for the three and six months ended\nJanuary 31, 2009 as compared to the same periods in the prior year.\n

\n\n

Other income and expense decreased to $1.7 million of expense for the quarter and decreased to\n$0.2 million of income for the six months ended January 31, 2009, compared to $2.3 million of\nincome and $2.4 million of income for the same periods in the prior year, respectively. Of the\n$1.7 million in other expense for the three months ended January 31, 2009, $2.4 million was due to\na decrease in the value of mutual funds held in deferred compensation plans, partially offset by\n$0.6 million of interest income generated from investments of excess cash and $0.1 million related\nto foreign exchange gains during the quarter. Of the $2.3 million in other income for the three\nmonths ended January 31, 2008, $1.8 million was the result of interest income generated from\ninvestments of excess cash and $0.4 million related to foreign exchange gains during the quarter.\nFor the six months ended January 31, 2009, of the $0.2 million of other income, $1.7 million was\nrelated to interest income generated from investments and $0.9 million related to foreign exchange\ngains, partially offset by $2.4 million of expense related to the decline in the value of mutual\nfunds held in deferred compensation plans. For the six months ended January 31, 2008, of the $2.4\nmillion of other income, $2.9 million was related to interest income generated from investments,\npartially offset by $0.6 million in foreign exchange loss.\n

\n\n

15\n

\n\n

The Company’s effective tax rate for the first quarter of fiscal 2009 was 28.2%. During\nthe three months ended January 31, 2009, the Company recorded certain valuation allowances against\ndeferred tax assets as a result of the decline in income before taxes, negatively impacting the\neffective tax rate for the three months ended January 31, 2009 and resulting in a year-to-date tax\nrate of 31.7%. The Company’s tax rate for the three and six months ended January 31, 2008 was\n29.7%. The increased tax rate in the six months ended January 31, 2009 is primarily due to the\nrecording of the valuation allowances discussed above. The Company expects the full year effective\ntax rate for fiscal 2009 to be approximately 28%.\n

\n\n

Net income (loss) for the three months ended January 31, 2009, decreased to a loss of\n$4.2 million, compared to income of $26.7 million for the same quarter of the previous year. Net\nincome (loss) as a percentage of sales decreased to (1.6%) from 7.3% for the quarter ended January\n31, 2009, compared to the same period in the prior year, due to the factors noted above. For the\nsix months ended January 31, 2009, net income decreased 47.7% to $33.0 million, compared to $63.1\nmillion for the same period in the previous year. As a percentage of sales, net income decreased\nto 5.1% from 8.5% for the six months ended January 31, 2009, compared to the same period in the\nprevious year.\n

\n\n

16\n

\n\n

Business Segment Operating Results\n

\n\n\n

The Company is organized and managed on a geographic basis by region. Effective in the fourth\nquarter of fiscal 2008, the Company has three reporting segments, Americas, Europe, and\nAsia-Pacific. Following is a summary of segment information for the three and six months ended\nJanuary 31, 2009 and 2008:\n

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


													Corporate
							Asia-					and
(Dollars in thousands)	Americas		Europe	Pacific		Subtotals	Eliminations		Total
SALES TO EXTERNAL CUSTOMERS
Three months ended:
January 31, 2009	$	122,970		$	87,201		$	56,278		$	266,449		$	—		$	266,449
January 31, 2008		156,621			122,615			84,888			364,124			—			364,124

Six months ended:
January 31, 2009	$	283,886		$	195,416		$	165,464		$	644,766		$	—		$	644,766
January 31, 2008		331,396			231,529			181,333			744,258			—			744,258

SALES GROWTH INFORMATION
Three months ended January 31, 2009
Base		(19.5	%)		(16.9	%)		(28.9	%)		(20.8	%)		—			(20.8	%)
Currency		(2.6	%)		(12.0	%)		(4.8	%)		(6.2	%)		—			(6.2	%)
Acquisitions		0.6	%		0.0	%		0.0	%		0.2	%		—			0.2	%
Total		(21.5	%)		(28.9	%)		(33.7	%)		(26.8	%)		—			(26.8	%)

Six months ended January 31, 2009
Base		(13.5	%)		(11.5	%)		(7.7	%)		(11.5	%)		—			(11.5	%)
Currency		(1.4	%)		(7.1	%)		(1.1	%)		(3.1	%)		—			(3.1	%)
Acquisitions		0.6	%		3.0	%		0.0	%		1.2	%		—			1.2	%
Total		(14.3	%)		(15.6	%)		(8.8	%)		(13.4	%)		—			(13.4	%)
SEGMENT PROFIT
Three months ended:
January 31, 2009	$	22,041		$	22,945		$	4,122		$	49,108		$	(2,607	)	$	46,501
January 31, 2008		32,036			31,067			12,660			75,763			(2,347	)		73,416
Percentage change		(31.2	%)		(26.1	%)		(67.4	%)		(35.2	%)		11.1	%		(36.7	%)

Six months ended:
January 31, 2009	$	57,564		$	54,084		$	26,523		$	138,171		$	(4,914	)	$	133,257
January 31, 2008		76,142			60,967			32,050			169,159			(4,583	)		164,576
Percentage change		(24.4	%)		(11.3	%)		(17.2	%)		(18.3	%)		7.2	%		(19.0	%)

\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,
	2009			2008			2009		2008
Total profit from reportable segments	$	49,108			$	75,763		$	138,171		$	169,159
Corporate and eliminations		(2,607	)			(2,347	)		(4,914	)		(4,583	)
Unallocated amounts:
Administrative costs		(22,475	)			(30,972	)		(51,398	)		(63,794	)
Restructuring charges		(19,408	)			—			(21,047	)		—
Investment and other (expense) income		(1,698	)			2,269			154			2,387
Interest expense		(6,314	)			(6,747	)		(12,675	)		(13,467	)

(Loss) income before income taxes		(3,394	)			37,966			48,291			89,702
Income taxes		(756	)			(11,276	)		(15,331	)		(26,642	)

Net (loss) income	$	(4,150	)		$	26,690		$	32,960		$	63,060

\n\n\n

The Company evaluates performance of the businesses using sales and segment profit.\nSegment profit or loss does not include certain administrative costs, such as the cost of finance,\ninformation technology and human resources, which are managed as global functions. Restructuring\ncharges, stock options, interest, investment and other income and income taxes are also excluded\nwhen evaluating performance.\n

\n\n

17\n

\n\n

Americas:\n

\n\n\n

Brady Americas sales decreased 21.5% for the quarter and 14.3% for the six months ended\nJanuary 31, 2009, compared to the same periods in the prior year. Organic sales declined 19.5% and\n13.5% during the quarter and year-to-date, respectively, as compared to the same periods in the\nprevious year. Fluctuations in the exchange rates used to translate financial results into the\nUnited States dollar resulted in a decline in sales of 2.6% in the quarter and 1.4% for the\nsix-month period. Sales increased slightly due to the fiscal 2008 acquisition of DAWG, which\nincreased sales by 0.6% for the quarter and 0.6% for the six-month period. The decline in organic\nsales of 19.5% for the quarter was driven by the economic downturn, specifically in the\nmanufacturing, electronics, and construction sectors. In addition to the economic climate,\ncustomers have implemented initiatives to reduce inventory, resulting in lower sales for the\nsegment. Geographically, the U.S., Brazil, and Canada have seen sharp decreases in organic sales,\noffset slightly by modest growth in Mexico.\n

\n\n

Segment profit declined 31.2% to $22.0 million from $32.0 million for the quarter and 24.4% to\n$57.6 million from $76.1 million for the six months ended January 31, 2009, compared to the same\nperiods in the prior year. Segment profit was adversely impacted by decreased sales volume,\nimpacting the segment’s ability to absorb fixed costs. To counter the impact of decreased sales\nvolume, the segment reduced its workforce as well as continued the implementation of the BBPS to\nfurther reduce costs and improve efficiency. As a percentage of sales, segment profit in the\nsecond quarter of fiscal 2009 decreased to 17.9% from 20.5% and for the first half of fiscal 2009\ndecreased to 20.3% from 23.0%, compared to the same periods in the prior year. The decrease in\nsegment profit as a percentage of sales was due to the reduced sales volume experienced in the\nsegment.\n

\n\n

Europe:\n

\n\n\n

Europe sales decreased 28.9% for the quarter and 15.6% for the six months ended January 31,\n2009, compared to the same periods in the prior year. Organic sales declined 16.9% and 11.5% for\nthe quarter and year-to-date, respectively, compared to the same periods in the previous year.\nSales were negatively affected by fluctuations in the exchange rates used to translate financial\nresults into the United States dollar, which decreased sales in the segment by 12.0% in the quarter\nand 7.1% for the six-month period. The fiscal 2008 acquisition of Transposafe did not impact sales\nfor the quarter; however it increased sales by 3.0% for the six-month period. The segment’s\norganic sales were adversely impacted by declines in the automotive and electronics industries.\nGeographically, Northern Europe and the U.K. experienced more pronounced losses in organic sales\nthan did Southern Europe.\n

\n\n

Segment profit decreased 26.1% to $22.9 million from $31.1 million for the quarter and\ndecreased 11.3% to $54.1 million from $61.0 million for the six months ended January 31, 2009,\ncompared to the same periods in the prior year. The decline in segment profit is attributable to\nthe decreased sales as discussed above. As a percentage of sales, segment profit increased to\n26.3% from 25.3% in the second quarter of fiscal 2009 and to 27.7% from 26.3% in the six months\nended January 31, 2009, compared to the same periods in the prior year. In response to the\nslowdown in business, the segment took actions to address its cost structure, including a reduction\nin its workforce, limited discretionary spending, and the closure of a die cut manufacturing\nfacility located in Slovakia. During the second quarter of fiscal 2009, the segment began to\nrealize savings resulting from these actions.\n

\n\n

Asia-Pacific:\n

\n\n\n

Asia-Pacific sales declined 33.7% for the quarter and 8.8% for the six months ended January\n31, 2009, compared to the same periods in the prior year. Organic sales in local currency\ndecreased 28.9% in the quarter and 7.7% year-to-date, compared to the same periods in the previous\nyear. Sales were negatively affected by fluctuations in the exchange rates used to translate\nfinancial results into the United States dollar, which decreased sales within the segment by 4.8%\nfor the quarter and 1.1% for the six-month period. The decline in organic sales for the quarter\nwas primarily due to significantly decreased demand in the electronics industry. Net sales were\nalso negatively impacted by the celebration of the Lunar New Year which fell during the second\nquarter of fiscal 2009 as compared to the third quarter of fiscal 2008.\n

\n\n

Segment profit decreased 67.4% to $4.1 million from $12.7 million for the quarter and declined\n17.2% to $26.5 million from $32.1 million for the six months ended January 31, 2009, compared to\nthe same periods in the prior year. As a percentage of sales, segment profit decreased to 7.3%\nfrom 14.9% in the second quarter of fiscal 2009 and to 16.0% from 17.7% in the six months ended\nJanuary 31, 2009, compared to the same periods in the prior year. The decline in segment profit\nduring the three and six months ended January 31, 2009 was primarily the result of decreased sales,\npartially offset by savings generated from restructuring activities, shortened work weeks, and\nrestrictions on discretionary spending.\n

\n\n

18\n

\n\n\n

Financial Condition\n

\n\n\n

The Company’s current ratio as of January 31, 2009, was 2.7 compared to 2.3 at July 31, 2008.\nCash and cash equivalents were $185.1 million at January 31, 2009, compared to $258.4 million at\nJuly 31, 2008. The decrease in cash of $73.3 million was the result of cash provided by operations\nof $22.0 million, offset by cash used in investing activities of $8.8 million, cash used in\nfinancing activities of $56.1 million, and the effects of the appreciation of the U.S. dollar\nagainst other currencies, which negatively impacted cash in the amount of $30.3 million during the\nsix months ended January 31, 2009.\n

\n\n

Accounts receivable decreased $71.1 million for the six months ended January 31, 2009 due to\nlower sales volumes and the impact of foreign currency translation on the Company’s foreign\naccounts receivable balances. Inventories declined $12.9 million as the result of foreign\nexchange. The net decrease in current liabilities was $110.7 million for the current year. The\ndecrease was composed of a significant decrease in accounts payable primarily due to decreased\npurchases related to lower sales volumes, decreased accrued wages due to the payment of incentives\nin the first quarter of fiscal 2009 related to the incentives earned in the year ended July 31,\n2008 and a reduced workforce.\n

\n\n

Cash flow from operating activities totaled $22.0 million for the six months ended January 31,\n2009, compared to $87.8 million for the same period last year. The decrease was primarily the\nresult of significant decreases in accounts payable balances and decreased net income for the six\nmonths ended January 31, 2008.\n

\n\n

The Company did not complete any acquisitions of businesses during the six months ended\nJanuary 31, 2009, compared to $24.6 million used for acquisitions in the same period in the prior\nyear. The Company reached a settlement with the former owners of Tradex related to the purchase\nprice of the Tradex acquisition. The Company received approximately $3.5 million as the result of\nthe settlement during the six months ended January 31, 2009. Payments of $0.7 million and $0.7\nmillion were paid during the six months ended January 31, 2009 to satisfy the earnout and holdback\nliabilities of the Transposafe and Asterisco acquisitions, respectively. 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 $12.9 million for the six months\nended January 31, 2009, compared to $14.4 million in the same period last year. Net cash used in\nfinancing activities was $56.1 million for the six months ended January 31, 2009, related primarily\nto the repurchase of the Company’s Class A Non-Voting Common Stock and the payment of dividends.\nNet cash used in financing activities for the same period last year was $4.2, million due primarily\nto the payment of dividends, partially offset by the proceeds from\nthe issuance of common stock.\n

\n\n

On November 24, 2008, the Company filed a shelf registration statement on Form S-3 with the\nSecurities and Exchange Commission (“SEC”), which will allow the Company to issue and sell, from\ntime to time in one or more offerings, an indeterminate amount of Class A Non-Voting Common Stock\nand debt securities as it deems prudent or necessary to raise capital at a later date. The shelf\nregistration statement became effective upon filing with the SEC. The Company plans to use the\nproceeds from any future offerings under the shelf registration for general corporate purposes,\nincluding, but not limited to, acquisitions, capital expenditures, and refinancing of debt.\n

\n\n

The Company has completed three private placements totaling $500 million in ten-year fixed\nnotes with varying maturity dates to institutional investors at interest rates varying from 5.14%\nto 5.33%. The notes must be repaid equally over seven years, with initial payment due dates\nranging from 2008 to 2011, with interest payable on the notes due semiannually on various dates\nthroughout the year, which began in December 2004. The private placements were exempt from the\nregistration requirements of the Securities Act of 1933. The notes were not registered for resale\nand may not be resold absent such registration or an applicable exemption from the registration\nrequirements of the Securities Act of 1933 and applicable state securities laws. The notes have\ncertain prepayment penalties for repaying them prior to the maturity date. The Company paid its\nfirst installment under the debt agreement in June 2008 for $21.4 million.\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. Under the credit agreement,\nthe Company has the option to select either a base interest rate (based upon the higher of the\nfederal funds rate plus one-half of 1% or the prime rate of Bank of America) or a Eurocurrency\ninterest rate (at the LIBOR rate plus a margin based on the Company’s consolidated leverage ratio).\nA commitment fee is payable on the unused amount of the facility. The agreement restricts the\namount of certain types of payments, including dividends, which can be made annually to $50 million\nplus an amount equal to 75% of consolidated net income for the prior fiscal year of the Company.\nThe Company believes that based on historic dividend practice, this restriction would not impede\nthe Company in following a similar dividend practice in the future. On March 18, 2008, the Company\nentered into an amendment to the revolving loan agreement which extended the maturity date from\nOctober 5, 2011 to March 18, 2013. All other terms of the revolving loan agreement remained the\nsame. As of January 31, 2009, there were no outstanding borrowings under the credit facility.\n

\n\n

19\n

\n\n

The Company’s debt and revolving loan agreements require it to maintain certain financial\ncovenants. The Company’s June 2004, February 2006, and March 2007 debt agreements require the\nCompany to maintain a ratio of debt to the trailing twelve months earnings before interest, taxes,\ndepreciation and amortization (“EBITDA”), as defined in the debt agreements, of not more than a 3.5\nto 1.0 ratio (leverage ratio). The Company’s October 2006 revolving loan agreement requires the\nCompany to maintain a ratio of debt to trailing twelve months EBITDA, as defined by the debt\nagreement, of not more than a 3.0 to 1.0 ratio. Additionally, the revolving loan agreement\nrequires the Company’s trailing twelve months earnings before interest and taxes (“EBIT”) to\ninterest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of January\n31, 2009, the Company was in compliance with the financial covenants of its debt and revolving loan\nagreements.\n

\n\n

While the Company strives to maximize investment income on its cash, preservation of principal\nis the first priority of the Company’s investment policy. In volatile markets, as the Company has\nrecently experienced, the Company’s investment policy is intended to preserve principal as its\nprimary goal, possibly at the expense of the yields historically achieved.\n

\n\n

The Company’s growth has historically been funded by a combination of cash provided by\noperating activities and debt financing. The Company believes that its cash from operations, in\naddition to its sources of borrowing, are sufficient to fund its anticipated requirements for\nworking capital, capital expenditures, restructuring activities, acquisitions, common stock\nrepurchases, scheduled debt repayments, and dividend payments. Further, external funds have been\navailable at a reasonable cost. As of the date of this Form 10-Q, the credit and financial markets\nare in a period of substantial instability and uncertainty that is affecting the availability of\ncredit to borrowers. The Company believes that its current credit arrangements are sound and that\nthe strength of its balance sheet will allow the Company the financial flexibility to respond to\nboth internal growth opportunities and those available through acquisition.\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\nor other contractual commitments that are reasonably likely to adversely affect liquidity. Under\nthe guidelines established by FIN 48, which the Company adopted as of August 1, 2007, the Company\nis unable to determine the period in which the cash settlement of the liability associated with FIN\n48 will occur with the respective taxing authority.\n

\n\n

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

\n\n

20\n

\n\n

Subsequent Events Affecting Financial Condition\n

\n\n\n

On February 19, 2009, the Board of Directors declared a quarterly cash dividend to\nshareholders of the Company’s Class A Common Stock of $0.17 per share payable on April 30, 2009 to\nshareholders of record at the close of business on April 10, 2009.\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 the length or severity of the\ncurrent worldwide economic downturn or timing or strength of a subsequent recovery; future\nfinancial performance of major markets Brady serves, which include, without limitation,\ntelecommunications, manufacturing, electrical, construction, laboratory, education, governmental,\npublic utility, computer, transportation; difficulties in making and integrating acquisitions;\nrisks associated with newly acquired businesses; Brady’s ability to retain significant contracts\nand customers; future competition; Brady’s ability to develop and successfully market new products;\nchanges in the supply of, or price for, parts and components; increased price pressure from\nsuppliers and customers; interruptions to sources of supply; environmental, health and safety\ncompliance costs and liabilities; Brady’s ability to realize cost savings from operating\ninitiatives; Brady’s ability to attract and retain key talent; difficulties associated with\nexports; risks associated with international operations; fluctuations in currency rates versus the\nUS dollar; technology changes; potential write-offs of Brady’s substantial intangible assets;\nBrady’s ability to maintain its debt covenants; unforeseen tax consequences; 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,\n2008. 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

21\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\nforeign exchange rates. To manage that risk effectively, the Company enters into hedging\ntransactions, according to established guidelines and policies that enable it to mitigate the\nadverse effects of this 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. As of January 31, 2009, the amount of outstanding foreign exchange contracts was $17.1\nmillion.\n

\n\n

The Company could be exposed to interest rate risk through its corporate borrowing\nactivities. The objective of the Company’s interest rate risk management activities is to manage\nthe levels of the Company’s fixed and floating interest rate exposure to be consistent with the\nCompany’s preferred mix. The interest rate risk management program allows the Company to enter into\napproved interest rate derivatives, with the approval of the Board of Directors, if there is a\ndesire to modify the Company’s exposure to interest rates. As of January 31, 2009, the Company had\nno interest rate derivatives.\n

\n\n

The Company is subject to the risk of changes in foreign currency exchange rates due to its\noperations in foreign countries. The Company has manufacturing facilities in Australia, Brazil,\nCanada, China, Mexico, South Korea, Thailand, India and throughout Europe. It sells and\ndistributes its products throughout the world. As a result, the Company’s financial results could\nbe significantly affected by factors such as changes in foreign currency exchange rates or weak\neconomic conditions in the foreign markets in which the Company manufactures, distributes and sells\nits products. The Company’s operating results are principally exposed to changes in exchange rates\nbetween the U.S. Dollar and the European currencies, primarily the Euro, changes between the U.S.\nDollar and the Australian Dollar, changes between the U.S. Dollar and the Canadian Dollar, and\nchanges between the U.S. Dollar and the Chinese Yuan. Changes in foreign currency exchange rates\nfor the Company’s foreign subsidiaries reporting in local currencies are generally reported as a\ncomponent of shareholders’ equity. The Company’s currency translation adjustments recorded at\nJanuary 31, 2009 and 2008 were $14.4 million unfavorable and $104.8 million favorable,\nrespectively. As of January 31, 2009 and 2008, the Company’s foreign subsidiaries had net current\nassets (defined as current assets less current liabilities) subject to foreign currency translation\nrisk of $232.9 million and $251.8 million, respectively. The potential decrease in the net current\nassets as of January 31, 2009 from a hypothetical 10 percent adverse change in quoted foreign\ncurrency exchange rates would be $23.4 million. This sensitivity analysis assumes a parallel shift\nin foreign currency exchange rates. Exchange rates rarely move in the same direction relative to\nthe U.S. Dollar. This assumption may overstate the impact of changing exchange rates on individual\nassets and liabilities denominated in a foreign currency.\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

There were no other changes in the Company’s internal control over financial reporting\n(as defined 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

22\n

\n\n

PART II. OTHER INFORMATION\n

\n\n

ITEM 1A. Risk Factors\n

\n\n\n

Our financial position, results of operations, and cash flows are subject to various risks.\nIn addition to other information set forth in this report, you should carefully consider the risk\nfactors discussed in Item 1A, Risk Factors, of our Form 10-K for the fiscal year ended July 31,\n2008, which have not materially changed other than as reflected below.\n

\n\n

The following risk factors are additions to the risk factors discussed in Item 1A, Risk\nFactors, in our Form 10-K for the fiscal year ended July 31, 2008.\n

\n\n

Our operating results, cash flows, and liquidity are susceptible to uncertainties arising\nfrom the length and severity of the current worldwide economic downturn, as well as the timing and\nstrength of the subsequent recovery.\n

\n\n

The global economy is currently experiencing a severe recession, which has negatively\nimpacted our sales volumes and results of operations. Most of our segments, major product lines,\nchannels, and markets we serve, have experienced significant declines in the current global\neconomic downturn. As a result of the slowing economy, the credit market crisis, declining\nconsumer and business confidence, increased unemployment, reduced levels of capital expenditures,\nfluctuating commodity prices, bankruptcies, and other challenges affecting the global economy, our\ncustomers may experience deterioration of their businesses, cash flow shortages, and difficulty\nobtaining financing. As a result, existing or potential customers may delay or cancel plans to\npurchase our products. Further, our vendors may be experiencing similar conditions, which may\nimpact their ability to fulfill their obligations to us. Although governments around the world\nare enacting various economic stimulus programs, there can be no assurance as to the timing or\neffectiveness of such programs. If the worldwide economic downturn continues for a significant\nperiod or there is further deterioration in the global economy, our results of operations,\nfinancial position, and cash flows could be materially adversely affected.\n

\n\n

Uncertainties in the global economy may put pressure on our ability to maintain our debt\ncovenants.\n

\n\n

Our debt and revolving loan agreements require us to maintain certain financial covenants.\nOur June 2004, February 2006, and March 2007 debt agreements require us to maintain a ratio of debt\nto the trailing twelve months earnings before interest, taxes, depreciation and amortization\n(“EBITDA”), as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage\nratio). Our October 2006 revolving loan agreement requires us to maintain a ratio of debt to\ntrailing twelve months EBITDA, as defined by the debt agreement, of not more than a 3.0 to 1.0\nratio. Additionally, the revolving loan agreement requires our trailing twelve months earnings\nbefore interest and taxes (“EBIT”) to interest expense of not less than a 3.0 to 1.0 ratio\n(interest expense coverage). Depending on the severity and duration of the current global economic\ncrisis, uncertainties in the market may put pressure on our ability to maintain our covenants.\n

\n\n

We may experience unforeseen tax consequences.\n

\n\n

We periodically review the probability of the realization of our deferred tax assets based on\nforecasts of taxable income in both the U.S. and foreign jurisdictions. As part of this review,\nwe utilize historical results, projected future operating results, eligible carryforward periods,\ntax planning opportunities, and other relevant considerations. Adverse changes in profitability\nand financial outlook in both the U.S. and foreign jurisdictions, or changes in our geographic\nfootprint may require changes in the valuation allowances to reduce our deferred tax assets or\nincrease tax payments. Such changes could result in material non-cash expenses in the period in\nwhich the changes are made and could have a material adverse impact on our results of operations\nor financial condition.\n

\n\n

23\n

\n\n

The following risk factor replaces the risk factor entitled “Our goodwill or other intangible\nassets may become impaired, which may negatively impact our results of operations” in our Form\n10-K for the fiscal year ended July 31, 2008.\n

\n\n

Our goodwill or other intangible assets may become impaired, which may negatively impact our\nresults of operations.\n

\n\n

We have a substantial amount of goodwill and other intangible assets on our balance sheet as\na result of our acquisitions. As of July 31, 2008, we had $789.1 million of goodwill on our\nbalance sheet, representing the excess of the total purchase price for our acquisitions over the\nfair value of the net assets we acquired, and $144.8 million of other intangible assets, primarily\nrepresenting the fair value of the customer relationships, patents and trademarks we acquired in\nour acquisitions. At July 31, 2008, goodwill and other intangible assets represented\napproximately 50.5% of our total assets. As of January 31, 2009, we had $719.4 million of\ngoodwill and $118.5 million of other intangible assets on our balance sheet, representing 53.2% of\nour total assets. We evaluate goodwill at least annually for impairment based on the fair value\nof each operating segment. We assess the impairment of other intangible assets at least annually\nbased upon the expected future cash flows of the respective assets. These valuations include\nmanagement’s estimates of sales, profitability, cash flow generation, capital structure, cost of\ndebt, interest rates, capital expenditures, and other assumptions. The current worldwide economic\ndownturn, credit crisis, and uncertainty in the markets we serve can adversely impact the\nassumptions in these valuations. If the estimated fair values of our operating segments change in\nfuture periods, we may be required to record an impairment charge related to goodwill or other\nintangible assets, which would have the effect of decreasing our earnings in such period.\n

\n\n

The following risk factor replaces the risk factor entitled “Foreign currency fluctuations\ncould adversely affect our sales and profits” in our Form 10-K for the fiscal year ended July 31,\n2008.\n

\n\n

Foreign currency fluctuations could adversely affect our sales, profits, and cash balances.\n

\n\n

More than 60 percent of our revenues are derived outside the United States. As such,\nfluctuations in foreign currency can have an adverse impact on our sales and profits as amounts\nthat are measured in foreign currency are translated back to U.S. dollars. Any increase in the\nvalue of the U.S. dollar in relation to the value of the local currency will adversely affect\noperating results from our foreign operations when translated into U.S. dollars. Similarly, any\ndecrease in the value of the U.S. dollar in relation to the value of the local currency will\nincrease operating results in our foreign operations when translated into U.S. dollars. During\nfiscal year 2008, the weakening U.S. dollar versus the majority of other currencies increased\nsales by approximately $81.7 million. During the six months ended January 31, 2009, the U.S.\ndollar strengthened compared to the majority of other currencies, resulting in decreased sales of\napproximately $23.1 million.\n

\n\n

As of January 31, 2009, approximately 65% of our cash and cash equivalents were held outside\nthe United States. As a result, fluctuations in foreign currency can have an adverse impact on\nour cash balances. Any increase in the value of the U.S. dollar in relation to the value of\nvarious foreign currencies will have an adverse impact on our cash balances when translated into\nU.S. dollars. Weakening of the U.S. dollar against foreign currencies will have a positive impact\non cash balances when foreign currencies are translated into U.S. dollars.\n

\n\n

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds\n

\n\n

\n\n\n

In September 2008, the Company announced that the Board of Directors of the Company authorized\na share repurchase plan for up to one million shares of the Company’s Class A Nonvoting Common\nStock. The 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. As of October 31, 2008, the Company\nwas authorized to purchase 500,000 shares in connection with this share repurchase plan, of which\n193,800 shares were repurchased during the quarter ended January 31, 2009.\n

\n\n

The following table provides information with respect to the purchases of Class A Nonvoting\nCommon Stock during the three months ended January 31, 2009.\n

\n\n

ISSUER PURCHASES OF SECURITIES\n

\n\n


								Total Number of			Maximum Number
				Average			Shares Purchased			of Shares that May
	Total Number of		Price Paid			as Part of Publicly			Yet Be Purchased
Period\n	Shares Purchased		per Share			Announced Plans			Under the Plans
November 1, 2008 — November 30, 2008		15,000		$	18.18				15,000			485,000
December 1, 2008 — December 31, 2008		178,800		$	19.50				178,800			306,200
January 1, 2009 — January 31, 2009		—		$	—				—			306,200

Total		193,800		$	19.39				193,800			306,200

\n\n\n

24\n

\n\n

ITEM 5. Other Information\n

\n\n\n

Effective March 4, 2009, the Compensation Committee of the Board of Directors of the Company\napproved an amendment to the granting agreement under which the Company issued performance-based\nstock options on August 2, 2004. Pursuant to the amendment, the exercise period for the\nperformance-based stock options has been extended to ten years from five years. Also, the\namendment provides that during the extension period, executives may exercise the performance-based\nstock options following a termination only if the termination is as a result of the executive’s\ndeath or disability or qualifies as a retirement. The foregoing summary is qualified in its\nentirety by the text of the form of amendment to the granting agreement, a copy of which is\nattached hereto as Exhibit 10.4 and is incorporated herein by reference. The Company’s Chief\nExecutive Officer, Chief Financial Officer, and two of its named executive officers currently have\nthe following exercisable performance-based stock options affected by this amendment: Frank M.\nJaehnert, 60,000 options; Thomas J. Felmer, 20,000 options; Peter C. Sephton, 30,000 options; and\nMatthew O. Williamson, 30,000 options.\n

\n\n

ITEM 6. Exhibits\n

\n\n\n

(a) Exhibits\n

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


10.1\n		Change of Control Agreement, amended as of December 23, 2008, entered into with Frank M. Jaehnert

10.2\n		Form of Change of Control Agreement, amended as of December 23, 2008, entered into with Thomas\nJ. Felmer, Allan J. Klotsche, Peter C. Sephton, Robert L. Tatterson, and Matthew O. Williamson

10.3\n		Form of Change of Control Agreement, amended as of December 23, 2008, entered into with Patrick\nS. Ference and Kathleen Johnson

10.4\n		Form of Amendment, dated March 4, 2009, to granting agreement for performance-based stock\noptions issued on August 2, 2004 to Frank M. Jaehnert, Thomas J. Felmer, Peter C.Sephton,\nMatthew O. Williamson, and Allan J. Klotsche

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

\n\n

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused\nthis report to be signed on its behalf by the undersigned thereunto duly authorized.\n

\n\n\n

SIGNATURES\n

\n\n

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


\n		BRADY CORPORATION

Date:\nMarch 10, 2009\n		/s/ F. M. Jaehnert\n \nF. M. Jaehnert\n
\n		President & Chief Executive Officer

Date:\nMarch 10, 2009\n		/s/ Thomas J. Felmer
\n
\n		Thomas J. Felmer
\n		Senior Vice President & Chief Financial Officer \n(Principal Financial Officer)

\n\n\n

25\n

\n\n\n

Exhibit 10.1\n

\n\n\n

BRADY CORPORATION
\nCHANGE OF CONTROL AGREEMENT\n

\n\n\n

AGREEMENT, made as of December 23, 2008, between Brady Corporation, a Wisconsin corporation,\n(“Corporation”) and Frank M. Jaehnert.\n

\n\n

WHEREAS, the Executive is now serving as an executive of the Corporation in a position of\nimportance and responsibility; and\n

\n\n

WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the\nCorporation and its policies, markets and financial and human resources, and the Executive has\nacquired certain confidential information and data with respect to the Corporation; and\n

\n\n

WHEREAS, the Corporation wishes to continue to receive the benefit of the Executive’s\nknowledge and experience and, as an inducement for continued service, is willing to offer the\nExecutive certain payments due to severance as a result of change of control as set forth herein;\n

\n\n

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the\nExecutive and Corporation agree as follows:\n

\n\n

SECTION 1. DEFINITIONS.\n

\n\n

(a) Change of Control. For purposes of this Agreement, a “Change of Control” shall occur if\nand when any person or group of persons (as defined in Section 13(d)(3) of the Securities and\nExchange Act of 1934) other than the members of the family of William H. Brady, Jr. and their\ndescendants, or trusts for their benefit, and the W.H. Brady Foundation, Inc., collectively,\ndirectly or indirectly controls in excess of 50% of the voting common stock of the Corporation.\n

\n\n\n

(b) Termination Due to Change of Control. A “Termination Due to Change of Control” shall\noccur if within the 24 month period beginning with the date a Change of Control occurs (i) the\nExecutive’s employment with the Corporation is involuntarily terminated (other than by reason of\ndeath, disability or Cause) or (ii) the Executive’s employment with the Corporation is voluntarily\nterminated by the Executive subsequent to (A) any reduction in the total of the Executive’s annual\nbase salary (exclusive of fringe benefits) and the Executive’s target bonus in comparison with the\nExecutive’s annual base salary and target bonus immediately prior to the date the Change of Control\noccurs, (B) a significant diminution in the responsibilities or authority of the Executive in\ncomparison with the Executive’s responsibility and authority immediately prior to the date the\nChange of Control occurs or (C) the imposition of a requirement by the Corporation that the\nExecutive relocate to a principal work location more than 50 miles from the Executive’s principal\nwork location immediately prior to the date the Change of Control occurs.\n

\n\n\n

(c) “Cause” means (i) the Executive’s willful and continued failure to substantially perform\nthe Executive’s duties with the Corporation (other than any such failure resulting from physical or\nmental incapacity) after written demand for performance is given to\n

\n\n

the Executive by the\nCorporation which specifically identifies the manner in which the Corporation believes the\nExecutive has not substantially performed and a reasonable time to cure has transpired, (ii) the\nExecutive’s conviction of (or plea of nolo contendere for the commission of) a felony, or (iii) the\nExecutive’s commission of an act of dishonesty or of any willful act of misconduct which results in\nor could reasonably be expected to result in significant injury (monetarily or otherwise) to the\nCorporation, as determined in good faith by the Board of Directors of the Corporation.\n

\n\n\n

(d) “Beneficiary” means any one or more primary or secondary beneficiaries designated in\nwriting by the Executive on a form provided by the Corporation to receive any benefits which may\nbecome payable under this Agreement on or after the Executive’s death. The Executive shall have\nthe right to name, change or revoke the Executive’s designation of a Beneficiary on a form provided\nby the Corporation. The designation on file with the Corporation at the time of the Executive’s\ndeath shall be controlling. Should the Executive fail to make a valid Beneficiary designation or\nleave no named Beneficiary surviving, any benefits due shall be paid to the Executive’s spouse, if\nliving; or if not living, then to the Executive’s estate.\n

\n\n\n

(e) “Code” means the Internal Revenue Code of 1986, as amended.\n

\n\n\n

SECTION 2. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL.\n

\n\n

(a) Following Termination Due to Change of Control, the Executive shall be paid an amount\nequal to three times the annual base salary paid the Executive by the Corporation in effect\nimmediately prior to the date the Change of Control occurs, and three times the average bonus\npayment received in the three years immediately prior to the date the Change of Control occurs.\nSuch amount shall be paid in 36 monthly installments beginning on the 15^th day of the\nmonth following the month in which the Executive’s employment with the Corporation terminates.\n

\n\n\n

(b) If the scheduled payments under paragraph (a) above would result in disallowance of any\nportion of the Corporation’s deduction therefore under Section 162(m) of the Code, the payments\ncalled for under paragraph (a) shall be limited to the amount which is deductible, with the balance\nto be paid during the first taxable year in which the Corporation reasonably anticipates that the\ndeduction of such payment is not barred by Section 162(m). However, in such event, the Corporation\nshall pay the Executive on a quarterly basis an amount of interest based on the prime rate\nrecomputed each quarter on the unpaid scheduled payments.\n

\n\n\n

(c) It is intended that (A) each payment or installment of payments provided under this\nSection 2 is a separate “payment” for purposes of Code Section 409A and (B) that the payments\nsatisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A,\nincluding those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term\ndeferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two year exception), and\n1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding\nanything to the contrary in this Agreement, if the Corporation determines that on the\nTermination Due to Change of Control the Executive is a “specified employee” (as such term is\ndefined under Treasury Regulation 1.409A-1(i)(1)) of the Corporation and that any payments to be\nprovided to\n

\n\n\n

-2-\n

\n\n\n\n

Executive are or may become subject to the additional tax under Code Section\n409A(a)(1)(B) or any other taxes or penalties imposed under Code Section 409A (“Section 409A\nTaxes”), then such payments shall be delayed until the date that is six (6) months after the\nTermination Due to Change of Control. Any delayed payments shall be made in a lump sum on the\nfirst day of the seventh month following the Termination Due to Change of Control, or such earlier\ndate that, as determined by the Corporation, is sufficient to avoid the imposition of any Section\n409A Taxes on Executive.\n

\n\n\n

SECTION 3. EXCISE TAX, ATTORNEY FEES.\n

\n\n

(a) If the payments under Section 2 in combination with any other payments which the Executive\nhas the right to receive from the Corporation (the “Total Payments”) would result in the Executive\nincurring an excise tax as a result of Section 280(G) of the Code, the Corporation will reimburse\nthe Executive for such Excise Tax. Such reimbursement will be paid to Executive by the end of the\ntaxable year following the taxable year in which the Executive remits the related taxes to the\nInternal Revenue Service.\n

\n\n\n

(b) If the Executive is required to file a lawsuit to enforce the Executive’s rights under\nthis Agreement or the Executive’s Nonqualified Retention Stock Option Agreement dated February 24,\n2003, and the Executive prevails in such lawsuit, the Corporation will reimburse the Executive for\nattorney fees incurred up to a maximum of $25,000.00.\n

\n\n\n

SECTION 4. DEATH AFTER THE EXECUTIVE HAS BEGUN RECEIVING PAYMENTS.\n

\n\n

Should the Executive die after Termination Due to Change of Control, but before receiving all\npayments due the Executive hereunder, any remaining payments due shall be made to the Executive’s\nBeneficiary.\n

\n\n

SECTION 5. CONFIDENTIAL INFORMATION AGREEMENT.\n

\n\n

The Executive has obligations under the separate Confidential Information Agreement between\nthe Executive and the Corporation which continue beyond the Executive’s termination of employment.\nThe payments to be made hereunder are conditioned upon the Executive’s compliance with the terms of\nthe Confidential Information Agreement. The payments made hereunder shall be reduced by any\npayments the Corporation makes to the Executive under Section 3 of the Confidential Information\nAgreement. In the event the Executive violates the provisions of the Confidential Information\nAgreement, no further payments shall be due hereunder and the Executive shall be obligated to repay\nall previous payments received hereunder in the same manner as provided in Section 4 of the\nConfidential Information Agreement.\n

\n\n

SECTION 6. MISCELLANEOUS.\n

\n\n

-3-\n

benefit of and be\nbinding upon the Corporation and its successors and assigns and shall also be enforceable by the\nExecutive’s legal representatives.\n

\n\n\n

(b) Successors. The Corporation shall require any successor (whether direct or indirect, by\npurchase, merger, consolidation or otherwise) to all or substantially all of the business and/or\nassets of the Corporation expressly to assume and agree to perform this Agreement in the same\nmanner and to the same extent that the Corporation would have been required to perform it if no\nsuch succession had taken place. As used in this Agreement, “Corporation” shall mean both the\nCorporation as defined above and any such successor that assumes and agrees to perform this\nAgreement, by operation of law or otherwise.\n

\n\n\n

(c) Governing Law. This Agreement shall be governed by, and construed in accordance with, the\nlaws of the State of Wisconsin, without reference to principles of conflict of laws, to the extent\nnot preempted by federal law. The captions of this Agreement are not part of the provisions hereof\nand shall have no force or effect.\n

\n\n\n

(d) Notices. All notices and other communications under this Agreement shall be in writing\nand shall be given by hand delivery to the other party or by registered or certified mail, return\nreceipt requested, postage prepaid, addressed as follows:\n

\n\n


\n	If to the Executive:\n	Frank M. Jaehnert\n
\n		W68 N1068 Kensington Avenue
\n		Cedarburg, Wisconsin 53012

\n	If to the Corporation:\n	Brady Corporation
\n		6555 West Good Hope Road
\n		Milwaukee, Wisconsin 53223
\n		Attention: Corporate Secretary

\n\n

or to such other address as either party furnishes to the other in writing in accordance with this\nparagraph. Notices and communications shall be effective when actually received by the addressee.\n

\n\n\n

(e) Construction. The invalidity or unenforceability of any provision of this Agreement shall\nnot affect the validity or enforceability of any other provision of this Agreement. If any\nprovision of this Agreement shall be held invalid or unenforceable in part, the remaining portion\nof such provision, together with all other provisions of this Agreement, shall remain valid and\nenforceable and continue in full force and effect to the fullest extent consistent with law.\n

\n\n\n

(f) No Guarantee of Employment. Nothing contained in this Agreement shall give the Executive\nthe right to be retained in the employment of the Corporation or affect the right of the\nCorporation to dismiss the Executive.\n

\n\n\n

-4-\n

\n\n\n\n

parties on the subjects\ncovered and replaces all prior writings, proposals, specifications or other oral or written\nmaterials relating thereto.\n

\n\n\n

(h) Impact on Other Plans. No amounts paid to the Executive under this Agreement will be\ntaken into account as “wages”, “salary”, “base pay” or any other type of compensation when\ndetermining the amount of any payment or allocation, or for any other purpose, under any other\nqualified or nonqualified plan or agreement of the Corporation, except as otherwise may be\nspecifically provided by such plan or agreement.\n

\n\n\n

(i) Other Agreements. This Agreement supersedes any other severance arrangement or Change of\nControl Agreement between the Corporation and the Executive. This Agreement does not confer any\npayments or benefits other than the payments described in Sections 2 and 3 hereof.\n

\n\n\n

(j) Withholding. To the extent required by law, the Corporation shall withhold any taxes\nrequired to be withheld with respect to this Agreement by the federal, state or local government\nfrom payments made hereunder or from other amounts paid to the Executive by the Corporation.\n

\n\n\n

(k) Facility of Payment. If the Executive or, if applicable, the Executive’s Beneficiary, is\nunder legal disability, the Corporation may direct that payments be made to a relative of such\nperson for the benefit of such person, without the intervention of any legal guardian or\nconservator, or to any legal guardian or conservator of such person. Any such distribution shall\nconstitute a full discharge with respect to the Corporation and the Corporation shall not be\nrequired to see to the application of any distribution so made.\n

\n\n\n

SECTION 7. CLAIMS PROCEDURE.\n

\n\n

(a) Claim Review. If the Executive or the Executive’s Beneficiary (a “Claimant”) believes\nthat he or she has been denied all or a portion of a benefit under this Agreement, he or she may\nfile a written claim for benefits with the Corporation. The Corporation shall review the claim and\nnotify the Claimant of the Corporation’s decision within 60 days of receipt of such claim, unless\nthe Claimant receives written notice prior to the end of the 60 day period stating that special\ncircumstances require an extension of the time for decision. The Corporation’s decision shall be\nin writing, sent by mail to the Claimant’s last known address, and if a denial of the claim, must\ncontain the specific reasons for the denial, reference to pertinent provisions of this Agreement on\nwhich the denial is based, a designation of any additional material necessary to perfect the claim,\nand an explanation of the claim review procedure.\n

\n\n\n

(b) Appeal Procedure to the Board. A Claimant is entitled to request a review of any denial\nby the full Board by written request to the Chair of the Board within 60 days of receipt of the\ndenial. Absent a request for review within the 60-day period, the claim will be deemed to be\nconclusively denied. The Board shall afford the Claimant the opportunity to\nreview all pertinent documents and submit issues and comments in writing and shall render a\nreview decision in writing, all within 60 days\nafter receipt of a request for review (provided\nthat, in special circumstances the Board may extend the time for decision by not more than 60 days\n

\n\n\n

-5-\n

\n\n\n

Exhibit 10.2\n

\n\n\n

BRADY CORPORATION
\nCHANGE OF CONTROL AGREEMENT\n

\n\n\n

AGREEMENT, made as of December 23, 2008, between Brady Corporation, a Wisconsin corporation,\n(“Corporation”) and [Name of Executive].\n

\n\n

WHEREAS, the Executive is now serving as an executive of the Corporation in a position of\nimportance and responsibility; and\n

\n\n

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the\nExecutive and Corporation agree as follows:\n

\n\n

SECTION 1. DEFINITIONS.\n

\n\n

\n\n\n

\n\n\n\n

\n\n\n

(e) “Code” means the Internal Revenue Code of 1986, as amended.\n

\n\n\n

SECTION 2. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL.\n

\n\n

(a) Following Termination Due to Change of Control, the Executive shall be paid an amount\nequal to two times the annual base salary paid the Executive by the Corporation in effect\nimmediately prior to the date the Change of Control occurs, and two times the average bonus payment\nreceived in the three years immediately prior to the date the Change of Control occurs. Such\namount shall be paid in 24 monthly installments beginning on the 15^th day of the month\nfollowing the month in which the Executive’s employment with the Corporation terminates.\n

\n\n\n

\n\n\n\n\n

-2-\n

\n\n\n\n

\n\n\n

SECTION 3. EXCISE TAX, ATTORNEY FEES.\n

\n\n

\n\n\n

(b) If the Executive is required to file a lawsuit to enforce the Executive’s rights under\nthis Agreement and the Executive prevails in such lawsuit, the Corporation will reimburse the\nExecutive for attorney fees incurred up to a maximum of $25,000.00.\n

\n\n\n

SECTION 4. DEATH AFTER THE EXECUTIVE HAS BEGUN RECEIVING PAYMENTS.\n

\n\n

SECTION 5. CONFIDENTIAL INFORMATION AGREEMENT.\n

\n\n

SECTION 6. MISCELLANEOUS.\n

\n\n

(a) Non-Assignability. This Agreement is personal to the Executive and, without the prior\nwritten consent of the Corporation, shall not be assignable by the Executive\notherwise than by will or the laws of descent and distribution. This Agreement shall inure to\nthe benefit of and be binding upon the Corporation and its successors and assigns and shall also be\nenforceable by the Executive’s legal representatives.\n

\n\n\n

-3-\n

\n\n\n\n\n

\n\n\n

\n\n


\n	If to the Executive:\n	[Name of Executive]\n
\n		\n[Address]\n
\n		\n
\n		\n

\n	If to the Corporation:\n	Brady Corporation
\n		6555 West Good Hope Road
\n		Milwaukee, Wisconsin 53223
\n		Attention: Corporate Secretary

\n\n

or to such other address as either party furnishes to the other in writing in accordance with this\nparagraph. Notices and communications shall be effective when actually received by the addressee.\n

\n\n\n

(g) Amendment; Entire Agreement. This Agreement may not be amended or modified except by a\nwritten agreement executed by the parties hereto or their respective successors and legal\nrepresentatives. This Agreement contains the entire agreement between the\nparties on the subjects covered and replaces all prior writings, proposals, specifications or\nother oral or written materials relating thereto.\n

\n\n\n

-4-\n

\n\n\n\n\n

\n\n\n

SECTION 7. CLAIMS PROCEDURE.\n

\n\n

\n\n\n

(b) Appeal Procedure to the Board. A Claimant is entitled to request a review of any denial\nby the full Board by written request to the Chair of the Board within 60 days of receipt of the\ndenial. Absent a request for review within the 60-day period, the claim will be deemed to be\nconclusively denied. The Board shall afford the Claimant the opportunity to review all pertinent\ndocuments and submit issues and comments in writing and shall render a review decision in writing,\nall within 60 days after receipt of a request for review (provided that, in special circumstances\nthe Board may extend the time for decision by not more than 60 days\nupon written notice to the Claimant.) The Board’s review decision shall contain specific\nreasons for the decision and reference to the pertinent provisions of this Agreement.\n

\n\n\n

-5-\n

\n\n\n

Exhibit 10.3\n

\n\n\n

BRADY CORPORATION
\nCHANGE OF CONTROL AGREEMENT\n

\n\n\n

AGREEMENT, made as of December 23, 2008, between Brady Corporation, a Wisconsin corporation,\n(“Corporation”) and [Name of Executive].\n

\n\n

WHEREAS, the Executive is now serving as an executive of the Corporation in a position of\nimportance and responsibility; and\n

\n\n

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the\nExecutive and Corporation agree as follows:\n

\n\n

SECTION 1. DEFINITIONS.\n

\n\n

\n\n\n

\n\n\n\n

\n\n\n

(e) “Code” means the Internal Revenue Code of 1986, as amended.\n

\n\n\n

SECTION 2. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL.\n

\n\n

(a) Following Termination Due to Change of Control, the Executive shall be paid an amount\nequal to the annual base salary paid the Executive by the Corporation in effect immediately prior\nto the date the Change of Control occurs, and the average bonus payment received in the three years\nimmediately prior to the date the Change of Control occurs. Such amount shall be paid in 12\nmonthly installments beginning on the 15^th day of the month following the month in which\nthe Executive’s employment with the Corporation terminates.\n

\n\n\n

(c) It is intended that (A) each payment or installment of payments provided under this\nSection 2 is a separate “payment” for purposes of Code Section 409A and (B) that the payments\nsatisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A,\nincluding those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term\ndeferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two year exception), and\n1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding anything to\nthe contrary in this Agreement, if the Corporation determines that on the Termination\nDue to Change of Control the Executive is a “specified employee” (as such term is defined\nunder Treasury Regulation 1.409A-1(i)(1)) of the Corporation and that any payments to be provided\nto Executive are or may become subject to the additional tax under Code Section 409A(a)(1)(B) or\n

\n\n\n

-2-\n

\n\n\n\n

any other taxes or penalties imposed under Code Section 409A (“Section 409A Taxes”), then such\npayments shall be delayed until the date that is six (6) months after the Termination Due to Change\nof Control. Any delayed payments shall be made in a lump sum on the first day of the seventh month\nfollowing the Termination Due to Change of Control, or such earlier date that, as determined by the\nCorporation, is sufficient to avoid the imposition of any Section 409A Taxes on Executive.\n

\n\n\n

SECTION 3. EXCISE TAX, ATTORNEY FEES.\n

\n\n

\n\n\n

SECTION 4. DEATH AFTER THE EXECUTIVE HAS BEGUN RECEIVING PAYMENTS.\n

\n\n

SECTION 5. CONFIDENTIAL INFORMATION AGREEMENT.\n

\n\n

SECTION 6. MISCELLANEOUS.\n

\n\n

(a) Non-Assignability. This Agreement is personal to the Executive and, without the prior\nwritten consent of the Corporation, shall not be assignable by the Executive otherwise than by will\nor the laws of descent and distribution. This Agreement shall inure to the\nbenefit of and be binding upon the Corporation and its successors and assigns and shall also\nbe enforceable by the Executive’s legal representatives.\n

\n\n\n\n

-3-\n

\n\n\n\n\n

\n\n\n

\n\n


\n	If to the Executive:\n	[Name of Executive]
\n		\n[Address]\n
\n		\n
\n		\n

\n	If to the Corporation:\n	Brady Corporation
\n		6555 West Good Hope Road
\n		Milwaukee, Wisconsin 53223
\n		Attention: Corporate Secretary

\n\n

or to such other address as either party furnishes to the other in writing in accordance with this\nparagraph. Notices and communications shall be effective when actually received by the addressee.\n

\n\n\n

-4-\n

\n\n\n\n\n

\n\n\n

SECTION 7. CLAIMS PROCEDURE.\n

\n\n

\n\n\n

(b) Appeal Procedure to the Board. A Claimant is entitled to request a review of any denial\nby the full Board by written request to the Chair of the Board within 60 days of receipt of the\ndenial. Absent a request for review within the 60-day period, the claim will be deemed to be\nconclusively denied. The Board shall afford the Claimant the opportunity to review all pertinent\ndocuments and submit issues and comments in writing and shall render a review decision in writing,\nall within 60 days after receipt of a request for review (provided that, in special circumstances\nthe Board may extend the time for decision by not more than 60 days\nupon written notice to the Claimant.) The Board’s review decision shall contain specific\nreasons for the decision and reference to the pertinent provisions of this Agreement.\n

\n\n\n

-5-\n

\n\n\n

EXHIBIT 31.1\n

\n\n\n

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

(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:\nMarch 10, 2009\n

\n\n\n

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

\n\n

President and Chief Executive Officer\n\n

\n\n

EXHIBIT 31.2\n

\n\n\n

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

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:\nMarch 10, 2009\n

\n\n\n

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

\n\n

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

\n\n

EXHIBIT 32.1\n

\n\n\n

SECTION 1350 CERTIFICATION\n

\n\n\n

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the\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, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities\nExchange Act of 1934; and\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

Date:\nMarch 10, 2009\n

\n\n\n

/s/ FRANK M. JAEHNERT
\nFrank 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

(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

Date:\nMarch 10, 2009\n

\n\n\n

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

\n\n

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

\n\n

\n\n\n


	/s/ Frank M. Jaehnert

	Executive – Frank M. Jaehnert

	Brady Corporation

\n	By:\n	/s/ Hoyt R. Stastney\n \n
	Hoyt R. Stastney, Secretary

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\n	*

	Executive

	Brady Corporation

\n	By:\n	/s/ Hoyt R. Stastney\n \n Hoyt R. Stastney, Secretary\n


*		This form of agreement shall be deemed to include conformed signatures of the following\nindividuals, all of whom executed the agreement in substantially similar form: Thomas J. Felmer,\nAllan J. Klotsche, Peter C. Sephton, Robert L. Tatterson and Matthew O. Williamson.