Brady
Annual Report 2013

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended July 31, 2013OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to Commission file number 1-14959 BRADY CORPORATION(Exact name of registrant as specified in charter) Wisconsin 39-0178960(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.)6555 West Good Hope Road,Milwaukee, WI 53223(Address of principal executive offices) (Zip Code)(414) 358-6600(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredClass A Nonvoting Common Stock, ParValue $.01 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes  No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “largeaccelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filerx Accelerated filer¨Non-accelerated filer¨ (Do not check if a smaller reporting company) Smaller reporting company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No The aggregate market value of the non-voting common stock held by non-affiliates of the registrant as of January 31, 2013, was approximately $1,441,914,982 based on closingsale price of $34.89 per share on that date as reported for the New York Stock Exchange. As of September 24, 2013, there were 48,561,004 outstanding shares of Class A NonvotingCommon Stock (the “Class A Common Stock”), and 3,538,628 shares of Class B Common Stock. The Class B Common Stock, all of which is held by affiliates of the registrant, is theonly voting stock.Table of ContentsINDEXPART IPageItem.1 Business3General Development of Business3Financial Information About Industry Segments3Narrative Description of Business4Overview4Research and Development5Operations6Environment6Employees6Financial Information About Foreign and Domestic Operations and Export Sales6Information Available on the Internet6Item 1A. Risk Factors6Item 1B. Unresolved Staff Comments11Item 2. Properties11Item 3. Legal Proceedings11Item 4. Mine Safety Disclosures11PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities13Item 6. Selected Financial Data14Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations16Item 7A. Quantitative and Qualitative Disclosures About Market Risk31Item 8. Financial Statements and Supplementary Data32Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure71Item 9A. Controls and Procedures71Item 9B. Other Information74PART III Item 10. Directors and Executive Officers of the Registrant74Item 11. Executive Compensation79Compensation Discussion and Analysis79Management Development and Compensation Committee Interlocks and Insider Participation90Management Development and Compensation Committee Report90Compensation Policies and Practices90Summary Compensation Table91Grants of Plan-Based Awards for 201393Outstanding Equity Awards at 2013 Fiscal Year End93Option Exercises and Stock Vested for Fiscal 201395Non-Qualified Deferred Compensation for Fiscal 201396Potential Payments Upon Termination or Change in Control96Compensation of Directors99Director Compensation Table — Fiscal 2013100Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters101Item 13. Certain Relationships, Related Transactions, and Director Independence103Item 14. Principal Accounting Fees and Services103PART IV Item 15. Exhibits and Financial Statement Schedules104Signatures1082PART IItem 1. Business(a) General Development of BusinessBrady Corporation (“Brady,” “Company,” “we,” “us,” “our”) was incorporated under the laws of the state of Wisconsin in 1914. The Company’scorporate headquarters are located at 6555 West Good Hope Road, Milwaukee, Wisconsin 53223, and the telephone number is (414) 358-6600.Brady Corporation is a global manufacturer and supplier of identification solutions, specialty materials, and workplace safety products that identifyand protect premises, products and people. The ability to provide customers with a broad range of proprietary, customized, and diverse products for use invarious applications, along with a commitment to quality and service, a global footprint and multiple sales channels, have made Brady a world leader inmany of its markets.The Company’s primary objective is to build upon its leading market position and increase shareholder value by leveraging competitive strengthsincluding:•Global leadership position in niche markets•Innovation advantage — Internally developed products drive growth and sustain gross profit margins•Operational excellence — Continuous productivity improvement, business simplification and process transformation•Customer service — Focus on the customer and understanding customer needs•Workplace Safety ("WPS") compliance expertiseIn fiscal 2013, we made significant portfolio changes to better align the Company for growth in the future. These changes were a meaningful shift fromthe more volatile and less profitable consumer electronics die-cut business, to an expansion of our core Identification Solutions (“ID Solutions" or "IDS”)business to focus on markets with long-term growth trends. In our WPS business, our strategy to return to growth includes a focus on workplace safetycritical industries in addition to increased investment in e-commerce expertise.Key initiatives supporting the strategy in fiscal 2013 included:•Strategic acquisition of Precision Dynamics Corporation (“PDC”) in the healthcare sector•Global business simplification process•Realignment of business structure from regional to two global product-based platforms: IDS and WPS•Divestiture of non-strategic businesses including Precision Converting (“Brady Medical”) and Varitronics•Announcement of management's intent to divest the Company's Asia Die-Cut and Europe businesses•Decision to increase investment in the WPS platform and expand e-commerce capabilitiesIn the third quarter of fiscal 2013, the Company announced its plan to divest its Asia Die-Cut business. This is a part of the Company's ongoing effortsto shift its portfolio of businesses to less volatile industries that are supported by positive macro-economic trends. The Asia Die-Cut business platformprimarily consists of the sale of high performance products such as gaskets, meshes, heat dissipation materials, antennae, dampers, filters, and similarproducts sold in the electronics industries, including the mobile handset and hard-disk drive industries. The Company included its Europe-based Die-Cutbusiness, Balkhausen, into the Asia Die-Cut disposal group in the fourth quarter of fiscal 2013. The Balkhausen business consists of the sale of traditionaldie-cut parts and thermal management products mainly used in the automotive electronics and telecommunications markets. The criteria for classifying theassets and liabilities as held for sale was met in the third quarter of fiscal 2013 for the Asia Die-cut business and the fourth quarter of fiscal 2013 for theBalkhausen business. The assets and liabilities of these businesses are classified as held for sale in the consolidated balance sheet as of July 31, 2013.The operating results of the Asia Die-Cut and Balkhausen businesses were reflected as discontinued operations in the consolidated statements of earningsfor the years ended July 31, 2013, 2012 and 2011. In addition, the following previously divested businesses were reported within discontinued operations:Brady Medical and Varitronics (divested in fiscal 2013), Etimark (divested in fiscal 2012) and Teklynx (divested in fiscal 2011). These divested businesseswere part of the IDS business platform.(b) Financial Information About Industry SegmentsThe information required by this Item is provided in Note 7 of the Notes to Consolidated Financial Statements contained in Item 8 - Financial Statementsand Supplementary Data. The financial information contained in Note 7 has been restated to reflect the realignment of the Company's reportable segmentsimplemented in the fourth quarter of fiscal 2013.Table of Contents(c) Narrative Description of BusinessOverviewEffective May 1, 2013, the Company is organized and managed on a global basis within two business platforms: Identification Solutions andWorkplace Safety, which are the reportable segments. Prior to May 1, 2013, the Company was organized and managed on a geographic basis within threeregions: Americas, EMEA (Europe, the Middle East and Africa), and Asia-Pacific. As such, all segment-related data has been conformed to the new reportablesegments.The IDS segment consists of high-performance and innovative identification and healthcare products that are manufactured internally under the Bradybrand, and are primarily sold through distribution to a broad range of MRO and OEM customers.The WPS segment consists of workplace safety and compliance products, which are sold under multiple brand names through catalog and e-businessto a broad range of MRO customers. Approximately half of the business is resale product and half is manufactured internally.Below is a summary of sales by reportable segments for the fiscal years ended July 31: 2013 2012 2011IDS 63.7% 59.3% 59.0%WPS 36.3% 40.7% 41.0%Total 100% 100% 100%ID SolutionsWithin the ID Solutions platform, the primary product categories include:•Facility identification, which includes safety signs, pipe markers, labeling systems, spill control products, and lockout/tagout devices•Product identification, which includes materials and printing systems for product identification, brand protection labeling, work in processlabeling, and finished product identification•Wire identification, which includes hand-held printers, wire markers, sleeves, and tags•People identification, which includes self-expiring name tags, badges, lanyards, and access control software•Patient identification, which includes wristbands and labels used in hospitals for tracking and safety of patients•Custom wristbands used in the leisure and entertainment industry such as theme parks, concerts and festivalsMore than 75% of ID Solutions products are sold under the Brady brand. In the United States, identification products for the utility industry aremarketed under the Electromark brand; spill-control products are marketed under the SPC brand; security and identification badges and systems aremarketed in the B.I.G., Identicard/Identicam, STOPware, PromoVision, and Brady People ID brands; and wire identification products are marketed under theModernotecnica brand in Italy. Lockout/tagout products are offered under the Scafftag brand in the U.K. Custom labels and nameplates are available underthe Stickolor brand in Brazil; and identification and patient safety products in the healthcare industry and custom wristbands for the leisure andentertainment industry are available under the PDC Innovative brand.The ID Solutions platform offers high quality innovative products with rapid response and superior service to provide solutions to customers. Thebusiness markets and sells products through multiple channels including distributors, direct sales, catalog marketing, and the Internet. The businesses' salesforce partners with end-users and distributors by providing technical application and product expertise.ID Solutions serves OEM and MRO customers in many industries, which include industrial manufacturing, electronic manufacturing, healthcare,chemical, oil, gas, food and beverage, aerospace, defense, mass transit, electrical contractors, leisure and entertainment and telecommunications, amongothers.The ID Solutions platform manufactures differentiated, proprietary products, most of which have been internally developed. These internally developedproducts include materials, printing systems, and software. IDS competes for business principally on the basis of production capabilities, engineering,research and development capabilities, materials expertise, global account management where needed, customer service, product quality and price. Competitionis highly fragmented, ranging from smaller companies offering minimal product variety, to some of the world's largest major adhesive and electrical productcompanies offering competing products as part of their overall product lines.4Table of ContentsWorkplace SafetyWithin the Workplace Safety business platform, the primary product categories are workplace safety and compliance products, which includeinformational signs, tags, security, safety and traffic compliance related products, first aid supplies, material handling, asset identification, safety andfacility identification, and workplace regulatory products.Products within the Workplace Safety platform are sold under a variety of brands including: safety and facility identification products offered under theSeton, Emedco, Signals, Personnel Concepts, Safety Signs Service and Pervaco brands; first aid supplies under the Accidental Health and Safety, Trafalgar,and Securimed brands; industrial, office equipment under the Runelandhs brand; and wire identification products marketed under the Carroll brand.Workplace Safety markets and sells products through multiple channels, including catalog, telemarketing and e-commerce. The business servescustomers in many industries, including process industries, manufacturers, government, education, construction, and utilities.The Workplace Safety platform manufactures a broad range of stock and custom identification products, and also sells a broad range of related resaleproducts. Historically, both the Company and many of our competitors focused their businesses on direct marketing, often with varying product niches.However, the competitive landscape is changing with the evolution of e-commerce channels. Many of our competitors extensively utilize e-commerce to promotethe sale of their products. A consequence of this shift is price transparency, as prices on non-proprietary products can be easily compared. Dynamic pricingcapabilities and an enhanced customer experience are critical to convert customers from traditional catalog channels to the Internet.Discontinued OperationsThe Company announced its plan to divest its Asia Die-Cut business during the three months ended April 30, 2013, and incorporated its Balkhausenbusiness into that plan during the three months ended July 31, 2013. As such, the assets and liabilities of these businesses were classified as held for sale inthe consolidated balance sheet as of July 31, 2013. The operating results of the Asia Die-Cut and Balkhausen businesses were reflected as discontinuedoperations in the consolidated statements of earnings for the years ended July 31, 2013, 2012 and 2011. In addition, the following previously divestedbusinesses were reported within discontinued operations: Brady Medical and Varitronics (divested in fiscal 2013), Etimark (divested in fiscal 2012) andTeklynx (divested in fiscal 2011). These divested businesses were part of the IDS business platform.The Die-Cut business produces customized precision die-cut products used to seal, dissipate heat, insulate, protect, shield, or provide other mechanicalperformance properties. Products within the Die-Cut business are sold primarily under the Brady brand, with some European business marketed asBalkhausen products. The business sells through a technical direct sales force and is supported by global strategic account management. The Die-Cutbusiness serves customers in many industries, including mobile handset, hard disk drive, consumer electronics, and other computing devices, as well asproducts for the automotive and medical equipment industries.Research and DevelopmentThe Company focuses its research and development ("R&D") efforts on pressure sensitive materials, printing systems and software, and it mainlysupports the IDS segment. Material development involves the application of surface chemistry concepts for top coatings and adhesives applied to a variety ofbase materials. Systems design integrates materials, embedded software and a variety of printing technologies to form a complete solution for customerapplications. In addition, the research and development team supports production and marketing efforts by providing application and technical expertise,which creates a competitive advantage through new product innovation for the Company that enables long-term organic sales growth and strong gross marginimprovement.The Company owns patents and tradenames relating to certain products in the United States and internationally. Although the Company believes thatpatents are a significant driver in maintaining its position for certain products, technology in the areas covered by many of the patents continues to evolve andmay limit the value of such patents. The Company's business is not dependent on any single patent or group of patents. Patents applicable to specific productsextend for up to 20 years according to the date of patent application filing or patent grant, depending upon the legal term of patents in the various countrieswhere patent protection is obtained. The Company's tradenames are valid ten years from the date of registration, and are typically renewed on an ongoingbasis.The Company spent approximately $33.6 million, $34.5 million, and $38.3 million during the fiscal years ended July 31, 2013, 2012, and 2011,respectively, on its R&D activities related to continuing operations. The reduction in R&D spending in 2013 was primarily due to the consolidation of theproduct management office, which reduced costs while streamlining processes globally. In addition, variable incentive compensation was lower in fiscal 2013compared to fiscal 2012. As of July 31, 2013, 188 employees were engaged in research and development activities for the Company.5Table of ContentsOperationsThe materials used in the products manufactured consist primarily of a variety of plastic and synthetic films, paper, metal and metal foil, cloth,fiberglass, inks, dyes, adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers, and solvents for consumable identification productsin addition to electronic components, molded parts and sub-assemblies for printing systems. The Company operates a coating facility that manufactures bulkrolls of label stock for internal and external customers. In addition, the Company purchases finished products for resale.The Company purchases raw materials, components and finished products from many suppliers. Overall, the Company is not dependent upon anysingle supplier for its most critical base materials or components; however, the Company has chosen in certain situations to sole source materials, componentsor finished items for design or cost reasons. As a result, disruptions in supply could have an impact on results for a period of time, but we believe anydisruptions would simply require qualification of new suppliers and the disruption would be modest. In certain instances, the qualification process could bemore costly or take a longer period of time and in rare circumstances, such as a global shortage of a critical materials or components, the financial impactcould be significant. The Company currently operates 45 manufacturing or distribution facilities globally.The Company carries working capital mainly related to accounts receivable and inventory. Inventory consists of raw materials, work in process andfinished goods. Generally, custom products are made to order while an on-hand quantity of stock product is maintained to provide customers with timelydelivery. Normal and customary payment terms range from net 30 to 90 days from date of invoice and varies by geographies.The Company has a broad customer base, and no individual customer is 5% or more of total net sales. Sales to governmental customers represent animmaterial amount of the business.Average delivery time for customer orders varies from same-day delivery to one month, depending on the type of product, customer request or demand,and whether the product is stock or custom-designed and manufactured. The Company's backlog is not material, does not provide significant visibility forfuture business and is not pertinent to an understanding of the business.EnvironmentCompliance with federal, state and local environmental protection laws during fiscal 2013 did not have a material impact on the Company’s business,financial condition or results of operations.EmployeesAs of July 31, 2013, the Company employed approximately 7,400 individuals. Brady has never experienced a material work stoppage due to a labordispute and considers its relations with employees to be good.(d) Financial Information About Foreign and Domestic Operations and Export SalesThe information required by this Item is provided in Note 7 of the Notes to Consolidated Financial Statements contained in Item 8 — FinancialStatements and Supplementary Data.(e) Information Available on the InternetThe Company’s Corporate Internet address is http://www.bradycorp.com. The Company makes available, free of charge, on or through its Internetwebsite copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to all such reports assoon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The Company is not including the informationcontained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.Item 1A. Risk FactorsInvestors should carefully consider the risks set forth below and all other information contained in this report and other documents we file withthe SEC. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facingus. Our business is also subject to general risk and uncertainties that affect many other companies, such as market conditions, geopolitical events,changes in laws or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major health concerns, natural disasters or otherdisruptions of expected economic or business conditions. Additional risks and uncertainties not currently known to us or that we currently believe areimmaterial also may impair our business, including our results of operations, liquidity and financial conditions.6Table of ContentsBusiness RisksFailure to successfully implement our Workplace Safety strategy, or if successfully implemented, failure to realize the benefits expected fromthe strategy, may adversely affect our business, sales, results of operations, cash flow and liquidity.In fiscal 2013, the Workplace Safety platform represented 36.3% of our total sales from continuing operations. Throughout the last two fiscal years, thisplatform has experienced deterioration in sales and profits due to increased competition and pricing pressure. An increasing number of customers arepurchasing products on the Internet instead of through traditional direct marketing channels such as catalogs. The Company's strategy to grow this businessincludes: investing to improve e-commerce capabilities, pricing structure changes, and the expansion of products offered. There is a risk that the Companywill not successfully implement this strategy, or if successfully implemented, not realize its expected benefits, due to the continued levels of increasedcompetition and pricing pressure brought about by the Internet. There is also a risk that the Company may not be able to reverse the downward trends in thisbusiness and return the segment to historic levels of sales and profits. If these risks materialize, their effects could adversely impact our business, sales,results of operations, cash flow and liquidity.Deterioration of or instability in the global economy and financial markets may adversely affect our business, sales, results of operations,cash flow and liquidity.Our business and operating results have been and will continue to be affected by global economic conditions. In fiscal 2013, sales were negativelyimpacted by the recession in Europe and Australia. When global economic conditions deteriorate or economic uncertainty continues, customers and potentialcustomers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products. Our sensitivity toeconomic cycles and any related fluctuations in the businesses of our customers or potential customers could have a material adverse impact on our sales,results of operations, cash flow and liquidity.Demand for our products may be adversely affected by numerous factors, some of which we cannot predict or control. This could adverselyaffect our sales, results of operations, cash flow and liquidity.Numerous factors may affect the demand for our products, including:•Future financial performance of major markets served•Consolidation in the marketplace, allowing competitors and customers to be more efficient and more price competitive•Future competitors entering the marketplace•Large customer market share fluctuations•Decreasing product life cycles•Changes in customer preferences•Cyclical demands of end-users•Declines in general economic conditionsIf any of these factors occur, the demand for our products could suffer, and this could adversely impact our sales, results of operations, cash flows andliquidity.Price reductions or additional costs may need to be incurred to remain competitive in certain industries, which could have a negative impacton sales, profitability, results of operations, cash flow and liquidity.We face substantial competition through the Internet in our entire business, but particularly within the Workplace Safety segment. Competition mayforce us to reduce prices or incur additional costs to remain competitive. We compete on the basis of price, customer support, product innovation, productoffering, product quality, production capabilities, and for multinational customers, our global footprint. Present or future competitors may accept lower profit,have greater financial, technical or other resources, lower production costs or other pricing advantages, any of which could put us at a disadvantage bythreatening our share of sales or reducing our profit margins, which would adversely impact our results of operations, cash flow and liquidity. Additionally,throughout our global business, distributors and customers may seek lower cost sourcing opportunities, which could result in a loss of business that mayadversely impact sales, results of operations, cash flows, and liquidity.7Table of ContentsA large customer loss could significantly affect sales, results of operations, cash flow, and liquidity.While we have a broad customer base and no individual customer represents 5% or more of total sales, we conduct business with several largecustomers and distribution companies. Our dependence on these customers makes relationships with them important. We cannot guarantee that theserelationships will be retained in the future. Because these large customers account for a significant portion of sales, they may possess a greater capacity tonegotiate reduced prices. If we are unable to provide products to our customers at the quality and prices acceptable to them, some of our customers may shifttheir business to competitors or may substitute another manufacturer's products. If one of the large customers consolidates, is acquired, or loses market share,the result of that event may have an adverse impact on our business. The loss of or reduction of business from one or more of these large customers could havea material adverse impact on our sales, results of operations, cash flows, and liquidity.Divestitures could negatively impact our business and contingent liabilities from divested businesses could adversely affect our results ofoperations, cash flow and liquidity.We continually assess the strategic fit of our existing businesses and may divest businesses that we determine do not align with our strategic plan, orthat are not achieving the desired return on investment. For example, over the last three fiscal years, we have divested our Teklynx, Etimark, Brady Medical,and Varitronics businesses, and have announced plans to divest our Asia Die-Cut and Balkhausen businesses. Divestitures pose risks and challenges thatcould negatively impact our business. For example, when we decide to sell a business or assets, we may be unable to do so on satisfactory terms and withinour anticipated time-frame, and even after reaching a definitive agreement to sell a business the sale is typically subject to satisfaction of pre-closing conditionswhich may not be satisfied. In addition, the impact of the divestiture on our revenue and net earnings may be larger than projected, which could distractmanagement, and disputes may arise with buyers. In addition, we have retained responsibility for and have agreed to indemnify buyers against somecontingent liabilities related to a number of businesses that we have recently sold. The resolution of these contingencies has not had a material adverse impacton our results of operations, cash flow and liquidity, but we cannot be certain that this favorable pattern will continue.Inability to identify, complete and integrate acquisitions may adversely impact our sales, results of operations, cash flow and liquidity.Our historical growth has included acquisitions, and our future growth strategy includes acquisition opportunities. For example, in fiscal 2013 theCompany acquired Precision Dynamics Corporation ("PDC"), a manufacturer of identification products primarily for the healthcare sector, for $301.2million. We may not be able to identify acquisition targets or successfully complete acquisitions in the future due to the absence of quality companies in ourtarget markets, economic conditions, or price expectations from sellers. If we are unable to complete additional acquisitions, our growth may be limited.Additionally, as we grow through acquisitions, we will continue to place significant demands on management, operational, and financial resources.Recent and future acquisitions will require integration of operations, sales and marketing, information technology, finance and administrative operations,which could decrease the time available to serve and attract customers. We cannot assure that we will be able to successfully integrate acquisitions, that theseacquisitions will operate profitably, or that we will be able to achieve the desired financial or operational success. Our financial condition, cash flows,liquidity and results of operations could be adversely affected if we do not successfully integrate the newly acquired businesses, or if our other businessessuffer due to the increased focus on the newly acquired businesses.Failure to successfully complete restructuring plans may adversely impact our sales, results of operations, cash flow and liquidity.We continue to implement measures to reduce our cost structure, simplify our business structure and standardize our processes. Successfulimplementation of such initiatives is critical to our future competitiveness and to improve profitability. These actions include reorganization of the Companyalong global product lines, a restructuring of the global workforce, consolidation of facilities, reorganization and restructuring of resources and standardizationof business systems, which impact all functions of the Company. Facility consolidations will result in a higher concentration of operations in certainlocations. Risks include customer acceptance of these changes, inability to implement standard processes and systems, resource allocation among competingpriorities, employee disruption and turnover, inability to manufacture and supply products in the event of a material casualty event at one of our principalfacilities and additional charges related to these actions. These actions to reduce our cost structure and the charges related to these actions could have a materialadverse impact on our sales, results of operations, cash flows and liquidity.8Table of ContentsThe global nature of our business exposes us to foreign currency fluctuations that could adversely affect sales, results of operations, cashflow, liquidity and profits.Approximately 50% of our sales are derived outside the United States. Sales and purchases in currencies other than the U.S. dollar expose us tofluctuations in foreign currencies relative to the U.S. dollar, and may adversely affect our financial statements. Increased strength of the U.S. dollar willincrease the effective price of our products sold in currencies other than U.S. dollars into other countries. Decreased strength of the U.S. dollar could adverselyaffect the cost of materials, products, and services purchased overseas. Our sales and expenses are translated into U.S. dollars for reporting purposes, and thestrengthening or weakening of the U.S. dollar could result in unfavorable translation effects. In addition, certain of our subsidiaries may invoice customers ina currency other than its functional currency, which could result in unfavorable translation effects on sales, profits, results of operations, cash flow andliquidity.We depend on key employees and the loss of these individuals could have an adverse affect on our operations. Our success depends to a large extent upon the continued services of our key executives, managers and other skilled employees. We cannot ensure thatwe will be able to retain our key officers, managers and employees. The departure of our key personnel without adequate replacement could disrupt ourbusiness operations. Additionally, we need qualified managers and skilled employees with technical and industry experience to operate our businesssuccessfully. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations could be materiallyadversely affected.International operations are subject to various U.S. or country-specific regulations which could adversely affect our sales, results ofoperations, cash flow and liquidity.Our operations are subject to the risks of doing business abroad, including the following:•Delays or disruptions in product deliveries and payments in connection with international manufacturing and sales•Political and economic instability and disruptions•Imposition of duties and tariffs•Import and export controls•Changes in governmental policies and business environments•Disadvantages from competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign CorruptPractices Act (FCPA)•Local labor market conditions•Current and changing regulatory environments•Potentially adverse tax consequences, including repatriation of earnings•Stability of the Euro and its ability to serve as a single currency for a variety of countriesThese events could have an adverse effect on our operations by reducing the demand, decreasing prices, or increasing costs for our products, whichcould adversely impact our financial condition and results of operations, cash flow and liquidity.Failure to develop new products or gain acceptance of new products could adversely impact our sales, results of operations, cash flow andliquidity.Development of proprietary products is a driver of core growth and reasonable gross profit margins both currently and in the future, particularly withinour ID Solutions segment. Therefore, we must continue to develop new and innovative products, as well as acquire and retain the necessary intellectualproperty rights in these products. If we fail to make innovations, if we launch products with quality problems, or if customers do not accept our newproducts, then our sales, results of operations, cash flows, and liquidity could be adversely affected. We continue to invest in the development and marketingof new products. These expenditures do not always result in products that will be accepted by our customers. Failure to develop successful new products mayalso cause customers to buy from a competitor or may cause us to lower our prices in order to compete. This could have an adverse impact on sales, results ofoperations, cash flow and liquidity.Failure to comply with laws and regulations could adversely affect our financial condition, results of operations, cash flow, and reputation.We are subject to extensive regulation by U.S. and non-U.S. governmental and self-regulatory entities at the federal, state and local levels, including thefollowing:•Regulations relating to climate change, air emissions, wastewater discharges, handling and disposal of hazardous materials and wastes•Regulations relating to health, safety and the protection of the environment•Specific country regulations where our products are manufactured or sold•Import, export and economic sanction laws9Table of Contents•Laws and regulations that apply to companies doing business with the government, audit for compliance with requirements of governmentcontracts including procurement integrity, export control, employment practices, and the accuracy of records and recording of costsFurther, these laws and regulations are constantly evolving, and it is impossible to accurately predict the effect they may have upon our financialcondition, results of operations, cash flows and liquidity.We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents orbusiness partners that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import compliance, money laundering and data privacy. Any such improper actions could subjectus to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penaltiesand related shareholder lawsuits, and could adversely impact our results of operations, cash flow and liquidity and damage our reputation.Computer systems and technology may be susceptible to cyber threats which could adversely impact results of operations, cash flow andliquidity.Our exposure to cyber-security threats is growing as we expand and increase our reliance on computers and e-commerce technologies. Our businessemploys systems and websites designed for the secure storage and transmission of proprietary information. Security breaches could expose us to a risk of lossor misuse of this information, litigation and potential liability. We may not have the resources or technical sophistication to anticipate or prevent rapidlyevolving types of cyber attacks. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal andfinancial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business.Product liability claims could adversely impact our financial condition, results of operations, cash flows, and reputation.Our business exposes us to potential product liability risk, as well as warranty and recall claims that are inherent in the design, manufacture, sale anduse of our products, including our healthcare products. We have not to date incurred material costs related to these claims. However, in the event our productsactually or allegedly fail to perform as expected and we are subject to such claims above the amount of insurance coverage, our financial condition, results ofoperations and cash flows, as well as our reputation, could be materially and adversely affected.Financial/Ownership RisksFailure to execute our strategies could result in impairment of goodwill or other intangible assets , which may negatively impact profitability.We have goodwill of $617.2 million and other intangible assets of $156.9 million as of July 31, 2013, which represents 54% of our total assets.During fiscal 2013, we recorded impairment charges of $204.4 million primarily related to goodwill in the WPS Americas and IDS APAC reporting units. Infiscal 2012, we recorded impairment charges of $115.7 million related to the former North/South Asia reporting unit, which is now included in discontinuedoperations. We evaluate goodwill for impairment on an annual basis or more frequently if impairment indicators are present based upon the fair value of eachreporting unit. We assess the impairment of other intangible assets on an annual basis, or more frequently if impairment indicators are present, based upon theexpected future cash flows of the respective assets. These valuations include management's estimates of sales, profitability, cash flow generation, capitalstructure, cost of debt, interest rates, capital expenditures, and other assumptions. Significant negative industry or economic trends, disruptions to ourbusiness, inability to achieve sales projections or cost savings, inability to effectively integrate acquired businesses, unexpected significant changes or plannedchanges in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations. If the estimated fair value ofour reporting units changes in future periods, we may be required to record an impairment charge related to goodwill or other intangible assets, which wouldreduce earnings in such period.Changes in tax legislation or tax rates could adversely affect results of operations and financial statements. Additionally, audits by taxingauthorities could result in tax payments for prior periods.We are subject to income taxes in the U.S. and in many non-U.S. jurisdictions. As such, our earnings are subject to risk due to changing tax laws andtax rates around the world. At any point in time, there are a number of tax proposals at various stages of legislation throughout the globe. While it is impossiblefor us to predict whether some or all of these proposals will be enacted, it likely would have an impact on our earnings.Our tax filings are subject to audit by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in payments orassessments that differ from our reserves, our future net earnings may be adversely impacted.10Table of ContentsWe review the probability of the realization of our deferred tax assets on a quarterly basis based on forecasts of taxable income in both the U.S. andforeign jurisdictions. As part of this review, we utilize historical results, projected future operating results, eligible carry-forward periods, tax planningopportunities, and other relevant considerations. Adverse changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions, orchanges in our geographic footprint may require changes in the valuation allowances in order to reduce our deferred tax assets. Such changes could result in amaterial impact on earnings.Our annual cash needs could require us to repatriate cash to the U.S. from foreign jurisdictions. For example, in fiscal 2013 we repatriated cash to theU.S. in connection with the acquisition of PDC, which resulted in a tax charge of $26.6 million.Substantially all of our voting stock is controlled by members of the Brady family, while our public investors hold non-voting stock. Theinterests of the voting and non-voting shareholders could differ, potentially resulting in decisions that unfavorably affect the value of the non-voting shares.Substantially all of our voting stock is controlled by Elizabeth P. Pungello, one of the Directors, and William H. Brady III, both of whom aredescendants of the Company's founder. All of our publicly traded shares are non-voting. Therefore, Ms. Pungello and Mr. Brady have control in most mattersrequiring approval or acquiescence by shareholders, including the composition of our Board of Directors and many corporate actions. Such concentration ofownership may discourage a potential acquirer from making a purchase offer that our public shareholders may find favorable, which in turn could adverselyaffect the market price of our common stock or prevent our shareholders from realizing a premium over our stock price. Furthermore, this concentration ofvoting share ownership may adversely affect the trading price for our non-voting common stock because investors may perceive disadvantages in owningstock in companies whose voting stock is controlled by a limited number of shareholders.Failure to meet certain financial covenants required by our debt agreements may adversely affect our assets, results of operations, cashflows, and liquidity.As of July 31, 2013, we had $313 million in outstanding indebtedness. In addition, based on the availability under our credit facilities as of July 31,2013, we had the ability to incur an additional $411 million under our revolving credit agreement. Our current revolving credit agreement and long-term debtobligations also impose certain restrictions on us. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations("MD&A") within Item 7 for more information regarding our credit agreement and long-term debt obligations. If we breach any of these restrictions orcovenants and do not obtain a waiver from the lenders, then subject to applicable cure periods, the outstanding indebtedness (and any other indebtedness withcross-default provisions) could be declared immediately due and payable, which would adversely affect our liquidity and financial condition.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesThe Company currently operates 45 manufacturing or distribution facilities across the globe and are split by reporting segment as follows: IDS: Thirty-one facilities are used for our IDS business. Ten of which are located within the United States; four each are located in Belgium and Mexico; threein the United Kingdom; two each in Brazil and China; and one each in Canada, Italy, Hong Kong, Japan, Malaysia, and Singapore. WPS: Fourteen facilities are used for our WPS business. Three of which are located in France; two each are located in Australia, Germany, and the UnitedStates; and one each in Belgium, the Netherlands, Poland, Sweden, and the United Kingdom. The Company’s present operating facilities contain a total of approximately 2.5 million square feet of space, of which approximately 1.5 million squarefeet is leased. The Company believes that its equipment and facilities are modern, well maintained, and adequate for present needs.Item 3. Legal ProceedingsThe Company is, and may in the future be, party to litigation arising in the normal course of business. The Company is not currently a party to anymaterial pending legal proceedings in which management believes the ultimate resolution would have a material effect on the Company’s consolidated financialstatements.Item 4. Mine Safety Disclosures11Table of ContentsNot applicable.12Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities(a)Market InformationBrady Corporation Class A Nonvoting Common Stock trades on the New York Stock Exchange under the symbol BRC. The following table sets forththe range of high and low daily closing sales prices for the Company’s Class A stock as reported on the New York Stock Exchange for each of the quarters inthe fiscal years ended July 31: 2013 2012 2011 High Low High Low High Low4th Quarter $35.58 $29.76 $31.28 $25.15 $38.49 $29.603rd Quarter $36.33 $31.51 $34.37 $29.41 $37.71 $33.372nd Quarter $35.00 $30.18 $34.40 $27.09 $33.78 $30.831st Quarter $31.22 $26.34 $32.24 $24.73 $31.33 $25.35There is no trading market for the Company’s Class B Voting Common Stock.(b)HoldersAs of September 24, 2013, there were 955 Class A Common Stock shareholders of record and approximately 6,550 beneficial shareholders. There arethree Class B Common Stock shareholders.(c)Issuer Purchases of Equity SecuritiesOn September 9, 2011, the Company’s Board of Directors authorized a share repurchase program for up to two million shares of the Company’sClass A Nonvoting Common Stock. The plan may be implemented by purchasing shares in the open market or in privately negotiated transactions, withrepurchased shares available for use in connection with the Company’s stock-based plans and for other corporate purposes. As of July 31, 2012, thereremained 334,940 shares to purchase in connection with this share repurchase plan.On September 6, 2012, the Company’s Board of Directors authorized an additional share repurchase program for up to two million additional shares ofthe Company’s Class A Nonvoting Common Stock. During the three months ended October 31, 2012, the Company purchased 188,167 shares of itsClass A Nonvoting Common Stock under this plan for $5.1 million. There were no additional shares repurchased during the remainder of the fiscal year. Asof July 31, 2013, there remained 2,146,773 shares to purchase in connection with both repurchase plans.(d)DividendsThe Company has historically paid quarterly dividends on outstanding common stock. Before any dividend may be paid on the Class B CommonStock, holders of the Class A Common Stock are entitled to receive an annual, noncumulative cash dividend of $0.01665 per share (subject to adjustment inthe event of future stock splits, stock dividends or similar events involving shares of Class A Common Stock). Thereafter, any further dividend in that fiscalyear must be paid on all shares of Class A Common Stock and Class B Common Stock on an equal basis. The Company believes that based on its historicdividend practice, this restriction will not impede it in following a similar dividend practice in the future.During the two most recent fiscal years and for the first quarter of fiscal 2014, the Company declared the following dividends per share on its Class Aand Class B Common Stock for the years ended July 31: 2014 2013 2012 1st Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th QtrClass A $0.195 $0.19 $0.19 $0.19 $0.19 $0.185 $0.185 $0.185 $0.185Class B 0.17835 0.17335 0.19 0.19 0.19 0.16835 0.185 0.185 0.18513Table of Contents(e)Common Stock Price Performance GraphThe graph below shows a comparison of the cumulative return over the last five fiscal years had $100 been invested at the close of business on July 31,2008, in each of Brady Corporation Class A Common Stock, the Standard & Poor’s (S&P) 500 index, the Standard and Poor’s SmallCap 600 index, and theRussell 2000 index.Comparison of 5 Year Cumulative Total Return*Among Brady Corporation, The S&P 500 Index,The S&P SmallCap 600 Index and The Russell 2000 Index *$100 invested on July 31, 2008 in stock or index—including reinvestment of dividends. Fiscal years ended July 31: 2008 2009 2010 2011 2012 2013Brady Corporation $100.00 $82.42 $79.81 $93.50 $85.89 $110.20S&P 500 Index 100.00 80.04 91.11 109.02 118.97 148.72S&P SmallCap 600 Index 100.00 80.73 96.21 119.99 124.78 168.17Russell 2000 Index 100.00 79.25 93.88 116.32 116.53 157.01Copyright (C) 2013, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.14Table of ContentsItem 6. Selected Financial DataCONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATAYears Ended July 31, 2009 through 2013 2013 2012 2011 2010 2009Operating Data (1) Net Sales $1,152,109 $1,068,688 $1,059,355 $966,070 $954,737Gross Margin 606,080 589,570 587,950 546,413 516,066Operating Expenses: Research and development 33,552 34,528 38,268 38,279 29,853Selling, general and administrative 427,661 392,526 397,472 381,071 349,358Restructuring charges (2) 26,046 6,084 6,451 12,640 22,810Impairment charges (3) 204,448 — — — —Total operating expenses 691,707 433,138 442,191 431,990 402,021Operating (Loss) Income (85,627) 156,432 145,759 114,423 114,045Other Income (Expense): Investment and other income—net 3,522 2,082 3,989 1,169 1,800Interest expense (16,641) (19,090) (22,124) (21,222) (24,901)Net other expense (13,119) (17,008) (18,135) (20,053) (23,101)(Loss) earnings from continuing operations before incometaxes (98,746) 139,424 127,624 94,370 90,944Income Taxes (4) 42,070 36,953 21,667 18,605 23,366(Loss) earnings from continuing operations $(140,816) $102,471 $105,957 $75,765 $67,578(Loss) earnings from discontinued operations, net of incometaxes (5) (13,719) (120,382) 2,695 6,191 2,544Net (loss) earnings $(154,535) $(17,911) $108,652 $81,956 $70,122(Loss) earnings from continuing operations per CommonShare— (Diluted): Class A nonvoting $(2.75) $1.94 $1.99 $1.43 $1.28Class B voting $(2.76) $1.92 $1.97 $1.41 $1.28(Loss) earnings from discontinued operations per CommonShare - (Diluted): Class A nonvoting $(0.27) $(2.29) $0.05 $0.12 $0.04Class B voting $(0.27) $(2.28) $0.05 $0.12 $0.03Cash Dividends on: Class A common stock $0.76 $0.74 $0.72 $0.70 $0.68Class B common stock $0.74 $0.72 $0.70 $0.68 $0.66Balance Sheet at July 31: Working capital $188,993 $383,836 $456,406 $375,184 $286,955Total assets 1,438,683 1,607,719 1,861,505 1,746,231 1,583,267Long-term obligations, less current maturities 201,150 254,944 331,914 382,940 346,457Stockholders’ investment 830,797 1,009,353 1,156,192 1,005,027 951,092Cash Flow Data: Net cash provided by operating activities $143,503 $144,705 $167,350 $165,238 $126,645Net cash provided by investing activities (325,766) (64,604) (22,631) (48,681) (19,044)Net cash provided by financing activities (33,060) (147,824) (91,574) 15,275 (160,311)Depreciation and amortization 48,725 43,987 48,827 53,022 54,851Capital expenditures (35,687) (24,147) (20,532) (26,296) (24,027)(1)Operating data has been impacted by the reclassification of the Asia Die-Cut and Balkhausen businesses into discontinued operations. The Companyhas elected to not separately disclose the cash flows related to the Asia Die-Cut and Balkhausen15Table of Contentsdiscontinued operations. Refer to Note 13 within Item 8 for further information on discontinued operations. The operating data is also impacted by theacquisitive nature of the Company as one, three, one, and three acquisitions were completed in fiscal years ended July 31, 2013, 2012, 2011, and2010, respectively. There were no acquisitions during fiscal 2009. Refer to Note 2 within Item 8 for further information on the acquisitions that werecompleted.(2)In fiscal 2009, in response to the global economic downturn, the Company initiated several measures to address its cost structure, including areduction in its workforce and decreased discretionary spending. The Company continued certain of these measures during fiscal 2010, 2011, and2012. During fiscal 2013, the Company executed a business simplification project which included various measures to address its cost structure andresulted in restructuring charges during fiscal 2013.(3)The Company recognized an impairment charge of $204.4 million during the three months ended July 31, 2013, primarily related to the WPS segment.Refer to Note 1 within Item 8 for further information regarding the impairment charge.(4)Fiscal 2013 was significantly impacted by the non-deductible portion of the goodwill impairment charge of $168.9 million recorded on the WPSAmericas and IDS APAC reporting units, as well as a tax charge of $26.6 million associated with the funding of the PDC acquisition.(5)The loss from discontinued operations in fiscal 2013 was primarily attributable to a $15.7 million write-down of the Asia Die-Cut disposal group toits estimated fair value less costs to sell. The loss from discontinued operations in fiscal 2012 was primarily attributable to the $115.7 milliongoodwill impairment charge recorded during the three months ending January 31, 2012, which was related to the Asia Die-Cut disposal group.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverviewIn fiscal 2013, the Company posted sales of $1,152.1 million and a net loss from continuing operations of $140.8 million. Sales increased by 7.8%from fiscal 2012. Organic sales decreased by 2.6%, currency fluctuations decreased sales by 0.9% and acquisitions (primarily PDC) increased sales by11.3%. Fiscal 2013 sales growth was driven by the ID Solutions segment which grew by 15.7% from 2012 to 2013, primarily due to acquisitions, which waspartially offset by the decline in sales in the Workplace Safety segment of 3.7%.The fiscal 2013 net loss from continuing operations of $140.8 million was primarily due to non-cash impairment charges of $204.4 million andrestructuring charges of $26.0 million.The fiscal 2013 operating loss from continuing operations was $85.6 million. Excluding the impairment charges of $204.4 million and restructuringcharges of $26.0 million, the Company generated operating income from continuing operations of $144.9 million for fiscal 2013. Fiscal 2012 operatingincome from continuing operations was $156.4 million. Excluding restructuring charges of $6.1 million, operating income from continuing operations was$162.5 million for fiscal 2012. This decline of $17.6 million was primarily due to the decrease in segment profit in the WPS business segment. The declinein operating results within the WPS business segment was due to increased competition and pricing pressure as customers migrate to the Internet rather thanthe traditional catalog model, and economic weakness in Europe and Australia. In addition, the Company reduced variable incentive compensation byapproximately $10 million in fiscal 2013 compared to fiscal 2012, which was offset by investments to drive key initiative growth in both the IDS and WPSsegments.Results of OperationsA comparison of results of Operating (loss) income from continuing operations for the fiscal years ended July 31, 2013, 2012 and 2011 is as follows:(Dollars in thousands) 2013 % Sales %Change 2012 % Sales %Change 2011 %SalesNet Sales $1,152,109 7.8 % $1,068,688 0.9 % $1,059,355 Gross Margin 606,080 52.6 % 2.8 % 589,570 55.2% 0.3 % 587,950 55.5%Operating Expenses: Research and Development 33,552 2.9 % (2.8)% 34,528 3.2% (9.8)% 38,268 3.6% Selling, General & Administrative 427,661 37.1 % 9.0 % 392,526 36.7% (1.2)% 397,472 37.5% Restructuring charges 26,046 2.3 % 328.1 % 6,084 0.6% (5.7)% 6,451 0.6% Impairment charges 204,448 17.7 % — — —% — % — —%Total operating expenses 691,707 60.0 % 59.7 % 433,138 40.5% (2.0)% 442,191 41.7%Operating (loss) income $(85,627) (7.4)% (154.7)% $156,432 14.6% 7.3 % $145,759 13.8%16Table of ContentsDuring fiscal 2013, net sales increased 7.8% from fiscal 2012, which consisted of an organic decline of 2.6%, currency impact of a negative 0.9% andgrowth from acquisitions of 11.3%. Over 90% of the acquisition growth was from the acquisition of PDC within the IDS segment in fiscal 2013, with theremainder attributable to the prior year acquisitions of Grafo in the IDS segment and Runelandhs and Pervaco in the WPS segment. Organic sales within theIDS segment were up 0.3%, while organic sales within the WPS platform declined by 7.0%.During fiscal 2012, net sales increased 0.9% from fiscal 2011, which consisted of organic growth of 1.5%, currency impact of a negative 1.4% andgrowth from acquisitions of 0.8%. The acquisition growth was due to the fiscal 2012 acquisitions of Grafo in the IDS segment, and Runelandhs and Pervacoin the WPS segment during the second half of the fiscal year. Organic sales within the IDS segment grew 2.7%, while organic sales within the WPS segmentdeclined by 0.2%. Gross margin as a percentage of sales declined to 52.6% in fiscal 2013 from 55.2% in fiscal 2012. Approximately half of the decline was due to theacquisition of PDC within the IDS segment, as it is a lower gross margin business compared to the remainder of the Company. The remaining decline wasattributed to the WPS segment in which the sales decline, increased pricing pressures and the challenging global economy equally contributed to the reducedgross margin.Gross margin as a percentage of sales declined to 55.2% in fiscal 2012 from 55.5% in fiscal 2011. The reason for this decline was sales mix, as werealized no sales growth in the higher margin WPS business and modest growth in the IDS business. This decrease in gross margin was partially offset by areduction in variable incentive compensation in fiscal 2012.Research and development expenses decreased to $33.6 million in fiscal 2013 from $34.5 million in fiscal 2012. The decline was primarily due to theglobal consolidation of the project management office, which reduced costs while streamlining reporting processes globally. R&D expenses decreased to $34.5million in fiscal 2012 from $38.3 million in 2011 due to a reduction in variable incentive compensation, as well as a reduction in external spending onsystems development due to the timing of new product introductions.Selling, general and administrative (“SG&A”) expenses include selling costs directly attributed to the IDS and WPS segments, as well as administrativeexpenses including finance, information technology, human resources and legal. SG&A expenses increased to $427.7 million in fiscal 2013 compared to$392.5 million in fiscal 2012. The increase was primarily due to the acquisition of PDC in December 2012, which resulted in $6 million of amortization ofintangible assets. The total increase in SG&A was partially offset by a reduction in variable incentive compensation from fiscal 2012 to fiscal 2013.SG&A expense decreased to $392.5 million in fiscal 2012 compared to $397.5 million in fiscal 2011 mainly due to a reduction in variable incentivecompensation.In fiscal 2013, the Company announced a restructuring action to reduce its global workforce by approximately 5-7% in order to address its coststructure, with expected annual savings of approximately $25 million to $30 million exclusive of reinvestments into ongoing business initiatives. In connectionwith this restructuring action, the Company incurred restructuring charges of $26.0 million in fiscal 2013. These charges consisted of $18.4 million ofemployee separation costs, $4.1 million of fixed asset write-offs and $3.5 million of other facility closure related costs. The charges for employee separationcosts consisted of severance pay, outplacement services, medical and other benefits. Fixed asset write-offs include both the net book value of property, plantand equipment written off in conjunction with facility consolidations, as well as indefinite-lived tradenames written off in conjunction with brandconsolidations within the WPS segment.Restructuring charges were $6.1 million in fiscal 2012 and consisted of costs incurred to consolidate facilities within both the IDS and WPS segmentsprimarily in the Americas. The remaining charges related to severance costs associated with a prior year restructuring program.Restructuring charges were $6.5 million in fiscal 2011 and consisted of costs incurred to support the continued workforce reduction activities andconsolidate facilities within both the IDS & WPS segments. The costs associated with the workforce reduction primarily included employee separation costs,consisting of severance pay, outplacement services, medical, and other related benefits for the Company's work force.On September 11, 2013, the Company's Board of Directors approved a restructuring plan to consolidate facilities in North America, Europe and Asia.The Company is implementing the restructuring action to improve efficiency of operations, reduce operating expenses and enhance customer service. Inconnection with the restructuring action, the Company expects to incur pre-tax charges of approximately $30 million, substantially all of which are expected tobe incurred during fiscal 2014. The charges include employee severance costs of approximately $13 million, facility shut-down costs and lease terminationcosts of17Table of Contentsapproximately $12 million, and non-cash asset write-offs of approximately $5 million. Cash expenditures for these restructuring activities are expected to beapproximately $25 million and are being funded with cash generated from operations. The Company expects the restructuring actions to be substantiallycomplete by the end of fiscal 2014.The Company performed its annual goodwill impairment assessment on May 1, 2013, and subsequently concluded that the WPS Americas and IDSAPAC reporting units were impaired. In conjunction with the goodwill impairment analysis, management concluded tradenames and certain fixed assets withinthe reporting units were impaired. Refer to the Item 7 - Business Segment Operating Results as well as Note 1 - Summary of Significant Accounting Policies forfurther discussion regarding the impairment charges. Impairment charges in continuing operations were $204.4 million in fiscal 2013 and consisted of thefollowing:•$172.3 million in goodwill in the WPS Americas reporting unit•$18.2 million in goodwill in the IDS APAC reporting unit•$10.6 million in tradenames in the WPS segment•$3.3 million in fixed assets in the IDS APAC reporting unitOperating (loss) income of $(85.6) million excluding restructuring charges of $26.0 million and impairment charges of $204.4 million was $144.9million in fiscal 2013. Operating income of $156.4 million excluding restructuring of $6.1 million was $162.5 million in fiscal 2012. The decrease wasmainly due to the decline in segment profit of the WPS business, which is discussed in further detail within the Business Segment Operating Results section.This decline was partially offset by a decrease in variable incentive compensation of approximately $10 million.Operating income of $156.4 million excluding restructuring of $6.1 million was $162.5 million in fiscal 2012. Operating income of $145.8 millionexcluding restructuring of $6.5 million was $152.2 million in fiscal 2011. This increase in operating income excluding restructuring was primarily due to thedecrease in variable incentive compensation of approximately $20 million over the same period. This was partially offset by a decline in segment profit withinthe WPS business.OPERATING INCOME TO NET INCOME(Dollars in thousands) 2013 % Sales 2012 % Sales 2011 % SalesOperating (loss) income $(85,627) (7.4)% $156,432 14.6 % $145,759 13.8 %Other income and (expense): Investment and other income 3,522 0.3 % 2,082 0.2 % 3,989 0.4 % Interest expense (16,641) (1.4)% (19,090) (1.8)% (22,124) (2.1)%(Loss) earnings from continuing operations before tax (98,746) (8.6)% 139,424 13.0 % 127,624 12.0 %Income taxes 42,070 3.7 % 36,953 3.5 % 21,667 2.0 %(Loss) earnings from continuing operations (140,816) (12.2)% 102,471 9.6 % 105,957 10.0 %(Loss) earnings from discontinued operations, net ofincome taxes (13,719) (1.2)% (120,382) (11.3)% 2,695 0.3 %Net (loss) earnings $(154,535) (13.4)% $(17,911) (1.7)% $108,652 10.3 %Investment and Other IncomeThese amounts mainly consist of interest income and gains and losses on foreign currency and securities held in executive deferred compensation plans.Income of $3.5 million in fiscal 2013, $2.1 million in fiscal 2012 and $4.0 million in fiscal 2011 remain relatively consistent with no material changes yearover year.Interest ExpenseInterest expense decreased to $16.6 million in fiscal 2013 compared to $19.1 million in fiscal 2012 and $22.1 million in fiscal 2011. The decline since2011 was due to the Company's declining principal balance under its outstanding debt agreements, along with changes in debt structure resulting in areduction in the weighted average interest rate.18Table of ContentsIncome TaxesThe Company's effective tax rate from continuing operations was (42.6)% in fiscal 2013, compared to the effective tax rate from continuing operations of26.5% in fiscal 2012. The effective tax rate for fiscal 2013 was significantly impacted by the $168.9 million non-deductible portion of the goodwillimpairment charge recorded on the WPS Americas and IDS Asia reporting units during the three months ended July 31, 2013, as well as a tax charge of $26.6million associated with the funding of the PDC acquisition. Excluding these items, our fiscal 2013 effective tax rate from continuing operations would havebeen 22.0%, slightly lower than the prior year due mainly to fluctuation in profit mix. Refer to Note 1, “Summary of Significant Accounting Policies” withinItem 8 for further discussion regarding the goodwill impairment charges.The effective tax rate from continuing operations for fiscal 2012 was 26.5% as compared to 17.0% in fiscal 2011. The lower tax rate in fiscal 2011 wasdue primarily to excess foreign tax credits recognized as a benefit to tax expense from continuing operations.Loss from Discontinued OperationsDiscontinued operations consist of the Asia Die-Cut business platform, which was classified as held for sale beginning in the third quarter of fiscal2013. During the three months ended July 31, 2013, the Company incorporated its European-based die-cut business, Balkhausen, into the Asia Die-Cutdisposal group. In addition, the following previously divested businesses were reported within discontinued operations: Brady Medical and Varitronics(divested in fiscal 2013), Etimark (divested in fiscal 2012) and Teklynx (divested in fiscal 2011). These divested businesses were part of the IDS businesssegment.The loss from discontinued operations net of income taxes was $13.7 million for fiscal 2013 compared to $120.4 million in fiscal 2012. The loss infiscal 2013 primarily related to a $15.7 million write-down of the disposal group to estimated fair value less cost to sell. The loss in fiscal 2012 primarilyrelated to the $115.7 million goodwill impairment charge recorded during the second quarter of fiscal 2012, which was related to the Asia Die-Cut disposalgroup. The profit in fiscal 2011 was due primarily to higher sales and gross margins in the Asia Die-Cut business.Depreciation and amortization recognized within discontinued operations for fiscal 2013 were $4.0 million and $4.8 million, respectively, compared to$6.0 million and $6.9 million for fiscal 2012.Business Segment Operating ResultsThe Company is organized and managed on a global basis within two business platforms: IDS and WPS, which are the reportable segments. Eachbusiness platform has a President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each platform has itsown distinct operations, which are managed locally by its own management team, maintains its own financial reports and is evaluated based on globalsegment profit. The Company has determined that these business platforms comprise its operating and reportable segments based on the information used bythe Chief Executive Officer to allocate resources and assess performance.The segment results have been adjusted to reflect continuing operations in all periods presented. The sales and profit of discontinued operations areexcluded from the following information.19Table of ContentsFollowing is a summary of segment information for the fiscal years ended July 31, 2013, 2012 and 2011: Years ended July 31,(Dollars in thousands) 2013 2012 2011SALES TO EXTERNAL CUSTOMERS ID Solutions $733,433 $633,774 $625,396WPS 418,676 434,914 433,959Total $1,152,109 $1,068,688 $1,059,355SALES GROWTH INFORMATION ID Solutions Organic 0.3 % 2.7 % N/ACurrency (0.9)% (1.6)% N/AAcquisitions 16.3 % 0.2 % N/ATotal 15.7 % 1.3 % N/AWorkplace Safety Organic (7.0)% (0.2)% N/ACurrency (0.7)% (1.2)% N/AAcquisitions 4.0 % 1.6 % N/ATotal (3.7)% 0.2 % N/ATotal Company Organic (2.6)% 1.5 % N/ACurrency (0.9)% (1.4)% N/AAcquisitions 11.3 % 0.8 % N/ATotal 7.8 % 0.9 % N/ASEGMENT PROFIT ID Solutions $171,319 $159,427 $146,124Workplace Safety 95,241 117,187 118,913Total $266,560 $276,614 $265,037SEGMENT PROFIT AS A PERCENT OF SALES ID Solutions 23.4 % 25.2 % 23.4%Workplace Safety 22.7 % 26.9 % 27.4%Total 23.1 % 25.9 % 25.0%NET EARNINGS RECONCILIATION Years ended:(Dollars in thousands) July 31, 2013 July 31, 2012 July 31, 2011Total profit from reportable segments $266,560 $276,614 $265,037Unallocated costs: Administrative costs 121,693 114,098 112,827Restructuring charges 26,046 6,084 6,451Impairment charges 204,448 — —Investment and other income (3,522) (2,082) (3,989)Interest expense 16,641 19,090 22,124(Loss) earnings from continuing operations before income taxes $(98,746) $139,424 $127,62420Table of ContentsID SolutionsFiscal 2013 vs. 2012Net sales increased by 15.7% from fiscal 2012 to fiscal 2013, which consisted of organic growth of 0.3%, currency impact of a negative 0.9% andgrowth from acquisitions of 16.3%. Acquisition growth within the IDS segment was almost entirely generated by the acquisition of PDC in December 2012,with a small portion contributed by the acquisition of Grafo in March 2012.The PDC acquisition contributed more than $100.0 million in sales in fiscal 2013 and provides an entry for the Company into the healthcareidentification space. We are in the process of integrating PDC into the existing business, and plan to leverage Brady practices in all functional areas.Organic sales in the IDS segment grew by 0.3% primarily due to growth within the Americas of approximately 1%, which was partially offset by modestdeclines in Europe and APAC. Within the Americas, North America growth was partially offset by a 10% decline in Brazil. Sales over the Internet increasedby more than 15%, and we experienced a positive response to our recent new product launches. In Europe, the decline in the IDS business platform wasmainly driven by the economy, partially offset by our increased presence in emerging geographies, new and differentiated product launches, and our strategyto increase share in specific vertical markets. In APAC, sales growth was modest, as the de-consolidation of certain business units from the Asia Die-Cutdisposal group impacted sales growth negatively.Overall, sales globally were driven by new product launches and growth within vertical markets. New products launched include the BBP85 printer,which is a continuous-sleeving wire identification system for high volume applications in the electrical and aerospace markets, and three new highperformance materials to address the changing requirements for identification of printed circuit boards and electronic components. Vertical market growth wasfocused within the chemical, oil, and gas industries, as well as our targeted Strategic Account Management programs.Segment profit increased to $171.3 million in fiscal 2013 from $159.4 million in fiscal 2012, an increase of $11.9 million or 7.5%. The primarydriver of the profit increase was the acquisition of PDC. This profit was partially offset by a decline in profitability in Brazil and Western Europe. Brazil'sdecline was due to a combination of sales decline, cost increases and expenses associated with the implementation of a new ERP system. In Western Europe,the largest decline in sales and profit was in Italy, where we realized a 25% sales decline partially due to one-time sales in the prior year that did not repeat. Inaddition, Italy's profitability was impacted by product quality issues associated with a printer introduced in fiscal 2012.The Company performed its annual goodwill impairment assessment on May 1, 2013, and subsequently concluded that the IDS APAC reporting unitwas impaired. Although sales grew from 2012 to 2013, profit declined and neither were as high as anticipated. Specifically, fourth quarter fiscal 2013 grossmargin and segment profit declined compared to the prior year, while results were anticipated to increase over the prior year fourth quarter. In addition,projections were not sufficient to support the balance of goodwill remaining within the reporting unit. As such, the Company recorded a goodwill impairmentcharge of $18.2 million during fiscal 2013, which represents all of the remaining goodwill for this reporting unit.Fiscal 2012 vs. 2011Net sales increased by 1.3% from fiscal 2011 to fiscal 2012, which consisted of organic growth of 2.7%, currency impact of a negative 1.6% andgrowth from acquisitions of 0.2%. The Company acquired Grafo in South Africa as part of the IDS segment in March 2012.Organic sales in the IDS segment grew 2.7%. Regionally, growth in the Americas was strong at 7.8%, growth in Europe was modest at approximately 1%and APAC declined by more than 10%. Overall, during fiscal 2012 the U.S. economy appeared to be recovering while the European economy was weakening.Within the Americas, the strong growth rates were driven by the execution across multiple key growth initiatives, including a strong focus on our coredistributor-based business delivering an improved customer experience, improvements in the e-commerce experience, key customer conversions, and animproved service offering. New product development continued to drive growth globally with the successful launch of portable printers and proprietaryconsumables. In Europe, despite negative economic growth, we grew modestly as we continued to focus on emerging economies. In Asia, we experiencedsignificant declines in several countries. During fiscal 2012, we began the process to separate the sales and marketing resources between the traditional IDSproducts and the Die-Cut business platform.Segment profit increased to $159.4 million in fiscal 2012 from $146.1 million in fiscal 2011, an increase of $13.3 million or 9.1%. The profit increasewas attributable to the Americas business mainly due to strong sales growth, selected price increases, operational improvements, focus on lean and strategicsourcing, as well as actions taken to improve our selling expense structure.21Table of ContentsEurope maintained its profit levels and we increased investment in the APAC business, which resulted in a decline in profit in Asia. We added an experiencedexpatriate to the team in Asia to begin building the IDS business teams for future growth.Workplace SafetyFiscal 2013 vs. 2012Net sales decreased by 3.7% from fiscal 2012 to 2013, which consisted of an organic decline of 7.0%, currency impact of a negative 0.7% and growthfrom acquisitions of 4.0%. The Company acquired Runelandhs and Pervaco in Europe in May 2012.Organic sales in the WPS segment declined 7.0% within all geographies from fiscal 2012 to 2013, and have declined for the last seven quarters. WPSAPAC sales are generated entirely in Australia, and have declined for the last four quarters mainly due to the weakness in the Australian economy. In theAmericas and Europe, organic sales declined by 5% and 6%, respectively. Beginning in fiscal 2012, we experienced a deterioration of this business due toincreased e-commerce competition and pricing pressures.The Company continues to modify its strategy to grow this business, which includes: investments ine-commerce capabilities, pricing structure changes and expansion of product offerings.Segment profit decreased in fiscal 2013 to $95.2 million from $117.2 million, a decline of $22.0 million or 18.8%. This was primarily due to volumeand price declines as a result of increased competition and reduced catalog advertising. In addition, the Company redirected some of its investment from thetraditional catalog model to e-business, the benefits of which are anticipated to be realized in future fiscal years.Since the global economic recession of 2009, organic growth within the WPS Americas reporting unit has been difficult to achieve, especially withinmature markets such as the U.S. and Canada where business-to-business transactions over the Internet are more advanced than many of the European andAustralian markets. With the acceleration of the Internet in the business-to-business market, competition and pricing pressure have intensified. As a result,organic sales declined by approximately 7% and segment profit declined by nearly 20% during fiscal 2013 as compared to fiscal 2012.The Company is modifying its strategy within the WPS platform, including investments in enhanced e-commerce capabilities, expanded productofferings, enhanced industry-specific expertise, and adjusting its pricing strategies. Although management believes the strategy modifications will improveorganic sales and profitability of the WPS platform in future years, there is risk associated with any strategy. As such, the Company's annual goodwillimpairment analysis ("Step One") reflected the risk in the strategy and the decline in fiscal 2013 sales and profitability, which occurred during a period of timein which the Company was redirecting its investment from the traditional catalog model to e-business. In addition, the rate of decline became more pronouncedduring the second half of the fiscal year and fell short of internal forecasts, resulting in the conclusion that WPS Americas failed Step One, as the resultingfair value was less than the carrying value of the reporting unit.Upon completion of the impairment assessment, the Company recognized a goodwill impairment charge of $172.3 million during fiscal 2013. Inconjunction with the goodwill impairment test of the WPS Americas reporting unit, indefinite-lived tradenames associated with the reporting unit were revaluedand analyzed for impairment. As a result, indefinite-lived tradenames in the amount of $10.6 million primarily associated with the WPS Americas reportingunit were impaired during fiscal 2013.Fiscal 2012 vs. 2011Net sales increased by 0.2% from fiscal 2011 to fiscal 2012, which consisted of an organic decline of 0.2%, currency impact of a negative 1.2% andgrowth from acquisitions of 1.6%. Acquisition growth was driven by the acquisitions of Runelandhs and Pervaco in Europe in May 2012.Organic sales declined 0.2% within the WPS segment. Regionally, the Americas realized essentially no growth, while Europe declined by 2.3% and Asia-Pacific sales increased by approximately 6%. In the fourth quarter, Asia-Pacific sales began to slow as the Australian economy began to weaken. In theAmericas, growth was approximately 3% for the first half of the year, followed by comparable declines in the second half. Europe experienced a similar trend,as first quarter growth of 4.0% was followed by a decline in growth in the subsequent quarters as increased competition and pricing pressure deteriorated sales.Segment profit for fiscal 2012 was $117.2 million, a slight decline from $118.9 million in fiscal 2011. The growth in profit in the first half of the yeardue to sales was offset by the profit decline in the second half of the year due to investments in the e-commerce initiative increasing compared to the first half ofthe year.22Table of ContentsLiquidity & Capital ResourcesCash and cash equivalents were $91.1 million at July 31, 2013, and $305.9 million at July 31, 2012, a decline of $214.8 million. The decline wasprimarily due to investing activities, which included the purchase of PDC in the second quarter of fiscal 2013 for $301.2 million. Years ended July 31,(Dollars in thousands)2013 2012 2011Net cash flow provided by (used in): Operating activities$143,503 $144,705 $167,350Investing activities(325,766) (64,604) (22,631)Financing activities(33,060) (147,824) (91,574)Effect of exchange rate changes on cash481 (16,348) 21,986Net (decrease) increase in cash and cash equivalents$(214,842) $(84,071) $75,131Net cash provided by operating activities was $143.5 million during fiscal 2013 compared to $144.7 million in the prior year. Although there wasminimal change in total, the cash flow from pre-tax income declined approximately $30 million, primarily due to the decline in sales and profits in our WPSsegment. This was offset by the improvement in working capital of approximately $30 million. This improvement was primarily attributable to a positivechange in accounts payable and accrued liabilities related to fiscal 2013 working capital initiatives, which significantly improved days payable outstanding.Net cash used in investing activities was $325.8 million during fiscal 2013, compared to net cash used in investing activities $64.6 million in the prioryear. The increase in cash used in investing activities of $261.2 million was primarily due to the purchase of PDC in the second quarter of fiscal 2013 for$301.2 million, and an increase in capital expenditures of $11.5 million for machinery in Brazil and new facilities in Thailand and Australia. This waspartially offset by cash received of $10.2 million due to the sales of the Brady Medical and Varitronics businesses in the first quarter of fiscal 2013.Net cash used in financing activities was $33.1 million during fiscal 2013, compared to $147.8 million during the prior year. The decrease in cash usedin financing activities was due to a net draw on the Company's credit revolver and multi-currency line of credit in China, which provided $50.6 million incash. In addition, cash provided by the issuance of common stock increased by $16.5 million, while cash used to repurchase common shares decreased by$44.8 million compared to 2012.Net cash provided by operating activities was $144.7 million in fiscal 2012, compared to $167.4 million in fiscal 2011. Cash flows from operatingactivities are generated primarily from operating income and managing the components of working capital. The decrease in cash flows from operating activitiesof $22.7 million from fiscal 2011 to fiscal 2012 was partially due to a decline in net income of $10.9 million after excluding the goodwill impairment chargeof $115.7 million. In addition, the net change of inventories and accounts payable and accrued liabilities reduced operating cash flows by $30.8 millioncompared to the prior year. This decline was partially offset by lower income taxes paid versus expensed of $20.5 million in fiscal 2012 compared to 2011.Net cash used in investing activities was $64.6 million in fiscal 2012, compared to $22.6 million in fiscal 2011. The increase in cash used ininvesting activities of $42.0 million from fiscal 2011 to fiscal 2012 was primarily due to the increase in cash used in acquisitions of $29.7 million comparedto 2011. In addition, cash provided by divestitures declined by $12.1 million, from fiscal 2011 to fiscal 2012. See Note 2 within Item 8 for furtherinformation regarding acquisitions and divestitures.Net cash used in financing activities was $147.8 million in fiscal 2012, compared to $91.6 million in fiscal 2011. The increase in cash used infinancing activities of $56.2 million was primarily due to the repurchase of common shares during fiscal year 2012 for $49.9 million. In addition, cashreceived from the exercise of employee stock options declined by $4.3 million from fiscal 2011 to fiscal 2012.During fiscal 2004 through fiscal 2007, the Company completed three private placement note issuances totaling $500 million in ten-year fixed rate noteswith varying maturity dates to institutional investors at interest rates varying from 5.14% to 5.33%. The notes must be repaid equally over seven years, withinitial payment due dates ranging from 2008 to 2011, with interest payable on the notes due semiannually on various dates throughout the year, which beganin December 2004. The private placements were exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resaleand may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable statesecurities laws. The notes have certain prepayment penalties for repaying them prior to the maturity date.23Table of ContentsOn May 13, 2010, the Company completed a private placement of €75.0 million aggregate principal amount of senior unsecured notes to accreditedinstitutional investors. The €75.0 million of senior notes consists of €30.0 million aggregate principal amount of 3.71% Series 2010-A Senior Notes, dueMay 13, 2017 and €45.0 million aggregate principal amount of 4.24% Series 2010-A Senior Notes, due May 13, 2020, with interest payable on the notessemiannually. This private placement was exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale andmay not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable statesecurities laws. The notes have certain prepayment penalties for prepaying them prior to maturity. The notes have been fully and unconditionally guaranteedon an unsecured basis by the Company's domestic subsidiaries. These unsecured notes were issued pursuant to a note purchase agreement, dated May 13,2010.On February 1, 2012, the Company and certain of its subsidiaries entered into an unsecured $300 million multi-currency revolving loan agreement witha group of six banks that replaced and terminated the Company's previous credit agreement that had been entered into on October 5, 2006, and amended onMarch 18, 2008. Under the revolving loan agreement, which has a final maturity date of February 1, 2017, the Company has the option to select either a baseinterest rate (based upon the higher of the federal funds rate plus one-half of 1% or the prime rate of Bank of America plus a margin based upon theCompany's consolidated leverage ratio) or a Eurocurrency interest rate (at the LIBOR rate plus a margin based on the Company's consolidated leverage ratio).At the Company's option, and subject to certain conditions, the available amount under the revolving loan agreement may be increased from $300 million up to$450 million.In December 2012, the Company drew down $220.0 million from its revolving loan agreement with a group of six banks to fund a portion of thepurchase price of the acquisition of PDC. The borrowings bear interest at LIBOR plus 1.125% per annum, which will be reset from time to time based uponchanges in the LIBOR rate. Prior to July 31, 2013, the Company repaid $181.0 million of the borrowing with cash on hand. During fiscal 2013, the maximumamount outstanding on the revolving loan agreement was $220.0 million. As of July 31, 2013, the outstanding balance on the credit facility was $39.0 millionand there was $261.0 million available for future borrowing under the credit facility, which can be increased to $411.0 million at the Company's option,subject to certain conditions.In February 2013, the Company entered into an unsecured $26.2 million multi-currency line of credit in China. The line of credit supports USD-denominated or RMB-denominated borrowing to fund working capital and operations for the Company's Chinese entities. Borrowings under this facility maybe made for a period up to one year from the date of borrowing with interest on the borrowings incurred equal to US Dollar LIBOR on the date of borrowingplus a margin based upon duration. There is no ultimate maturity on the facility and the facility is subject to periodic review and repricing. The Company isnot required to comply with any financial covenants as part of this agreement. During fiscal 2013, the maximum amount outstanding was $11.6 million,comprised entirely of USD-denominated borrowings, which was the balance outstanding at July 31, 2013. As of July 31, 2013, there was $14.6 millionavailable for future borrowing under this credit facility.The Company’s debt and revolving loan agreements require it to maintain certain financial covenants. The Company’s June 2004, February2006, March 2007, and May 2010 private placement debt agreements require the Company to maintain a ratio of debt to the trailing twelve month EBITDA,as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio). As of July 31, 2013, the Company was in compliance with the financialcovenant of the June 2004, February 2006, March 2007, and May 2010 private placement debt agreements, with the ratio of debt to EBITDA, as defined bythe agreements, equal to 1.6 to 1.0. Additionally, the Company’s February 2012 revolving loan agreement requires the Company to maintain a ratio of debt totrailing twelve month EBITDA, as defined by the debt agreement, of not more than a 3.25 to 1.0 ratio. The revolving loan agreement requires the Company’strailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of July 31, 2013, the Company was incompliance with the financial covenants of the revolving loan agreement with the ratio of debt to EBITDA, as defined by the agreement, equal to 1.6 to 1.0 andthe interest expense coverage ratio equal to 9.2 to 1.0.Long-term obligations as a percentage of long-term obligations plus stockholders' investment were 19.5% at July 31, 2013 and 20.2% at July 31, 2012.Long-term obligations decreased by $53.8 million from July 31, 2012 to July 31, 2013, due to the principal payment on debt of $61.3 million, partially offsetby the positive impact of foreign currency translation on the Company's Euro-denominated debt of $5.9 million.Stockholders' investment decreased $178.6 million from July 31, 2012 to July 31, 2013, primarily due to the net loss of $154.5 million, dividendpayments of $39.2 million, and a decrease in additional paid-in capital of $6.8 million, partially offset by a reduction in treasury stock of $22.8 million.The Company's cash balances are generated and held in numerous locations throughout the world. At July 31, 2013, 92.8% of the Company's cash andcash equivalents were held outside the United States. The Company's growth has historically been24Table of Contentsfunded by a combination of cash provided by operating activities and debt financing. The Company believes that its cash flow from operating activities, inaddition to its borrowing capacity, are sufficient to fund its anticipated requirements for working capital, capital expenditures, restructuring activities,acquisitions, common stock repurchases, scheduled debt repayments, and dividend payments. The Company's fiscal 2013 acquisition of PDC resulted inrepatriation of cash to the United States from foreign jurisdictions, which resulted in a $26.6 million tax charge recognized during the fiscal year ended July31, 2013. The Company believes that its current credit arrangements are sound and that the strength of its balance sheet will allow financial flexibility torespond to both internal growth opportunities and those available through acquisition. However, future cash needs could require the Company to repatriateadditional cash to the U.S. from foreign jurisdictions, which could result in material tax charges recognized in the period in which the transactions occur.25Table of ContentsSubsequent Events Affecting Financial ConditionOn September 12, 2013, the Company announced an increase in the annual dividend to shareholders of the Company's Class A Common Stock, from$0.76 to $0.78 per share. A quarterly dividend of $0.195 will be paid on October 31, 2013, to shareholders of record at the close of business on October 10,2013. This dividend represents an increase of 2.6% and is the 28th consecutive annual increase in dividends.Off-Balance Sheet ArrangementsThe Company does not have material off-balance sheet arrangements or related-party transactions. The Company is not aware of factors that arereasonably likely to adversely affect liquidity trends, other than the risk factors described in this and other Company filings. However, the followingadditional information is provided to assist those reviewing the Company’s financial statements.Operating Leases — The leases generally are entered into for investments in facilities such as manufacturing facilities, warehouses and office space,computer equipment and Company vehicles.Purchase Commitments — The Company has purchase commitments for materials, supplies, services, and property, plant and equipment as part ofthe ordinary conduct of its business. In the aggregate, such commitments are not in excess of current market prices and are not material to the financialposition of the Company. Due to the proprietary nature of many of the Company’s materials and processes, certain supply contracts contain penaltyprovisions for early termination. The Company does not believe a material amount of penalties will be incurred under these contracts based upon historicalexperience and current expectations.Other Contractual Obligations — The Company does not have material financial guarantees or other contractual commitments that are reasonably likelyto adversely affect liquidity.Related-Party Transactions — Based on an evaluation for the year ended July 31, 2013, the Company does not have material related party transactionsthat affect the results of operations, cash flow or financial condition.Payments Due Under Contractual ObligationsThe Company’s future commitments in continuing operations at July 31, 2013 for long-term debt, operating lease obligations, purchase obligations,interest obligations and other obligations are as follows (dollars in thousands): Payments Due by PeriodContractual Obligations Total Less than1 Year 1-3Years 3-5Years Morethan5 Years UncertainTimeframeLong-Term Debt Obligations $262,414 $61,264 $85,028 $56,272 $59,850 $—Operating Lease Obligations 70,997 14,785 22,145 15,897 18,170 —Purchase Obligations (1) 43,237 42,992 245 — — —Interest Obligations 42,560 12,629 17,428 7,428 5,075 —Tax Obligations 35,575 — — — — 35,575Other Obligations (2) 12,266 677 1,553 1,967 8,069 —Total $467,049 $132,347 $126,399 $81,564 $91,164 $35,575 (1)Purchase obligations include all open purchase orders as of July 31, 2013.(2)Other obligations represent expected payments under the Company’s U.S. postretirement medical plan and international pension plans as disclosed inNote 3 to the consolidated financial statements, under Item 8 of this report.Inflation and Changing PricesEssentially all of the Company’s revenue is derived from the sale of its products in competitive markets. Because prices are influenced by marketconditions, it is not always possible to fully recover cost increases through pricing. Changes in product mix from year to year, timing differences in institutingprice changes, and the large amount of part numbers make it impracticable to accurately define the impact of inflation on profit margins.26Table of ContentsCritical Accounting EstimatesManagement’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s ConsolidatedFinancial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of thesefinancial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities. The Company bases these estimates and judgments on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and judgments.The Company believes the following accounting estimates are most critical to an understanding of its financial statements. Estimates are considered to becritical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accountingestimates are made, and (2) material changes in the estimates are reasonably likely from period to period. For a detailed discussion on the application of theseand other accounting estimates, refer to Note 1 to the Company’s Consolidated Financial Statements.Income TaxesThe Company’s effective tax rate is based on pre-tax income and the tax rates applicable to that income in the various jurisdictions in which theCompany operates. Significant judgment is required in determining the Company’s effective income tax rate and in evaluating its tax positions. The Companyestablishes liabilities when it is more likely than not that the Company will not realize the full tax benefit of the position. The Company adjusts these liabilitiesin light of changing facts and circumstances.Tax regulations may require items of income and expense to be included in a tax return in different periods than the items are reflected in the consolidatedfinancial statements. As a result, the effective income tax rate reflected in the consolidated financial statements may be different than the tax rate reported in theincome tax return. Some of these differences are permanent, such as expenses that are not deductible on the income tax return, and some are temporarydifferences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that canbe used as tax deductions or credits in the tax return in future years for which the Company has already recorded the tax benefit in the consolidated financialstatements. The Company establishes valuation allowances against its deferred tax assets when it is more likely than not that the amount of expected futuretaxable income will not support the use of the deduction or credit. The determination of the amount of valuation allowance to be provided on recorded deferredtax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and(3) the impact of tax planning strategies, and can also be impacted by changes to tax laws. Deferred tax liabilities generally represent tax expense recognized inthe consolidated financial statements for which payment has been deferred or expense for which the Company has already taken a deduction on an income taxreturn but has not yet recognized as expense in the consolidated financial statements.The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technicalmerits, it is “more-likely-than-not” that the position will be sustained upon examination. Judgment is required in evaluating tax positions and determiningincome tax provisions. The Company generally re-evaluates the technical merits of its tax positions and recognizes an uncertain tax benefit when (i) there iscompletion of a tax audit; (ii) there is a change in applicable tax law including a tax case ruling or legislative guidance; or (iii) there is an expiration of thestatute of limitations.The Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been re-invested indefinitely. These earnings related to ongoing operations have been reinvested in non-U.S. business operations, and the Company does not intend torepatriate these earnings to fund U.S. operations. In fiscal 2013, the Company repatriated approximately $204 million of foreign cash to help fund theacquisition of PDC. Of this amount, approximately $29 million was from earnings that would otherwise be classified as permanently re-invested. TheCompany determined that given PDC was the largest acquisition in the Company's history, this repatriation was a one-time event, and therefore, inmanagement's judgment, the remaining cumulative earnings have been reinvested indefinitely.Goodwill and Other Indefinite-lived Intangible AssetsThe allocation of purchase price for business combinations requires management estimates and judgment as to expectations for future cash flows of theacquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocationpurposes. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result ina possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets. In addition,accounting guidance requires that goodwill and other indefinite-lived intangible assets be tested at least annually for impairment. If circumstances or eventsprior to the date of the required annual assessment indicate that, in management's judgment, it is more likely than not that27Table of Contentsthere has been a reduction of fair value of a reporting unit below its carrying value, the Company performs an impairment analysis at the time of suchcircumstance or event. Changes in management's estimates or judgments could result in an impairment charge, and such a charge could have an adverse effecton the Company's financial condition and results of operations. To aid in establishing the value of goodwill and other intangible assets at the time ofacquisition, Company policy requires that all acquisitions with goodwill of greater than $20 million require the use of external valuations.During the three months ended April 30, 2013, the Company announced its plan to divest its Asia Die-Cut business, and during the three months endedJuly 31, 2013, the Company added its European-based die-cut business, Balkhausen, to the disposal group. Effective May 1, 2013, the Companyreorganized its management structure into three global business platforms: Identification Solutions, Workplace Safety, and Die-Cut. Because the Die-Cutbusiness platform was classified as held for sale as of April 30, 2013, the disposal group was recorded at its estimated fair value less cost to sell, whichrequired a write-down in accordance with ASC 360, “Property, Plant and Equipment” and it was excluded from the fiscal 2013 annual goodwill impairmentanalysis. The Company has identified two operating segments for the year ended July 31, 2013: Identification Solutions and Workplace Safety. Theseoperating segments are also the Company’s reportable segments.The Company has identified six reporting units within its two operating segments as of July 31, 2013: IDS Americas & Europe, IDS APAC, PeopleID,WPS Americas, WPS Europe, and WPS APAC. Brady continues to believe that the discounted cash flow model and market multiples model provide areasonable and meaningful fair value estimate based upon the reporting units' projections of future operating results and cash flows and replicates how marketparticipants would value the Company's reporting units. The projections of future operating results, which are based on both past performance and theprojections and assumptions used in the Company's current and long range operating plans, are subject to change as a result of changing economic andcompetitive conditions. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based onexpected growth rates, price increases, fluctuations in gross margin and SG&A as a percentage of sales, capital expenditures, working capital levels, incometax rates, the benefits of recent acquisitions and expected synergies, and a weighted-average cost of capital that reflects the specific risk profile of the reportingunit being tested. Significant negative industry or economic trends, disruptions to the Company's business, loss of significant customers, inability toeffectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures mayadversely impact the assumptions used in the valuations.In the event the fair value of a reporting unit is less than the carrying value, including goodwill, the Company would then perform an additionalassessment that would compare the implied fair value of goodwill with the carrying amount of goodwill. The determination of the implied fair value of goodwillwould require management to compare the fair value of the reporting unit to the estimated fair value of the assets and liabilities of the reporting unit. Ifnecessary, the Company may consult valuation specialists to assist with the assessment of the estimated fair value of assets and liabilities for the reportingunit. If the implied fair value of the goodwill is less than the carrying value, an impairment charge would be recorded. The Company considers a reporting unit’s value to be substantially in excess of its fair value at 20% or greater. The annual impairment testingperformed on May 1, 2013, in accordance with ASC 350, “Intangibles - Goodwill and Other” (“Step One”) indicated that each of the following reporting unitshad a fair value substantially in excess of its carrying value: IDS Americas & Europe, WPS Europe and WPS APAC. The PeopleID reporting unit passedStep One of the goodwill impairment test, but does not have a fair value substantially in excess of its carrying value. The Company concluded that the WPSAmericas and IDS APAC reporting units failed Step One of the goodwill impairment test.WPS Americas Goodwill ImpairmentManagement proceeded to measure the amount of the potential impairment ("Step Two") for the WPS Americas reporting unit with the assistance of athird party valuation firm. The Company calculated the fair value of the identifiable assets and liabilities of the reporting unit as if it had been acquired in abusiness combination, and the excess fair value of the reporting unit over the fair value of its identifiable assets and liabilities was the implied fair value ofgoodwill. Upon completion of the assessment, the Company recognized a goodwill impairment charge of $172.3 million during the three months ended July31, 2013.In conjunction with the goodwill impairment test of the WPS Americas reporting unit, the carrying value of the indefinite-lived tradenames within thereporting unit were compared to the fair value calculated as part of the Step Two analysis described above. Indefinite-lived tradenames in the amount of $10.6million associated with the WPS segment were impaired during the three months ended July 31, 2013.28Table of ContentsIDS APAC Goodwill ImpairmentThe IDS APAC reporting unit had goodwill remaining of $18.3 million at the annual impairment assessment date. Sales increased within this reportingunit from 2012 to 2013, however, profitability declined, and neither sales nor profitability were as high as anticipated. Projections for the business were notsufficient to support the carrying value of the reporting unit. When management compared the Step One fair value to the carrying value of the reporting unit, aqualitative assessment was completed for Step Two because the amount by which the carrying value exceeded fair value was more than the balance of goodwillremaining. As such, the Company recognized a goodwill impairment charge of the entire remaining goodwill balance of $18.3 million during the three monthsended July 31, 2013.Sensitivity In performing the fiscal 2013 annual goodwill impairment assessment, the Company completed a sensitivity analysis on the material assumptions usedin the discounted cash flow models for each of its reporting units. Even though the fair value was substantially in excess of carrying value, the Company isproviding a detailed sensitivity analysis of the WPS Europe and WPS APAC reporting units given the higher level of risk in the overall WPS strategy.The fair value of the WPS Europe reporting unit was substantially in excess of carrying value at the assessment date, and it had a goodwill balance of$63.1 million as of July 31, 2013. In order to conclude upon the assumptions for the discounted cash flow analysis, the Company considered multiplefactors, including (a) macroeconomic conditions, (b) industry and market factors such as competition and changes in the market for the reporting unit'sproducts, (c) overall financial performance such as cash flows, actual and planned revenue, and profitability, and (d) changes in strategy for the reportingunit. The assumption with the most impact on our determination of fair value of the WPS Europe reporting unit is profitability. A reduction in the annualprofitability assumption by 100 basis points results in a decrease in the amount of fair value in excess of carrying value of 11%.The fair value of the WPS APAC reporting unit was substantially in excess of carrying value at the assessment date, and it had a goodwill balance of$36.6 million as of July 31, 2013. In order to conclude upon the assumptions for the discounted cash flow analysis, the Company considered multiplefactors, including (a) macroeconomic conditions, (b) industry and market factors such as competition and changes in the market for the reporting unit'sproducts, (c) overall financial performance such as cash flows, actual and planned revenue, and profitability, and (d) changes in strategy for the reportingunit. The assumption with the most impact on our determination of fair value of the WPS APAC reporting unit is profitability. A reduction in the annualprofitability assumption by 100 basis points results in a decrease in the amount of fair value in excess of carrying value of 10%.The fair value of the PeopleID reporting unit was in excess of its carrying value by 2% as of the assessment date. This reporting unit is comprised solelyof PDC, which was acquired on December 28, 2012 and had a goodwill balance of $170.2 million as of July 31, 2013. In order to conclude upon theassumptions for the discounted cash flow analysis, the Company considered multiple factors, including (a) macroeconomic conditions, (b) industry andmarket factors such as competition and changes in the market for the reporting unit's products, (c) overall financial performance such as cash flows, actualand planned revenue, and profitability, and (d) changes in strategy for the reporting unit. If the PeopleID reporting unit does not meet its projections it couldbecome impaired. The assumptions with the most impact on our determination of the fair value of the PeopleID reporting unit are sales growth and profitability.A reduction in the annual sales growth or annual profitability assumptions by 100 basis points results in a failure of Step One of the goodwill impairment test.In connection with the Company's recent change in reportable segments, the existing PeopleID business, which was part of the IDS Americas and Europereporting unit for the 2013 annual goodwill impairment analysis, was integrated into the PeopleID reporting unit effective August 1, 2013. If these businesseshad been combined as of the May 1, 2013 goodwill impairment analysis, the fair value in excess of carrying value would have been 11%.Reserves and AllowancesThe Company has recorded reserves or allowances for inventory obsolescence, uncollectible accounts receivable, and credit memos. These accountsrequire the use of estimates and judgment. The Company bases its estimates on historical experience and on various other assumptions that are believed to bereasonable under the circumstances. The Company believes that such estimates are made with consistent and appropriate methods. Actual results may differfrom these estimates under different assumptions or conditions.New Accounting Standards29Table of ContentsThe information required by this Item is provided in Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 — FinancialStatements and Supplementary Data.Forward-Looking StatementsIn this annual report on Form 10-K, statements that are not reported financial results or other historic information are “forward-looking statements.”These forward-looking statements relate to, among other things, the Company's future financial position, business strategy, targets, projected sales, costs,earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations.The use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or similar terminologyare generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees,uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady's control, that could cause actual results to differmaterially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from:•Implementation of the Workplace Safety strategy;•The length or severity of the current worldwide economic downturn or timing or strength of a subsequent recovery;•Future financial performance of major markets Brady serves, which include, without limitation, telecommunications, hard disk drive,manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, healthcare and transportation;•Future competition;•Changes in the supply of, or price for, parts and components;•Increased price pressure from suppliers and customers;•Brady's ability to retain significant contracts and customers;•Fluctuations in currency rates versus the U.S. dollar;•Risks associated with international operations;•Difficulties associated with exports;•Risks associated with obtaining governmental approvals and maintaining regulatory compliance;•Brady's ability to develop and successfully market new products;•Risks associated with identifying, completing, and integrating acquisitions;•Risks associated with divestitures and businesses held for sale;•Risks associated with restructuring plans;•Environmental, health and safety compliance costs and liabilities;•Risk associated with loss of key talent;•Risk associated with product liability claims;•Technology changes and potential security violations to the Company's information technology systems;•Brady's ability to maintain compliance with its debt covenants;•Increase in our level of debt;•Potential write-offs of Brady's substantial intangible assets;•Unforeseen tax consequences;•Risks, associated with our ownership structure; and•Numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive, and regulatory naturecontained from time to time in Brady's U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the“Risk Factors” section within Item 1A of Part I of this Form 10-K.These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady doesnot undertake to update its forward-looking statements except as required by law.Risk FactorsRefer to the information contained in Item 1A - Risk Factors.30Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market RiskThe Company’s business operations give rise to market risk exposure due to changes in foreign exchange rates. To manage that risk effectively, theCompany enters into hedging transactions, according to established guidelines and policies that enable it to mitigate the adverse effects of this financial marketrisk.The global nature of the Company’s business requires active participation in the foreign exchange markets. As a result of investments, productionfacilities and other operations on a global scale, the Company has assets, liabilities and cash flows in currencies other than the U.S. Dollar. The objective ofthe Company’s foreign currency exchange risk management is to minimize the impact of currency movements on non-functional currency transactions andminimize the foreign currency translation impact on the Company’s operations. To achieve this objective, the Company hedges a portion of known exposuresusing forward contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar,Malaysian Ringgit, and Singapore Dollar. As of July 31, 2013, the Company had no contracts outstanding designated as cash flow hedges. The Companyuses Euro-denominated debt of €75.0 million and British Pound-denominated intercompany debt of £25.0 million designated as hedge instruments to hedgeportions of the Company’s net investments in its European and British Pound denominated foreign operations. The Company's revolving credit facility allowsit to borrow up to $100.0 million in currencies other than US Dollars under an alternative currency sub-limit. The Company has periodically borrowed fundsin Euro and British Pounds under this sub-limit. Debt issued in currencies other than US Dollars acts as a natural hedge to the Company's exposure to theassociated currency.The Company also faces exchange rate risk from transactions with customers in countries outside the United States and from intercompanytransactions between affiliates. Although the Company has a U.S. dollar functional currency for reporting purposes, it has manufacturing sites throughout theworld and the majority of its sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside of the United Statesare translated into U.S. dollars using exchange rates effective during the respective period. As a result, the Company is exposed to movements in the exchangerates of various currencies against the U.S. dollar. In particular, the Company has more sales in European currencies than it has expenses in those currencies.Therefore, when European currencies strengthen or weaken against the U.S. dollar, operating profits are increased or decreased, respectively.Currency exchange rates decreased fiscal 2013 sales by 0.9% compared to fiscal 2012 as the U.S. dollar appreciated, on average, against other majorcurrencies throughout the year. The most significant impact on sales due to currency fluctuations occurred during the first quarter ended October 31, 2012, assales declined by 2.4% as compared to the same quarter of the prior year. This decline was primarily driven by the appreciation of the U.S. dollar against theEuro.The Company is subject to the risk of change in foreign currency exchange rates due to its operations in foreign countries. The Company hasmanufacturing facilities and sells and distributes its products throughout the world. As a result, the Company’s financial results could be significantlyaffected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Companymanufactures, distributes and sells its products. The Company’s operating results are principally exposed to changes in exchange rates between the U.S.dollar and the Australian dollar, the Canadian dollar, the Singapore dollar, the Euro, the British Pound, the Brazilian Real, the Korean Won, and the ChineseYuan. Changes in foreign currency exchange rates for the Company’s foreign subsidiaries reporting in local currencies are generally reported as a component ofstockholders’ investment. The Company’s currency translation adjustment recorded in fiscal 2013 and 2012 as a separate component of stockholders’investment was $2.3 million and $62.8 million unfavorable, respectively. As of July 31, 2013 and 2012, the Company’s foreign subsidiaries had net currentassets (defined as current assets less current liabilities) subject to foreign currency translation risk of $245.1 million and $384.2 million, respectively. Thepotential decrease in net current assets as of July 31, 2013, from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates would beapproximately $24.5 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar. Exchangerates rarely move in the same direction relative to the U.S. dollar due to positive and negative correlations of the various global currencies. This assumptionmay overstate the impact of changing exchange rates on individual assets and liabilities denominated in a foreign currency.The Company could be exposed to interest rate risk through its corporate borrowing activities. The objective of the Company’s interest rate riskmanagement activities is to manage the levels of the Company’s fixed and floating interest rate exposure to be consistent with the Company’s preferred mix.The interest rate risk management program allows the Company to enter into approved interest rate derivatives if there is a desire to modify the Company’sexposure to interest rates. As of July 31, 2013, the Company had no interest rate derivatives.31Table of ContentsItem 8. Financial Statements and Supplementary DataBRADY CORPORATION & SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm33Financial Statements: Consolidated Balance Sheets — July 31, 2013 and 201234Consolidated Statements of Earnings — Years Ended July 31, 2013, 2012, and 201135Consolidated Statements of Comprehensive Income (Loss) — Years Ended July 31, 2013, 2012, and 201136Consolidated Statements of Stockholders’ Investment — Years Ended July 31, 2013, 2012, and 201137Consolidated Statements of Cash Flows — Years Ended July 31, 2013, 2012, and 201138Notes to Consolidated Financial Statements — Years Ended July 31, 2013, 2012, and 20113932Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofBrady CorporationMilwaukee, WisconsinWe have audited the accompanying consolidated balance sheets of Brady Corporation and subsidiaries (the "Company") as of July 31, 2013 and 2012, andthe related consolidated statements of earnings, comprehensive income (loss), stockholders' investment, and cash flows for each of the three years in the periodended July 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements andfinancial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Brady Corporation and subsidiaries asof July 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2013, in conformitywith accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered inrelation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal controlover financial reporting as of July 31, 2013, based on the criteria established in Internal Control-Integrated Framework (1992) issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated September 30, 2013, expressed an unqualified opinion on the Company'sinternal control over financial reporting./s/ DELOITTE & TOUCHE LLPMilwaukee, WISeptember 30, 201333Table of ContentsBRADY CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJuly 31, 2013 and 2012 2013 2012 (Dollars in thousands)ASSETS Current assets: Cash and cash equivalents$91,058 $305,900Accounts receivable — net169,261 199,006Inventories: Finished products64,544 64,740Work-in-process14,776 15,377Raw materials and supplies15,387 25,407Total inventories94,707 105,524Assets held for sale119,864 —Prepaid expenses and other current assets37,600 40,424Total current assets512,490 650,854Other assets: Goodwill617,236 676,791Other intangible assets156,851 84,119Deferred income taxes8,623 45,356Other21,325 20,584Property, plant and equipment: Cost: Land7,861 8,651Buildings and improvements91,471 101,962Machinery and equipment266,787 292,130Construction in progress11,842 10,417 377,961 413,160Less accumulated depreciation255,803 283,145Property, plant and equipment — net122,158 130,015Total$1,438,683 $1,607,719LIABILITIES AND STOCKHOLDERS’ INVESTMENT Current liabilities: Notes payable$50,613 $—Accounts payable82,519 86,646Wages and amounts withheld from employees42,413 54,629Liabilities held for sale34,583 —Taxes, other than income taxes8,243 9,307Accrued income taxes7,056 14,357Other current liabilities36,806 40,815Current maturities on long-term debt61,264 61,264Total current liabilities323,497 267,018Long-term obligations, less current maturities201,150 254,944Other liabilities83,239 76,404Total liabilities607,886 598,366Stockholders’ investment: Class A nonvoting common stock — Issued 51,261,487 and 51,261,487 shares, respectively; (aggregate liquidationpreference of $42,803 and $42,803 at July 31, 2013 and 2012, respectively)513 513Class B voting common stock — Issued and outstanding 3,538,628 shares35 35Additional paid-in capital306,191 313,008Earnings retained in the business538,512 732,290Treasury stock — 2,626,276 and 3,245,561 shares, respectively of Class A nonvoting common stock, at cost(69,797) (92,600)Accumulated other comprehensive income56,063 59,411Other(720) (3,304)Total stockholders’ investment830,797 1,009,353Total$1,438,683 $1,607,719See Notes to Consolidated Financial Statements34Table of ContentsBRADY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGSYears Ended July 31, 2013, 2012 and 2011 2013 2012 2011 (In thousands, except per share amounts)Net sales$1,152,109 $1,068,688 $1,059,355Cost of products sold546,029 479,118 471,405Gross margin606,080 589,570 587,950Operating expenses: Research and development33,552 34,528 38,268Selling, general and administrative427,661 392,526 397,472Restructuring charges26,046 6,084 6,451Impairment charges204,448 — —Total operating expenses691,707 433,138 442,191Operating (loss) income(85,627) 156,432 145,759Other income and (expense): Investment and other income3,522 2,082 3,989Interest expense(16,641) (19,090) (22,124)(Loss) earnings from continuing operations before income taxes(98,746) 139,424 127,624Income taxes42,070 36,953 21,667(Loss) earnings from continuing operations$(140,816) $102,471 $105,957(Loss) earnings from discontinued operations, net of income taxes(13,719) (120,382) 2,695Net (loss) earnings$(154,535) $(17,911) $108,652(Loss) earnings from continuing operations per Class A Nonvoting Common Share Basic$(2.75) $1.95 $2.01Diluted$(2.75) $1.94 $1.99(Loss) earnings from continuing operations per Class B Voting Common Share: Basic$(2.76) $1.93 $1.99Diluted$(2.76) $1.92 $1.97(Loss) earnings from discontinued operations per Class A Nonvoting Common Share: Basic$(0.27) $(2.30) $0.05Diluted$(0.27) $(2.29) $0.05(Loss) earnings from discontinued operations per Class B Voting Common Share: Basic$(0.27) $(2.29) $0.05Diluted$(0.27) $(2.28) $0.05Net (loss) earnings per Class A Nonvoting Common Share: Basic$(3.02) $(0.35) $2.06Diluted$(3.02) $(0.35) $2.04Dividends$0.76 $0.74 $0.72Net (loss) earnings per Class B Voting Common Share: Basic$(3.03) $(0.36) $2.04Diluted$(3.03) $(0.36) $2.03Dividends$0.74 $0.72 $0.70Weighted average common shares outstanding (in thousands): Basic51,330 52,453 52,639Diluted51,330 52,821 53,133See Notes to Consolidated Financial Statements.35Table of ContentsBRADY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)Years Ended July 31, 2013, 2012 and 2011 2013 2012 2011 (Dollars in thousands)Net (loss) earnings$(154,535) $(17,911) $108,652Other comprehensive (loss) income: Foreign currency translation adjustments(2,312) (62,827) 62,832Net investment hedge translation adjustments(6,537) 20,508 (23,907)Long-term intercompany loan translation adjustments3,108 (2,170) 18,545Cash flow hedges: Net (loss) gain recognized in other comprehensive income(652) 2,389 (2,834)Reclassification adjustment for (gains) losses included in net (loss) earnings(578) 494 1,793 (1,230) 2,883 (1,041)Pension and other post-retirement benefits: Gain (loss) recognized in other comprehensive income1,617 (1,015) 1,472Actuarial gain amortization(25) (201) (63)Prior service credit amortization(203) (203) (82) 1,389 (1,419) 1,327Other comprehensive (loss) income, before tax(5,582) (43,025) 57,756Income tax benefit (expense) related to items of other comprehensive (loss) income2,234 (11,462) 5,237Other comprehensive (loss) income, net of tax(3,348) (54,487) 62,993Comprehensive (loss) income$(157,883) $(72,398) $171,645See Notes to Consolidated Financial Statements.36Table of ContentsBRADY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ INVESTMENTYears Ended July 31, 2013, 2012 and 2011 CommonStock AdditionalPaid-InCapital EarningsRetainedin theBusiness TreasuryStock AccumulatedOtherComprehensiveIncome Other (In thousands, except per share amounts)Balances at July 31, 2010 $548 $304,205 $718,512 $(66,314) $50,905 $(2,829)Net income — — 108,652 — — —Net currency translation adjustmentand other (Note 1) — — — — 62,993 —Issuance of 524,144 shares ofClass A Common Stock under stockoption plan — (5,684) — 13,877 — —Other (Note 6) — (1,964) — 2,420 — (2,035)Tax benefit from exercise of stockoptions and deferred compensationdistributions — 1,140 — — — —Stock-based compensation expense(Note 1) — 9,830 — — — —Cash dividends on Common Stock Class A — $0.72 per share — — (35,575) — — —Class B — $0.70 per share — — (2,489) — — —Balances at July 31, 2011 $548 $307,527 $789,100 $(50,017) $113,898 $(4,864)Net (loss) income — — (17,911) — — —Net currency translation adjustmentand other (Note 1) — — — — (54,487) —Issuance of 265,491 shares ofClass A Common Stock under stockoption plan — (3,516) — 7,380 — —Other (Note 6) — (1,637) — (30) — 1,560Tax benefit from exercise of stockoptions and deferred compensationdistributions — 1,167 — — — —Stock-based compensation expense(Note 1) — 9,467 — — — —Purchase of 1,869,193 shares ofClass A Common Stock — — — (49,933) — —Cash dividends on Common Stock Class A — $0.74 per share — — (36,340) — — —Class B — $0.72 per share — — (2,559) — — —Balances at July 31, 2012 $548 $313,008 $732,290 $(92,600) $59,411 $(3,304)Net (loss) income — — (154,535) — — —Net currency translation adjustmentand other (Note 1) — — — — (3,348) —Issuance of 1,080,089 shares ofClass A Common Stock under stockoption plan — (9,721) — 30,045 — —Other (Note 6) — (1,266) — (2,121) — 2,584Tax benefit from exercise of stockoptions and deferred compensationdistributions — 2,434 — — — —Stock-based compensation expense(Note 1) — 1,736 — — — —Purchase of 188,167 shares ofClass A Common Stock — — — (5,121) — —Cash dividends on Common Stock — — — — — —Class A — $0.76 per share — — (36,613) — — —Class B — $0.74 per share — — (2,630) — — —Balances at July 31, 2013 $548 $306,191 $538,512 $(69,797) $56,063 $(720)See Notes to Consolidated Financial Statements.37Table of ContentsBRADY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended July 31, 2013, 2012 and 2011 2013 2012 2011 (Dollars in thousands)Operating activities: Net (loss) income$(154,535) $(17,911) $108,652Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization48,725 43,987 48,827Non-cash portion of restructuring charges3,699 458 2,155Non-cash portion of stock-based compensation expense1,736 9,735 9,830Impairment charges204,448 115,688 —Loss on write-down of assets held for sale15,658 — —Loss (gain) on sales of businesses3,138 204 (4,394)Deferred income taxes21,630 (9,679) (8,161)Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures): Accounts receivable1,535 18,089 7,680Inventories2,440 (7,674) (2,886)Prepaid expenses and other assets5,036 (2,744) 5,624Accounts payable and accrued liabilities(2,285) (29,370) (3,365)Income taxes(7,722) 23,922 3,388Net cash provided by operating activities143,503 144,705 167,350Investing activities: Purchases of property, plant and equipment(35,687) (24,147) (20,532)Payments of contingent consideration— (2,580) (1,528)Settlement of net investment hedges— (797) (5,542)Acquisition of business, net of cash acquired(301,157) (37,649) (7,970)Sales of businesses, net of cash retained10,178 856 12,980Other900 (287) (39)Net cash used in investing activities(325,766) (64,604) (22,631)Financing activities: Payment of dividends(39,243) (38,899) (38,064)Proceeds from issuance of common stock20,324 3,864 8,193Purchase of treasury stock(5,121) (49,933) —Proceeds from borrowing on notes payable220,000 — —Repayment of borrowing on notes payable(181,000) — —Proceeds from borrowings on line of credit11,613 — —Principal payments on debt(61,264) (62,687) (61,264)Debt issuance costs— (961) —Income tax benefit from the exercise of stock options and deferred compensation distributions, and other1,631 792 (439)Net cash used in financing activities(33,060) (147,824) (91,574)Effect of exchange rate changes on cash481 (16,348) 21,986Net (decrease) increase in cash and cash equivalents(214,842) (84,071) 75,131Cash and cash equivalents, beginning of period305,900 389,971 314,840Cash and cash equivalents, end of period$91,058 $305,900 $389,971Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of capitalized interest$17,162 $19,194 $21,298Income taxes, net of refunds34,030 35,292 35,851Acquisitions: Fair value of assets acquired, net of cash$168,724 $23,792 $4,624Liabilities assumed(37,747) (8,987) (1,446)Goodwill170,180 22,844 4,792Net cash paid for acquisitions$301,157 $37,649 $7,970See Notes to Consolidated Financial Statements.38Table of ContentsBRADY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears Ended July 31, 2013, 2012 and 2011(In thousands, except share and per share amounts)1. Summary of Significant Accounting PoliciesNature of Operations — Brady Corporation is an international manufacturer of identification solutions and specialty materials that identify and protectpremises, products and people. The ability to provide customers with a broad range of proprietary, customized, and diverse products for use in variousapplications, along with a commitment to quality and service, a global footprint, and multiple sales channels, have made Brady a world leader in many of itsmarkets.Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Brady Corporation and its subsidiaries(“Brady” or the “Company”), all of which are wholly-owned. All intercompany accounts and transactions have been eliminated in consolidation.Discontinued Operations — The results of operations of the Asia Die-Cut & Balkhausen businesses have been reported as discontinued operations forall periods presented. The corresponding assets and liabilities have been reclassified in accordance with the authoritative literature on assets held for sale atJuly 31, 2013 and, as a result, the balances are not comparable between periods. In accordance with the authoritative literature, the Company has elected to notseparately disclose the cash flows related to the Asia Die-Cut & Balkhausen discontinued operations. See Note 13 for additional information about theCompany's discontinued operations.Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differfrom those estimates.Subsequent Events — On September 12, 2013, the Company announced an increase in the annual dividend to shareholders of the Company's Class ACommon Stock, from $0.76 to $0.78 per share. A quarterly dividend of $0.195 will be paid on October 31, 2013, to shareholders of record at the close ofbusiness on October 10, 2013. This dividend represents an increase of 2.6% and is the 28th consecutive annual increase in dividends.Fair Value of Financial Instruments — The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accountsreceivable and accounts payable) is a reasonable estimate of the fair value of these instruments due to their short-term nature. See Note 5 for more informationregarding the fair value of long-term debt and Note 10 for fair value measurements.Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less when acquired to be cashequivalents, which are recorded at cost.Accounts Receivables — Accounts receivables are stated net of allowances for doubtful accounts of $5,093 and $6,006 as of July 31, 2013 and 2012,respectively. No single customer comprises more than 5% of the Company’s consolidated net sales in 2013, 2012 or 2011, or 5% of the Company’sconsolidated accounts receivable as of July 31, 2013 or 2012. Specific customer provisions may be made during review of significant outstanding amounts,utilizing information about customer creditworthiness and current economic trends, indicates that collection is doubtful. In addition, provisions are made forthe remainder of accounts receivable based upon the age of the receivable and the Company’s historical collection experience.Inventories — Inventories are stated at the lower of cost or market. Cost has been determined using the last-in, first-out (“LIFO”) method for certaindomestic inventories (approximately 12% of total inventories at July 31, 2013, and approximately 18% of total inventories at July 31, 2012) and the first-in,first-out (“FIFO”) or average cost methods for other inventories. Had all domestic inventories been accounted for on a FIFO basis instead of on a LIFO basis,the carrying value would have increased by $7,923 and $9,271 on July 31, 2013 and 2012, respectively.39Table of ContentsProperty, Plant, and Equipment — Property, plant, and equipment are recorded at cost. The cost of buildings and improvements and machinery andequipment is being depreciated over their estimated useful lives using primarily the straight-line method for financial reporting purposes. The estimated usefullives range from 3 to 33 years as shown below.Asset Category Range of Useful LivesBuildings & Improvements 10 to 33 YearsComputer Systems 5 YearsMachinery & Equipment 3 to 10 YearsFully depreciated assets are retained in property and accumulated depreciation accounts until disposal. Upon disposal, assets and related accumulateddepreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to operations. Leasehold improvements aredepreciated over the shorter of the lease term or the estimated useful life of the respective asset. Depreciation expense was $22,976, $21,672, and $23,804 forthe years ended July 31, 2013, 2012 and 2011, respectively.Goodwill and Other Intangible Assets — The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economicbenefits consumed on a straight-line basis, over the estimated periods benefited. Intangible assets with indefinite useful lives and goodwill are not subjected toamortization. These assets are assessed for impairment annually or more frequently as deemed necessary.Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. TheCompany completes impairment reviews for its reporting units using a fair-value method based on management's judgments and assumptions. The fair valuerepresents the amount at which a reporting unit could be bought or sold in a current transaction between market participants on an arms-length basis. Inestimating the fair value, the Company utilizes a discounted cash flow model and market multiples approach. The estimated fair value is compared with thecarrying amount of the reporting unit, including goodwill. The annual impairment testing performed on May 1, 2013, in accordance with ASC 350,“Intangibles - Goodwill and Other” (“Step One”) indicated that the following reporting units had a fair value substantially in excess of its carrying value: IDSAmericas & Europe, WPS Europe and WPS APAC. The PeopleID reporting unit does not have a fair value substantially in excess of its carrying value,however, this reporting unit consists of the Company's fiscal 2013 acquisition of PDC, and given the short period of time between the date of the acquisition,December 28, 2012, and the Company's annual goodwill impairment assessment date of May 1, 2013, the fair value in excess of carrying value is consideredreasonable and consistent with the valuation at acquisition.The results of the Step One analysis completed over the Company's remaining two reporting units, WPS Americas and IDS APAC, indicated that theywere potentially impaired.WPS Americas Goodwill ImpairmentSince the global economic recession of 2009, organic growth within the WPS Americas reporting unit has been difficult to achieve, especially withinmature markets such as the U.S. and Canada where business-to-business transactions over the Internet are more advanced than many of the European andAustralian markets. With the acceleration of the Internet in the business-to-business market, competition and pricing have intensified. As a result, organicsales declined by approximately 7% and segment profit declined by nearly 20% during fiscal 2013 as compared to fiscal 2012.The Company is modifying its strategy within the WPS platform, which includes investments in the following: enhanced e-commerce capabilities,expanded product offerings, enhanced industry-specific expertise, and adjusting its pricing strategies. Although management believes the strategymodifications will improve organic sales and profitability of the WPS platform in future years, there is risk associated with any strategy. As such, theCompany's annual goodwill impairment analysis ("Step One") reflects the risk in the strategy and the decline in fiscal 2013 sales and profitability, whichoccurred during a period of time in which the Company was redirecting its investment from the traditional catalog model to e-business. The Company used thediscounted cash flow model and market multiples model in order to complete Step One, and concluded that the WPS Americas reporting unit failed, as theresulting fair value was less than the carrying value of the reporting unit.The Company proceeded to measure the amount of the potential impairment (“Step Two”) with the assistance of a third party valuation firm. In StepTwo of the goodwill impairment test, the Company determined the implied fair value of the goodwill and compared it to the carrying value. The Companyallocated the fair value of the WPS Americas reporting unit to its assets and liabilities as if the reporting unit had been acquired in a business combination.The excess fair value of the reporting unit over the fair value of its identifiable assets and liabilities was the implied fair value of goodwill. Upon completion ofthe assessment, the40Table of ContentsCompany recognized a goodwill impairment charge of $172,280 during fiscal 2013. In conjunction with the goodwill impairment test of the WPS Americasreporting unit, indefinite-lived tradenames associated with the reporting unit were analyzed for potential impairment. Indefinite-lived tradenames in the amountof $10,568 associated with the WPS segment were impaired during the three months ended July 31, 2013.IDS APAC Goodwill ImpairmentThe IDS APAC reporting unit had goodwill remaining of $18,225 at the annual impairment assessment date. Although sales grew within this reportingunit from 2012 to 2013, profit declined, and neither were as high as anticipated. Projections for the business were not sufficient to support the carrying valueof the reporting unit. The Company used the discounted cash flow model and market multiples model in order to complete Step One, and concluded that theIDS APAC reporting failed, as the resulting fair value was less than the carrying value of the reporting unit. The amount by which the carrying value exceededfair value was greater than the balance of goodwill remaining, as such, a qualitative assessment was completed for Step Two because the amount by which thecarrying value exceeded fair value was more than the balance of goodwill remaining. The Company recognized a goodwill impairment charge for the entireremaining goodwill balance of $18,225 during the year ended July 31, 2013.Changes in the carrying amount of goodwill by reportable segment for the years ended July 31, 2013 and 2012, were as follows: IDS WPS Die-Cut TotalBalance as of July 31, 2011$389,586 $260,807 $149,950 $800,343Current year acquisitions1,227 21,617 — 22,844Current year divestitures(495) — — (495)Impairment charge— — (115,688) (115,688)Translation adjustments(22,425) (5,483) (2,305) (30,213)Balance as of July 31, 2012$367,893 $276,941 $31,957 $676,791Current year acquisitions170,180 — — 170,180Current year divestitures(2,882) — — (2,882)Reclassification to assets held for sale(4,129) — (33,218) (37,347)Impairment charges(18,225) (172,280) — (190,505)Translation adjustments4,192 (4,454) 1,261 999Balance as of July 31, 2013$517,029 $100,207 $— $617,236Goodwill decreased by $59,555 during fiscal 2013. The decline in the balance consisted of the following:•The reclassification of goodwill of $37,347 to the Asia Die-Cut and Balkhausen disposal group, which is classified as held for sale as of July 31,2013•An impairment charge of $172,280 recognized on the Company's WPS Americas reporting unit•An impairment charge of $18,225 recognized on the Company's IDS APAC reporting unit•The divestitures of Brady Medical and Varitronics within the IDS segment during the first quarter of 2013, which decreased goodwill by $863 and$2,019, respectively, for a total of $2,882These decreases were partially offset by the current year acquisition of PDC, which added $170,180 to the goodwill balance, and the positive effects ofcurrency fluctuations of $999.Goodwill decreased by $123,552 during fiscal 2012. The decline in the balance consisted of the following:•An impairment charge of $115,688 recognized on the Company's former North/South Asia reporting unit•The negative effects of currency fluctuations of $30,213•The divestiture of Etimark within the IDS segment during the fourth quarter of 2012, which decreased goodwill by $495These decreases were partially offset by the 2012 acquisitions of Grafo, Pervaco, and Runelandhs, which increased goodwill by $1,227, $8,440, and$13,177, respectively. Grafo is reported within the IDS segment, and Pervaco and Runelandhs are reported within the WPS segment.Goodwill at July 31, 2013 included $18,225 and $172,280 of accumulated impairment losses within the IDS and WPS segments, respectively, for atotal of $190,505.41Table of ContentsOther intangible assets include patents, tradenames, customer relationships, non-compete agreements and other intangible assets with finite lives beingamortized in accordance with the accounting guidance for other intangible assets. The net book value of these assets was as follows: July 31, 2013 July 31, 2012 WeightedAverageAmortizationPeriod(Years) GrossCarryingAmount AccumulatedAmortization Net BookValue WeightedAverageAmortizationPeriod(Years) GrossCarryingAmount AccumulatedAmortization Net BookValueAmortized other intangible assets: Patents5 $11,053 $(9,597) $1,456 5 $10,418 $(9,058) $1,360Tradenames and other5 15,289 (8,398) 6,891 7 8,945 (7,094) 1,851Customer relationships8 261,076 (144,620) 116,456 7 164,392 (128,805) 35,587Non-compete agreements andother4 14,942 (14,215) 727 4 15,988 (15,417) 571Unamortized other intangibleassets: TradenamesN/A 31,321 — 31,321 N/A 44,750 — 44,750Total $333,681 $(176,830) $156,851 $244,493 $(160,374) $84,119The value of goodwill and other intangible assets in the condensed consolidated balance sheets at July 31, 2013, differs from the value assigned to themin the original allocation of purchase price due to the effect of fluctuations in the exchange rates used to translate the financial statements into the United StatesDollar between the date of acquisition and July 31, 2013. The acquisition of PDC increased customer relationships and amortized tradenames by $102,500and $6,800 respectively.In conjunction with the goodwill impairment test over the WPS Americas reporting unit, indefinite-lived tradenames associated with the reporting unitwere written down to fair value. As a result, indefinite-lived tradenames related to the WPS segment in the amount of $10,568 were impaired during thecurrent period.Amortization expense on intangible assets during fiscal 2013, 2012, and 2011 was $17,148, $10,576 and $15,571, respectively. The amortizationover each of the next five fiscal years is projected to be $19,321, $18,513, $16,349, $13,197 and $11,881 for the fiscal years ending July 31, 2014, 2015,2016, 2017 and 2018, respectively.Impairment of Long-Lived and Other Intangible Assets — The Company evaluates whether events and circumstances have occurred that indicate theremaining estimated useful life of long-lived and other finite-lived intangible assets may warrant revision or that the remaining balance of an asset may not berecoverable. The measurement of possible impairment is based on fair value of the assets generally estimated by the ability to recover the balance of assetsfrom expected future operating cash flows on an undiscounted basis. If impairment is determined to exist, any related impairment loss is calculated based onthe fair value of the asset.In conjunction with the goodwill impairment test over the IDS APAC reporting unit, long-lived assets associated with the reporting unit were analyzed forpotential impairment. As a result, long-lived assets in the amount of $3,375 were impaired during the current period.Catalog Costs and Related Amortization — The Company accumulates all direct costs incurred, net of vendor cooperative advertising payments, inthe development, production, and circulation of its catalogs on its balance sheet until such time as the related catalog is mailed. The catalog costs aresubsequently amortized into selling, general, and administrative expense over the expected sales realization cycle, which is one year or less. Consequently, anydifference between the estimated and actual revenue stream for a particular catalog and the related impact on amortization expense is neutralized within a periodof one year or less. The estimate of the expected sales realization cycle for a particular catalog is based on the Company’s historical sales experience withidentical or similar catalogs, and an assessment of prevailing economic conditions and various competitive factors. The Company tracks subsequent salesrealization, reassesses the marketplace, and compares its findings to the previous estimate, and adjusts the amortization of future catalogs, if necessary. AtJuly 31, 2013 and 2012, $11,255 and $15,011, respectively, of prepaid catalog costs were included in prepaid expenses and other current assets.Revenue Recognition — Revenue is recognized when it is both earned and realized or realizable. The Company’s policy is to recognize revenue when titleto the product and risk of loss have transferred to the customer, persuasive evidence of an arrangement exists, and collection of the sales proceeds isreasonably assured, all of which generally occur upon shipment of42Table of Contentsgoods to customers. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when title and the risksand rewards of ownership pass to the customer. Given the nature of the Company’s business and the applicable rules guiding revenue recognition, theCompany’s revenue recognition practices do not contain estimates that materially affect the results of operations, with the exception of estimated returns andcredit memos. The Company provides for an allowance for estimated product returns and credit memos which is recognized as a deduction from sales at thetime of the sale. As of July 31, 2013 and 2012, the Company had a reserve of $2,711 and $3,046, respectively.Sales Incentives — The Company accounts for cash consideration (such as sales incentives and cash discounts) given to its customers or resellers as areduction of revenue rather than an operating expense. Sales incentives for the years ended July 31, 2013, 2012, and 2011 were $20,209, $18,474, and$18,826, respectively.Shipping and Handling Fees and Costs — Amounts billed to a customer in a sale transaction related to shipping and handling fees are reported as netsales and the related costs incurred for shipping and handling are reported as cost of goods sold.Advertising Costs — Advertising costs are expensed as incurred, except catalog and mailing costs as outlined above. Advertising expense for the yearsended July 31, 2013, 2012, and 2011 was $77,905, $74,830, and $79,236, respectively.Stock-Based Compensation — The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options topurchase shares of Class A Nonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees and non-employee directors.The options have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period,with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan,referred to herein as “service-based” options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives andkey management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above. These options arereferred to herein as “performance-based” options. Performance-based stock options expire 10 years from the date of grant. Restricted shares issued under theplan have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 wereamended in fiscal 2011 to allow for vesting after either a five-year period or a seven-year period based upon both performance and service conditions. Therestricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. These shares arereferred to herein as “performance-based restricted shares.” Restricted shares granted in fiscal 2013 vest at the end of a three-year period based upon serviceconditions. These shares are referred to herein as “cliff-vested restricted shares”.The Company also grants restricted stock units to certain executives and key management employees that vest upon meeting certain financialperformance conditions over a specified vesting period, referred to herein as “performance-based restricted stock units.” The performance-based restrictedstock units granted in fiscal 2013 vest over a two-year period period upon meeting both performance and service conditions.As of July 31, 2013, the Company has reserved 5,150,975 shares of Class A Nonvoting Common Stock for outstanding stock options and restrictedshares and 4,359,943 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the active plans.The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.The Company recognizes the compensation cost of all share-based awards at the time it is deemed probable the award will vest. The cost is recognizedon a straight-line basis over the vesting period of the award. Total stock-based compensation expense recognized by the Company during the years endedJuly 31, 2013, 2012, and 2011 was $1,736 ($1,059 net of taxes), $9,735 ($5,939 net of taxes), and $9,830 ($5,996 net of taxes), respectively. Thedecrease in fiscal 2013 was due to the reversal of stock-based compensation of $7,883. The reversal consisted of $4,232 of stock-based compensation expenseon the performance-based restricted shares granted in fiscal 2008 that were unlikely to meet the financial performance conditions, $1,502 of stockcompensation expense on performance-based restricted shares for which the original service conditions will not be met, and $2,149 of stock compensationexpense on performance-based stock options granted in fiscal 2011 and fiscal 2012 that will not meet the financial performance conditions to vest.As of July 31, 2013, total unrecognized compensation cost related to share-based compensation awards that are expected to vest was $8,342 pre-tax, netof estimated forfeitures, which the Company expects to recognize over a weighted-average period of 1.7 years.43Table of ContentsThe Company has estimated the fair value of its service-based and performance-based stock option awards granted during the years ended July 31,2013, 2012, and 2011 using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model arereflected in the following table: 2013 2012 2011 Service-Based Performance-Based Service-Based Performance-Based Service-Based Performance-BasedBlack-Scholes Option ValuationAssumptions Option Awards Option Awards Option Awards Option Awards Option Awards Option AwardsExpected term (in years) 5.93 — 5.89 6.57 5.91 6.57Expected volatility 38.67% — 39.41% 39.21% 40.22% 39.39%Expected dividend yield 2.21% — 2.07% 1.99% 1.94% 1.96%Risk-free interest rate 0.91% — 1.16% 2.05% 1.65% 2.35%Weighted-average market value ofunderlying stock at grant date $30.58 $— $27.05 $29.55 $29.13 $28.43Weighted-average exercise price $30.58 $— $27.05 $29.55 $29.13 $28.35Weighted-average fair value of optionsgranted during the period $9.05 $— $8.42 $10.01 $9.59 $9.87The Company uses historical data regarding stock option exercise behaviors to estimate the expected term of options granted based on the period of timethat options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company’s stock. The expected dividendyield is based on the Company’s historical dividend payments and historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve ineffect on the grant date for the length of time corresponding to the expected term of the option. The market value is calculated as the average of the high and thelow stock price on the date of the grant.The Company granted 5,000 cliff-vested restricted shares in December 2012, with a grant price and fair value of $32.99. The Company granted 10,000shares of performance-based restricted stock units in September 2012, with a grant price and fair value of $30.21. The Company granted 100,000 shares ofperformance-based restricted stock in August of 2010, with a grant price and fair value of $28.35, and 210,000 shares in fiscal 2008, with a grant price andfair value of $32.83. As of July 31, 2013, 5,000 cliff-vested restricted shares were outstanding, 10,000 performance-based restricted stock units wereoutstanding and 221,667 performance-based restricted shares were outstanding.The Company granted 828,450 service-based stock options during fiscal 2013, with a weighted average exercise price of $30.58 and a weighted averagefair value of $9.05. There were no performance-based stock options granted during fiscal 2013.Research and Development — Amounts expended for research and development are expensed as incurred.Other Comprehensive Income — Other comprehensive income consists of foreign currency translation adjustments, net unrealized gains and lossesfrom cash flow hedges and net investment hedges, and the unamortized gain on the post-retirement medical plans net of their related tax effects.The following table illustrates the changes in the balances of each component of accumulated other comprehensive income for the periods presented. Theunrealized gain (loss) on cash flow hedges and the unrecognized gain on the postretirement medical plan are presented net of tax: Unrealized (loss) gainon cash flow hedges Gain (loss) onpostretirement medicalplan Foreign currencytranslationadjustments Accumulated othercomprehensive incomeBeginning balance, July 31, 2010$(321) $1,357 $49,869 $50,905Current-period change(833) 831 62,995 62,993Ending balance, July 31, 2011$(1,154) $2,188 $112,864 $113,898Current-period change2,030 (1,210) (55,307) (54,487)Ending balance, July 31, 2012$876 $978 $57,557 $59,411Current-period change(777) 875 (3,446) (3,348)Ending balance, July 31, 2013$99 $1,853 $54,111 $56,06344Table of ContentsThe decrease in accumulated other comprehensive income for the year ended July 31, 2013 compared to the year ended July 31, 2012 was primarily dueto the depreciation of the U.S. dollar against other currencies. The foreign currency translation adjustments line in the table above includes the impact offoreign currency translation, foreign currency translation on intercompany notes, and the settlements of net investment hedges, net of tax.The following table illustrates the income tax benefit (expense) on the components of other comprehensive income: 2013 2012 2011Income tax benefit (expense) related to items of other comprehensive (loss) income: Net investment hedge translation adjustments $2,877 $(7,784) $9,324Long-term intercompany loan settlements (650) (2,508) (1,193)Cash flow hedges 454 (855) 295Pension and other post-retirement benefits (555) 583 (490)Other income tax adjustments 108 (898) (2,699)Income tax benefit (expense) related to items of other comprehensive (loss) income $2,234 $(11,462) $5,237Foreign Currency Translation — Foreign currency assets and liabilities are translated into United States dollars at end of period rates of exchange, andincome and expense accounts are translated at the weighted average rates of exchange for the period. Resulting translation adjustments are included in othercomprehensive income.Income Taxes — The Company accounts for income taxes in accordance with the applicable accounting guidance, which requires an asset and liabilityapproach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financialstatement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable tothe periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets tothe amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred taxassets and liabilities. The Company recognizes the effect of income tax positions only if sustaining those positions is more likely than not. Changes inrecognition or measurement are reflected in the period in which a change in judgment occurs.Risk Management Activities — The Company is exposed to market risk, such as changes in interest rates and currency exchange rates. The Companydoes not hold or issue derivative financial instruments for trading purposes.Foreign Currency Hedging — The objective of the Company’s foreign currency exchange risk management is to minimize the impact of currencymovements on non-functional currency transactions and minimize the foreign currency translation impact on the Company’s foreign operations. While theCompany’s risk management objectives and strategies are driven from an economic perspective, the Company attempts, where possible and practical, toensure that the hedging strategies it engages in qualify for hedge accounting and result in accounting treatment where the earnings effect of the hedginginstrument provides substantial offset (in the same period) to the earnings effect of the hedged item. Generally, these risk management transactions will involvethe use of foreign currency derivatives to protect against exposure resulting from transactions in a currency differing from the respective functional currency.The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominatedtransactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of less than18 months. These instruments may or may not qualify as hedges under the accounting guidance for derivative instruments and hedging activities based uponthe intended objective of the contract. The fair value of these instruments at July 31, 2013 and 2012 was a liability of $596 and an asset of $953,respectively. As of July 31, 2013 and 2012, the notional amount of these outstanding forward exchange contracts was $157.5 million and $61.2 million. SeeNote 12 for more information regarding the Company’s derivative instruments and hedging activities.The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on theConsolidated Balance Sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of accumulated othercomprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At July 31,2013 and July 31, 2012, unrealized gains of $118 and $1,348 have been included in AOCI, respectively. All balances are expected to be reclassified fromAOCI to earnings during the next fifteen months when the hedged transactions impact earnings.45Table of ContentsThe Company has designated a portion of its foreign exchange contracts as net investment hedges of the Company’s net investments in foreignoperations and recorded these contracts at fair value on the Consolidated Balance Sheets. For net investment hedges that meet the effectiveness requirements,the net gains or losses attributable to changes in spot exchange rates are recorded as cumulative translation within accumulated other comprehensive income.Any ineffective portions are to be recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited tocircumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At July 31, 2013 and July 31,2012, unrealized losses of $150 and $1,041 have been included in AOCI, respectively.The Company also utilizes Euro-denominated debt, Euro-denominated intercompany loans, and British Pound-denominated intercompany loansdesignated as hedge instruments to hedge portions of the Company’s net investments in Euro and British- Pound denominated foreign operations. As ofJuly 31, 2013, the Company had €75.0 million foreign denominated debt and £25.0 million intercompany debt outstanding designated as net investmenthedges of the Company’s net investment in its European foreign operations. See Note 12 for more information regarding the Company’s derivative instrumentsand hedging activities. For net investment hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange ratesare recorded in cumulative translation within accumulated other comprehensive income. Any ineffective portions are to be recognized in earnings. Recognitionin earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of thenet investment in the hedged foreign operation. At July 31, 2013 and July 31, 2012, unrealized losses of $2,715 and unrealized gains of $2,635, have beenincluded in AOCI, respectively.The Company also enters into foreign exchange contracts to create economic hedges to manage foreign exchange risk exposure. The fair value of theseinstruments at July 31, 2013 and 2012 was a liability of $603 and an asset of $78, respectively. The Company has not designated these derivative contractsas hedge transactions, and accordingly, the mark-to-market impact of these derivatives is recorded each period in current earnings.Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flowsof the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was notsignificant for the fiscal years ended July 31, 2013, 2012, and 2011.New Accounting Standards — In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2011-05, “Presentation of Comprehensive Income,” which eliminates the option to present components of other comprehensive income (“OCI”) as part of thestatement of changes in stockholders’ equity. The amendments in this standard require that all non-owner changes in stockholders’ equity be presented ineither a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently, in December 2011, the FASBissued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated OtherComprehensive Income,” which indefinitely defers the requirements in ASU 2011-05 to present on the face of the financial statements adjustments for itemsthat are reclassified from OCI to net earnings in the statement where the components of net earnings and the components of OCI are presented. The ASU doesnot change the items that must be reported in OCI. The Company has provided the required statements of comprehensive income beginning with the firstquarter of fiscal 2013.In January 2013, the FASB issued ASU 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which clarified that thescope of the disclosures under U.S. GAAP is limited to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse purchaseagreements, and securities borrowing and securities lending transactions that are offset either in accordance with ASC 210 or ASC 815. Entities with othertypes of financial assets and financial liabilities subject to a master netting arrangement or similar agreement are no longer subject to the disclosurerequirements in ASU 2011-11. The guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annualperiods. Disclosures are to be provided retrospectively for all periods presented. The adoption of this update will not have a material impact on the financialstatements of the Company.In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," whichrequires entities to disclose additional information for items reclassified out of accumulated other comprehensive income ("AOCI"). For items reclassified outof AOCI and into net earnings in their entirety, entities are required to disclose the effect of the reclassification in each affected line in the statement of earnings.For AOCI reclassification items that are not reclassified in their entirety into net earnings, a cross reference to other required U.S. GAAP disclosures isrequired. This information may be provided either in the notes or parenthetically on the face of the statement that reports net earnings as long as all theinformation is disclosed in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement thatreports net earnings if it has items that are not reclassified in their entirety into net earnings. The guidance is effective for annual and interim reporting periodsbeginning after December 15, 2012. The adoption of this update will not have a material impact on the financial statements of the Company.46Table of ContentsIn March 2013, the FASB issued ASU 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of CertainSubsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," which applies to the release of the cumulative translationadjustment into net earnings when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in asubsidiary or group of assets that is a business within a foreign entity. The guidance requires that a parent deconsolidate a subsidiary or derecognize a groupof assets that is a business if the parent ceases to have a controlling financial interest in that group of assets, and resolves the diversity in practice for thetreatment of business combinations achieved in stages involving a foreign entity. The guidance is effective for annual and interim reporting periods beginningafter December 15, 2013. The adoption of this update will not have a material impact on the financial statements of the Company.2. AcquisitionsThe Company completed one business acquisition during each of the fiscal years ended July 31, 2013 and July 31, 2011 and three businessacquisitions during the fiscal year ended July 31, 2012. All of these transactions were accounted for using business combination accounting; therefore, theresults of the acquired operations are included in the accompanying consolidated financial statements only since their acquisition dates.Fiscal 2013On December 28, 2012, the Company acquired all of the outstanding shares of Precision Dynamics Corporation ("PDC"), a manufacturer ofidentification products primarily for the healthcare sector headquartered in Valencia, California. PDC is reported within the Company's ID Solutions segment.Net sales and net income attributable to PDC from the acquisition date through July 31, 2013 were approximately $102,329 and $759, respectively.Financing for this acquisition consisted of $220,000 from the Company's revolving loan agreement with a group of six banks and the balance from cash onhand. As of July 31, 2013, the Company repaid $181,000 of the borrowing on the credit facility with cash on hand. The Company incurred $3,600 inacquisition-related expenses during fiscal 2013. These costs are included in SG&A expenses on the statement of earnings for the year ended July 31, 2013.The Company acquired PDC to create an anchor position in the healthcare sector, consistent with the Company's mission to identify and protectpremises, products and people. PDC's large customer base, strong channels to market, and broad product offering provide a strong foundation to build uponPDC's market position.The table below details a preliminary allocation of the PDC purchase price:Fair values:July 31, 2013 Cash and cash equivalents$12,904 Accounts receivable — net21,178 Total inventories16,788 Prepaid expenses and other current assets3,915 Goodwill170,180 Other intangible assets109,300 Other assets483 Property, plant and equipment18,015 Accounts payable(9,921) Wages and amounts withheld from employees(4,234) Taxes, other than income taxes(600) Accrued income taxes(57) Other current liabilities(5,045) Other long-term liabilities(18,845) 314,061 Less: cash acquired(12,904)Fair value of total consideration$301,157The final purchase price allocation is subject to completion of final valuation of the assets acquired and liabilities assumed. The final valuation isexpected to be completed as soon as is practicable, but no later than 12 months after the closing date of the acquisition. The intangible assets consist of acustomer relationship of $102,500, which is being amortized over a life of 10 years, and a definite-lived trademark of $6,800, which is being amortized overa life of 3 years. Of the total $170,180 in acquired goodwill, $57,374 is tax deductible and $51,672 of the total $109,300 in intangibles is tax deductible.47Table of ContentsThe following table reflects the unaudited pro forma operating results of the Company for fiscal years 2013 and 2012, which give effect to theacquisition of PDC as if it had occurred at the beginning of fiscal 2012, after giving effect to certain adjustments, including amortization of intangible assets,interest expense on acquisition debt, and income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarilyindicative of the results of operations which may occur in the future or that would have occurred had the acquisitions been effected on the date indicated, norare they necessarily indicative of the Company's future results of operations. 2013 2012Net sales, as reported $1,152,109 $1,068,688Net sales, pro forma 1,220,534 1,238,554(Loss) earnings from continuing operations, as reported (140,816) 102,471(Loss) earnings from continuing operations, pro forma (136,517) 102,993Basic (loss) earnings from continuing operations per Class A Common Share, as reported (2.75) 1.95Basic (loss) earnings from continuing operations per Class A Common Share, pro forma (2.66) 1.96Diluted (loss) earnings from continuing operations per Class A Common Share, as reported (2.75) 1.94Diluted (loss) earnings from continuing operations per Class A Common Share, pro forma (2.66) 1.95Pro forma results for fiscal 2012, were adjusted to include $3,600 of acquisition-related expenses, $1,530 of nonrecurring expense related to the fairvalue adjustment to acquisition-date inventory, $1,402 in interest expense on acquisition debt, and $2,526 in income tax expense.Pro forma results for fiscal 2013, were adjusted to exclude $3,600 of acquisition-related expenses and $1,530 of nonrecurring expense related to the fairvalue adjustment to acquisition-date inventory, and were adjusted to include $529 in interest expense on acquisition debt and $429 in income tax benefit.Pro forma results for fiscal years 2013 and 2012 include $5,215 and $12,517 of pre-tax amortization expense related to intangible assets, respectively.Fiscal 2012In March 2012, the Company acquired Grafo Wiremarkers Africa (Proprietary) Limited (“Grafo”), based in Johannesburg, South Africa for $3,039.Grafo offers a comprehensive range of wire identification products and is the sole distributor in Africa of locally developed Dartag® ABS cablemarkers, andstainless steel ties and tags. Grafo has annual sales of approximately $3,000 and is included in the Company’s IDS segment. The purchase price allocationresulted in $1,227 assigned to goodwill and $961 assigned to customer relationships. The amount assigned to the customer relationships is being amortizedover seven years. The Company expects the acquisition to provide a solid base in South Africa where it can further expand its business with the establisheddistributors and customers throughout South Africa and the Southern African Development Community (SADC) countries.In May 2012, the Company acquired Runelandhs Försäljnings AB (“Runelandhs”), based in Kalmar, Sweden for $22,499, net of cash received.Runelandhs is a direct marketer of industrial and office equipment with annual sales of approximately $19,000. Its products include lifting, transporting, andwarehouse equipment; workbenches and material handling supplies; products for environmental protection; and entrance, reception, and office furnishings.Runelandhs is included in the Company’s WPS segment. The final purchase price allocation resulted in $13,177 assigned to goodwill, $5,340 assigned to thetradename, $5,474 assigned to customer relationships, and $95 assigned to non-compete agreements. The amount assigned to the trademark has an indefinitelife. The amounts assigned to the customer relationships and non-compete agreements are being amortized over seven and five years, respectively. TheCompany expects the acquisition to expand its direct marketing presence in Scandinavia.In May 2012, the Company acquired Pervaco AS (“Pervaco”), based in Kjeller, Norway for $12,111, net of cash received. Pervaco is a direct marketerof facility identification products with annual sales of approximately $6,000. Pervaco is included in the Company’s WPS segment. The purchase priceallocation resulted in $8,440 assigned to goodwill, $1,538 assigned to the tradename, $2,468 assigned to customer relationships, and $91 assigned to non-compete agreements. The amount assigned to the tradename has an indefinite life. The amounts assigned to the customer relationships and non-competeagreements are being amortized over five and three years, respectively. The Company also expects the acquisition to expand its direct marketing presence inScandinavia.48Table of ContentsThe following table summarizes the combined estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:Current assets net of cash$5,082Property, plant & equipment2,743Goodwill22,844Customer relationships8,903Tradenames6,878Non-compete agreements186 Total assets acquired net of cash$46,636Liabilities assumed7,555Debt assumed1,432 Net assets acquired$37,649 The results of the operations of the acquired business have been included since the date of acquisition in the accompanying consolidated financialstatements. Pro forma information related to the acquisitions during the twelve months ended July 31, 2012, is not included because the impact on theCompany’s consolidated results of operations is considered to be immaterial.Fiscal 2011In November 2010, the Company acquired ID Warehouse, based in New South Wales, Australia for $7,970. ID Warehouse offers securityidentification and visitor management products including identification card printers, access control cards, wristbands, tamper-evident security seals andidentification accessories. The business is included in the Company’s WPS segment. The purchase price allocation resulted in $4,792 assigned to goodwill,$1,846 assigned to customer relationships, and $487 assigned to non-compete agreements. The amounts assigned to the customer relationships and non-compete agreements are being amortized over ten and five years, respectively. The acquisition further strengthened the Company’s position in the peopleidentification business in Australia and within the segment.The following table summarizes the combined estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:Current assets net of cash$1,876Property, plant & equipment415Goodwill4,792Customer relationships1,846Non-compete agreements487 Total assets acquired net of cash$9,416Liabilities assumed1,446 Net assets acquired$7,970 The results of the operations of the acquired business have been included since the date of acquisition in the accompanying consolidated financialstatements. Pro forma information related to the acquisition of ID Warehouse was not included because the impact on the Company’s consolidated results ofoperations is considered to be immaterial.3. Employee Benefit PlansThe Company provides postretirement medical benefits (the “Plan”) for eligible regular full and part-time domestic employees (including spouses) asoutlined by the Plan. Postretirement benefits are provided only if the employee was hired prior to April 1, 2008, and retires on or after attainment of age 55with 15 years of credited service. Credited service begins accruing at the later of age 40 or date of hire. All active employees first eligible to retire after July 31,1992, are covered by an unfunded, contributory postretirement healthcare plan where employer contributions will not exceed a defined dollar benefit amount,regardless of the cost of the program. Employer contributions to the plan are based on the employee’s age and service at retirement.The accounting guidance on defined benefit pension and other postretirement plans requires full recognition of the funded status of defined benefit andother postretirement plans on the balance sheet as an asset or a liability. The guidance also requires49Table of Contentsthat unrecognized prior service costs/credits, gains/losses, and transition obligations/assets be recorded in Accumulated Other Comprehensive Income, thusnot changing the income statement recognition rules for such plans.The Plan is unfunded and recorded as a liability in the accompanying consolidated balance sheets as of July 31, 2013 and 2012. The following tableprovides a reconciliation of the changes in the Plan’s accumulated benefit obligations during the years ended July 31: 2013 2012Obligation at beginning of year $14,225 $15,011Service cost 770 644Interest cost 476 633Actuarial (gain)/loss (1,745) 1,104Benefit payments (703) (2,062)Plan amendments — (1,105)Obligation at end of fiscal year $13,023 $14,225Benefit payments were $703 in fiscal 2013 as compared to $2,062 in fiscal 2012. The benefit payments in fiscal 2012 were unusually high as a resultof four large claims that were realized within the Company's self-insured retiree population in the year. The plan was amended in fiscal 2012 to exclude dentaland vision benefits for retirees over the age of 65, resulting in a reduction of $1,105 in the pension obligation as of July 31, 2012.As of July 31, 2013 and 2012, amounts recognized as liabilities in the accompanying consolidated balance sheets consist of: 2013 2012Current liability $677 $716Noncurrent liability 12,346 13,509 $13,023 $14,225As of July 31, 2013 and 2012, pre-tax amounts recognized in accumulated other comprehensive income in the accompanying consolidated balancesheets consist of: 2013 2012Net actuarial gain $3,534 $1,837Prior service credit 1,203 1,405 $4,737 $3,242Net periodic benefit cost for the Plan for fiscal years 2013, 2012, and 2011 includes the following components: Years Ended July 31, 2013 2012 2011Net periodic postretirement benefit cost included the following components: Service cost — benefits attributed to service during the period $770 $644 $666Prior service credit (203) (203) (82)Interest cost on accumulated postretirement benefit obligation 476 633 694Amortization of unrecognized gain (47) (189) (76)Periodic postretirement benefit cost $996 $885 $1,202The estimated actuarial gain and prior service credit that will be amortized from accumulated other comprehensive income into net periodicpostretirement benefit cost over the next fiscal year are $244 and $203, respectively.50Table of ContentsThe following assumptions were used in accounting for the Plan: 2013 2012 2011Weighted average discount rate used in determining accumulated postretirement benefit obligationliability 4.00% 3.25% 4.50%Weighted average discount rate used in determining net periodic benefit cost 3.25% 4.50% 4.50%Assumed health care trend rate used to measure APBO at July 31 8.00% 8.00% 8.00%Rate to which cost trend rate is assumed to decline (the ultimate trend rate) 5.50% 5.50% 5.50%Fiscal year the ultimate trend rate is reached 2017 2016 2017The discount rate utilized in preparing the accumulated postretirement benefit obligation liability was increased to 4.00% in fiscal 2013 from 3.25% infiscal 2012 as a result of an increase in the bond yield as of the Company’s measurement date of July 31, 2013.A one-percentage point change in assumed health care cost trend rates would have the following effects on the Plan:One-PercentagePoint IncreaseOne-PercentagePoint DecreaseEffect on future service and interest cost$14$(26)Effect on accumulated postretirement benefit obligation at July 31, 2013234(238)The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the years ending July 31: 2014$67720157402016813201792620181,0412019 through 20236,733The Company sponsors defined benefit pension plans that are primarily unfunded and provide an income benefit upon termination or retirement forcertain of its international employees. As of July 31, 2013 and 2012, the accumulated pension obligation related to these plans was $3,977 and $4,021,respectively. As of July 31, 2013 and 2012, pre-tax amounts recognized in accumulated other comprehensive income in the accompanying balance sheets were$(807) and ($828), respectively. The net periodic benefit cost for these plans was $388, $299, and $301 during the years ended July 31, 2013, 2012 and2011, respectively.The Company has retirement and profit-sharing plans covering substantially all full-time domestic employees and certain employees of its foreignsubsidiaries. Contributions to the plans are determined annually or quarterly, according to the respective plans, based on earnings of the respective companiesand employee contributions. Accrued retirement and profit-sharing contributions of $3,615 and $4,371 were included in other long-term liabilities on theaccompanying consolidated balance sheets as of July 31, 2013 and 2012, respectively. The amounts charged to expense for these retirement and profit sharingplans were $10,110, $12,569, and $12,875 during the years ended July 31, 2013, 2012 and 2011, respectively.The Company also has deferred compensation plans for directors, officers and key executives which are discussed below. At July 31, 2013 and 2012,$15,769 and $13,738, respectively, of deferred compensation was included in other long-term liabilities in the accompanying consolidated balance sheets.During fiscal 1998, the Company adopted a new deferred compensation plan that invests solely in shares of the Company’s Class A NonvotingCommon Stock. Participants in a predecessor phantom stock plan were allowed to convert their balances in the old plan to this new plan. The new plan wasfunded initially by the issuance of shares of Class A Nonvoting Common Stock to a Rabbi Trust. All deferrals into the new plan result in purchases ofClass A Nonvoting Common Stock by the Rabbi Trust. No deferrals are allowed into a predecessor plan. Shares held by the Rabbi Trust are distributed toparticipants upon separation from the Company as defined in the plan agreement.During fiscal 2002, the Company adopted a new deferred compensation plan that allows future contributions to be invested in shares of the Company’sClass A Nonvoting Common Stock or in certain other investment vehicles. Prior deferred compensation deferrals must remain in the Company’s Class ANonvoting Common Stock. All participant deferrals into the new plan result in51Table of Contentspurchases of Class A Nonvoting Common Stock or certain other investment vehicles by the Rabbi Trust. Balances held by the Rabbi Trust are distributed toparticipants upon separation from the Company as defined in the plan agreement. On May 1, 2006, the plan was amended to require that deferrals into theCompany’s Class A Nonvoting Common Stock must remain in the Company’s Class A Nonvoting Common Stock and be distributed in shares of theCompany’s Class A Nonvoting Common Stock.4. Income Taxes(Loss) earnings from continuing operations consists of the following: Years Ended July 31, 2013 2012 2011United States $(144,941) $44,713 $27,742Other Nations 46,195 94,711 99,882Total $(98,746) $139,424 $127,624Income taxes consist of the following: Years Ended July 31, 2013 2012 2011Current income tax expense: United States $64 $9,606 $4,937Other Nations 19,282 34,739 24,492States (U.S.) 1,094 2,287 399 $20,440 $46,632 $29,828Deferred income tax (benefit) expense: United States 22,882 (1,480) (6,058)Other Nations (806) (7,325) (2,849)States (U.S.) (446) (874) 746 $21,630 $(9,679) $(8,161)Total $42,070 $36,953 $21,66752Table of ContentsDeferred income taxes result from temporary differences in the recognition of revenues and expenses for financial statement and income tax purposes.The approximate tax effects of temporary differences are as follows: July 31, 2013 Assets Liabilities TotalInventories $5,880 $(280) $5,600Prepaid catalog costs 9 (2,407) (2,398)Employee benefits 1,973 (5) 1,968Accounts receivable 1,292 (63) 1,229Other, net 9,721 (4,684) 5,037Current $18,875 $(7,439) $11,436Fixed Assets 2,717 (4,811) (2,094)Intangible Assets 1,705 (54,008) (52,303)Capitalized R&D expenditures 1,755 — 1,755Deferred compensation 24,565 — 24,565Postretirement benefits 7,220 — 7,220Tax credit carry-forwards and net operating losses 62,199 (125) 62,074Less valuation allowance (37,142) — (37,142)Other, net 109 (8,952) (8,843)Noncurrent $63,128 $(67,896) $(4,768)Total $82,003 $(75,335) $6,668 July 31, 2012 Assets Liabilities TotalInventories $4,984 $(4) $4,980Prepaid catalog costs 13 (3,520) (3,507)Employee benefits 2,980 (4) 2,976Accounts receivable 1,370 (11) 1,359Other, net 7,267 (3,221) 4,046Current $16,614 $(6,760) $9,854Fixed Assets 2,146 (5,703) (3,557)Intangible Assets 1,885 (39,561) (37,676)Capitalized R&D expenditures 2,047 — 2,047Deferred compensation 27,122 — 27,122Postretirement benefits 7,429 — 7,429Tax credit carry-forwards and net operating losses 68,148 — 68,148Less valuation allowance (25,847) — (25,847)Other, net 156 (7,146) (6,990)Noncurrent $83,086 $(52,410) $30,676Total $99,700 $(59,170) $40,530Tax loss carry-forwards at July 31, 2013 are comprised of:•Foreign net operating loss carry-forwards of $124,325, of which $99,666 have no expiration date and the remainder of which expire within the nextfive to eight years.•State net operating loss carry-forwards of $58,827, which expire from 2014 to 2033.•Foreign tax credit carry-forwards of $12,486, which expire from 2021 to 2023.•State research and development credit carry-forwards of $8,531, which expire from 2014 to 2028.The valuation allowance increased by $11,295 during the fiscal year ended July 31, 2013 mainly due to additional valuation allowances for Wuxi,Shenzhen, and Brazil. The valuation allowance decreased by $1,629 during the fiscal year ended July 31, 2012. If realized or reversed in future periods,substantially all of the valuation allowance would impact the income tax rate.53Table of ContentsRate ReconciliationA reconciliation of the tax computed by applying the statutory U.S. federal income tax rate to earnings (loss) from continuing operations before incometaxes to the total income tax expense is as follows: Years Ended July 31, 2013 2012 2011Tax at statutory rate 35.0 % 35.0 % 35.0 %Goodwill impairment (53.4)% — % — %State income taxes, net of federal tax benefit (0.2)% 0.1 % — %International rate differential (2.7)% (6.5)% (13.3)%Non-creditable withholding taxes (1.5)% 2.3 % 0.9 %Rate variances arising from foreign subsidiary distributions (25.3)% (6.5)% (7.4)%Adjustments to tax accruals and reserves 1.0 % 7.5 % 4.3 %Research and development tax credits and section 199 manufacturer’s deduction 3.1 % (1.0)% (1.2)%Foreign tax credit carryforward adjustments 2.4 % (3.4)% — %Other, net (1.0)% (1.0)% (1.3)%Effective tax rate (42.6)% 26.5 % 17.0 %The Company is eligible for tax holidays on the earnings of certain subsidiaries. The benefits realized as a result of these tax holidays reduced theconsolidated effective tax rate by approximately 0.7%, 0.7%, and 0.9% during the years ended July 31, 2013, 2012, and 2011, respectively. These taxholidays are fully expired as of July 31, 2013.54Table of ContentsUncertain Tax PositionsOn August 1, 2007, the Company adopted guidance regarding uncertain tax positions. The guidance requires application of a “more likely than not”threshold to the recognition and de-recognition of tax positions.A reconciliation of unrecognized tax benefits (excluding interest and penalties) is as follows:Balance at July 31, 2010$17,668 Additions based on tax positions related to the current year5,147Additions for tax positions of prior years2,387Reductions for tax positions of prior years(291)Lapse of statute of limitations(2,803)Settlements with tax authorities(728)Cumulative Translation Adjustments and other963 Balance at July 31, 2011$22,343 Additions based on tax positions related to the current year6,983Additions for tax positions of prior years9,460Reductions for tax positions of prior years—Lapse of statute of limitations(949)Settlements with tax authorities—Cumulative Translation Adjustments and other(1,305) Balance at July 31, 2012$36,532 Additions based on tax positions related to the current year4,015Additions for tax positions of prior years (1)2,809Reductions for tax positions of prior years—Lapse of statute of limitations(5,613)Settlements with tax authorities(590)Cumulative Translation Adjustments and other422 Balance at July 31, 2013$37,575(1)Includes acquisitionsApproximately $32,339 of unrecognized tax benefits, if recognized, would affect the Company's effective income tax rate. The Company has classified$32,759 and $29,765, excluding interest and penalties, of the reserve for uncertain tax positions in Other Liabilities on the Consolidated Balance Sheet as ofJuly 31, 2013 and 2012, respectively. The Company has classified $4,815, excluding interest and penalties, as a reduction of long-term deferred income taxassets on the Consolidated Balance Sheet as of July 31, 2013.The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statementsof income.Interest expense is recognized on the amount of potentially underpaid taxes associated with the Company's tax positions, beginning in the first period inwhich interest starts accruing under the respective tax law and continuing until the tax positions are settled. During the years ended July 31, 2013, 2012, and2011, the Company recognized a $200, and $539 increase in interest expense, and a $990 decrease in interest expense, as well as $313, $855 and $500 ofpenalties, respectively, related to the reserve for uncertain tax positions. These amounts are net of reversals due to reductions for tax positions of prior years,statute of limitations, and settlements. At July 31, 2013 and 2012, the Company had $2,265 and $1,986, respectively, accrued for interest on unrecognizedtax benefits. Penalties are accrued if the tax position does not meet the minimum statutory threshold to avoid the payment of a penalty.At July 31, 2013 and 2012, the Company had $2,689 and $2,840, respectively, accrued for penalties on unrecognized tax benefits.55Table of ContentsThe Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $13,934 within twelve months as a result ofthe resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or statute expirations. The maximum amount that would be recognizedthrough the consolidated statements of earnings as expense is $3,978.During the year ended July 31, 2013, the Company recognized tax benefits associated with the lapse of statutes of limitations.The Company and its subsidiaries file income tax returns in the U.S., various state, and foreign jurisdictions. The following table summarizes the opentax years for the Company's major jurisdictions:Jurisdiction Open Tax YearsUnited States — Federal F’10 — F’13France F’12 — F’13Germany F’06 — F’13United Kingdom F’10 — F’13Unremitted EarningsThe Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvestedindefinitely. These earnings relate to ongoing operations and at July 31, 2013, were approximately $425,743. These earnings have been reinvested in non-U.S.business operations, and the Company does not intend to repatriate these earnings to fund U.S. operations. It is impracticable to determine the income taxliability that would be payable if such earnings were not indefinitely reinvested.5. Long-Term ObligationsOn February 1, 2012, the Company and certain of its subsidiaries entered into an unsecured $300 million multi-currency revolving loan agreement witha group of six banks that replaced and terminated the Company’s previous credit agreement. Under the new credit agreement, which has a final maturity dateof February 1, 2017, the Company has the option to select either a base interest rate (based upon the higher of the federal funds rate plus one-half of 1% or theprime rate of Bank of America plus a margin based on the Company’s consolidated leverage ratio) or a Eurocurrency interest rate (at the LIBOR rate plus amargin based on the Company’s consolidated leverage ratio). At the Company’s option, and subject to certain conditions, the available amount under the newcredit facility may be increased from $300 million up to $450 million.In December 2012, the Company drew down $220 million from its revolving loan agreement to fund a portion of the purchase price of the acquisition ofPDC. Prior to July 31, 2013, the Company repaid $181 million of the borrowing with cash on hand. The Company intends to repay the remainder of theborrowing within 12 months of the current period end, as such, the borrowing is classified as "Notes Payable" within current liabilities on the ConsolidatedBalance Sheets. During fiscal 2013, the maximum amount outstanding on the revolving loan agreement was $220 million. As of July 31, 2013, theoutstanding balance on the credit facility was $39 million and there was $261 million available for future borrowing under the credit facility, which can beincreased by $411 million at the Company's option, subject to certain conditions.In February 2013, the Company entered into an unsecured $26.2 million multi-currency line of credit in China. The line of credit supports USD-denominated or RMB-denominated borrowing to fund working capital and operations for the Company's Chinese entities. Borrowings under this facility maybe made for a period up to one year from the date of borrowing with interest on the borrowings incurred equal to US Dollar LIBOR on the date of borrowingplus a margin based upon duration. There is no ultimate maturity on the facility and the facility is subject to periodic review and repricing. The Company isnot required to comply with any financial covenants as part of this agreement. During fiscal 2013, the maximum amount outstanding was $11,613,comprised entirely of USD-denominated borrowings, which was the balance outstanding at July 31, 2013. As of July 31, 2013, there was $14,587 availablefor future borrowing under this credit facility.As of July 31, 2013, borrowings on the revolving loan agreement and China line of credit were as follows: July 31, 2013 Interest RateUSD-denominated borrowing on revolving loan agreement$39,000 1.2787%USD-denominated borrowing on China line of credit11,613 1.1201%Notes payable$50,613 1.2423%The Company had outstanding letters of credit of $3,570 and $3,762 at July 31, 2013 and July 31, 2012, respectively.56Table of ContentsOn May 13, 2010, the Company completed a private placement of €75.0 million aggregate principal amount of senior unsecured notes to accreditedinstitutional investors. The €75.0 million of senior notes consists of €30.0 million aggregate principal amount of 3.71% Series 2010-A Senior Notes, dueMay 13, 2017 and €45.0 million aggregate principal amount of 4.24% Series 2010-A Senior Notes, due May 13, 2020, with interest payable on the notessemiannually. This private placement was exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resale andmay not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable statesecurities laws. The notes have certain prepayment penalties for repaying them prior to maturity. The notes have been fully and unconditionally guaranteed onan unsecured basis by the Company’s domestic subsidiaries.During fiscal 2004 through fiscal 2007, the Company completed three private placement note issuances totaling $500 million in ten-year fixed rate noteswith varying maturity dates to institutional investors at interest rates varying from 5.14%to 5.33%. The notes must be repaid equally over seven years, withinitial payment due dates ranging from 2008 to 2011, with interest payable on the notes due semiannually on various dates throughout the year, which beganin December 2004. The private placements were exempt from the registration requirements of the Securities Act of 1933. The notes were not registered for resaleand may not be resold absent such registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable statesecurities laws. The notes have certain prepayment penalties for repaying them prior to the maturity date. Under the debt agreement, the Company madescheduled principal payments of $61.3 million during each of the years ended July 31, 2013.The Company’s debt and revolving loan agreements require it to maintain certain financial covenants. The Company’s June 2004, February2006, March 2007, and May 2010 private placement debt agreements require the Company to maintain a ratio of debt to the trailing twelve months EBITDA,as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio). As of July 31, 2013, the Company was in compliance with the financialcovenant of the June 2004, February 2006, March 2007, and May 2010 private placement debt agreements, with the ratio of debt to EBITDA, as defined bythe agreements, equal to 1.6 to 1.0. Additionally, the Company’s February 2012 revolving loan agreement requires the Company to maintain a ratio of debt totrailing twelve months EBITDA, as defined by the debt agreement, of not more than a 3.25 to 1.0 ratio. The revolving loan agreement requires the Company’strailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of July 31, 2013, the Company was incompliance with the financial covenants of the revolving loan agreement, with the ratio of debt to EBITDA, as defined by the agreement, equal to 1.6 to 1.0and the interest expense coverage ratio equal to 9.2 to 1.0Long-term obligations consist of the following as of July 31: 2013 2012Euro-denominated notes payable in 2017 at a fixed rate of 3.71% $39,900 $36,912.0Euro-denominated notes payable in 2020 at a fixed rate of 4.24% 59,850 55,368USD-denominated notes payable through 2014 at a fixed rate of 5.14% 18,750 37,500USD-denominated notes payable through 2016 at a fixed rate of 5.30% 78,428 104,571USD-denominated notes payable through 2017 at a fixed rate of 5.33% 65,486 81,857 $262,414 $316,208Less current maturities $(61,264) $(61,264) $201,150 $254,944The estimated fair value of the Company’s long-term obligations was $276,132 and $338,668 at July 31, 2013 and July 31, 2012, respectively, ascompared to the carrying value of $262,414 and $316,208 at July 31, 2013 and July 31, 2012, respectively. The fair value of the long-term obligations,which were determined using the market approach based upon the interest rates available to the Company for borrowings with similar terms and maturities,were determined to be Level 2 under the fair value hierarchy. Due to the short-term nature and variable interest rate pricing of the Company's revolving debt, itis determined that the carrying value of the debt equals the fair value of the debt.57Table of ContentsMaturities on long-term debt are as follows:Years Ending July 31, 2014$61,264201542,514201642,514201756,2722018—Thereafter59,850 Total$262,414 6. Stockholder's InvestmentInformation as to the Company’s capital stock at July 31, 2013 and 2012 is as follows: July 31, 2013 July 31, 2012 SharesAuthorized SharesIssued (thousands)Amount SharesAuthorized SharesIssued (thousands)AmountPreferred Stock, $.01 par value 5,000,000 5,000,000 Cumulative Preferred Stock: 6%Cumulative 5,000 5,000 1972 Series 10,000 10,000 1979 Series 30,000 30,000 Common Stock, $.01 par value:Class A Nonvoting 100,000,000 51,261,487 $513 100,000,000 51,261,487 $513Class B Voting 10,000,000 3,538,628 35 10,000,000 3,538,628 35 $548 $548Before any dividend may be paid on the Class B Common Stock, holders of the Class A Common Stock are entitled to receive an annual,noncumulative cash dividend of $.01665 per share. Thereafter, any further dividend in that fiscal year must be paid on each share of Class A CommonStock and Class B Common Stock on an equal basis.Other than as required by law, holders of the Class A Common Stock are not entitled to any vote on corporate matters, unless, in each of the threepreceding fiscal years, the $.01665 preferential dividend described above has not been paid in full. Holders of the Class A Common Stock are entitled to onevote per share for the entire fiscal year immediately following the third consecutive fiscal year in which the preferential dividend is not paid in full. Holders ofClass B Common Stock are entitled to one vote per share for the election of directors and for all other purposes.Upon liquidation, dissolution or winding up of the Company, and after distribution of any amounts due to holders of Cumulative Preferred Stock,holders of the Class A Common Stock are entitled to receive the sum of $0.835 per share before any payment or distribution to holders of the Class BCommon Stock. Thereafter, holders of the Class B Common Stock are entitled to receive a payment or distribution of $0.835 per share. Thereafter, holders ofthe Class A Common Stock and Class B Common Stock share equally in all payments or distributions upon liquidation, dissolution or winding up of theCompany.The preferences in dividends and liquidation rights of the Class A Common Stock over the Class B Common Stock will terminate at any time that thevoting rights of Class A Common Stock and Class B Common Stock become equal.58Table of ContentsThe following is a summary of other activity in stockholders’ investment for the years ended July 31, 2013, 2012, and 2011: UnearnedRestrictedStock DeferredCompensation Shares Heldin RabbiTrust, at cost TotalBalances at July 31, 2010 $(3,373) $12,848 $(12,304) $(2,829)Shares at July 31, 2010 614,988 614,988 Sale of shares at cost — (1,421) 1,375 (46)Purchase of shares at cost — 666 (666) —Issuance of restricted stock (2,835) — — (2,835)Amortization of restricted stock 846 — — 846Balances at July 31, 2011 $(5,362) $12,093 $(11,595) $(4,864)Shares at July 31, 2011 560,078 560,078 Sale of shares at cost — (1,407) 1,368 (39)Purchase of shares at cost — 924 (924) —Amortization of restricted stock 1,599 — — 1,599Balances at July 31, 2012 $(3,763) $11,610 $(11,151) $(3,304)Shares at July 31, 2012 517,105 517,105 Sale of shares at cost — (1,461) 1,419 (42)Purchase of shares at cost — 891 (891) —Forfeitures of restricted stock 838 838Amortization of restricted stock 1,788 — — 1,788Balances at July 31, 2013 $(1,137) $11,040 $(10,623) $(720)Shares at July 31, 2013 469,797 469,797 Prior to 2002, all Brady Corporation deferred compensation was invested in the Company’s Class A Nonvoting Common Stock. In 2002, the Companyadopted a new deferred compensation plan which allowed investing in other investment funds in addition to the Company’s Class A Nonvoting CommonStock. Under this plan, participants were allowed to transfer funds between the Company’s Class A Nonvoting Common Stock and the other investmentfunds. On May 1, 2006 the plan was amended with the provision that deferrals into the Company’s Class A Nonvoting Common Stock must remain in theCompany’s Class A Nonvoting Common Stock and be distributed in shares of the Company’s Class A Nonvoting Common Stock. At July 31, 2013, thedeferred compensation balance in stockholders’ investment represents the investment at the original cost of shares held in the Company’s Class A NonvotingCommon Stock for the deferred compensation plan prior to 2002 and the investment at the cost of shares held in the Company’s Class A Nonvoting CommonStock for the plan subsequent to 2002, adjusted for the plan amendment on May 1, 2006. The balance of shares held in the Rabbi Trust represents theinvestment in the Company’s Class A Nonvoting Common Stock at the original cost of all the Company’s Class A Nonvoting Common Stock held indeferred compensation plans.The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class ANonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees and non-employee directors. The options have an exerciseprice equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period, with one-third becomingexercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan, referred to herein as“service-based” options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key managementemployees that vest upon meeting certain financial performance conditions over the vesting schedule described above. These options are referred to herein as“performance-based” options. Performance-based stock options expire 10 years from the date of grant. Restricted shares issued under the plan have anissuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 were amended in fiscal2011 to allow for vesting after either a five-year period or a seven-year period based upon both performance and service conditions. The restricted sharesgranted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. These shares are referred to hereinas “performance-based restricted shares.” Restricted shares granted in fiscal 2013 vest at the end of a three-year period based upon service conditions. Theseshares are referred to herein as “cliff-vested restricted shares.”The Company also grants restricted stock units to certain executives and key management employees that vest upon meeting certain financialperformance conditions over a specified vesting period, referred to herein as “performance-based restricted stock units.” The performance-based restrictedstock units granted in fiscal 2013 vest over a two-year period upon meeting both performance and service conditions.59Table of ContentsAs of July 31, 2013, the Company has reserved 5,150,975 shares of Class A Nonvoting Common Stock for outstanding stock options and restrictedshares and 4,359,943 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the active plans.The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.Changes in the options are as follows: Option Price OptionsOutstanding WeightedAverageExercisePriceBalance, July 31, 2010 $13.31–$40.37 5,108,736 $28.69Options granted 28.35 – 37.95 1,365,500 28.86Options exercised 14.16 – 29.78 (417,888) 19.62Options cancelled 16.39 – 38.31 (330,331) 31.37Balance, July 31, 2011 $13.31–$40.37 5,726,017 $29.24Options granted 27.00 – 33.54 1,212,450 27.91Options exercised 13.31 – 29.78 (266,991) 20.21Options cancelled 16.00 – 38.31 (417,725) 31.16Balance, July 31, 2012 $13.31–$40.37 6,253,751 $29.24Options granted 30.21 – 36.25 828,450 30.58Options exercised 13.31 – 31.54 (1,080,089) 22.79Options cancelled 16.39 – 38.31 (895,527) 30.02Balance, July 31, 2013 $17.23 – $40.37 5,106,585 $30.68The total fair value of options vested during the fiscal years ended July 31, 2013, 2012, and 2011 was $11,086, $8,016, and $6,822, respectively.The total intrinsic value of options exercised during the fiscal years ended July 31, 2013, 2012, and 2011 was $10,728, $3,096, and $5,701, respectively.There were 3,311,043, 3,503,963, and 3,316,815 options exercisable with a weighted average exercise price of $31.46, $29.69, and $29.83 atJuly 31, 2013, 2012, and 2011, respectively. The cash received from the exercise of options during the fiscal years ended July 31, 2013, 2012, and 2011 was$20,324, $3,864, and $8,193, respectively. The tax benefit on options exercised during the fiscal years ended July 31, 2013, 2012, and 2011 was $1,964,$777, and $682, respectively.The following table summarizes information about stock options outstanding at July 31, 2013: Options Outstanding Options Outstanding andExercisableRange of Exercise Prices Number of SharesOutstanding atJuly 31, 2013 Weighted AverageRemainingContractual Life(in years) WeightedAverageExercisePrice SharesExercisableat July 31,2013 WeightedAverageExercisePrice$17.00 - $27.99 939,749 6.4 $24.67 561,740 $23.11$28.00 - $37.99 3,361,336 6.0 30.54 1,943,803 31.05$38.00 and up 805,500 3.2 38.26 805,500 38.26Total 5,106,585 5.7 30.68 3,311,043 31.46As of July 31, 2013, the aggregate intrinsic value (defined as the amount by which the fair value of the underlying stock exceeds the exercise price of anoption) of options outstanding and the options exercisable was $18,900 and $11,577, respectively.The Company granted 5,000 cliff-vested restricted shares in December 2012, with a grant price and fair value of $32.99. The Company granted 10,000shares of performance-based restricted stock units in September 2012, with a grant price and fair value of $30.21. The Company granted 100,000 shares ofperformance-based restricted stock in August of 2010, with a grant price and fair value of $28.35, and 210,000 shares in fiscal 2008, with a grant price andfair value of $32.83. In fiscal 2013, 33,333 shares of performance-based restricted stock vested and 55,000 shares were forfeited. As a result, as of July 31,2013, 221,667 performance-based restricted shares were outstanding, 5,000 cliff-vested restricted shares were outstanding, and 10,000 performance-basedrestricted stock units were outstanding.60Table of Contents7. Segment InformationEffective May 1, 2013, the Company is organized and managed on a global basis within two business platforms: Identification Solutions andWorkplace Safety, which are the reportable segments. Prior to May 1, 2013, the Company was organized and managed on a geographic basis within threeregions: Americas, EMEA (Europe, the Middle East and Africa), and Asia-Pacific. As such, all segment-related data has been conformed to the new reportablesegments.The Company evaluates short-term segment performance based on segment profit or loss and customer sales. Segment profit or loss does not includecertain administrative costs, such as the cost of finance, information technology, human resources, legal, and executive leadership, which are managed asglobal functions. Restructuring charges, impairment charges, equity compensation costs, interest expense, investment and other income (expense) and incometaxes are also excluded when evaluating segment performance. Intersegment sales and transfers are recorded at cost plus a standard percentage markup.Each business platform has a President that reports directly to the Company's chief operating decision maker, its Chief Executive Officer. Each platformhas its own distinct operations, is managed locally by its own management team, maintains its own financial reports and is evaluated based on global segmentprofit. The Company has determined that these business platforms comprise its operating and reportable segments based on the information used by the ChiefExecutive Officer to allocate resources and assess performance.The segment results have been adjusted to reflect continuing operations in all periods presented. The depreciation and amortization expense andexpenditures for property, plant and equipment for discontinued operations are included under “corporate,” which then reconcile to the total company amountsas listed in the statement of cash flows.Following is a summary of segment information for the years ended July 31, 2013, 2012 and 2011: 2013 2012 2011Sales to External Customers: IDS $733,433 $633,774 $625,396WPS 418,676 434,914 433,959Total Company $1,152,109 $1,068,688 $1,059,355Depreciation & Amortization: IDS $25,920 $18,253 $19,252WPS 9,078 7,827 10,769Corporate 13,727 17,907 18,806Total Company $48,725 $43,987 $48,827Segment Profit: IDS $171,319 $159,427 $146,124WPS 95,241 117,187 118,913Total Company $266,560 $276,614 $265,037Assets: IDS $989,216 $744,055 $782,324WPS 239,219 439,255 444,354Corporate 210,248 424,409 634,827Total Company $1,438,683 $1,607,719 $1,861,505Expenditures for property, plant & equipment: IDS $18,186 $15,213 $13,406WPS 8,459 4,989 3,979Corporate 9,042 3,945 3,147Total Company $35,687 $24,147 $20,53261Table of ContentsFollowing is a reconciliation of segment profit to net earnings (loss) for the years ended July 31, 2013, 2012 and 2011: Years Ended July 31, 2013 2012 2011Total profit from reportable segments$266,560 $276,614 $265,037Unallocated costs: Administrative costs121,693 114,098 112,827Restructuring charges26,046 6,084 6,451Impairment charges (1)204,448 Investment and other income(3,522) (2,082) (3,989)Interest expense16,641 19,090 22,124(Loss) earnings from continuing operations before income taxes$(98,746) $139,424 $127,624(1) Of the total $204,448 impairment charges in fiscal 2013, $182,800 was in the WPS reportable segment and $21,648was in the IDS reportable segment. Revenues*Years Ended July 31, Long-Lived Assets**As of Years Ended July 31, 2013 2012 2011 2013 2012 2011Geographic information: United States $615,861 $522,393 $497,030 $576,539 $479,791 $488,571Other 596,899 609,083 623,839 319,706 411,134 541,648Eliminations (60,651) (62,788) (61,514) — — —Consolidated total $1,152,109 $1,068,688 $1,059,355 $896,245 $890,925 $1,030,219*Revenues are attributed based on country of origin.**Long-lived assets consist of property, plant, and equipment, other intangible assets and goodwill.8. Net (Loss) Earnings per Common ShareNet (loss) earnings per common share is computed by dividing net (loss) earnings (after deducting restricted stock dividends and the applicablepreferential Class A Common Stock dividends) by the weighted average Common Shares outstanding of 51,329,949 for 2013, 52,453,285 for 2012,52,639,355 for 2011. The Company utilizes the two-class method to calculate earnings per share.In June 2008, the Financial Accounting Standards Board (“FASB”) issued accounting guidance addressing whether instruments granted in share-basedpayment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share.This guidance requires that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends be considered participatingsecurities in undistributed earnings with common shareholders. The Company adopted the guidance during the first quarter of fiscal 2010. As a result, thedividends on the Company’s performance-based restricted shares are reconciling items in the basic and diluted earnings per share calculations for therespective periods presented.62Table of ContentsReconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B commonstock are summarized as follows: Years ended July 31, 2013 2012 2011 Numerator: (in thousands) (Loss) earnings from continuing operations$(140,816) $102,471 $105,957 Less: Restricted stock dividends(238) (229) (223) Numerator for basic and diluted earnings from continuing operations per Class A NonvotingCommon Share$(141,054) $102,242 $105,734 Less: Preferential dividends(797) (818) (820) Preferential dividends on dilutive stock options(5) (5) (6) Numerator for basic and diluted earnings from continuing operations per Class B VotingCommon Share$(141,856) $101,419 $104,908 Denominator: (in thousands) Denominator for basic earnings from continuing operations per share for both Class A and ClassB51,330 52,453 52,639 Plus: Effect of dilutive stock options— 368 494 Denominator for diluted earnings from continuing operations per share for both Class A andClass B51,330 52,821 53,133 (Loss) earnings from continuing operations per Class A Nonvoting Common Share: Basic$(2.75) $1.95 $2.01 Diluted$(2.75) $1.94 $1.99 (Loss) earnings from continuing operations per Class B Voting Common Share: Basic$(2.76) $1.93 $1.99 Diluted$(2.76) $1.92 $1.97 (Loss) earnings from discontinued operations per Class A Nonvoting Common Share: Basic$(0.27) $(2.30) $0.05 Diluted$(0.27) $(2.29) $0.05 (Loss) earnings from discontinued operations per Class B Voting Common Share: Basic$(0.27) $(2.29) $0.05 Diluted$(0.27) $(2.28) $0.05 Net (loss) earnings per Class A Nonvoting Common Share: Basic$(3.02) $(0.35) $2.06 Diluted$(3.02) $(0.35) $2.04 Net (loss) earnings per Class B Voting Common Share: Basic$(3.03) $(0.36) $2.04 Diluted$(3.03) $(0.36) $2.03 In accordance with ASC 260, “Earnings per Share,” dilutive options were not included in the computation of diluted loss per share for fiscal 2013 sinceto do so would be anti-dilutive.Options to purchase approximately 3,760,098, 4,592,486 and 3,049,611 shares of Class A Nonvoting Common Stock for fiscal years ended July 31,2013, 2012, and 2011, respectively, were not included in the computation of diluted net earnings (loss) per share as the impact of the inclusion of the optionswould have been anti-dilutive.63Table of Contents9. Commitments and ContingenciesThe Company has entered into various non-cancellable operating lease agreements. Rental expense charged to continuing operations on a straight-linebasis was $18,108, $15,196, and $19,118 for the years ended July 31, 2013, 2012, and 2011, respectively. Future minimum lease payments requiredunder such leases in effect at July 31, 2013 were as follows:Years ending July 31, 2014$14,785201512,82920169,31620178,16220187,735Thereafter18,170 $70,997In the normal course of business, the Company is named as a defendant in various lawsuits in which claims are asserted against the Company. In theopinion of management, the liabilities, if any, which may ultimately result from lawsuits are not expected to have a material effect on the consolidated financialstatements of the Company.10. Fair Value MeasurementsThe Company adopted accounting guidance on fair value measurements on August 1, 2008 as it relates to financial assets and liabilities. The Companyadopted the accounting guidance on fair value measurements for its non-financial assets and liabilities on August 1, 2009. The accounting guidance applies toother accounting pronouncements that require or permit fair value measurements, defines fair value based upon an exit price model, establishes a frameworkfor measuring fair value, and expands the applicable disclosure requirements. The accounting guidance indicates, among other things, that a fair valuemeasurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of aprincipal market, the most advantageous market for the asset or liability.The accounting guidance on fair value measurements establishes a fair market value hierarchy for the pricing inputs used to measure fair market value.The Company’s assets and liabilities measured at fair market value are classified in one of the following categories:Level 1 — Assets or liabilities for which fair value is based on quoted market prices in active markets for identical instruments as of the reporting date.Level 2 — Assets or liabilities for which fair value is based on valuation models for which pricing inputs were either directly or indirectly observable.Level 3 — Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use ofmanagement estimates.64Table of ContentsThe following tables set forth by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair valueon a recurring basis at July 31, 2013, and July 31, 2012, according to the valuation techniques the Company used to determine their fair values. InputsConsidered As Quoted Prices in ActiveMarkets for IdenticalAssets (Level 1) Significant OtherObservable Inputs(Level 2) Fair Values Balance Sheet ClassificationsJuly 31, 2013 Trading securities$14,975 $— $14,975 Other assetsForeign exchange contracts— 294 294 Prepaid expenses and other current assetsTotal Assets$14,975 $294 $15,269 Foreign exchange contracts$— $890 $890 Other current liabilitiesForeign currency denominated debt— 103,635 103,635 Long term obligations, less currentmaturitiesTotal Liabilities$— $104,525 $104,525 July 31, 2012 Trading securities$12,676 $— $12,676 Other assetsForeign exchange contracts— 1,234 1,234 Prepaid expenses and other current assetsTotal Assets$12,676 $1,234 $13,910 Foreign exchange contracts$— $281 $281 Other current liabilitiesForeign currency denominated debt— 99,081 99,081 Long term obligations, less currentmaturitiesTotal Liabilities$— $99,362 $99,362 The following methods and assumptions were used to estimate the fair value of each class of financial instrument:Trading securities: The Company’s deferred compensation investments consist of investments in mutual funds. These investments were classified asLevel 1 as the shares of these investments trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.Foreign exchange contracts: The Company’s foreign exchange contracts were classified as Level 2, as the fair value was based on the present value of thefuture cash flows using external models that use observable inputs, such as interest rates, yield curves and foreign exchange rates. See Note 12, “Derivativesand Hedging Activities” for additional information.Foreign currency denominated debt: The Company’s foreign currency denominated debt designated as a net investment hedge was classified as Level 2,as the fair value was based on the present value of the future cash flows using external models that use observable inputs, such as interest rates, yield curvesand foreign currency exchange rates. See Note 12, “Derivatives and Hedging Activities” for additional information.There have been no transfers of assets or liabilities between the fair value hierarchy levels, outlined above, during the fiscal years ended July 31, 2013and July 31, 2012.The Company’s financial instruments, other than those presented in the disclosures above, include cash and cash equivalents, accounts receivable,notes payable, accounts payable, accrued liabilities and short-term and long-term debt. The fair values of cash and cash equivalents, accounts receivable,notes payable, accounts payable, and accrued liabilities approximated carrying values because of the short-term nature of these instruments. See Note 5 forinformation regarding the fair values of the Company's short-term and long-term debt.During fiscal 2013, the Company implemented a plan to divest its Asia Die-Cut business, including Balkhausen. As such, the assets and liabilities ofthe Asia Die-Cut disposal group were recorded at approximate fair value less cost to sell and classified as "Assets held for sale" and "Liabilities held for sale."This resulted in a loss on the write-down of the disposal group of $15,658, recorded within discontinued operations for the fiscal year ended July 31, 2013.Fair value was determined utilizing a combination of external market factors and internal projections.65Table of ContentsDuring fiscal 2013, goodwill with a carrying amount of $183,146 in the WPS Americas reporting unit was written down to its estimated implied fairvalue of $10,866, resulting in a non-cash impairment charge of $172,280. In order to arrive at the implied fair value of goodwill, the Company calculated thefair value of all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. After assigning fair valueto the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of $10,866, which represented a Level 3 asset measured atfair value on a nonrecurring basis subsequent to its original recognition.The WPS Americas reporting unit had intangible assets consisting of tradenames and customer relationships, which were valued using the incomeapproach as part of the goodwill impairment test described above. The valuation was based upon current sales projections and profitability for each assetgroup, and the relief from royalty method was applied. As a result of the analysis, indefinite-lived tradenames with a carrying amount of $25,449 were writtendown to the estimated fair value of $14,881, resulting in a non-cash impairment charge of $10,568 within the WPS segment.During fiscal 2013, goodwill with a carrying amount of $18,225 in the IDS APAC reporting unit was written off, resulting in a non-cash impairmentcharge of $18,225. When management compared the fair value to the carrying value of the reporting unit as part of the annual goodwill impairment test (StepOne), a qualitative assessment was completed for Step Two because the amount by which the carrying value exceeded fair value was more than the balance ofgoodwill remaining. The fair value of the reporting unit was determined utilizing a combination of external market factors, internal projections, and otherrelevant Level 3 measurements. As such, the Company recognized a goodwill impairment charge of the entire remaining goodwill balance of $18,225 duringthe year ended July 31, 2013. As a result of the goodwill impairment, the Company analyzed fixed assets for potential impairment within the IDS APACreporting unit by comparing undiscounted future cash flows to the carrying amount of the assets. Undiscounted future cash flows were determined using theCompany's internal projections and other relevant Level 3 measurements. As a result, the Company concluded that fixed assets with a carrying amount of$4,367 was written down to their estimated fair value of $1,100 during the year ended July 31, 2013.During fiscal 2012, goodwill with a carrying amount of $163,702 in the former North/South Asia reporting unit was written down to its estimatedimplied fair value of $48,014, resulting in a non-cash impairment charge of $115,688. In order to arrive at the implied fair value of goodwill, the Companyassigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Intangibleassets consisted of customer lists, and were valued using the income approach based upon customers in existence at the valuation date. After assigning fairvalue to the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of $48,014, which represented a Level 3 asset measuredat fair value on a nonrecurring basis subsequent to its original recognition.11. RestructuringIn fiscal 2011, the Company continued executing its restructuring actions initiated in the prior periods and recorded restructuring charges of $6,451 incontinuing operations. The fiscal 2011 restructuring charges consisted of $4,338 of employee separation costs, $1,577 of non-cash fixed asset write-offs,$293 of other facility closure related costs, and $243 of contract termination costs. Of the $6,451 of restructuring charges recorded during the fiscal yearended July 31, 2011, $2,896 was incurred within IDS and $3,555 within WPS. The costs related to these restructuring activities have been recorded on theconsolidated statements of earnings as restructuring charges.During fiscal 2012, the Company took various measures to address its cost structure in response to weaker sales forecasts across the Company. As aresult of these actions, the Company recorded restructuring charges in continuing operations of $6,084, which consisted of $4,947 of employee separationcosts, $458 of fixed asset write-offs, $653 of other facility closure related costs, and $26 of contract termination costs. Of the $6,084 of restructuringcharges recorded during fiscal 2012, $4,254 was incurred within IDS and $1,830 within WPS.In fiscal 2013, the Company announced a restructuring action to reduce its global workforce by approximately 5-7% in order to address its coststructure. In connection with this restructuring action, the Company incurred restructuring charges of $26,046 in continuing operations. These chargesconsisted of $18,350 of employee separation costs, $4,125 of fixed asset write-offs and $3,571 of other facility closure related costs. Of the $26,046 ofrestructuring charges recorded during fiscal 2013, $15,870 was incurred within IDS and $10,176 within WPS. The charges for employee separation costsconsisted of severance pay, outplacement services, medical and other benefits. Long-lived asset write-offs include both the net book value of property, plantand equipment written off in conjunction with facility consolidations, as well as indefinite-lived tradenames written off in conjunction with brandconsolidations within the WPS segment.66Table of ContentsThe costs related to these restructuring activities were recorded on the consolidated statements of earnings as restructuring charges. The Companyexpects the majority of the remaining cash payments to be made during the next twelve months. The liability is included in wages and amounts withheld fromemployees on the consolidated balance sheet.A roll-forward of the Company’s restructuring activity for fiscal 2011, 2012 and 2013 is below. EmployeeRelated AssetWrite-offs Other TotalRestructuring liability ending balance, July 31, 2010 $6,055 $— $106 $6,161Restructuring charges in continuing operations 4,338 1,577 536 6,451Restructuring charges in discontinued operations 2,003 578 157 2,738Non-cash write-offs — (2,155) — (2,155)Cash payments (10,189) — (749) (10,938)Restructuring liability ending balance, July 31, 2011 $2,207 $— $50 $2,257Restructuring charges in continuing operations $4,947 $458 $679 $6,084Restructuring charges in discontinued operations 5,997 — 29 6,026Non-cash write-offs — (458) — (458)Cash payments (4,342) — (492) (4,834)Restructuring liability ending balance, July 31, 2012 $8,809 $— $266 $9,075Restructuring charges in continuing operations $18,350 $4,125 $3,571 $26,046Restructuring charges in discontinued operations 2,811 362 1,376 4,549Non-cash write-offs — (4,487) — (4,487)Cash payments (18,495) — (2,482) (20,977)Restructuring liability ending balance, July 31, 2013 $11,475 $— $2,731 $14,20612. Derivatives and Hedging ActivitiesThe Company utilizes forward foreign exchange contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. Thesecontracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of less than 18 months, whichqualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objectiveof the Company’s foreign currency exchange risk management program is to minimize the impact of currency movements due to transactions in other than therespective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s net investment denominated in a currencyother than the U.S. Dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange contracts. As ofJuly 31, 2013 and July 31, 2012, the notional amount of outstanding forward foreign exchange contracts was $157,500 and $61,169, respectively.The Company hedges a portion of known exposures using forward foreign exchange contracts. Main exposures are related to transactions denominatedin the British Pound, the Euro, Canadian Dollar, Australian Dollar, Malaysian Ringgit and Singapore Dollar. Generally, these risk management transactionswill involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.Hedge effectiveness is determined by how closely the changes in fair value of the hedging instrument offset the changes in the fair value or cash flows ofthe hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-goingbasis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings.Cash Flow HedgesThe Company has designated a portion of its forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on theconsolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensiveincome (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At July 31, 2013 andJuly 31, 2012, unrealized gains of $118 and $1,348 have been included in OCI, respectively. These balances are expected to be reclassified from OCI toearnings during the next two months when the hedged transactions impact earnings. For the years ended July 31, 2013, 2012, and 2011, the Companyreclassified gains of $578, losses of $494, and losses of $1,793 from OCI into cost of goods sold, respectively.67Table of ContentsAt July 31, 2013 the Company had no outstanding forward foreign exchange contracts designated as cash flow hedges. At July 31, 2012, the Companyhad $1,156 of forward foreign exchange contracts designated as cash flow hedges included in “Prepaid expenses and other current assets” on theaccompanying consolidated balance sheet. At July 31, 2012, the Company had $210 of forward foreign exchange contracts designated as cash flow hedgesincluded in “Other current liabilities” on the accompanying consolidated balance sheet. At July 31, 2012, the U.S. dollar equivalent of these outstandingforward foreign exchange contracts totaled $39,458, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds and U.S.Dollars.Net Investment HedgesThe Company has also designated intercompany and third party foreign currency denominated debt instruments as net investment hedges. During 2013,the Company designated certain British Pound intercompany loans as net investment hedges to hedge portions of its net investment in British foreignoperations. At July 31, 2013, the Company had £25.0 million of intercompany loans so designated. As of July 31, 2013 and 2012, the Company recognizedin OCI gains of $2,121 and $547, respectively, on its intercompany loans designated as net investment hedges. During 2013, the Company repaidintercompany loans previously designated as net investment hedges of European foreign operations. At July 31, 2013 and 2012, the Company had zero and€4.6 million, respectively, of intercompany loans designated as net investment hedges to hedge portions of its net investment in Euro-denominated foreignoperations. On May 13, 2010, the Company completed the private placement of €75.0 million aggregate principal amount of senior unsecured notes toaccredited institutional investors. This Euro-denominated debt obligation was designated as a net investment hedge to selectively hedge portions of its netinvestment in European foreign operations. As of July 31, 2013 and 2012, the cumulative balance recognized in accumulated other comprehensive income werelosses of $4,835 and gains of $2,635, respectively, on the Euro-denominated debt obligation. The changes recognized in other comprehensive income duringthe years ended July 31, 2013, 2012 and 2011 were losses of $7,470, gains of $15,705, and losses of $10,238, respectively, on the Euro-denominated debtobligation. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.Additionally, the Company utilizes forward foreign exchange contracts designated as hedge instruments to hedge portions of its net investments inforeign operations. The net gains or losses attributable to changes in spot exchange rates are recorded in other comprehensive income. Recognition in earnings ofamounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investmentin the hedged foreign operation. At July 31, 2013 and 2012, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $4,500and $10,650, respectively. As of July 31, 2013 and 2012, the Company recognized in OCI losses of $150 and losses of $1,041, respectively, on its netinvestment hedges.68Table of ContentsNon-Designated HedgesDuring the fiscal year ended July 31, 2013, the Company recognized a loss of $1,594 in “Investment and other income” on the consolidated statementsof earnings related to non-designated hedges. For the fiscal year ended July 31, 2012, the Company recognized a gain of $188 in "Investment and otherincome" on the consolidated statement of earnings related to non-designated hedges.Fair values of derivative instruments in the consolidated balance sheets were as follows: Asset Derivatives Liability Derivatives July 31, 2013 July 31, 2012 July 31, 2013 July 31, 2012 BalanceSheetLocation FairValue BalanceSheetLocation FairValue BalanceSheetLocation FairValue BalanceSheetLocation FairValueDerivatives designated ashedging instruments Cash flow hedges Foreign exchangecontractsPrepaid expensesand other currentassets $— Prepaid expensesand other currentassets $1,156 Other currentliabilities $— Other currentliabilities $210Net investment hedges Foreign exchangecontractsPrepaid expensesand other currentassets $7 Prepaid expensesand other currentassets $— Other currentliabilities $— Other currentliabilities $71Foreign currencydenominated debtPrepaid expensesand other currentassets $— Prepaid expensesand other currentassets $— Long termobligations, lesscurrent maturities $99,750 Long termobligations, lesscurrent maturities $99,081Total derivatives designated ashedging instruments $7 $1,156 $99,750 $99,362Derivatives not designated ashedging instruments Foreign exchangecontractsPrepaid expensesand other currentassets $287 Prepaid expensesand other currentassets $78 Other currentliabilities $890 Other currentliabilities $—Total derivatives not designatedas hedging instruments $287 $78 $890 $—13. Discontinued OperationsThe Company implemented a plan to divest its Asia Die-Cut business during the three months ended April 30, 2013, and incorporated its Balkhausenbusiness into that plan during the three months ended July 31, 2013. As a result, the businesses have been classified as assets and liabilities held for sale as ofJuly 31, 2013. The disposal groups have been recorded based on the estimated fair value less costs to sell, which resulted in a write down of $15,658,recorded in the three months ended April 30, 2013. The operating results have been reported as discontinued operations for the comparative periods endedJuly 31, 2013, 2012, and 2011, including the operating results of the following four previously divested businesses:Divestitures Segment Date CompletedEtimark ID Solutions July 2012Precision Converting, LLC (“Brady Medical”) ID Solutions August 2012Teklynx ID Solutions December 2010Varitronics ID Solutions October 201269Table of ContentsThe following table summarizes the operating results of discontinued operations for the fiscal years ending July 31, 2013, 2012 and 2011: 2013 2012 2011Net sales$219,819 $262,484 $289,407Earnings (loss) from operations of discontinued businesses (1)7,154 (116,673) 16,434(Loss) on write-down of disposal group (2)(15,658) — —Income tax expense (3)(5,215) (3,709) (13,739)(Loss) earnings from discontinued operations, net of income tax$(13,719) $(120,382) $2,695(1)The loss from operations of discontinued businesses in fiscal 2012 was primarily attributable to the $115.7 million goodwill impairment chargerecorded during the three months ending January 31, 2012, which was related to the Asia Die-Cut disposal group.(2)The $15.7 million loss relates to the write-down of the Asia Die-Cut disposal group to its estimated fair value less costs to sell and was recorded in thethree months ending April 30, 2013.(3)Fiscal 2013 income tax expense was significantly impacted by the fiscal 2013 losses in China and Sweden, which had no tax benefit, and the increase invaluation allowance related to Shenzhen, China.The following table details assets and liabilities of the Asia Die-Cut & Balkhausen disposal groups classified as held for sale as of July 31, 2013: July 31, 2013Accounts receivable—net$47,499Total inventories20,200Prepaid expenses and other current assets1,469Total current assets69,168 Other assets: Goodwill37,347Other intangible assets914Other1,937Property, plant and equipment—net26,156Total assets$135,522 Current liabilities: Accounts payable$29,769Wages and amounts withheld from employees3,143Other current liabilities1,671Total current liabilities34,583 Net assets of disposal group100,939Less: write-down on disposal group(15,658)Net assets of disposal group at fair value$85,281In accordance with authoritative literature, accumulated other comprehensive income will be reclassified to the statement of earnings upon liquidation orsubstantial liquidation of the disposal group.70Table of Contents14. Unaudited Quarterly Financial Information Quarters First Second Third Fourth Total2013 Net sales $270,866 $271,175 $300,971 $309,097 $1,152,109Gross margin 149,524 141,013 158,532 157,011 606,080Operating income (loss) * 42,628 20,968 30,115 (179,338) (85,627)Earnings (loss) from continuing operations 25,786 (11,364) 20,996 (176,234) (140,816)Net earnings (loss) from continuing operations per Class A Common Share: Basic** $0.50 $(0.22) $0.41 $(3.41) $(2.75)Diluted** 0.50 (0.22) 0.41 (3.41) (2.75)2012 Net sales $273,396 $255,052 $271,151 $269,089 $1,068,688Gross margin 150,450 141,237 150,430 147,453 $589,570Operating income * 42,745 37,393 42,228 34,066 $156,432Earnings from continuing operations 27,855 26,436 27,311 20,869 $102,471Net earnings from continuing operations per Class A Common Share: Basic $0.53 $0.50 $0.52 $0.40 $1.95Diluted** 0.52 0.50 0.51 0.40 1.94The quarterly financial data has been impacted by the reclassification of the Asia Die-Cut & Balkhausen businesses into discontinued operations. Referto Note 13 within Item 8 for further information on discontinued operations.* In fiscal 2013, the Company recorded before tax impairment charges of $204,448 in the fourth quarter ended July 31, 2013and before tax restructuring charges of $1,933, $8,540 and $15,573 in the second, third and fourth quarters of fiscal 2013,respectively, for a total of $26,046. In fiscal 2012, the Company recorded before tax restructuring charges of $1,977 and$4,107 in the third and fourth quarters of fiscal 2012, respectively, for a total of $6,084.** The sum of the quarters does not equal the year-to-date total for fiscal 2013 and fiscal 2012 due to the quarterly changes inweighted-average shares outstanding.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDisclosure Controls and Procedures:Brady Corporation maintains a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by theCompany in the reports filed by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to be disclosed by the Company in the reports the Company files under the Exchange Actis accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under thesupervision and with the participation of its management, including its President and Chief Executive Officer and its Senior Vice President and ChiefFinancial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of theExchange Act. Based on that evaluation, the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.Management’s Report on Internal Control Over Financial Reporting:The management of Brady Corporation and its subsidiaries is responsible for establishing and maintaining adequate internal control over financialreporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control overfinancial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles.71Table of ContentsWith the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of ourinternal control over financial reporting as of July 31, 2013, based on the framework and criteria established in Internal Control — Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of July 31,2013, the Company’s internal control over financial reporting is effective based on those criteria. The Company’s internal control over financial reporting, asof July 31, 2013, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is includedherein.Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also,projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Changes in Internal Control Over Financial Reporting:There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) thatoccurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.72Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofBrady CorporationMilwaukee, WIWe have audited the internal control over financial reporting of Brady Corporation and subsidiaries (the "Company") as of July 31, 2013, based on criteriaestablished in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'sassets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2013, based on the criteriaestablished in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedule as of and for the year ended July 31, 2013, of the Company and our report dated September 30, 2013, expressedan unqualified opinion on those financial statements and financial statement schedule./s/ DELOITTE & TOUCHE LLPMilwaukee, WisconsinSeptember 30, 201373Table of ContentsItem 9B. Other InformationNone.PART IIIItem 10. Directors and Executive Officers of the RegistrantName Age TitleFrank M. Jaehnert 55 President, CEO and DirectorThomas J. Felmer 51 Senior V.P., CFOStephen Millar 52 President - Die Cut, President - Brady Asia Pacific and V.P., BradyCorporationScott R. Hoffman 50 President - Workplace Safety and V.P., Brady CorporationMatthew O. Williamson 57 President - Identification Solutions and V.P., Brady CorporationAllan J. Klotsche (1) 48 Senior V.P. - Human ResourcesLouis T. Bolognini 57 Senior V.P., Secretary and General CounselLee E. Marks 54 V.P. - Global Operations and Supply ChainBentley N. Curran 51 V.P. - Digital Business and Chief Information OfficerKathleen M. Johnson 59 V.P. and Chief Accounting OfficerPaul T. Meyer 44 TreasurerPatrick W. Allender 66 DirectorGary S. Balkema 58 DirectorNancy L. Gioia 53 Nominee for Director at the November 2013 Annual Meeting ofShareholdersConrad G. Goodkind 69 DirectorFrank W. Harris 71 DirectorElizabeth P. Pungello 46 DirectorBradley C. Richardson 55 Director(1) On July 10, 2013, Mr. Klotsche informed the Company of his intent to resign effective upon the hiring of his successor and a period of transitionthereafter.Frank M. Jaehnert - Mr. Jaehnert has served on the Company's Board of Directors and as the Company's President and CEO since 2003. Mr. Jaehnertjoined the Company in 1995 and served in leadership positions in a variety of different functions and businesses, including that of CFO from 1996 to 2002,before his promotion to President and CEO in 2003. Previously, he served in a variety of financial roles at Robert Bosch, GmbH, including Treasurer of asubsidiary. His broad operating and functional experience and in-depth knowledge of Brady's businesses are particularly valuable given the diverse nature ofBrady's portfolio. These experiences, combined with Mr. Jaehnert's talent for leadership and his long-term strategic perspective, have helped drive theCompany's growth and performance during his tenure as Director and CEO. He currently sits on the Board of Regents of the Milwaukee School ofEngineering; the Board of Trustees of the Manufacturers Alliance/MAPI; the Business Advisory Council of the Sheldon B. Lubar School of Business at theUniversity of Wisconsin - Milwaukee; and the Board of Directors of the Metro Milwaukee Association of Commerce. In 2012, Mr. Jaehnert was elected to theBoard of Directors of Nordson Corporation74Table of Contents(NASDAQ:NDSN). Mr. Jaehnert received the equivalent of a master's degree in business administration from the University of Stuttgart, Germany.Thomas J. Felmer - Mr. Felmer joined the Company in 1989 and has held several sales and marketing positions until being named Vice President andGeneral Manager of Brady's U.S. Signmark Division in 1994. In 1999, Mr. Felmer moved to Europe where he led the European Signmark business for twoyears, then gained additional responsibility for the European direct marketing business platforms, which he also led for two years. In 2003, Mr. Felmerreturned to the United States where he was responsible for Brady's global sales and marketing processes, Brady Software businesses, and integration leader ofthe EMED acquisition. In June 2004, he was appointed President - Direct Marketing Americas, and was named Chief Financial Officer in January 2008. Mr.Felmer received a bachelor's degree in business administration from the University of Wisconsin - Green Bay.Stephen Millar - Mr. Millar joined the Company in 1999 as Managing Director of Brady Australia, a position he held until 2008 when he joined BradyAmericas' leadership team as Vice President and General Manager responsible for its portfolio of people identification, medical and education businesses. In2010, he returned to Asia in the role of MRO Director for the region. He was appointed President - Brady Asia Pacific in March 2011 and was appointedPresident - Die Cut in February 2013. Prior to joining Brady, Mr. Millar served in a variety of leadership positions in Australia and New Zealand with GNBTechnologies, a global manufacturer of automotive and industrial batteries. He holds a bachelor's of commerce and administration degree from VictoriaUniversity of Wellington, New Zealand and is a member of the institute of Chartered Accountants of New Zealand.Scott R. Hoffman - Mr. Hoffman was appointed President - Workplace Safety effective May 1, 2013, and has responsibility for the workplace safetybusiness platform globally. Since joining the Company in 1986 as a sales representative, he has held a variety of sales, marketing and leadership roles,including regional sales manager, global industry manager, director of North American sales, Vice President - Sales and Marketing for North America, globalbusiness leader for power and communication identification, Vice President of the Company's global die-cut business and Vice President and General Manager- Americas. He holds a bachelor's degree in marketing and finance from the University of Wisconsin - Madison. Matthew O. Williamson - Mr. Williamson joined the Company in 1979. From 1979 to 1994, he served in a variety of sales and marketing leadershiproles. From 1995 to 2003, Mr. Williamson served as the Vice President and General Manager of the Company's specialty tape and identification solutionbusinesses. From 1996 to 1998, Mr. Williamson served as the Vice President and General Manager of the Identification Solutions and Specialty TapesDivision. From 1998 to 2001, he served as Vice President and General Manager of the Identification Solutions Division. From 2001 to 2003, he served as VicePresident and General Manager of the Global High Performance Identification Business. In April 2003, he was appointed President of the Brady Americasbusiness, and in January 2008, Mr. Williamson assumed responsibility for the Direct Marketing Americas business. Effective May 1, 2013, Mr. Williamsonwas appointed President - Identification Solutions, and has responsibility for the Identification Solutions business platform globally. He holds a bachelor'sdegree in marketing from the University of Wisconsin - Milwaukee.Allan J. Klotsche - Mr. Klotsche joined the Company in 1989. He served in a variety of sales, marketing, technical, and management roles until 1998,when he was appointed Vice President and General Manager of the Precision Tapes Group. He served as President - Brady Asia Pacific from 2003 until hiscurrent appointment as Senior Vice President leading Brady's global human resources function in October 2010. He holds a master's degree in businessadministration from the University of Wisconsin-Milwaukee.Louis T. Bolognini - Mr. Bolognini joined the Company as Senior Vice President, General Counsel and Secretary in January 2013. Prior to joining theCompany, he served as Senior Vice President, General Counsel and Secretary of Imperial Sugar Company from June 2008 through September 2012 and wasVice President and General Counsel of BioLab, Inc., a pool and spa manufacturing and marketing company from 1999 to 2008. Mr. Bolognini served asAssistant General Counsel to BioLab's parent company, Great Lakes Chemical Corporation, from 1990 to 1999. Mr. Bolognini served as an officer ofBioLab, Inc. within a two-year period prior to the March 18, 2009 Chapter 11 bankruptcy petition filed by BioLab's parent company, Chemtura Corporation,on behalf of itself and 26 U.S. affiliates, including BioLab. He holds a bachelor's degree in political science from Miami University and a Juris Doctor degreefrom the University of Toledo.Lee E. Marks - Mr. Marks joined the Company in 2009 as Vice President of Operations for the Americas region and was named Vice President of GlobalOperations and Supply Chain in 2012. In this role, he is responsible for all manufacturing and distribution operations, corporate real estate, environmental,health and safety compliance, procurement, global engineering services and quality systems. Prior to joining the Company, he held a number of executivepositions in operations with Pentair, Inc. from 1994 to 2009. He also served as a consultant for Arthur Anderson and Deloitte & Touche. Mr. Marks holds abachelor's degree in accounting from the University of Wisconsin - LaCrosse and is certified by the American Production & Inventory Control Society. He isalso a Certified Public Accountant and Adjunct Professor at Marquette University, where he teaches Applied Procurement in the Operations ManagementProgram.75Table of ContentsBentley N. Curran - Mr. Curran joined the Company in 1999 and has held several technology leadership positions until being named Vice President ofInformation Technology in 2005. In October 2007, he was appointed Chief Information Officer of Brady globally. In February 2012, he was appointed to hiscurrent position, Vice President of Digital Business and Chief Information Officer. Prior to joining Brady, Mr. Curran served in a variety of technologyleadership roles for Compucom and the Speed Queen Company. He holds a bachelor's degree in business administration from Marian University and holdsan associate of science degree in electronics and engineering systems.Kathleen M. Johnson - Ms. Johnson joined the Company in 1989 as controller of a division of Brady and became group finance director in 1996. In2000, she was appointed Vice President. In 2008, she was appointed Chief Accounting Officer. Prior to joining Brady, she spent six years with Kraft FoodService. She started her career as a Certified Public Accountant with Deloitte & Touche. She holds a bachelor's degree in accounting from the University ofWisconsin - Whitewater.Paul T. Meyer --- Mr. Meyer joined the Company in 2009 as Global Tax Director. In May 2013, he was appointed Treasurer, in addition to his dutiesas Global Tax Director. Prior to joining the Company, Mr. Meyer worked in the corporate tax departments of GE Healthcare and JohnsonDiversey. He began hiscareer as a tax consultant with Ernst & Young. He holds a bachelor's degree in accounting and a master's degree in taxation from the University of Wisconsin-Milwaukee.Patrick W. Allender - Mr. Allender was elected to the Board of Directors in 2007. He serves as the Chair of the Finance Committee and as a member ofthe Audit and Corporate Governance Committees. He served as Executive Vice President and CFO of Danaher Corporation from 1998 to 2005 and ExecutiveVice President from 2005 to 2007. Additionally, he served as a public accountant at Arthur Andersen from 1968 to 1985. He has served as a director ofColfax Corporation since 2008 and Diebold, Inc. since May 2011. Mr. Allender's strong background in finance and accounting, as well as his past experienceas the CFO of a public company, provides the Board with financial expertise and insight.Gary S. Balkema - Mr. Balkema was elected to the Board of Directors in 2010. He currently serves as the Chair of the Management Development andCompensation Committee and is a member of the Audit and Technology Committees. From 2000 to 2011, he served as the President of Bayer Healthcare LLCand Worldwide Consumer Care Division. He was also responsible for overseeing Bayer LLC USA's compliance program. He has over 20 years of generalmanagement experience. Mr. Balkema brings strong experience in consumer marketing skills and mergers and acquisitions and integrations. His broadoperating and functional experience are valuable to the Company given the diverse nature of the Company's portfolio.Nancy L. Gioia - Ms. Gioia has been nominated for election to the Board of Directors at the Annual Shareholders Meeting in November 2013. Ms. Gioiawas nominated through a process conducted by the Corporate Governance Committee of the Board, which utilized the services of an executive search firm.Ms. Gioia is Director, Global User Interface and Connectivity of Ford Motor Company. Since joining Ford in 1982, she has held a variety of engineering andtechnology roles, including Director, Global Electrification; Director, Sustainable Mobility Technologies and Hybrid Vehicle Programs; Director, NorthAmerica Current Vehicle Model Quality; Engineering Director, Visteon/Ford Due Diligence; Engineering Director, Small FWD/RWD Car Platforms-NorthAmerica; and Vehicle Programs Director, Lifestyle Vehicles. She previously served as a Director of Auto Alliance International, a joint venture of Ford MotorCompany and Mazda Corporation; Director of the Electric Drive Transportation Association; and Director of the California Plug-in EV Collaborative. Shecurrently serves as a Director of Inforum and the State of Michigan, Governor's Talent Investment Board. If elected to the Board of Directors, Ms. Gioia'sextensive experience in technology and engineering solutions, as well as her general business experience, will provide the Board with important expertise inproduct development and operations.Conrad G. Goodkind - Mr. Goodkind was elected to the Board of Directors in 2007. He currently serves as the Lead Independent Director, Chair of theCorporate Governance Committee and as a member of the Finance and Audit Committees. He previously served as Secretary of the Company from 1999 to2007. Mr. Goodkind was a partner in the law firm of Quarles & Brady, LLP, where his practice concentrated in corporate and securities law from 1979 to2009. Prior to 1979, he served as Wisconsin's Deputy Commissioner of Securities. Mr. Goodkind previously served as a director of Cade Industries, Inc.and Able Distributing, Inc. His extensive experience in advising companies on a broad range of transactional matters, including mergers and acquisitions andsecurities offerings, and historical knowledge of the Company provide the Board with expertise and insight into governance, business and compliance issuesthat the Company encounters.Frank W. Harris, Ph.D - Dr. Harris was elected to the Board of Directors in 1991. He serves as the Chair of the Technology Committee and as amember of the Management Development and Compensation Committee. He served as the Distinguished Professor of Polymer Science and BiomedicalEngineering at the University of Akron from 1983 to 2008 and Professor of Chemistry at Wright State University from 1970 to 1983. He is the founder ofseveral technology based companies including Akron Polymer Systems where he serves as President and CEO. Dr. Harris is the inventor of severalcommercialized products including an optical film that realized over one billion dollars in sales. His extensive experience in technology and engineeringsolutions provides the Board with important expertise in new product development.76Table of ContentsElizabeth P. Pungello, Ph.D - Dr. Pungello was elected to the Board of Directors in 2003. She serves as a member of the Management Development andCompensation, Corporate Governance and Technology Committees. Dr. Pungello is the President of the Brady Education Foundation in Chapel Hill, NorthCarolina and a Research Assistant Professor in the Developmental Psychology Program at the University of North Carolina at Chapel Hill. She also hasappointments as a Scientist at the Frank Porter Graham Development Institute and a Mentor Faculty Member at the Center for Developmental Science. Dr.Pungello also serves on the editorial board of the Journal of Marriage and Family, as a reviewer for several other journals, and on a number of other non-profitboards. She is the granddaughter of William H. Brady, Jr., the founder of Brady Corporation. As a result of her substantial ownership stake in the Company,as well as her family's history with the Company, she is well positioned to understand, articulate and advocate for the rights and interests of the Company'sshareholders.Bradley C. Richardson - Mr. Richardson was elected to the Board of Directors in 2007. He serves as the Chair of the Audit Committee and is a memberof the Management Development and Compensation, Corporate Governance and Finance Committees. He is the Executive Vice President and CFO of Diebold,Inc. He previously served as the Executive Vice President Corporate Strategy and CFO of Modine Manufacturing from 2003 to 2009. Prior to Modine, he spent21 years with BP Amoco serving in various financial and operational roles with assignments in North America, South America and Europe. Mr. Richardsonhas served on the boards of Modine Manufacturing and Tronox, Inc. He brings to the Company extensive knowledge and experience in the areas of operations,strategy, accounting, tax accounting and finance, which are areas of critical importance to the Company as a global public company.All Directors serve until their respective successors are elected at the next annual meeting of shareholders. Officers serve at the discretion of the Board ofDirectors. None of the Company's Directors or executive officers has any family relationship with any other Director or executive officer.Board Leadership Structure - The Board does not have a formal policy regarding the separation of the roles of Chief Executive Officer and Chairmanof the Board as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Companyand the membership of the Board. The Board currently has not appointed a Chairman of the Board. In fiscal 2010, the Board formalized the position of LeadIndependent Director, which is elected on an annual basis from among the independent Directors of the Board based upon the recommendation of the CorporateGovernance Committee. In fiscal 2011, upon the recommendation of the Corporate Governance Committee, the Board enhanced the duties of the LeadIndependent Director, which include, among others: chairing executive sessions of the non-management Directors; meeting periodically with the ChiefExecutive Officer and consulting as necessary with management on current significant issues facing the Company; facilitating effective communication amongthe Chief Executive Officer and all members of the Board; and overseeing the Board's shareholder communication policies and procedures. Mr. Galbato servedas the Lead Independent Director in fiscal 2013 until his resignation from the Board of Directors on May 19, 2013. On June 20, 2013, Mr. Goodkind wasappointed to serve as Lead Independent Director for the balance of the term vacated by Mr. Galbato, which expires in November 2013. The Board believes that its current leadership structure has enhanced the Board's oversight of, and independence from, Company management; theability of the Board to carry out its roles and responsibilities on behalf of our shareholders; and our overall corporate governance.Risk Oversight - The Board oversees the Company's risk management processes directly and through its committees. In general, the Board oversees themanagement of risks inherent in the operation of the Company's businesses, the implementation of its strategic plan, its acquisition and capital allocationprogram and its organizational structure. Each of the Board's committees also oversees the management of Company risks that fall within the committee'sareas of responsibility. The Company's management is responsible for reporting significant risks to executives at the quarterly disclosure committee meeting.The significance of the risk is assessed by executive management and escalation to the respective board committee and Board of Directors is determined. TheCompany reviews its risk assessment with the Audit Committee annually.Audit Committee Financial Expert - The Company's Board of Directors has determined that at least one Audit Committee financial expert is serving onits Audit Committee. Messrs. Richardson, Chair of the Audit Committee, and Allender and Balkema, members of the Audit Committee, are financial expertsand are independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.Director Independence - A majority of the Directors must meet the criteria for independence established by the Board in accordance with the rules of theNew York Stock Exchange. In determining the independence of a Director, the Board must find that a Director has no relationship that may interfere with theexercise of his or her independence from management and the Company. Based on these guidelines all Directors, with the exception of Mr. Jaehnert, Presidentand CEO, are deemed independent. All members of the Audit, Management Development and Compensation, and Corporate Governance Committees aredeemed independent.77Table of ContentsMeetings of Non-management Directors - The non-management Directors of the Board regularly meet alone without any members of managementpresent. The Lead Independent Director, currently Mr. Goodkind, is the presiding Director at these sessions. In fiscal 2013, there were 5 executive sessions.Interested parties can raise concerns to be addressed at these meetings by calling the confidential Brady hotline at 1-800-368-3613.Audit Committee Members - The Audit Committee, which is a separately-designated standing committee of the Board of Directors, is composed ofMessrs. Richardson (Chairman), Balkema, Goodkind and Allender. On June 20, 2013, Mr. Balkema was appointed to the Audit Committee to the positionvacated by Mr. Galbato upon his resignation from the Board on May 19, 2013. Each member of the Audit Committee has been determined by the Board to beindependent under the rules of the SEC and NYSE. The charter for the Audit Committee is available on the Company's corporate website atwww.bradycorp.com.Code of Ethics - For a number of years, the Company has had a code of ethics for its employees. This code of ethics applies to all of the Company'semployees, officers and Directors. The code of ethics can be viewed at the Company's corporate website, www.bradycorp.com, or may be obtained in print byany person, without charge, by contacting Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201. The Company intends to satisfy thedisclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics by placing suchinformation on its Internet website.Corporate Governance Guidelines - Brady's Corporate Governance Principles, as well as the charters of the Audit Committee, Corporate GovernanceCommittee, and Management Development and Compensation Committee, are available on the Company's Corporate website, www.bradycorp.com.Shareholders may request printed copies of these documents from Brady Corporation, Investor Relations, P.O. Box 571, Milwaukee, WI 53201.Director Qualifications - Brady's Corporate Governance Committee reviews the individual skills and characteristics of the Directors, as well as thecomposition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, expertise, and industry backgroundsin the context of the needs of the Board and the Company. Although the Company has no policy regarding diversity, the Corporate Governance Committeeseeks a broad range of perspectives and considers both the personal characteristics and experience of Directors and prospective nominees to the Board so that,as a group, the Board will possess the appropriate talent, skills and expertise to oversee the Company's businesses.SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) of the Exchange Act requires the Company’s Directors and executive officers, and persons who own more than ten percent of a registeredclass of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and otherequity securities of the Company. Executive officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish theCompany with copies of all Section 16(a) forms they file.To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no otherreports were required, during the fiscal year ended July 31, 2013, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10percent beneficial owners were complied with, other than with respect to the following:•A Form 4 for Mr. Goodkind that was filed on March 29, 2012 to report the acquisition of 285 shares of Class A Nonvoting Common Stock from adividend reinvestment on February 1, 2012 did not correctly report the acquisition of those shares and the amount of securities beneficially ownedfollowing this transaction, and thereafter, this was corrected on a Form 4/A for Mr. Goodkind that was filed on August 26, 2013;•A Form 4 for Mr. Jaehnert that was not filed on or before June 13, 2013 as required to report the sale of 18,777 shares of Class A NonvotingCommon Stock. This transaction was reported on a Form 4 for Mr. Jaehnert that was filed on June 20, 2013;•Forms 4 for Ms. Pungello that were filed on October 4, 2011 and September 25, 2012 to report the acquisition of 1,450 shares of Class A NonvotingCommon Stock on each of September 30, 2011 and September 21, 2012, respectively, pursuant to an equity compensation plan for non-management Directors, did not correctly report the direct ownership of such shares outside of a trust and did not correctly report the amount ofsecurities beneficially owned following these transactions, and this was corrected on a Form 4/A for Ms. Pungello that was filed on September 3,2013.78Table of Contents•Forms 4 for Mr. Harris that were not filed on or before (i) November 22, 2012 as required to report the sale of 1,000 shares of Class A NonvotingCommon Stock on November 20, 2012 and (ii) July 1, 2013 as required to report the sale of 2,000 shares of Class A Nonvoting Common Stock onJune 27, 2013. These transactions were reported, and the amount of securities beneficially owned as of July 31, 2013 was corrected, on a Form 4/Afor Mr. Harris that was filed on September 10, 2013.Item 11. Executive CompensationCompensation Discussion and AnalysisOverviewOur Compensation Discussion and Analysis focuses upon the Company's total compensation philosophy, the role of the Management Development &Compensation Committee (for purposes of the Compensation Discussion and Analysis section, the “Committee”), total compensation components, marketand peer group data, and the approach used by the Committee when determining each element of the total compensation package inclusive of base salary,short-term incentives, long-term incentives, benefits, perquisites and employment agreements for our executive officers.For fiscal 2013, the following executive officers' compensation is disclosed and discussed in this section (the “named executive officers” or “NEOs”):•Frank M. Jaehnert, President, Chief Executive Officer and Director;•Thomas J. Felmer, Senior Vice President and Chief Financial Officer;•Allan J. Klotsche, Senior Vice President-Human Resources (1);•Stephen Millar, President-Die Cut, President-Brady Asia Pacific and Vice President, Brady Corporation;•Matthew O. Williamson, President-Identification Solutions and Vice President, Brady Corporation, and;•Peter C. Sephton, Former President-Brady EMEA and Vice President, Brady Corporation (2)(1) On July 10, 2013, Mr. Klotsche informed the Company of his intent to resign effective upon the hiring of his successor and a period of transitionthereafter.(2) Mr. Sephton resigned as President-Brady Europe and Vice President, Brady Corporation effective April 30, 2013 and his employment with theCompany terminated on July 31, 2013Executive SummaryOur BusinessSince our founding in 1914, we have grown the Company by developing innovative high-performing products, participating in growing markets,delivering on-time solutions and leveraging our core competencies across our businesses. Our strategy is to be the market leader in each of the global businesseswe are focused on.Our passion around market leadership is tempered only by the fact that when we win, we win the right way. Our values have been, and will be, thecornerstone of everything that we do at Brady. Focus on the Customer, Invest in our People, Embrace Teamwork, Excel at Everything We Do, Be Bold andDecisive, Protect Our Future and Win the Right Way describe the behaviors that we expect and reward at Brady.In order to achieve our goals, we recognize it is critical to assemble and maintain a leadership team with the integrity, skills and dedication needed toexecute our strategic growth plan. We design and use our compensation plans to help us achieve these objectives and align our rewards with the intendedbehaviors and outcomes.Our Fiscal 2013 Performance and Link to Pay DecisionsFiscal 2013 Resulted in No Cash Bonuses and Unvested Performance-Based Restricted Stock Awards for NEOsFiscal 2013 was a year of challenge and unprecedented change for Brady. We were challenged by the changing competitive environment in ourWorkplace Safety business as new market entrants and the ongoing shift of buying patterns to the web have had a negative impact on our business.In response to our organic sales growth, we made significant portfolio changes - the largest in Brady's nearly 100-year history. These portfolio changesare a meaningful shift in the industries we serve as we are reducing our reliance on the more-volatile and less-profitable consumer electronics industry andincreasing our exposure to the healthcare identification space, which we believe is less volatile and supported by longer-term macro growth trends.79Table of Contents•On a GAAP basis, we incurred a fiscal 2013 net loss from continuing operations of $140.8 million.•Brady continues to demonstrate strong cash generation as we generated $143.5 million of cash flow from operating activities during the year endedJuly 31, 2013.•Our sales from continuing operations for the full year were $1.15 billion, up 7.8% from fiscal 2012. Organic sales were down 2.6%, theacquisitions increased sales by 11.3%, and foreign currency translation decreased sales by 0.9%.Our balance sheet remains strong. Even after completing the largest acquisition in Brady's history in the second quarter, our gross debt-to-EBITDAremains at approximately 1.7, inclusive of the trailing twelve months of PDC's EBITDA. Having a strong balance sheet and such a strong cash-generatingbusiness puts us in a solid financial position to fund future organic and inorganic growth opportunities.For fiscal 2013, with the exception of Mr. Williamson, we did not increase the base salary or target bonus opportunities of our named executive officers.Mr. Williamson received a three percent (3.0%) increase in base salary over fiscal 2012 levels in recognition of his leadership in delivering the results of theAmericas' business in fiscal 2012. Organic sales growth, income from operations and net income financial metrics served as performance objectives under ourfiscal 2013 bonus plan. Since we did not achieve the threshold level of performance relative to our regional or total company objectives, our named executiveofficers did not receive a bonus for fiscal 2013.As a group, the grant date fair market value of all equity compensation granted to our named executive officers in fiscal 2013 was 93.0% of salary andwas in the form of time-based stock options, which are inherently performance-based and have value only to the extent that the price of our stock increases.The grant date value of awards granted to named executive officers in fiscal 2013 were 54.0% lower than in fiscal 2012 due to the elimination of stock optionawards that vest only upon the achievement of pre-established annual performance goals. At management's recommendation to the Committee, grants ofperformance-based stock options were not made in fiscal 2013 in order to fund initiatives important to the long-term success of the business and to fund meritrewards for the general employee population globally. The elimination of the performance-based stock options resulted in target total compensation for ournamed executive officers below the median target total compensation of the peer group companies for fiscal 2013.Finally, the earnings per share goal established by the Committee for the 2008 award of performance-based restricted stock was not achieved; therefore,none of these shares have vested. The named executive officers who are currently employed by the Company and who have received this award (Messrs.Jaehnert, Felmer, Klotsche and Williamson) have an additional opportunity for these awards to vest through earnings per share growth for the fiscal yearending July 31, 2014 and a service vesting requirement through July 31, 2014.On September 21, 2012, Mr. Millar was awarded 10,000 restricted stock units with both a performance vesting requirement and a service vestingrequirement (two years). This award was approved to align Mr. Millar's incentive opportunity with the earnings per share goal established for the other NEOsin 2008. As of July 31, 2013, the vesting criteria for this award have not been met.Based on the improvement in earnings per share required in fiscal 2014 for the performance-based restricted stock/unit awards described above to meetthe performance requirement, it is unlikely that the awards will vest.Based upon input from an external compensation consultant and the Committee's desire to provide an incentive for retention and improved Companyperformance, effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert. This grant of performance-based restricted stock included both a performance vesting requirement based upon earnings per share growth and a service vesting requirement. The earningsper share growth goal was satisfied during fiscal 2011 and as of July 31, 2013, 33,333 shares of this award have vested. The remaining 66,667 shares willvest in equal installments on July 31, 2014 and July 31, 2015.80Table of ContentsExecutive Compensation PracticesAs part of the Company's pay for performance philosophy, the Company's compensation program includes several features that maintain alignmentwith shareholders: Emphasis on Variable Compensation Over 60% of the named executive officers' possible compensation is tied to Company performance which theCompany believes drives shareholder value. Ownership Requirements The chief executive officer is required to own at least 100,000 shares of stock in the Company and all othernamed executive officers are required to hold at least 30,000 shares of stock. Clawback Provisions Following a review and analysis of relevant governance and incentive compensation practices and policiesacross our compensation peer group and other public companies, the Committee instituted a recoupmentpolicy, effective August 2013, under which incentive compensation payments and/or awards may berecouped by the Company if such payments and/or awards were based on erroneous results. If the Committeedetermines that an executive officer or other key executive of the Company who participates in any of theCompany's incentive plans has engaged in intentional misconduct that results in a material inaccuracy in theCompany's financial statements or fraudulent or other willful and deliberate conduct that is detrimental to theCompany or there is a material, negative revision of a performance measure for which incentive compensationwas paid or awarded, the Committee may take a variety of actions including, among others, seekingrepayment of incentive compensation (cash and/or equity) that is greater than what would have been awardedif the payments/awards had been based on accurate results and the forfeiture of incentive compensation. Asthis policy suggests, the Committee believes that any incentive compensation should be based only onaccurate and reliable financial and operational information, and, thus, any inappropriately paid incentivecompensation should be returned to the Company for the benefit of shareholders. The Committee expects thatthe implementation of this policy will serve to enhance the Company's compensation risk mitigation efforts.While the implemented policy affords the Committee discretion regarding the application and enforcement ofthe policy, the Company and the Committee will conform the policy to any requirements that may bepromulgated by the national stock exchanges in the future, as mandated by the Dodd-Frank Wall StreetReform and Consumer Protection Act. Performance Thresholds and Caps Generally, 100% of annual cash and equity incentive awards are performance-based. In addition, the annualcash incentive plan has a maximum payment cap. Securities Trading Policy We prohibit executive officers from trading during certain periods at the end of each quarter until after wedisclose our financial and operating results. We may impose additional restricted trading periods at any timeif we believe trading by executives would not be appropriate because of developments that are, or could be,material and which have not been publicly disclosed. Annual Risk Reviews The Company conducts an annual compensation-related risk review and presents findings and suggestedrisk mitigation actions to both the Audit and Management Development and Compensation Committees.81Table of ContentsThe Company’s compensation programs also maintain alignment with shareholders by not including certain features:No Excessive Change of Control Severance For the chief executive officer, the maximum cash benefit is equal to 3x salary and the average bonuspayment received in the three years immediately prior to the date the change of control occurs. For all othernamed executive officers, the maximum cash benefit is equal to 2x salary and the average bonus paymentreceived in the three years immediately prior to the date the change of control occurs. Unexercised stockoptions become fully exercisable or, if cancelled, each named executive officer shall be given cash or stockequal to the in-the-money value of the cancelled stock options No Employment Agreements The Company does not maintain any employment agreements with its executives. No Reloads, Repricing, or Options Issuedat a Discount Stock options issued are not repriced, replaced, or regranted through cancellation or by lowering the optionprice of a previously granted option.Compensation Philosophy and ObjectivesWe seek to align the interests of our executives with those of our investors by evaluating performance on the basis of key financial measurements whichwe believe closely correlate to long-term shareholder value. To this end, we have structured our compensation program around the following principles:•Provide a competitive total compensation package targeted at the median of our compensation peers;•Incentivize long-term shareholder value creation by encouraging behaviors which facilitate long-term success without undue risk taking; and•Realize top-tier company performance through a merit-based, pay-for-performance culture that is aligned with our Company values.Determining CompensationManagement Development and Compensation Committee’s RoleThe Committee is responsible for monitoring and approving the compensation of the Company's named executive officers. The Committee approvescompensation and benefit policies and strategies; approves corporate goals and objectives relative to the chief executive officer and other executive officercompensation; oversees the development process and reviews development plans of key executives; reviews compensation-related risk; administers our equityincentive plans including compliance with executive share ownership requirements; approves all severance policies; and consults with management regardingemployee compensation generally. With respect to executive officers, at the beginning of each year, the Committee sets base salaries, approves the cash andequity incentive awards and establishes the objective performance targets to be achieved for the year.Consultants’ RoleNeither the Committee nor management engaged with a compensation consultant in fiscal 2013. Management obtained data regarding comparableexecutive officer compensation through a standard data subscription with Equliar, Inc. at the end of fiscal 2012. As further described in this CompensationDiscussion and Analysis, management used this data to make recommendations to the Committee regarding compensation matters.Management’s RoleOur chief executive officer makes recommendations to the Committee concerning compensation for each named executive officer other than himself. Insetting compensation for our named executive officers, the Committee takes into consideration these recommendations, along with the results of the Companyduring the fiscal year, the level of responsibility, demonstrated leadership capability, the compensation levels of executives in comparable roles from within ourpeer group and the results of annual performance reviews which, for our chief executive officer, includes feedback from his direct reports and a self-appraisal.Our chief executive officer did not attend the portion of any committee meeting during which the Committee discussed matters related specifically to hiscompensation.82Table of ContentsTally SheetsThe Committee reviews executive officer compensation tally sheets each year. These summaries set forth the dollar amount of all components of eachnamed executive officer's compensation, including base salary, annual target and actual cash incentive compensation, annual equity incentive compensation,value of outstanding equity, stock option exercises during the year, value of Brady's contribution to retirement plans, value of company-provided health andwelfare benefits and taxes. Reviewing this information allows the Committee to see what an executive officer's total compensation is and how a potential changeto an element of our compensation program would affect an executive officer's overall compensation.Components of CompensationOur total compensation program includes five components: base salary, annual cash incentives, long-term equity incentives, employee benefits andperquisites. Each component serves a particular purpose and, therefore, each is considered independent of the other components, although all five componentscombine to provide a holistic total compensation approach. We use these components of compensation to attract, retain, motivate, develop and reward ourexecutives.The base salary, annual cash and long-term equity incentive components are determined through a pay-for-performance approach, targeted at marketmedian for the achievement of performance goals with an opportunity for upper quartile pay when top-tier performance is achieved. Our compensationstructure is balanced by the payment of below market median compensation to our named executive officers when actual fiscal results do not meet or exceedexpected fiscal results, such as in fiscal 2012 and 2013. The following table describes the purpose of each performance-based component and how thatcomponent is related to our pay-for-performance approach: CompensationComponent Purpose of CompensationComponent Compensation Component in Relationto PerformanceBase salary A fixed level of income security used toattract and retain employees bycompensating them for the primaryfunctions and responsibilities of theposition. The base salary increase an employee receives depends upon theemployee's individual performance, the employee's displayed skills andcompetencies and market competitiveness. Annual cash incentive awards To attract, retain, motivate and rewardemployees for achieving or exceeding annualperformance goals at company and regionallevels. Financial performance determines the actual amount of the executive'sannual cash incentive award. Award amounts are “self-funded” becausethey are included in the financial performance results when determiningactual financial performance. Annual equity incentive awards:Time-based stock options To attract, retain, motivate and reward toptalent for the successful creation of long-termstockholder value. Market competitive grant levels are used to determine the amount ofequity granted to each executive, established within an equity grantbudget based on the Black-Scholes methodology for valuing stockoptions.Stock options are inherently performance-based in that the stock pricemust increase over time to provide compensation value to the executive.Establishing Our Total Compensation Component LevelsThe Committee uses peer group data to test the reasonableness and competitiveness of several components of compensation, including base salaries,annual cash incentives, and long-term equity incentives of positions similar to those of our named executive officers. A total compensation benchmarkinganalysis of peer companies selected on the basis of revenue size and industry was conducted using publicly available data sourced through Equilar, Inc. Thepeer group used for the fiscal 2013 analysis included the following 32 companies: Actuant Corporation; Acuity Brands Inc.; AMETEK Inc.; AmphenolCorporation; A.O. Smith Corporation; Avery Dennison Corporation; Barnes Group Inc; Bemis Company Inc.; Curtiss-Wright Corporation; DonaldsonCompany, Inc; Dover Corporation; Fastenal Company; Graco Inc; H.B. Fuller Company; Hexcel Corporation; HNI Corporation; IDEX Corporation; LincolnElectric Holdings, Inc.; Mine Safety Appliances Company; Molex Incorporated; MSC Industrial Direct Co.; Nordson Corporation; Plexus Corp; PolarisIndustries Inc; PolyOne Corporation; Regal-Beloit Corp; Rogers Corporation; Roper Industries; Snap-On Incorporated; The Toro Company; W.W. Grainger,Inc. and; Zebra Technologies Corporation. The Committee continued to assess the revenue of the companies in the fiscal 2013 peer group and, based on thatassessment, additional revisions to the group were made for fiscal 2014 to more closely align the Company with a peer group of companies with similar annualrevenue(s).83Table of ContentsBased on our analysis of the fiscal 2013 peer group used for determining fiscal 2013 compensation, performed in July 2012, the base salaries of ournamed executive officers were generally at the median of our peers and fiscal 2012 target total compensation of our named executive officers, inclusive of basesalary, cash incentives and time- and performance-vested stock options, was above the median of our peer companies, although certain of the named executiveofficers were above and others were below such mark. At management's recommendation to the Committee, grants of performance-based stock options were notmade in fiscal 2013 in order to fund initiatives important to the long-term success of the business and to fund merit rewards for the general employeepopulation globally. The elimination of the performance-based stock options resulted in target total compensation below the median target total compensation ofthe peer group companies for fiscal 2013.Fiscal 2013 Named Executive Officer CompensationBase SalariesOther than with respect to Mr. Williamson, Mr. Jaehnert did not recommend and the Committee did not approve increases in base salary for the namedexecutive officers because they were paid base salaries consistent with the median of base salaries for similar positions at our peer group companies. AlthoughMr. Williamson's base salary is above the median of our peer companies, Mr. Jaehnert recommended and the Committee agreed to provide a 3% increase inbase salary for Mr. Williamson for fiscal 2013, which was reflective of his performance during the prior year in driving profitability growth within theAmericas. The Committee has determined that Mr. Jaehnert's base salary continues to be competitive with the median base salary of CEOs at our peercompanies; therefore, it has not increased his base salary since the start of fiscal 2011.Named Executive Officer Fiscal 2012 Fiscal 2013 Percentage Increase Frank M. Jaehnert $800,000 $800,000 —% Thomas J. Felmer 377,500 377,500 —% Allan J. Klotsche 321,500 321,500 —% Stephen Millar (1) 307,611 304,313 —% Peter C. Sephton (2) 363,009 360,226 —% Matthew O. Williamson 372,500 383,675 3.0% (1)The amounts in this table for Mr. Millar, who lived and worked in Australia, were paid to him in Australian Dollars. The amounts shown in U.S.dollars in the table above were converted from Australian Dollars at the average exchange rate for fiscal 2013: 1USD = 0.9825AUD; 2012: 1USD =0.9720AUD. The difference between fiscal 2012 and fiscal 2013 base salaries is entirely related to exchange rate fluctuation. Mr. Millar did notexperience a base salary decrease in fiscal 2013.(2)The amounts in this table for Mr. Sephton, who lived and worked in the United Kingdom, were paid to him in British Pounds. The amounts shownin U.S. dollars in the table above were converted from British Pounds at the average exchange rate for fiscal 2013: 1USD = 0.6385GBP; 2012:1USD =0.6336GBP. The difference between the fiscal 2012 and fiscal 2013 base salaries is entirely related to exchange rate fluctuation. Mr. Sephtondid not experience a base salary decrease in fiscal 2013.The salary detail in the table above reflects the annualized 12-month salary for each executive. The salaries in the Summary Compensation Table reflectfiscal year compensation earned including three (3) months at fiscal 2012 rates and nine (9) months at fiscal 2013 rates.Annual Cash Incentive AwardsAll named executive officers participate in an annual cash incentive plan, which is based on fiscal year financial results. Set forth below is a descriptionof the fiscal 2013 financial measures:•Core Sales Growth: Core sales are defined as total sales adjusted for foreign currency exchange and acquisitions and divestitures in the last 12months. Core sales are also known as “organic sales” and “base sales.” Regional and total Company core sales growth is reported quarterly andannually in the Company's 10-Q and 10-K SEC filings.•Income from Operations (IFO) growth before expenses for R&D: Total Company and regional IFO is defined as total Company sales less cost ofgoods sold, selling and group leadership expenses. IFO growth excludes currency translation. IFO for the prior year and the current year is restated atthe current budgeted exchange rates for the growth calculation.84Table of Contents•Net Income Growth: Net income is defined as SEC reported net income. Net income growth is reported net income at actual exchange rates for thecurrent year compared to reported net income for the prior year. Net income is reported quarterly and annually in the Company's 10-Q and 10-K SECfilings.•Individual Performance: Funded by the achievement of net income growth, each named executive officer is evaluated on the attainment of goals agreedat the start of the fiscal year to be critical to the execution of the Company's strategy.Messrs. Jaehnert, Felmer and KlotscheThe cash incentive payable to Messrs. Jaehnert, Felmer and Klotsche for fiscal 2013 was based on total company core sales growth, IFO growth beforeexpenses for R&D, net income growth and individual performance. We use core sales growth because we believe that the long-term value of our enterprisedepends on our ability to grow revenue without regard for acquisitions. We use IFO before R&D growth because we believe it aligns to the management of salesand expenses, and we use net income growth to focus on effectively managing our costs while growing our revenue. Funded by the achievement of our netincome goals, individual performance is used to assess the delivery upon key performance indicators (KPIs) determined to be critical to the execution of theCompany's strategy. For 2013, we set the target core sales growth performance goal at 5%, the IFO growth before expenses for R&D goal at 10% and the targetnet income growth goal at 32.9%. Additionally, the Committee established that for any bonus to be payable for the achievement of sales growth or IFO growthbefore expenses for R&D, the Company must achieve at least the threshold level of net income growth, 20.7%.For fiscal 2013, no bonus was payable as the total company organic sales, IFO before R&D and net income threshold were not achieved. The threshold,target, maximum and actual amounts for Messrs. Jaehnert, Felmer and Klotsche were as follows: Performance Measure (weighting) Threshold Target Maximum Actual(% of Salary) Actual($)Core Sales Growth (30%) 0% 5% 12.5% or more IFO Growth before expenses for R&D (30%) 0% 10% 15.0% or more Net Income Growth (20%) 20.7% 32.9% 51.3% or more Individual Performance (20%) Varies by IndividualAward as a Percentage of Base Salary F. Jaehnert 0% 100% 200% 0% $0T. Felmer 0% 70% 140% 0% $0A. Klotsche 0% 70% 140% 0% $0Messrs. Millar, Sephton and WilliamsonThe cash incentive payable to Messrs. Millar, Sephton and Williamson for fiscal 2013 was based on achievement of regional core sales growth, regionalIFO growth before expenses for R&D, net income and individual performance. We use regional sales and regional IFO growth before expenses for R&Dbecause we believe it aligns Messrs. Millar, Sephton and Williamson to the management of sales and expenses directly within their control as the President-Brady Asia Pacific, Former President-Brady EMEA and President-Americas, respectively. Like the other named executive officers, the company-wideperformance measures for Messrs. Millar, Sephton and Williamson focused on driving greater overall profitability. Funded by the achievement of our netincome goals, individual performance is evaluated against key performance indicators (KPIs) determined to be critical to the execution of the Company'sstrategy. Messrs. Millar, Sephton and Williamson did not earn a bonus payout for fiscal 2013 because the Asia Pacific, EMEA and Americas operatingsegments did not achieve the core sales and IFO growth before expenses for R&D thresholds set for each region or platform and the Company did not achievethe threshold level of net income for the year.85Table of ContentsFor 2013, the threshold, target, maximum and actual amounts for Messrs. Millar, Sephton and Williamson were as follows:Performance Measure (weighting) Threshold Target Maximum Actual(% of Salary) Actual($)Regional Core Sales Growth (30%) 0% 5% 12.5% or more IFO Growth before expenses for R&D (30%) 0% 10% 15.0% or more Net Income Growth (20%) 20.7% 32.9% 51.3% or more Individual Performance (20%) Varies by IndividualAward as a Percentage of Base Salary S. Millar 0% 70% 140% 0% $0P. Sephton 0% 70% 140% 0% $0M. Williamson 0% 70% 140% 0% $0The target annual cash incentive award that would be payable to each executive officer is calculated as a percentage of the officer's eligible compensationdefined as base salary in effect during the fiscal year, pro-rated to reflect base salary adjustments throughout the fiscal year.For fiscal 2013, the Committee reviewed the impact of unusual and unforeseen events on the payout of bonuses and determined that none would beconsidered in the calculation of bonus payouts. In general, the Committee regularly reviews and makes decisions on the impact of unusual events on a case-by-case basis and continually evaluates compensation policies and practices in light of ongoing developments and best practices in the area of incentivecompensation.Long-Term Equity Incentive AwardsThe Company has historically utilized a combination of performance-based stock options, time-based stock options and performance-based restrictedshares to attract, retain and motivate key employees who directly impact the long-term performance of the Company. The size and type of equity awards forexecutives other than the chief executive officer are determined annually by the Committee with input from the chief executive officer. With regard to the awardsize given to the chief executive officer, the Committee uses its discretion in combination with market competitive information obtained periodically fromEquilar Inc.For fiscal 2013, the Committee reviewed the Black-Scholes valuations of historical grants and the estimated value of the proposed grants and thenauthorized fiscal 2013 awards consisting only of time-based stock options equal to the value of such similar options granted in fiscal 2012. At management'srecommendation to the Committee, grants of performance-based stock options were not made in fiscal 2013 in order to fund initiatives important to the long-term success of the business and to fund merit rewards for the general employee population globally. The elimination of the performance-based stock optionsresulted in target total compensation below the median target total compensation of the peer group companies for fiscal 2013.Performance-based Stock Options: Although stock options are inherently performance-based in that options have no value unless the stock price increases,the Committee believes that using additional performance criteria for vesting of stock options can serve as an additional motivator for executives to furtherdrive company performance. Performance-based stock options granted in fiscal 2012 have vesting criteria based upon year-over-year diluted EPS growth andan additional opportunity to vest over a two- or three-year period if the compound annual growth rate exceeds the annual target. Performance-based stockoptions granted prior to fiscal 2012 have vesting criteria based only upon year-over-year diluted EPS growth as measured against the S&P 600.Time-based Stock Options: Time-based stock option grants in fiscal 2013 were reviewed and approved by the Committee on September 5, 2012, with aneffective grant date of September 21, 2012. The grant price was the fair market value of the stock on the grant date, which was calculated as the average of thehigh and low stock price on that date. The time-based stock options generally vest one-third each year for the first three years and have a ten-year life.Performance-based Restricted Stock/Units: Periodically, the Company issues restricted stock or restricted stock units to key executives as an element oftheir overall compensation. In January 2008, the Committee approved the issuance of performance-based restricted stock awards to five of Brady's seniorexecutives including Messrs. Jaehnert, Felmer, Klotsche, Sephton and Williamson. A total of 210,000 restricted shares were issued and included both aperformance vesting requirement (earnings per share) and a service vesting requirement (five years). In addition to the original vesting criteria, the restrictedstock awards were amended effective July 20, 2011, to include an additional vesting opportunity based upon earnings per share growth for the fiscal yearsending July 31, 2013 or July 31, 2014, and a service vesting requirement through July 31, 2014. As of July 31, 2013, none of the vesting criteria for thisaward have been met.86Table of ContentsOn September 21, 2012, Mr. Millar was awarded 10,000 restricted stock units with both a performance vesting requirement and a service vestingrequirement (two years). This award was approved to align Mr. Millar's incentive opportunity with the earnings per share goal established for the other NEOsin 2008. As of July 31, 2013, the vesting criteria for this award has not been met.Based upon input from an external compensation consultant and the Committee's desire to provide an incentive for retention and improved Companyperformance, effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert. This grant of performance-based restricted stock included both a performance vesting requirement based upon earnings per share growth and a service vesting requirement. The earningsper share growth was satisfied during fiscal 2011 and as of July 31, 2013, 33,333 shares of this award have vested. The remaining 66,667 shares will vestin equal installments on July 31, 2014 and July 31, 2015.Fiscal 2013 Annual Equity Grants Named Officers Number of Time-BasedStock OptionsGrant DateFair Value Number of Performance-Based RSUsGrant DateFair ValueF. Jaehnert 90,000$834,741 _$0T. Felmer 45,500$422,008 _$0A. Klotsche 30,000$278,247 _$0S. Millar 30,000$278,247 10,000$302,100P. Sephton 30,000$278,247 _$0M. Williamson 34,500$319,984 _$0Other Elements of CompensationHealth and Welfare Benefits: We provide subsidized health and welfare benefits which include medical, dental, life and accidental death or dismembermentinsurance, disability insurance and paid time off. Executive officers are entitled to participate in our health and welfare plans on generally the same terms andconditions as other employees, subject to limitations under applicable law. In addition, the Company provides employer-paid long-term care insurance andmaintains a supplemental executive disability policy for executives. The supplemental disability policy provides for Group Long Term Disability insurance(LTD) of up to 60% of pre-tax base salary and bonus, up to a monthly maximum benefit of $25,000. Brady Corporation pays the premiums for thesebenefits; therefore, these benefits are taxable to the executive.Retirement Benefits: Brady employees (including named executive officers) in the United States and certain expatriate employees working for its internationalsubsidiaries are eligible to participate in the Brady Corporation Matched 401(k) Plan (the “Matched 401(k) Plan”). In addition, named executive officers in theUnited States and employees at many of our United States locations are also eligible to participate in the Brady Corporation Funded Retirement Plan (“FundedRetirement Plan”).Under the Funded Retirement Plan, the Company contributes 4% of the eligible earnings of each employee covered by the Funded Retirement Plan. Inaddition, participants may elect to have their annual pay reduced by up to 5% and have the amount of this reduction contributed to their Matched 401(k) Planand matched with an additional 4% contribution by the Company. Participants may also elect to have up to another 45% of their eligible earnings contributedto the Matched 401(k) Plan (without an additional matching contribution by the Company and up to the maximum allowed by the IRS). The assets of theMatched 401(k) Plan and Funded Retirement Plan credited to each participant are invested by the trustee of the Plans as directed by each plan participant in avariety of investment funds as permitted by the Matched 401(k) Plan and the Funded Retirement Plan.Due to the IRS income limitations for participating in the Matched 401(k) Plan and the Funded Retirement Plan, the named executive officers are eligibleto participate in the Brady Restoration Plan. The Brady Restoration Plan is a non-qualified deferred compensation plan that allows an equivalent benefit to theMatched 401(k) Plan and the Funded Retirement Plan for named executive officer income above the IRS compensation limits.Benefits are generally payable upon the death, disability, or retirement of the participant, or upon termination of employment before retirement, althoughbenefits may be withdrawn from the Matched 401(k) Plan and paid to the participant if required for certain emergencies. Under certain specifiedcircumstances, the Matched 401(k) Plan allows loans to be drawn on a participant's account. The participant is immediately fully vested with respect toemployee contributions; all other contributions become fully vested over a two-year period of continuous service for the Matched 401(k) Plan and after sixyears of continuous service for the Funded Retirement Plan.87Table of ContentsDeferred Compensation Arrangements: During fiscal 2002, the Company adopted the Brady Corporation Executive Deferred Compensation Plan(“Executive Deferred Compensation Plan”), under which executive officers, corporate staff officers and certain key management employees of the Companyare permitted to defer portions of their salary and bonus into a plan account, the value of which is measured by the fair value of the underlying investments.The assets of the Executive Deferred Compensation Plan are held in a Rabbi Trust and are invested by the trustee as directed by the participant in severalinvestment funds as permitted by the Executive Deferred Compensation Plan. The investment funds available in the Executive Deferred Compensation Planinclude Brady Corporation Class A Nonvoting Common Stock and various mutual funds that are provided in the Employee 401(k) Plan. On May 1, 2006,the plan was amended to require that deferrals into the Company's Class A Nonvoting Common Stock must remain in the Company's Class A NonvotingCommon Stock and be distributed in shares of the Company's Class A Nonvoting Common Stock.At least one year prior to termination of employment, the executive must elect whether to receive their account balance following termination ofemployment in a single lump sum payment or by means of distribution under an Annual Installment Method. If the executive does not submit an election formor has not submitted one timely, then payment shall be made each year for a period of ten years. The first payment must be one-tenth of the balance held; thesecond one-ninth; and so on, with the balance held in the Rabbi Trust reduced by each payment. Distributions of the Company Class A Nonvoting CommonStock are made in-kind; distributions of other assets are in cash.Effective January 1, 2008, the Executive Deferred Compensation Plan was amended and restated to comply with the provisions of Section 409A of theInternal Revenue Code. Amounts deferred prior to January 1, 2005 (which were fully vested under the terms of the plan), including past and future earningscredited thereon, will remain subject to the terms in place prior to January 1, 2005.Sephton Severance Agreement: On February 20, 2013, Mr. Sephton notified the Company of his intent to resign his positions as President-Brady EMEAand Vice President, Brady Corporation, effective April 30, 2013. Mr. Sephton remained employed by the Company for the period after his resignation of thesepositions through July 31, 2013, at which time he retired. The Company entered into a written agreement with Mr. Sephton in connection with his resignationand retirement that provided for payment of his salary and benefits through his retirement on July 31, a severance payment of GBP 337,500, including aportion of that sum as consideration for a non-compete covenant and up to GBP 7,500 for reimbursement of legal fees. The Company entered into thisagreement with Mr. Sephton in order to obtain his assistance in the Company's reorganization to three global business platforms and for an agreement not tocompete with the Company or solicit its employees, customers and vendors for a period of 12 months after his retirement.Perquisites: Brady provides the named executive officers with the following perquisites that are not available to other non-executive employees:•Annual allowance for financial and tax planning•Company car•Long-term care insurance•Personal liability insuranceStock Ownership GuidelinesWe believe that the interests of shareholders and executives become aligned when executives become shareholders in possession of a meaningful amountof Company stock. Furthermore, this stock ownership encourages positive performance behaviors and discourages executive officers from taking undue risk.In order to encourage our executive officers and directors to acquire and retain ownership of a significant number of shares of the Company's stock, stockownership guidelines have been established.The Board of Directors has established the following stock ownership guidelines for our named executive officers: F. Jaehnert 100,000 sharesT. Felmer 30,000 sharesA. Klotsche 30,000 sharesS. Millar 30,000 sharesP. Sephton 30,000 sharesM. Williamson 30,000 sharesThe stock ownership guideline for each director is 5,000 shares of Company stock.All named executive officers except Mr. Millar met and retained their respective ownership levels as of fiscal 2013. Mr. Millar has until fiscal year 2016to achieve his respective ownership level. If an executive does not meet the above ownership level or88Table of Contentscertain interim levels, the Committee may direct that the executive's after-tax payout on any incentive plans will be in Class A Nonvoting Common Stock tobring the executive up to the required level. The Committee reviews the actual stock ownership levels of each of the named executive officers on an annual basisto ensure the guidelines are met.For purposes of determining whether an executive meets the required ownership level, Company stock owned outright, Company stock held in theExecutive Deferred Compensation Plan, Company stock owned in the Employee 401(k) Plan or pension plan and time-based restricted stock or restrictedstock units are included. In addition, 20% of any vested stock options that are “in the money” are included.Insider Trading PolicyThe Company's Insider Trading Policy prohibits hedging and other monetization transactions in Company securities by officers, directors andemployees. The prohibition on hedging transactions includes financial instruments such as prepaid variable forwards, equity swaps, collars and exchangefunds.Employment and Change of Control AgreementsThe Company does not have employment agreements with our executives. The Board of Directors of Brady Corporation approved change of controlagreements for certain executive officers of the Company, including all the named executive officers. The agreements applicable to all of the named executiveofficers other than Mr. Jaehnert provide a payment of an amount equal to two times their annual base salary and two times the average bonus payment receivedin the three years immediately prior to the date the change of control occurs in the event of termination or resignation upon a change of control. The agreementsalso provide for reimbursement of any excise taxes imposed and up to $25,000 of attorney fees to enforce the executive's rights under the agreement. Paymentsunder the agreement will be spread over two years.In May 2003, the Board approved a Change of Control Agreement for Mr. Jaehnert, which was subsequently amended and restated in December 2008 tocomply with Internal Revenue Code Section 409A. The agreement applicable to Mr. Jaehnert provides a payment of an amount equal to three times his annualbase salary and three times the average bonus payment received in the three years immediately prior to the date the change of control occurs in the event oftermination or resignation upon a change of control. The agreement will also reimburse a maximum of $25,000 of legal fees incurred by Mr. Jaehnert in orderto enforce the change of control agreement, in which he prevails. Payments under the agreement will be spread over three years.Under the terms of the 2012 Omnibus Incentive Stock Plan, in the event of (a) the merger or consolidation of the Corporation with or into anothercorporation or corporations in which the Corporation is not the surviving corporation, (b) the adoption of any plan for the dissolution of the Corporation, or (c)the sale or exchange of all or substantially all the assets of the Corporation for cash or for shares of stock or other securities of another corporation, all then-unexercised stock options become fully exercisable. If any stock option is canceled subsequent to the events described above, the Corporation or thecorporation assuming the obligations of the Corporation, shall pay an amount of cash or stock equal to the in-the-money value of the cancelled stock options.Non-Compete/Non-Solicitation/ConfidentialityAgreements memorializing equity awards made in fiscal 2013 under the Company's 2012 Omnibus Incentive Stock Plan contain non-competition, non-solicitation and confidential information covenants applicable to the award recipients. The confidential information covenant prohibits the use, disclosure,copying or duplication of the Company's confidential information other than in the course of authorized activities conducted in the course of the recipient'semployment with the Company. The other covenants prohibit the recipient, for 12 months after termination of employment with the Company, from (i)performing duties for or as a competitor of the Company which are the same or similar to those performed by the recipient in the 24 months prior totermination of employment with the Company or (ii) inducing or encouraging employees, vendors or clients of the Company to breach, modify or terminaterelationships or agreements they had with the Company during the 24 month period prior to the recipient's termination of employment.Compliance with Tax Regulations Regarding Executive CompensationSection 162(m) of the Internal Revenue Code, added by the Omnibus Budget Reconciliation Act of 1993, generally disallows a tax deduction to publiccompanies for compensation over $1 million paid to the Company's chief executive officer or the other named executive officers. Qualifying performance-basedcompensation will not be subject to the deduction limit if certain requirements are met. The Company's executive compensation program, as currentlyconstructed, is not likely to generate significant nondeductible compensation in excess of these limits. The Committee will continue to review these taxregulations as they apply to the Company's executive compensation program. It is the Committee's intent to preserve the deductibility of executive compensationto the extent reasonably practicable and to the extent consistent with its other compensation objectives.89Table of ContentsThe Committee also considers it important to retain flexibility to design compensation programs, even where compensation payable under such programsmay not be fully deductible, if such programs effectively recognize a full range of criteria important to the Company's success and result in a gain to theCompany that would outweigh the limited negative tax effect.Management Development and Compensation Committee Interlocks and Insider ParticipationDuring fiscal 2013, the Board's Management Development and Compensation Committee was composed of Messrs. Balkema, Galbato, Harris, andRichardson and Ms. Pungello. After Mr. Galbato resigned his position as a director on May 19, 2013, Mr. Richardson was appointed to the Committeeeffective June 20, 2013. None of these persons has at any time been an employee of the Company or any of its subsidiaries. There are no relationships amongthe Company's executive officers, members of the Committee or entities whose executives serve on the Board that require disclosure under applicable SECregulations.Management Development and Compensation Committee ReportThe Committee has reviewed and discussed the Compensation Discussion and Analysis with management; and based on the review and discussions,the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's annual report on Form10-K.Gary Balkema, ChairmanFrank HarrisElizabeth P. PungelloBradley RichardsonCompensation Policies and PracticesThe Company's compensation policies for executive officers and all other employees are designed to avoid incentives to create undue risks to theCompany. The Company's compensation programs are weighted towards offering long-term incentives that reward sustainable performance; do not offersignificant short-term incentives that might drive high-risk investments at the expense of the long-term Company value; and are set at reasonable andsustainable levels, as determined by a review of the Company's economic position, as well as the compensation offered by comparable companies. Under theoversight of its Audit and Management Development and Compensation Committees, the Company reviewed its compensation policies, practices andprocedures for all employees to evaluate and ensure that they do not foster risk taking beyond that deemed acceptable within the Company's business model.The Company believes that its compensation policies, practices and procedures do not encourage employees to take unnecessary or excessive risks that arereasonably likely to have a material adverse effect on the Company.90Table of ContentsSummary Compensation TableThe following table sets forth compensation awarded to, earned by, or paid to the named executive officers, who served as executive officers during thefiscal year ended July 31, 2013, for services rendered to the Company and its subsidiaries during the fiscal years ended July 31, 2013, July 31, 2012 andJuly 31, 2011. Name and Principal Position FiscalYear Salary($) RestrictedStock Awards($)(1) OptionAwards($)(2) Non-EquityIncentive PlanCompensation($)(3) All OtherCompensation($)(4) Total($)F.M. Jaehnert 2013 $800,000 $— $834,740 $— $117,038 $1,751,778President, CEO & Director 2012 800,000 — 2,086,727 — 254,136 3,140,863 2011 793,269 2,803,500 2,470,157 1,632,548 223,329 7,922,803T.J. Felmer 2013 377,500 — 422,007 — 54,164 853,671Senior VP & CFO 2012 375,481 — 755,909 — 105,811 1,237,200 2011 363,285 (22,050) 914,386 523,349 93,163 1,872,133A.J. Klotsche 2013 321,500 — 278,247 — 45,475 645,222Senior VP - Human Resources 2012 319,750 — 662,218 — 77,358 1,059,326 2011 311,002 (22,050) 790,878 348,353 77,148 1,505,331S. Millar President - Die Cut &APAC,VP - Brady Corporation (5) 2013 304,314 302,100 278,247 — 73,508 958,169P.C. Sephton (6) 2013 360,235 — 278,247 — 655,466 1,293,948Former President-Brady EMEA & VP- Brady Corporation 2012 361,244 — 662,218 — 109,486 1,132,948 2011 356,818 (22,050) 790,878 341,190 106,249 1,573,084M.O. Williamson 2013 380,666 — 319,984 — 62,067 762,717President - IDS & VP - BradyCorporation 2012 370,481 — 662,218 122,148 92,492 1,247,339 2011 360,071 (22,050) 790,878 462,461 73,093 1,664,453 (1)Represents the grant date fair value computed in accordance with accounting guidance for equity grants made or modified in the applicable year forrestricted stock awards. The grant date fair value is calculated based on the number of shares of Common Stock underlying the restricted stockawards, times the average of the high and low trade prices of Brady Common Stock on the date of grant. The actual value of a restricted stock awardwill depend on the market value of the Company’s Common Stock on the date the stock is sold. The restricted stock award granted on January 8,2008, was amended effective July 20, 2011, so that the shares will vest upon meeting a performance vesting requirement based upon earnings pershare growth at either July 31, 2013 or July 31, 2014, provided that the senior executives remain employed through July 31, 2014. The reduction in theincremental fair value of the restricted share grant as of the modification date is included in the table above.Effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert, which included both aperformance vesting requirement based upon earnings per share growth and a service vesting requirement prorated at July 31, 2013, July 31, 2014 andJuly 31, 2015. One-third, or 33,333 shares, have vested as of July 31, 2013.(2)Represents the grant date fair value computed in accordance with accounting guidance for equity grants made or modified in the applicable year forperformance-based and time-based stock options. The assumptions used to determine the value of the awards, including the use of the Black-Scholesmethod of valuation by the Company, are discussed in Note 1 of the Notes to Consolidated Financial Statements of the Company contained in Item 8of this Form 10-K, for the fiscal year ended July 31, 2013. The actual value, if any, which an option holder will realize upon the exercise of an optionwill depend on the excess of the market value of the Company’s Common Stock over the exercise price on the date the option is exercised, whichcannot be forecasted with any accuracy.(3)Reflects incentive plan compensation earned during the listed fiscal years, which was paid during the next fiscal year.91Table of Contents(4)The amounts in this column for Messrs. Jaehnert, Felmer, Klotsche, and Williamson include: matching contributions to the Company’s Matched401(k) Plan, Funded Retirement Plan and Restoration Plan, the costs of group term life insurance for each named executive officer, use of a Companycar and associated expenses, the cost of long-term care insurance, the cost of personal liability insurance, the cost of disability insurance and otherperquisites. The perquisites may include an annual allowance for financial and tax planning and the cost of an annual physical health exam. Theamounts in this column for Mr. Sephton include: contributions for the Brady U.K. Pension Plan, the cost of group term life insurance, vehicleallowance and associated expenses and other perquisites as listed above. The amounts in this column for Mr. Millar include: contributions for theBrady Australia Pension Plan, vehicle allowance and associated expenses and other perquisites as listed above.(5)The amounts in this table for Mr. Millar, who works and lives in Australia, were paid to him in Australian Dollars. The amounts shown in U.S.dollars in the table above were converted from Australian Dollars at the average exchange rate for fiscal 2013: $1 =0.9825 AUD. Fiscal 2013 is thefirst year during Mr. Millar's term as officer in which he met the criteria as a Named Executive Officer.(6)The amounts in this table for Mr. Sephton, who works and lives in the United Kingdom, were paid to him in British Pounds. The amounts shown inU.S. dollars in the table above were converted from British Pounds at the average exchange rate for fiscal 2013: $1 = £0.6385, 2012: $1 =£0.6336,2011: $1 = £0.6250. Mr. Sephton resigned as President-Brady EMEA and Vice President, Brady Corporation effective April 30, 2013 and hisemployment with the Company terminated on July 31, 2013. Mr. Sephton's severance payment of 349,000 GBP (converted into $546,618), inclusiveof 9,000 GBP in legal fees, is included in All Other Compensation in the table above .Name FiscalYear RetirementPlanContributions($) Group TermLifeInsurance($) CompanyCar($) Long-termCareInsurance($) PersonalLiabilityInsurance($) Temporary/TotalDisability($) Other($) Total($)F.M. Jaehnert 2013 $64,000 $4,028 $12,201 $5,141 $2,654 $23,760 $5,254 $117,038 2012 195,835 2,925 18,966 5,141 2,654 23,760 4,855 254,136 2011 158,281 2,740 24,057 5,141 2,654 23,760 6,696 223,329T.J. Felmer 2013 30,200 791 14,940 3,737 — — 4,496 54,164 2012 72,759 478 24,761 3,737 — — 4,076 105,811 2011 57,931 828 25,311 3,737 — — 5,356 93,163A.J. Klotsche 2013 25,784 674 12,386 3,506 — — 3,125 45,475 2012 53,747 407 15,509 3,506 — — 4,189 77,358 2011 53,191 709 14,606 3,506 — — 5,135 77,148S. Millar (1) 2013 49,227 — 24,281 — — — — 73,508P.C.Sephton(2) 2013 57,264 12,063 32,259 4,658 — — 549,222 655,466 2012 57,231 12,156 32,508 4,967 — — 2,624 109,486 2011 57,091 12,323 31,800 5,035 — — — 106,249M. O.Williamson 2013 40,581 798 10,847 5,501 — — 4,340 62,067 2012 67,001 471 15,188 5,501 — — 4,332 92,492 2011 47,059 820 14,436 5,501 — — 5,277 73,093(1) The amounts in this table for Mr. Millar, who works and lives in Australia, were paid to him in Australian Dollars. The amounts shown in U.S.dollars in the table above were converted from Australian Dollars at the average exchange rate for fiscal 2013: $1 =0.9825 AUD. Fiscal 2013 is thefirst year during Mr. Millar's term as officer in which he met the criteria as a Named Executive Officer.(2)The amounts in this table for Mr. Sephton, who works and lives in the United Kingdom, were paid to him in British Pounds. The amounts shown inU.S. dollars in the table above were converted from British Pounds at the average exchange rate for fiscal 2013: $1 = £0.6385, 2012: $1 =£0.6336,2011: $1 = £0.6250. Mr. Sephton resigned as President-Brady EMEA and Vice President, Brady Corporation effective April 30, 2013 and hisemployment with the Company terminated on July 31, 2013. Mr. Sephton's severance payment of 349,000 GBP (converted into $546,618), inclusiveof 9,000 GBP in legal fees, is included in Other in the table above.92Table of ContentsGrants of Plan-Based Awards for 2013The following table summarizes grants of plan-based awards made during fiscal 2013 to the named executive officers. Grant CompensationCommittee Approval Estimated Future Payouts UnderNon-Equity Incentive Plan Awards (1) All OtherOptionAwards:Number ofSecuritiesUnder-lyingOptions All OtherStock Awards:Number ofShares of Stockor UnitsExerciseor BasePrice ofStockorOptionAwards GrantDate FairValueofStock andOptionAwardsName Date Date Threshold ($) Target ($) Maximum ($) (#) (#)(2) ($)F.M. Jaehnert 8/1/2012 7/24/2012 $— $800,000 $1,600,000 9/21/2012 9/10/2012 — — — 90,000 $30.21 $834,300T.J. Felmer 8/1/2012 7/24/2012 — 264,250 369,950 9/21/2012 9/10/2012 — — — 45,500 30.21 421,785A.J. Klotsche 8/1/2012 7/24/2012 — 223,825 447,650 9/21/2012 9/10/2012 — — — 30,000 30.21 278,100S. Millar 8/1/2012 7/24/2012 — 213,020 298,227 9/21/2012 9/10/2012 — — — 30,000 30.21 278,100 9/21/2012 9/10/2012 — — — 10,000 (3)30.21 302,100P.C. Sephton 8/1/2012 7/24/2012 — 252,165 353,031 9/21/2012 9/10/2012 — — — 30,000 30.21 278,100M.O. Williamson 8/1/2012 7/24/2012 — 266,466 373,053 9/21/2012 9/10/2012 — — — 30,000 30.21 278,100 (1)The awards were made under the Company’s annual cash incentive plan. The structure of the plan is described in the Compensation Discussion andAnalysis above. Award levels are set prior to the beginning of the fiscal year and payouts can range from 0 to 200 percent of the target.(2)The exercise price is the average of the high and low sale prices of the Company’s Class A Common Stock as reported by the New York StockExchange on the date of the grant. The average of the high and low sale prices of the Company’s Class A Common Stock as reported by the New YorkStock Exchange on the grant date was $30.21 on September 21, 2012.(3)Represents 10,000 restricted stock units granted to Stephen Millar on September 21, 2012 at a fair value of $30.21 per RSU.Outstanding Equity Awards at 2013 Fiscal Year End Option Awards Stock AwardsName Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable(#) Number ofSecuritiesUnderlyingUnexercisedOptionsUnexercisable(#) OptionExercisePrice($) OptionExpiration Date Equity IncentivePlan Awards;Number ofUnearnedShares, Units orOther RightsThat Have NotVested(#) Equity IncentivePlan Awards:Market or PayoutValue of UnearnedShares, Units orOther Rights ThatHave Not Vested($)F.M. Jaehnert 60,000 $22.63 8/2/2014 60,000 28.84 11/18/2014 60,000 33.89 8/1/2015 50,000 37.83 11/30/2015 50,000 38.19 11/30/2016 50,000 38.31 12/4/2017 50,000 20.95 12/4/2018 56,667 29.78 8/3/2019 70,000 28.73 9/25/2019 93Table of Contents 33,334 83,333(1)28.35 8/2/2020 66,667 33,333(2)29.10 9/24/2020 130,000(3)29.55 8/1/2021 30,000 60,000(6)27.00 9/30/2021 90,000(7)30.21 9/21/2022 50,000(4)$1,663,500 66,667(8)2,218,011T.J. Felmer 30,000 33.89 8/1/2015 25,000 37.83 11/30/2015 25,000 38.19 11/30/2016 25,000 38.31 12/4/2017 25,000 20.95 12/4/2018 23,334 29.78 8/3/2019 35,000 28.73 9/25/2019 11,667 29,166(1)28.35 8/2/2020 26,667 13,333(2)29.10 9/24/2020 45,000(3)29.55 8/1/2021 11,667 23,333(6)27.00 9/30/2021 45,500(7)30.21 9/21/2022 35,000(4)1,164,450A.J. Klotsche 30,000 33.89 8/1/2015 25,000 37.83 11/30/2015 25,000 38.19 11/30/2016 25,000 38.31 12/4/2017 23,334 29.78 8/3/2019 35,000 28.73 9/25/2019 10,000 25,000(1)28.35 8/2/2020 23,334 11,666(2)29.10 9/24/2020 40,000(3)29.55 8/1/2021 10,000 20,000(6)27.00 9/30/2021 30,000(7)30.21 9/21/2022 35,000(4)1,164,450S. Millar 5,000 28.84 11/18/2014 3,500 37.83 11/30/2015 5,000 38.19 11/30/2016 5,000 38.31 12/4/2017 7,500 20.95 12/4/2018 10,000 28.73 9/25/2019 6,667 3,333(2)29.10 9/24/2020 40,000(3)29.55 8/1/2021 10,000 20,000(6)27.00 9/30/2021 30,000(7)30.21 9/21/2022 10,000(5)332,700P.C. Sephton (9) 30,000 28.84 11/18/2014 30,000 33.89 8/1/2015 25,000 37.83 11/30/2015 25,000 38.19 11/30/2016 25,000 38.31 12/4/2017 23,334 29.78 8/3/2019 15,000 28.73 9/25/2019 94Table of Contents 23,334 29.10 9/24/2020 M.O.Williamson 30,000 22.63 8/2/2014 30,000 28.84 11/18/2014 30,000 33.89 8/1/2015 25,000 37.83 11/30/2015 25,000 38.19 11/30/2016 25,000 38.31 12/4/2017 25,000 20.95 12/4/2018 23,334 29.78 8/3/2019 35,000 28.73 9/25/2019 10,000 25,000(1)28.35 8/2/2020 23,334 11,666(2)29.10 9/24/2020 40,000(3)29.55 8/1/2021 10,000 20,000(6)27.00 9/30/2021 34,500(7)30.21 9/21/2022 35,000(4)1,164,450(1)Two-thirds of the shares vest in equal installments over a three-year period, with the vesting date being the date the Audit Committee accepts the resultsof the fiscal year audit confirming the achievement of annual EPS growth levels. The remaining one-third of the shares vest at plan year threedepending upon the Company’s EPS growth for fiscal 2013 over fiscal 2010 in comparison with other corporations in the S&P 600 Index.(2)The remaining options will vest on September 24, 2013.(3)The performance-based stock options granted on August 1, 2011 become exercisable in equal annual installments over a three-year period, with thevesting date being the date the Audit Committee accepts the results of the fiscal year audit confirming the achievement of annual 15 percent EPSgrowth. In the event the annual EPS growth goal is not achieved with respect to any fiscal year, the options may vest in full at the end of either fiscal2013 or fiscal 2014 if the Corporation’s Compounded Annual Growth Rate (“CAGR”) for EPS over fiscal 2011 is 15 percent or more.(4)Effective July 20, 2011, the Management Development & Compensation Committee of the Board of Directors of the Company approved anamendment to the granting agreement under which the Company issued performance-based restricted stock on January 8, 2008. Pursuant to theamendment, the shares will vest upon meeting a financial performance vesting requirement based upon the Company’s EPS growth at either July 31,2013 or July 31, 2014, provided that the senior executives remain employed through July 31, 2014.(5)On September 21, 2012, Mr. Millar was awarded 10,000 restricted stock units with both a performance vesting requirement and a service vestingrequirement (two years). As of July 31, 2013, the vesting criteria for this award have not been met.(6)One-half of the options vest on September 30, 2013 and the remaining options vest on September 30, 2014.(7)One-third of the options vest on September 21, 2013, one-third of the options vest on September 21, 2014, and one-third of the options vest onSeptember 21, 2015.(8)Effective August 2, 2010, a grant of 100,000 shares of performance-based restricted stock was issued to Mr. Jaehnert, which included both aperformance vesting requirement based upon earnings per share growth and a service vesting requirement prorated at July 31, 2013, July 31, 2014 andJuly 31, 2015. As of July 31, 2013, 1/3 or 33,333 shares have vested.(9)On account of his resignation, Mr. Sephton has ninety days after his resignation date of July 31, 2013 to exercise the outstanding vested stock optionsnot withstanding the expiration date.95Table of ContentsOption Exercises & Stock Vested for Fiscal 2013The following table summarizes option exercises and the vesting of restricted stock during fiscal 2013 to the named executive officers. The first traunchof the restricted stock granted to Frank Jaehnert on August 1, 2010 vested as of July 31, 2013, which represented 33,333 shares at a fair value of $33.27 pershare. Option Awards Stock AwardsName Number of SharesAcquired onExercise (#) Value Realizedon Exercise ($) Number of SharesAcquired on Vesting Value Realizedon Vesting ($)F.M. Jaehnert 197,000 $3,411,368 33,333 $1,108,989T.J. Felmer 70,000 598,760 — —A.J. Klotsche 105,000 899,395 — —S. Millar 6,000 98,550 — —P.C. Sephton 109,000 1,063,786 — —M.O. Williamson 14,000 197,555 — —Non-Qualified Deferred Compensation for Fiscal 2013The following table summarizes the activity within the Executive Deferred Compensation Plan and the Brady Restoration Plan during fiscal 2013 for thenamed executive officers. Name ExecutiveContributions inLast Fiscal Year($) RegistrantContributions inLast Fiscal Year($) AggregateEarnings inLast Fiscal Year($) AggregateWithdrawals/Distributions($) AggregateBalance atLast Fiscal YearEnd ($)F.M. Jaehnert $21,800 $43,800 $1,158,726 $— $5,163,559T.J. Felmer 5,100 10,200 489,290 — 2,276,808A.J. Klotsche 4,220 5,720 133,102 — 627,356S. Millar — — — — —P.C. Sephton — — — — —M.O. Williamson 34,284 19,709 224,650 — 1,157,787See discussion of the Company’s nonqualified deferred compensation plan in the Compensation Discussion and Analysis. The executive contributionamounts reported here are derived from the salary and non-equity incentive plan compensation columns of the Summary Compensation Table. The registrantcontribution amounts reported here are reported in the all other compensation columns of the Summary Compensation Table.Potential Payments Upon Termination or Change in ControlAs described in the Employment and Change of Control Agreements section of the Compensation Discussion and Analysis above, the Company hasentered into change of control agreements with each of the named executive officers. The terms of the change of control agreement are triggered if, within a 24month period beginning with the date a change of control occurs, (i) the executive’s employment with the Company is involuntarily terminated other than byreason of death, disability or cause or (ii) the executive’s employment with the Company is voluntarily terminated by the executive subsequent to (a) anyreduction in the total of the executive’s annual base salary, exclusive of fringe benefits, and the executive’s target bonus in comparison with the executive’sannual base salary and target bonus immediately prior to the date the change of control occurs, (b) a significant diminution in the responsibilities or authorityof the executive in comparison with the executive’s responsibility and authority immediately prior to the date the change of control occurs, or (c) the impositionof a requirement by the Company that the executive relocate to a principal work location more than 50 miles from the executive’s principal work locationimmediately prior to the date the change of control occurs.Following termination due to a change in control, executives shall be paid a multiplier of their annual base salary in effect immediately prior to the datethe change of control occurs, plus a multiplier of their average bonus payment received over a three-year period prior to the date the change of control occurs.The Company will also reimburse the executive for any excise tax incurred by the executive as a result of Section 280(g) of the Internal Revenue Code. TheCompany will also reimburse a maximum of $25,000 of legal fees incurred by the executive in order to enforce the change of control agreement, in which theexecutive prevails.96Table of ContentsThe following information and tables set forth the amount of payments to each named executive officer in the event of termination of employment as aresult of a change of control. See the section entitled "Sephton Severance Agreement" above in the Compensation Discussion and Analysis section for adescription of the severance benefits paid to Mr. Sephton upon his resignation. No other employment agreements have been entered into between the Companyand any of the named executive officers.Assumptions and General PrinciplesThe following assumptions and general principles apply with respect to the tables that follow in this section.•The amounts shown in the tables assume that each named executive officer terminated employment on July 31, 2013. Accordingly, the tables reflectamounts earned as of July 31, 2013, and include estimates of amounts that would be paid to the named executive officer upon the occurrence of achange in control. The actual amounts that would be paid to a named executive officer can only be determined at the time of termination.•The tables below include amounts the Company is obligated to pay the named executive officer as a result of the executed change in control agreement.The tables do not include benefits that are paid generally to all salaried employees or a broad group of salaried employees. Therefore, the namedexecutive officers would receive benefits in addition to those set forth in the tables.•A named executive officer is entitled to receive base salary earned during his term of employment regardless of the manner in which the namedexecutive officer’s employment is terminated. As such, this amount is not shown in the tables.Frank M. JaehnertThe following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2013 and the namedexecutive officer had to legally enforce the terms of the agreement. Base Salary ($)(1) Bonus ($) (2) Restricted StockAward AccelerationGain $(3) Stock OptionAccelerationGain $ (4) Excise TaxReimbursement($) Legal FeeReimbursement($) (5) Total ($)2,400,000 2,826,439 3,881,511 1,684,197 1,834,368 25,000 12,651,515(1)Represents three times the base salary in effect at July 31, 2013.(2)Represents three times the average bonus payment received in the last three fiscal years ended July 31, 2013, 2012 and 2011.(3)Represents the closing market price of $33.27 on 116,667 unvested awards that would vest due to the change in control.(4)Represents the difference between the closing market price of $33.27 and the exercise price on 396,666 unvested stock options in-the-money thatwould vest due to the change in control.(5)Represents the maximum reimbursement of legal fees allowed.Thomas J. FelmerThe following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2013 and the namedexecutive officer had to legally enforce the terms of the agreement.Base Salary ($)(1) Bonus ($) (2) Restricted StockAward AccelerationGain $(3) Stock OptionAccelerationGain $ (4) Excise TaxReimbursement($) Legal FeeReimbursement($) (5) Total ($)755,000 595,220 1,164,450 652,024 528,928 25,000 3,720,622 (1)Represents two times the base salary in effect at July 31, 2013.(2)Represents two times the average bonus payment received in the last three fiscal years ended July 31, 2013 and 2012.(3)Represents the closing market price of $33.27 on 35,000 unvested awards that would vest due to the change in control.(4)Represents the difference between the closing market price of $33.27 and the exercise price on 156,332 unvested stock options in-the-money that wouldvest due to the change in control.(5)Represents the maximum reimbursement of legal fees allowed.97Table of ContentsAllan J. KlotscheThe following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2013 and the namedexecutive officer had to legally enforce the terms of the agreement.Base Salary ($)(1) Bonus ($) (2) Restricted StockAward AccelerationGain $(3) Stock OptionAccelerationGain $ (4) Excise TaxReimbursement($) Legal FeeReimbursement($) (5) Total ($)643,000 471,586 1,164,450 537,647 473,716 25,000 3,315,399 (1)Represents two times the base salary in effect at July 31, 2013.(2)Represents two times the average bonus payment received in the last three fiscal years ended July 31, 2013 and 2012.(3)Represents the closing market price of $33.27 on 35,000 unvested awards that would vest due to the change in control.(4)Represents the difference between the closing market price of $33.27 and the exercise price on 126,666 unvested stock options in-the-money thatwould vest due to the change in control.(5)Represents the maximum reimbursement of legal fees allowed.Stephan MillarThe following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2013 and the namedexecutive officer had to legally enforce the terms of the agreement. Base Salary ($)(1) Bonus ($) (2) Restricted StockAward AccelerationGain $(3) Stock OptionAccelerationGain $ (4) Excise TaxReimbursement($) Legal FeeReimbursement($) (5) Total ($)608,626 191,076 332,700 379,899 232,713 25,000 1,770,014 (1)Represents two times the base salary in effect at July 31, 2013. As Mr. Millar works and lives in Australia, his base salary is paid to him inAustralian Dollars. The amount shown in U.S. dollars was converted from Australian Dollars at the average fiscal 2013 exchange rate: $1 = 0.9825AUD.(2)Represents two times the average bonus payment received in the last three fiscal years ended July 31, 2013 and 2012.(3)Represents the closing market price of $33.27 on 10,000 unvested awards that would vest due to the change in control.(4)Represents the difference between the closing market price of $33.27 and the exercise price on 93,333 unvested stock options in-the-money that wouldvest due to the change in control.(5)Represents the maximum reimbursement of legal fees allowed.Peter C. SephtonThe following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2013 (prior to Mr.Sephton's resignation) and the named executive officer had to legally enforce the terms of the agreement.Base Salary ($)(1) Bonus ($) (2) Restricted StockAward AccelerationGain $(3) Stock OptionAccelerationGain $ (4) Excise TaxReimbursement($) Legal FeeReimbursement($) (5) Total ($)720,452 353,087 1,164,450 — 433,480 25,000 2,696,469 (1)Represents two times the base salary in effect at July 31, 2013. As Mr. Sephton works and lives in the United Kingdom, his base salary is paid to himin British Pounds. The amount shown in U.S. dollars was converted from British Pounds at the average fiscal 2013 exchange rate: $1 = £0.6385.(2)Represents two times the average bonus payment received in the last three fiscal years ended July 31, 2013 and 2012.(3)Represents the closing market price of $33.27 on 35,000 unvested awards that would vest due to the change in control.(4)There are no unvested stock options that are in-the-money based upon the closing market price of $33.27 at July 31, 2013.(5)Represents the maximum reimbursement of legal fees allowed.98Table of ContentsMatthew O. WilliamsonThe following table shows the amount payable assuming that the terms of the change of control agreement were triggered on July 31, 2013 and the namedexecutive officer had to legally enforce the terms of the agreement.Base Salary ($) (1) Bonus ($) (2) Restricted StockAward AccelerationGain $ (3) Stock OptionAccelerationGain $ (4) Excise TaxReimbursement($) Legal FeeReimbursement($) (5) Total ($)761,333 546,076 1,164,450 551,417 532,935 25,000 3,581,211 (1)Represents two times the base salary in effect at July 31, 2013(2)Represents two times the average bonus payment received in the last three fiscal years ended July 31, 2013 and 2012.(3)Represents the closing market price of $33.27 on 35,000 unvested awards that would vest due to the change in control.(4)Represents the difference between the closing market price of $33.27 and the exercise price on 131,166 unvested stock options in-the-money thatwould vest due to the change in control.(5)Represents the maximum reimbursement of legal fees allowed.Potential Payments Upon Termination Due to Death or DisabilityIn the event of termination due to death or disability, all unexercised, unexpired stock options would immediately vest and all restricted stock awardswould immediately become unrestricted and fully vested. The following table shows the amount payable to the named executive officers should this eventoccur on July 31, 2013.Name Unvested Sharesof RestrictedStock/RSUs as ofJuly 31, 2013 Restricted Stock/RSUsAward AccelerationGain $ (1) Unvested StockOptionsIn-theMoney as ofJuly 31, 2013 Stock OptionAccelerationGain $ (2)F.M. Jaehnert 116,667 3,881,511 396,666 1,684,197T.J. Felmer 35,000 1,164,450 156,332 652,024A.J. Klotsche 35,000 1,164,450 126,666 537,647S. Millar 10,000 332,700 93,333 379,899P.C. Sephton 35,000 1,164,450 — —M.O. Williamson 35,000 1,164,450 131,166 551,417 (1)Represents the closing market price of $33.27 on unvested awards that would vest due to the change in control.(2)Represents the difference between the closing market price of $33.27 and the exercise price on unvested stock options in-the-money that would vest dueto death or disability.Compensation of DirectorsTo ensure competitive compensation for the Directors, surveys prepared by various consulting firms and the National Association of Corporate Directorsare reviewed by the Corporate Governance Committee and the Management Development and Compensation Committee in making recommendations to theBoard of Directors regarding Director compensation. Directors who are employees of the Company receive no additional compensation for service on the Boardor on any committee of the Board. The annual cash retainer paid to non-management Directors is $45,000. The remaining components of Directorcompensation include $10,000 for each committee chair ($15,000 for the Audit Committee Chair) and $1,500 plus expenses for each meeting of the Board orany committee thereof, which they attend and are a member or $1,000 for single issue telephonic committee meetings of the Board. Directors also receive$1,000 for each meeting they attend of any committee of which they are not a member. In addition, non-management Directors are eligible to receivecompensation of up to $1,000 per day for special assignments required by management or the Board of Directors, so long as the compensation does not impairindependence and is approved as required by the Board.The Lead Independent Director is paid an annual fee of $46,500, consistent with the evolving role of independent board leadership and the enhancedresponsibilities of the position. Mr. Galbato served as Lead Independent Director in fiscal 2013 until his resignation from the Board on May 19, 2013. On June20, 2013, Mr. Goodkind was appointed to serve as Lead Independent Director for the balance of the term vacated by Mr. Galbato, which expires in November2013. Mr. Goodkind received a fee of $7,500 for his service as Lead Independent Director in fiscal 2013.Under the terms of the Brady Corporation 2012 Omnibus Incentive Stock Plan, 5,500,000 shares of the Company's Class A Common Stock have beenauthorized for issuance, and the Board has full and final authority to designate the non-management Directors to whom awards will be granted, the date onwhich awards will be granted and the number of shares of stock covered99Table of Contentsby each grant.On September 6, 2012, the Board approved an annual stock-based compensation award of 4,250 time-based stock options (having a grant date fairvalue of $9.31 per share) and 1,450 unrestricted shares of Class A Common Stock (having a grant date fair value of $30.06 per share), for each non-management Director, effective September 21, 2012.Directors are also eligible to defer portions of their fees into the Brady Corporation Director Deferred Compensation Plan (“Director DeferredCompensation Plan”), the value of which is measured by the fair value of the underlying investments. The assets of the Director Deferred Compensation Planare held in a Rabbi Trust and are invested by the trustee as directed by the participant in several investment funds as permitted by the Director DeferredCompensation Plan. The investment funds available in the Director Deferred Compensation Plan include Brady Corporation Class A Nonvoting CommonStock and various mutual funds that are provided in the Employee 401(k) Plan.At least one year prior to termination from the Board, the Director must elect whether to receive his/her account balance following termination in a singlelump sum payment or by means of distribution under an Annual Installment Method. If the Director does not submit an election form or has not submitted onetimely, then payment shall be made each year for a period of ten years. The first payment must be one-tenth of the balance held; the second one-ninth; and soon, with the balance held in the Trust reduced by each payment. Distributions of the Company Class A Nonvoting Common Stock are made in-kind;distributions of other assets are in cash.Effective January 1, 2008, the Director Deferred Compensation Plan was amended and restated to comply with the provisions of Section 409A of theInternal Revenue Code.Director Compensation Table — Fiscal 2013Name Fees Earnedor Paid inCash ($) OptionAwards ($) (1) StockAwards ($) (2) Total ($)Patrick W. Allender $107,500 $39,573 $43,587 $190,660Gary S. Balkema 106,000 39,573 43,587 189,160Chan W. Galbato (3) 120,250 39,573 43,587 203,410Conrad G. Goodkind 112,500 39,573 43,587 195,660Frank W. Harris 91,500 39,573 43,587 174,660Elizabeth P. Pungello 86,000 39,573 43,587 169,160Bradley C. Richardson 118,000 39,573 43,587 201,160 (1)Represents the grant date fair value computed in accordance with accounting guidance for equity grants made in fiscal 2013 for time-based stockoptions. The assumptions used to determine the value of the option awards, including the use of the Black-Scholes method of valuation by theCompany, are discussed in Note 1 of the Notes to Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K for thefiscal year ended July 31, 2013.The actual value, if any, which an option holder will realize upon the exercise of an option will depend on the excess of the market value of theCompany’s common stock over the exercise price on the date the option is exercised, which cannot be forecasted with any accuracy. Outstandingoption awards at July 31, 2013 for each individual who served as a Director in fiscal 2013 include the following: Ms. Pungello, 61,300 shares;Mr. Harris, 55,300 shares; Mr. Galbato, 47,300 shares; Mr. Allender, 47,300 shares; Mr. Goodkind, 47,300 shares; Mr. Richardson, 41,300 shares;and Mr. Balkema, 26,900.(2)Represents the fair value of shares of Brady Corporation Class A Non-Voting Common Stock granted in fiscal 2013 as compensation for theirservices. The shares were valued at the closing market price of $30.06 on September 21, 2012, the date of grant.(3)Mr. Galbato resigned from the Board on May 19, 2013.100Table of ContentsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters(a) Security Ownership of Certain Beneficial OwnersThe following table sets forth the current beneficial ownership of shareholders who are known by the Company to own more than five percent (5%) ofany class of the Company’s voting shares on August 2, 2013. As of that date, nearly all of the voting stock of the Company was held by two trusts controlledby direct descendants of the Company’s founder, William H. Brady, as follows: Title of Class Name and Address of Beneficial Owner Amount ofBeneficialOwnership Percent ofOwnership(2) Class B Common Stock EBL GST Non-Exempt Stock B Trust(1) c/o ElizabethP. Pungello 2002 S. Hawick Ct. Chapel Hill, NC 27516 1,769,304 50% William H. Brady III Revocable Trust of 2003(3) 1,769,304 50% c/o William H. Brady III249 Rosemont Ave.Pasadena, CA 91103 (1)The trustee is Elizabeth P. Pungello, who has sole voting and dispositive power and who is the remainder beneficiary. Elizabeth Pungello is the great-granddaughter of William H. Brady and currently serves on the Company’s Board of Directors.(2)An additional 20 shares are owned by a third trust with different trustees.(3)William H. Brady III is special trustee of this trust and has sole voting and dispositive powers with respect to these shares. William H. Brady III is thegrandson of William H. Brady.(b) Security Ownership of ManagementThe following table sets forth the current beneficial ownership of each class of equity securities of the Company by each Director or Nominee and by allDirectors and Officers of the Company as a group as of August 2, 2013. Unless otherwise noted, the address for each of the listed persons is c/o BradyCorporation, 6555 West Good Hope Road, Milwaukee, Wisconsin 53223. Except as otherwise indicated, all shares are owned directly. Title of Class Name of Beneficial Owner & Nature of Beneficial Ownership Amount ofBeneficialOwnership(4) Percent ofOwnershipClass A Common Stock Elizabeth P. Pungello(1) 1,291,267 2.7% Frank M. Jaehnert(2) 937,383 1.9 Matthew O. Williamson 330,003 0.7 Thomas J. Felmer 301,933 0.6 Allan J. Klotsche 239,779 0.5 Conrad G. Goodkind 116,939 0.2 Frank W. Harris 75,879 0.2 Stephen Millar 66,000 0.1 Patrick W. Allender 63,730 0.1 Bradley C. Richardson 43,273 * Gary S. Balkema 24,717 * Nancy Gioia (3) — — All Officers and Directors as a Group (18 persons)(4) 3,943,627 8.2Class B Common Stock Elizabeth P. Pungello(1) 1,769,304 50.0%*Indicates less than one-tenth of one percent.101Table of Contents(1)Ms. Pungello’s holdings of Class A Common Stock include 876,826 shares owned by a trust for which she is a trustee and has sole dispositive andvoting authority. Ms. Pungello’s holdings of Class B Common Stock include 1,769,304 shares owned by a trust over which she has sole dispositiveand voting authority.(2)Of the amount reported, Mr. Jaehnert’s spouse owns 5,446 shares of Class A Common Stock directly.(3)Ms. Gioia is a nominee for Director for fiscal 2014. She does not own any shares of Class A Common Stock as of August 2, 2013.(4)The amount shown for all officers and directors individually and as a group (18 persons) includes options to acquire a total of 2,278,190 shares ofClass A Common Stock, which are currently exercisable or will be exercisable within 60 days of July 31, 2013, including the following:Ms. Pungello, 55,634 shares; Mr. Jaehnert, 733,334 shares; Mr. Williamson, 314,834 shares; Mr. Felmer, 266,835 shares; Mr. Klotsche, 228,334shares; Mr. Millar, 66,000 shares; Mr. Goodkind, 41,634 shares; Mr. Harris, 49,634 shares; Mr. Allender, 41,634 shares; Mr. Richardson, 35,634shares; Mr. Balkema, 21,234 shares; Ms. Gioia (Director nominee), 0 shares; Mr. Hoffman, 192,891 shares; Mr. Curran, 131,891 shares;Ms. Johnson, 64,000 shares; Mr. Marks, 32,334 shares; and Mr. Meyer, 2,333 shares. It does not include other options for Class A Common Stockwhich have been granted at later dates and are not exercisable within 60 days of July 31, 2013.(5)The amount shown for all officers and directors individually and as a group (18 persons) includes Class A Common Stock owned in deferredcompensation plans totaling 192,767 shares of Class A Common Stock, including the following: Ms. Pungello, 2,267 shares; Mr. Jaehnert, 92,612shares; Mr. Williamson, 15,169 shares; Mr. Felmer, 11,131 shares; Mr. Klotsche, 8,330 shares; Mr. Millar, 0 shares; Mr. Goodkind, 24,002shares; Mr. Harris, 0 shares; Mr. Allender, 22,096 shares; Mr. Richardson, 7,639 shares; Mr. Balkema 1,483 shares; Ms. Gioia (Director nominee),0 shares; Mr. Hoffman, 1,815 shares; Mr. Bolognini, 0 shares; Mr. Curran, 109 shares; Ms. Johnson, 6,114 shares; Mr. Marks, 0 shares; andMr. Meyer, 0 shares.(c) Changes in ControlNo arrangements are known to the Company, which may, at a subsequent date, result in a change in control of the Company.(d) Equity Compensation Plan Information As of July 31, 2013Plan Category Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights(a) Weighted-averageexercise price ofoutstanding options,warrants and rights(b) Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a))(c)Equity compensation plans approvedby security holders 5,150,975 $30.68 4,359,943Equity compensation plans notapproved by security holders None None NoneTotal 5,150,975 $30.68 4,359,943The Company’s equity compensation plan allows the granting of stock options to various officers, directors and other employees of the Company atprices equal to fair market value at the date of grant. The Company has reserved 5,500,000 shares of Class A Nonvoting Common Stock for issuance underthe Brady Corporation 2012 Omnibus Incentive Stock Plan. Generally, options will not be exercisable until one year after the date of grant, and will beexercisable thereafter, to the extent of one-third per year and have a maximum term of ten years.In August 2010, 2011 and 2012, certain executives and key management employees were issued stock options that vest upon meeting certain financialperformance conditions in addition to the vesting schedule described above. Performance-based options expire 10 years from the date of grant. All grants underthe equity plans are at market price on the date of the grant. The Company granted 5,000 cliff-vested restricted shares in December 2012, with a grant priceand fair value of $32.99. The Company granted 10,000 shares of performance-based restricted stock units in September 2012, with a grant price and fairvalue of $30.21. The Company granted 100,000 shares of performance-based restricted stock in August of 2010, with a grant price and fair value of $28.35,and 210,000 shares in fiscal 2008, with a grant price and fair value of $32.83. Effective July 20, 2011, the Compensation Committee of the Board ofDirectors of the Company approved an amendment to the fiscal 2008 performance-based restricted shares to provide for an additional two year vesting period.As of July 31, 2013, 5,000 cliff-vested restricted shares were outstanding, 10,000 performance-based restricted stock units were outstanding and 221,667performance-based restricted shares were outstanding.102Table of ContentsItem 13. Certain Relationships, Related Transactions, and Director IndependenceThe Company annually solicits information from its Directors in order to ensure there are no conflicts of interest. The information gathered annually isreviewed by the Company and if any transactions are not in accordance with the rules of the New York Stock Exchange or are potentially in violation of theCompany’s Corporate Governance Principles, the transactions are referred to the Corporate Governance Committee for approval, ratification, or other action.Further, potential affiliated party transactions are discussed at the Company’s quarterly disclosure committee meetings. In addition, pursuant to its charter,the Company’s Audit Committee periodically reviews reports and disclosures of insider and affiliated party transactions with the Company, if any.Furthermore, the Company’s Directors are expected to be mindful of their fiduciary obligations to the Company and to report any potential conflicts to theCorporate Governance Committee for review. Based on the Company’s consideration of all relevant facts and circumstances, the Corporate GovernanceCommittee will decide whether or not to approve such transactions and will approve only those transactions that are in the best interest of the Company.Additionally, the Company has processes in place to educate executives and employees about affiliated transactions. The Company maintains an anonymoushotline by which employees may report potential conflicts of interest such as affiliated party transactions. Based on these evaluations the Company hasdetermined that it does not have material related party transactions that affect the results of operations, cash flow or financial condition. The Company hasalso determined that no transactions occurred in fiscal 2013, or are currently proposed, that would require disclosure under Item 404 (a) of Regulation S-K.See Item 10 — Directors and Executive Officers of the Registrant for a discussion of Director independence.Item 14. Principal Accounting Fees and ServicesThe following table presents the aggregate fees incurred for professional services by Deloitte & Touche LLP and Deloitte Tax LLP during the years endedJuly 31, 2013 and 2012. Other than as set forth below, no professional services were rendered or fees billed by Deloitte & Touche LLP or Deloitte Tax LLPduring the years ended July 31, 2013 and 2012. 2013 2012 (Dollars in thousands)Audit, audit-related and tax compliance Audit fees(1) $1,671 $1,411Tax fees — compliance 292 115Subtotal audit, audit-related and tax compliance fees 1,963 1,526Non-audit related Tax fees — planning and advice 464 314Other fees (2) 10 132Subtotal non-audit related fees 474 446Total fees $2,437 $1,972 (1)Audit fees consist of professional services rendered for the audit of the Company’s annual financial statements, attestation of management’sassessment of internal control, reviews of the quarterly financial statements and statutory reporting compliance.(2)All other fees relate to expatriate activities. 2013 2012Ratio of Tax Planning and Advice Fees and All Other Fees to Audit Fees, Audit-Related Fees and TaxCompliance Fees .2 to 1 .3 to 1Pre-Approval Policy — The services performed by the Independent Registered Public Accounting Firm (“Independent Auditors”) in fiscal 2013 and2012 were pre-approved in accordance with the pre-approval policy and procedures adopted by the Audit Committee at its November 19, 2003 meeting. Thepolicy requires the Audit Committee to pre-approve the audit and non-audit services performed by the Independent Auditors in order to assure that theprovision of such services does not impair the auditor’s independence. Unless a type of service to be performed by the Independent Auditors has receivedgeneral pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will requirespecific pre-approval by the Audit Committee.103Table of ContentsPART IVItem 15. Exhibits and Financial Statement SchedulesItem 15 (a) — The following documents are filed as part of this report:1) & 2) Consolidated Financial Statement Schedule -Schedule II Valuation and Qualifying AccountsAll other schedules are omitted as they are not required, or the required information is shown in the consolidated financial statements ornotes thereto.3) Exhibits — See Exhibit Index at page 104 of this Form 10-K.104Table of ContentsEXHIBIT INDEXExhibitNumberDescription2.1Agreement and Plan of Merger, dated as of December 28, 2012, by and among Brady Corporation, BC I Merger Sub Corporation,Precision Dynamics Corporation, and Precision Dynamics Holding LLC (29)3.1Restated Articles of Incorporation of Brady Corporation (1)3.2By-laws of Brady Corporation, as amended (23)*10.1Form of Change of Control Agreement, amended as of December 23, 2008, entered into with Thomas J. Felmer, Allan J. Klotsche,Peter C. Sephton, and Matthew O. Williamson (12)*10.2Brady Corporation BradyGold Plan, as amended (2)*10.3Executive Additional Compensation Plan, as amended (2)*10.4Executive Deferred Compensation Plan, as amended (16)*10.5Directors’ Deferred Compensation Plan, as amended (25)*10.6Forms of Non-Qualified Employee Stock Option Agreement, Director Stock Option Agreement, and Employee Performance StockOption Agreement under 2006 Omnibus Incentive Stock Plan (10)*10.7Brady Corporation 2004 Omnibus Incentive Stock Plan, as amended (10)*10.8Form of Brady Corporation 2004 Nonqualified Stock Option Agreement under the 2004 Omnibus Incentive Stock Plan, asamended (13)10.9Brady Corporation Automatic Dividend Reinvestment Plan (4)*10.10Brady Corporation 2005 Nonqualified Plan for Non-employee Directors, as amended (3)*10.11Forms of Nonqualified Stock Option Agreements under 2005 Non-qualified Plan for Non-employee Directors, as amended (8)*10.12Brady Corporation 1997 Omnibus Incentive Stock Plan, as amended (10)*10.13Brady Corporation 1997 Nonqualified Stock Option Plan for Non-Employee Directors, as amended (10)10.14Revolving Credit Facility Credit Agreement (Superseded) (14)*10.15Brady Corporation 2006 Omnibus Incentive Stock Plan, as amended (10)*10.16Change of Control Agreement, amended as of May 22, 2013, entered into with Scott Hoffman (30)10.17First Amendment to Revolving Credit Facility Credit Agreement (Superseded) (6)*10.18Form of Amendment, dated March 4, 2009, to granting agreement for performance-based stock options issued on August 2, 2004to Frank M. Jaehnert, Thomas J. Felmer, Peter C. Sephton, Matthew O. Williamson, and Allan J. Klotsche (12)*10.19Form of Performance-based Restricted Stock Agreement under Brady Corporation 2006 Omnibus Incentive Stock Plan (7)*10.20Change of Control Agreement, amended as of December 23, 2008, entered into with Frank M. Jaehnert (12)*10.21Restated Brady Corporation Restoration Plan (5)*10.22Change of Control Agreement, dated as of February 28, 2013, entered into with Louis T. Bolognini (30)*10.23Brady Corporation 2003 Omnibus Incentive Stock Plan, as amended (10)10.24Brady Note Purchase Agreement dated June 28, 2004 (11)105Table of Contents10.25First Supplement to Note Purchase Agreement, dated February 14, 2006 (9)10.26Second Supplement to Note Purchase Agreement, dated March 23, 2007 (24)*10.27Form of Change of Control Agreement, amended as of December 23, 2008, entered into with Kathleen Johnson (12)*10.28Brady Corporation 2010 Omnibus Incentive Stock Plan, as amended (22)*10.29Brady Corporation 2010 Nonqualified Stock Option Plan for Non-employee Directors (17)*10.30Form of Non-Qualified Employee Stock Option Agreement and Employee Performance Stock Option Agreement under 2010Omnibus Incentive Stock Plan (17)*10.31Form of Director Stock Option Agreement under 2010 Nonqualified Stock Option Plan for Non-employee Directors (17)*10.32Form of Amendment, dated February 17, 2010, to granting agreement for performance-based stock options issued on August 1,2005 to Frank M. Jaehnert, Thomas J. Felmer, Peter C. Sephton, Matthew O. Williamson and Allan J. Klotsche (18)10.33Brady Note Purchase Agreement dated May 13, 2010 (19)*10.34Performance-based Restricted Stock Agreement with Frank M. Jaehnert, dated August 2, 2010 (20)*10.35Form of Amendment to January 8, 2008 Brady Corporation Performance-Based Restricted Stock Agreement, dated July 20, 2011(21)*10.36Brady Corporation Incentive Compensation Plan for Senior Executives (15)*10.37Form of Fiscal 2012 Performance Stock Option under the 2010 Omnibus Incentive Stock Plan (26)*10.38Brady Corporation 2012 Omnibus Incentive Stock Plan (26)*10.39Form of Non-Qualified Employee Stock Option Agreement under 2012 Omnibus Incentive Stock Plan (26)*10.40Form of Non-Qualified Employee Performance Stock Option Agreement under 2012 Omnibus Incentive Stock Plan (26)*10.41Form of Director Stock Option Agreement under 2012 Omnibus Incentive Stock Plan (26)*10.42Change of Control Agreement, dated November 21, 2011, entered into with Stephen Millar (27)10.43Revolving Credit Agreement, dated as of February 1, 2012 (28)*10.44Form of Fiscal 2013 Non-Qualified Employee Stock Option Agreement under 2012 Omnibus Incentive Stock Plan (31)*10.45Form of Fiscal 2013 Director Stock Option Agreement under 2012 Omnibus Incentive Stock Plan (31)*10.46Performance-Based Restricted Stock Unit Agreement with Stephen Millar, dated September 21, 2012 (31)*10.47Severance Agreement, dated as of March 25, 2013, entered into with Peter Sephton (30)*10.48Form of Fiscal 2014 Non-Qualified Employee Stock Option Agreement under 2012 Omnibus Incentive Stock Plan*10.49Form of Fiscal 2014 Director Stock Option Agreement under 2012 Omnibus Incentive Stock Plan*10.50Form of Fiscal 2014 Restricted Stock Unit Agreement under 2012 Omnibus Incentive Stock Plan21Subsidiaries of Brady Corporation23Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm31.1Rule 13a-14(a)/15d-14(a) Certification of Frank M. Jaehnert31.2Rule 13a-14(a)/15d-14(a) Certification of Thomas J. Felmer106Table of Contents32.1Section 1350 Certification of Frank M. Jaehnert32.2Section 1350 Certification of Thomas J. Felmer101Interactive Data File*Management contract or compensatory plan or arrangement(1)Incorporated by reference to Registrant’s Registration Statement No. 333-04155 on Form S-3(2)Incorporated by reference to Registrant’s Annual Report on Form 10-K filed for the fiscal year ended July 31, 1989(3)Incorporated by reference to Registrant’s Current Report on Form 8-K filed November 25, 2008(4)Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1992(5)Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008(6)Incorporated by reference to Registrant’s Current Report on Form 8-K filed March 19, 2008(7)Incorporated by reference to Registrant’s Current Report on Form 8-K filed January 9, 2008(8)Incorporated by reference to Registrant’s Current Report on Form 8-K filed December 4, 2006(9)Incorporated by reference to Registrant’s Current Report on Form 8-K filed February 17, 2006(10)Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2008(11)Incorporated by reference to Registrant’s 8-K/A filed August 3, 2004(12)Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2009(13)Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2005(14)Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2006(15)Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 2, 2011(16)Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011(17)Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009(18)Incorporated by reference to Registrant’s Current Report on Form 8-K filed February 23, 2010(19)Incorporated by reference to Registrant’s Current Report on Form 8-K filed May 14, 2010(20)Incorporated by reference to Registrant’s Current Report on Form 8-K filed August 4, 2010(21)Incorporated by reference to Registrant’s Current Report on Form 8-K/A filed July 28, 2011(22)Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 27, 2010(23)Incorporated by reference to Registrant’s Current Report on Form 8-K filed February 16, 2012(24)Incorporated by reference to Registrant’s Current Report on Form 8-K filed March 26, 2007(25)Incorporated by reference to Registrant’s Current Report on Form 8-K filed September 15, 2011(26)Incorporated by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2011(27)Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2011(28)Incorporated by reference to Registrant’s Current Report on Form 8-K filed February 7, 2012(29)Incorporated by reference to Registrant's Current Report on Form 8-K filed December 31, 2012(30)Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 2013(31)Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 2012107Table of ContentsBRADY CORPORATION AND SUBSIDIARIESSCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS Year ended July 31,Description 2013 2012 2011 (Dollars in thousands)Valuation accounts deducted in balance sheet from assets to which they apply — Accountsreceivable — allowance for doubtful accounts: Balances at beginning of period $6,005 $6,183 $7,137Additions — Charged to expense 1,018 1,593 1,287Due to acquired businesses 531 159 52Deductions — Bad debts written off, net of recoveries (1,429) (1,930) (2,293)Deductions — reclassified to discontinued operations (1,032) — —Balances at end of period $5,093 $6,005 $6,183Inventory — reserve for slow-moving inventory: Balances at beginning of period $11,316 $13,009 $15,944Additions — Charged to expense 2,629 2,200 3,750Due to acquired businesses 2,887 445 632Deductions — Inventory write-offs (1,811) (4,338) (7,317)Deductions — reclassified to discontinued operations (3,704) — —Balances at end of period $11,317 $11,316 $13,009Valuation allowances against deferred tax assets: Balances at beginning of period 25,847 31,844 27,510Additions during year 10,853 2,579 5,933Due to acquired businesses 983 — —Deductions — valuation allowances reversed/utilized (541) (3,226) (1,523)Deductions — valuation allowances reversed/written off — (5,350) (76)Balances at end of period $37,142 $25,847 $31,844108Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized this 30th day of September 2013.BRADY CORPORATIONBy: /s/ THOMAS J. FELMER Thomas J. Felmer Senior Vice President & Chief Financial Officer (Principal Financial Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant andin the capabilities and on the dates indicated.*Signature Title/s/ FRANK M. JAEHNERT President and Chief Executive Officer; DirectorFrank M. Jaehnert (Principal Executive Officer)/s/ KATHLEEN M. JOHNSON Vice President and Chief Accounting OfficerKathleen M. Johnson (Principal Accounting Officer)/s/ BRADLEY C. RICHARDSON Bradley C. Richardson Director/s/ PATRICK W. ALLENDER Patrick W. Allender Director/s/ FRANK W. HARRIS Frank W. Harris Director/s/ CONRAD G. GOODKIND Conrad G. Goodkind Director/s/ ELIZABETH P. PUNGELLO Elizabeth P. Pungello Director/s/ GARY S. BALKEMA Gary S. Balkema Director*Each of the above signatures is affixed as of September 30, 2013109BRADY CORPORATIONNONQUALIFIED STOCK OPTIONUpon management’s recommendation, the Management Development and Compensation Committee (the “Committee”) of the Brady CorporationBoard of Directors has awarded to _______________ (“Employee”) a non-qualified stock option (the “Option”) effective __________, 20__, pursuant to theterms of the Brady Corporation 2012 Omnibus Incentive Stock Plan (the “Plan”). The Corporation’s records shall be the official record of the Option grantdescribed herein and, in the event of any conflict between this description and the Corporation’s records, the Corporation’s records shall control.1.Number of Shares Optioned; Option PriceThe Corporation grants to the Employee the right and option to purchase, on the terms and conditions hereof, all or any part of an aggregate ofX,XXX shares of the presently authorized Class A Common Stock of the Corporation, $.01 par value, whether unissued or issued and reacquiredby the Corporation, at the price of $XX.XX per share (the “Option Price”).2.Conditions of Exercise of Options During Employee’s Lifetime; Vesting of OptionExcept as provided in this Section and in Section 3, this Option may not be exercised (a) unless Employee is at the date of the exercise in the employof the Corporation or an Affiliate, and (b) until Employee shall have been continuously so employed for a period of at least one year from the datehereof. Thereafter, this Option shall be exercisable for any amount of shares up to the maximum percentage of shares covered by this Option(rounded up to the nearest whole share), as follows (but in no event shall this Option be exercisable for any shares after the expiration date providedin Section 7):Number of Completed Years AfterDate of Grant of this OptionMaximumPercentageof Shares ForWhich Option isExercisable Less than 1ZeroAt least 1 but less than 233-1/3%At least 2 but less than 366-2/3%At least 3100%If Employee shall cease to be employed by the Corporation or an Affiliate for any reason other than as provided in Section 3 after Employee shallhave been continuously so employed for one year after the grant of this Option, Employee may, at any time within 90 days of such termination, butin no event later than the date of expiration of this Option, exercise this Option to the extent Employee was entitled to do so on the date of suchtermination. However, if Employee was dismissed for cause, of which the Committee shall be the sole judge, this Option shall forthwith expire. ThisAgreement does not confer upon Employee any right of continuation of employment by the Corporation or an Affiliate, nor does it impair any rightthe Corporation or any Affiliate may have to terminate the Employee’s employment at any time.3.Termination of EmploymentNotwithstanding the provisions of Section 2 hereof, if the Employee:(a)is terminated by the death of the Employee, any unexercised, unexpired Stock Options granted hereunder to the Employee shall be 100%vested and fully exercisable, in whole or in part, at any time within one year after the date of death, by the Employee’s personalrepresentative or by the person to whom the Stock Options are transferred under the Employee’s last will and testament or the applicablelaws of descent and distribution;(b)dies within 90 days after termination of employment by the Corporation or its Affiliates, other than for cause, any unexercised, unexpiredStock Options granted hereunder to the Employee and exercisable as of the date of such termination of employment shall be exercisable, inwhole or in part, at any time within one year after the date of death, by the Employee’s personal representative or by the person to whom theStock Options are transferred under the Employee’s last will and testament or the applicable laws of descent and distribution;(c)is terminated as a result of the disability of the Employee (a disability means that the Employee is disabled as a result of sickness or injury,such that he or she is unable to satisfactorily perform the material duties of Employee’s job, as determined by the Board of Directors, on thebasis of medical evidence satisfactory to it), any unexercised, unexpired Stock Options granted hereunder to the Employee shall become100% vested and fully exercisable, in whole or in part, at any time within one year after the date of disability; or(d)is terminated as a result of the Employee’s retirement (after age 55 with ten years of employment with the Corporation or an Affiliate or afterage 65), any unexercised, unexpired Stock Options granted hereunder to the Employee shall continue to vest as provided in Section 2hereof and any option that is or becomes vested may be exercised in whole or in part prior to the expiration date of such option.4.Deferral of ExerciseAlthough the Corporation intends to exert its best efforts so that the shares purchasable upon the exercise of this Option will be registered under, orexempt from, the registration requirements of, the Securities Act of 1933 (the “Act”) and any applicable state securities law at the time or times thisOption (or any portion of this Option) first becomes exercisable, if the exercise of this Option would otherwise result in a violation by the Corporationof any provision of the Act or of any state securities law, the Corporation may require that such exercise be deferred until the Corporation has takenappropriate action to avoid any such violation.5.Method of Exercising OptionThis Option shall be exercised by delivering to the Corporation, at the office of its Treasurer, a written notice of the number of shares with respect towhich this Option is at the time being exercised and by paying the Corporation in full the Option Price of the shares being acquired at the time.6.Method of PaymentPayment shall be made either (i) in cash; (ii) by delivering shares of the Corporation’s Class A Common Stock which have been beneficially ownedby the Employee, the spouse of the Employee, or both of them, for a period of at least six months prior to the time of exercise (“Delivered Stock”);(iii) by surrendering to the Corporation shares of Class A Common Stock otherwise receivable upon exercise of the Option (a “Net Exercise”); or (iv)any combination of the foregoing. Payment in the form of Delivered Stock shall be in the amount of the Fair Market Value of the stock at the date ofexercise, determined in accordance with Section 9.7.Expiration DateThis Option shall expire ten years after the date on which this Option was granted.8.Withholding TaxesThe Corporation may require, as a condition to the exercise of this Option, that the Employee concurrently pay to the Corporation any taxes whichthe Corporation is required to withhold by reason of such exercise. In lieu of part or all of any such payment, the Employee may elect, subject tosuch rules and regulations as the Committee may adopt from time to time, to have the Corporation withhold from the shares to be issued uponexercise that number of shares having a Fair Market Value, determined in accordance with Section 9, equal to the amount which the Corporation isrequired to withhold.9.Method of Valuation of StockThe “Fair Market Value” of the Class A Common Stock of the Corporation on any date shall mean, if the stock is then listed and traded on aregistered national securities exchange, or is quoted in the NASDAQ National Market System, the average of the high and low sales price recorded incomposite transactions for such date or, if such date is not a business day or if no sales of shares shall have been reported with respect to such date,the next preceding business date with respect to which sales were reported. In the absence of reported sales or if the stock is not so listed or quoted,but is traded in the over-the-counter market, Fair Market Value shall be the average of the closing bid and asked prices for such shares on therelevant date.10.Confidentiality, Non-Solicitation and Non-CompeteAs consideration for the grant of this Option, Employee agrees to, understands and acknowledges the following:(a)During Employee's employment with the Corporation and its Affiliates (the "Company"), the Company will provide Employee withConfidential Information relating to the Company, its business and clients, the disclosure or misuse of which would cause severe andirreparable harm to the Company. Employee agrees that all Confidential Information is and shall remain the sole and absolute property ofthe Company. Upon thetermination of Employee's employment with the Company for any reason, Employee shall immediately return to the Company alldocuments and materials that contain or constitute Confidential Information, in any form whatsoever, including but not limited to, allcopies, abstracts, electronic versions, and summaries thereof. Executive further agrees that, without the written consent of the ChiefExecutive Officer of the Corporation or, in the case of the Chief Executive Officer of the Corporation, without the written approval of theBoard of Directors of the Corporation, Employee will not disclose, use, copy or duplicate, or otherwise permit the use, disclosure, copyingor duplication of any Confidential Information of the Company, other than in connection with the authorized activities conducted in thecourse of Employee's employment with the Company. Employee agrees to take all reasonable steps and precautions to prevent anyunauthorized disclosure, use, copying or duplication of Confidential Information. For purposes of this Agreement, Confidential Informationmeans any and all financial, technical, commercial or other information concerning the business and affairs of the Company that isconfidential and proprietary to the Company, including without limitation,(i)information relating to the Company’s past and existing customers and vendors and development of prospective customers andvendors, including specific customer product requirements, pricing arrangements, payments terms, customer lists and othersimilar information;(ii)inventions, designs, methods, discoveries, works of authorship, creations, improvements or ideas developed or otherwiseproduced, acquired or used by the Company;(iii)the Company’s proprietary programs, processes or software, consisting of but not limited to, computer programs in source orobject code and all related documentation and training materials, including all upgrades, updates, improvements, derivatives andmodifications thereof and including programs and documentation in incomplete stages of design or research and development;(iv)the subject matter of the Company’s patents, design patents, copyrights, trade secrets, trademarks, service marks, trade names,trade dress, manuals, operating instructions, training materials, and other industrial property, including such information inincomplete stages of design or research and development; and(v)other confidential and proprietary information or documents relating to the Company’s products, business and marketing plansand techniques, sales and distribution networks and any other information or documents which the Company reasonably regardsas being confidential.(b)Employee agrees that, without the written consent of the Chief Executive Officer of the Corporation, in the case of the Chief ExecutiveOfficer of the Corporation, without the written approval of the Board of Directors of the Corporation, Employee shall not engage in any ofthe conduct described in subsections (i) or (ii), below, either directly or indirectly, or as an employee, contractor, consultant, partner,officer, director or stockholder, other than a stockholder of less than 5% of the equities of a publicly traded corporation, or in any othercapacity for any person, firm, partnership or corporation:(i)During the time of Employee's employment with Company, Employee will not: (A) perform duties as or for a Competitor; or (B)participate in the inducement of or otherwise encourage Company employees, clients, or vendors to currently and/or prospectivelybreach, modify, or terminate any agreement or relationship they have or had with Company.(ii)For a period of 12 months following the termination of Employee's employment with Company, Employee will not: (A) performduties as or for a Competitor that are the same as or similar to the duties performed by Employee for the Company at any timeduring any part of the 24 month period preceding the termination of Employee's employment with Company; or (B) participate inthe inducement of or otherwise encourage Company employees, clients, or vendors to currently and/or prospectively breach,modify, or terminate any agreement or relationship they have or had with Company during any part of the 24 month periodpreceding the termination of Employee's employment with Company.For purposes of this Agreement, a Competitor shall mean any corporation, person, firm or organization (or division or part thereof) engagedin or about to become engaged in research and development work on, or theproduction and/or sale of, any product or service which is directly competitive with one with respect to which Employee acquiredConfidential Information by reason of Employee's work with the Company.(c)Employee acknowledges and agrees that compliance with this Section 10 is necessary to protect the Company, and that a breach of any ofthis Section 10 will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law. In theevent of a breach of this Section 10, or any part thereof, the Company, and its successors and assigns, shall be entitled to injunctive reliefand to such other and further relief as is proper under the circumstances. The Company shall institute and prosecute proceedings in anyCourt of competent jurisdiction either in law or in equity to obtain damages for any such breach of this Section 10, or to enjoin Employeefrom performing services in breach of Section 10(b) during the term of employment and for a period of 12 months following the terminationof employment. Employee hereby agrees to submit to the jurisdiction of any Court of competent jurisdiction in any disputes that arise underthis Agreement.(d)Employee further agrees that, in the event of a breach of this Section 10, the Corporation shall also be entitled to recover the value of anyamounts previously paid or payable or any shares (or the value of any shares) delivered or deliverable to Employee pursuant to anyCompany bonus program, this Agreement, and any other Company plan or arrangement.(e)Employee agrees that the terms of this Section 10 shall survive the termination of Employee's employment with the Company.(f)EMPLOYEE HAS READ THIS SECTION 10 AND AGREES THAT THE CONSIDERATION PROVIDED BY THE CORPORATIONIS FAIR AND REASONABLE AND FURTHER AGREES THAT GIVEN THE IMPORTANCE TO THE COMPANY OF ITSCONFIDENTIAL AND PROPRIETARY INFORMATION, THE POST-EMPLOYMENT RESTRICTIONS ON EMPLOYEE'SACTIVITIES ARE LIKEWISE FAIR AND REASONABLE.11.ClawbackThis Option is subject to the terms of the Corporation's recoupment, clawback or similar policy as it may be in effect from time to time, as well asany similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of awards or any shares ofCommon Stock or other cash or property received with respect to the awards (including any value received from a disposition of the shares acquiredupon payment of the awards).12.No Rights in Shares Until Certificates IssuedNeither the Employee nor his heirs nor his personal representative shall have any of the rights or privileges of a stockholder of the Corporation inrespect of any of the shares issuable upon the exercise of the Option herein granted, unless and until certificates representing such shares shall havebeen issued or shares in book entry form shall have been recorded in the records of the Corporation’s transfer agent.13.Option Not TransferableNo portion of the Option granted hereunder shall be transferable or assignable (or made subject to any pledge, lien, obligation or liability of anEmployee) except (a) by last will and testament or the laws of descent and distribution (and upon a transfer or assignment pursuant to an Employee’slast will and testament or the laws of descent and distribution, any Option must be transferred in accordance therewith); (b) during the Employee’slifetime, nonqualified stock Options may be transferred by an Employee to the Employee’s spouse, children or grandchildren or to a trust for thebenefit of such spouse, children or grandchildren, provided that the terms of any such transfer prohibit the resale of shares acquired upon exercise ofthe option at a time during which the transferor would not be permitted to sell such shares under the Corporation’s policy on trading by insiders.14.Prohibition Against Pledge, Attachment, Etc.Except as otherwise herein provided, the Option herein granted and the rights and privileges pertaining thereto shall not be transferred, assigned,pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.15.Changes in StockIn the event there are any changes in the Class A Common Stock of the Corporation through merger, consolidation, reorganization, recapitalization,stock dividend, stock split, combination or exchange of shares, rights offering or anyother change affecting the Class A Common Stock of the Corporation, appropriate changes will be made by the Committee in the aggregate number ofshares and the purchase price and kind of shares subject to this Option, to prevent substantial dilution or enlargement of the rights granted to oravailable for Employee.16.Dissolution or MergerAnything contained herein to the contrary notwithstanding, upon the dissolution or liquidation of the Corporation, or upon any merger in which theCorporation is not the surviving corporation, at any time prior to the expiration date of the termination of this Option, the Employee shall have theright within 60 days prior to the effective date of such dissolution, liquidation or merger, to surrender all or any unexercised portion of this Option tothe Corporation for cash, subject to the discretion of the Committee as to the exact timing of said surrender. Notwithstanding the foregoing, however,in the event Employee has retired or died, Employee’s right to surrender all or any unexercised portion of this Option under this Section shall beavailable only to the extent that at the time of any such surrender, Employee would have been entitled to exercise this Option under Sections 2 or 3hereof, as the case may be. The amount of cash to be paid to Employee for the portion of this Option so surrendered, shall be equal to the number ofshares of Class A Common Stock subject to the surrendered Option multiplied by the difference between the Option Price per share, as described inSection 1 hereof, and the Fair Market Value per share, determined in accordance with Section 9 hereof, as of the time of surrender.17.NoticesAny notice to be given to the Corporation under the terms of this Agreement shall be addressed to the Corporation in care of its Chief FinancialOfficer, and any notice to be given to the Employee may be addressed at the address as it appears on the Corporation’s records, or at such otheraddress as either party may hereafter designate in writing to the other. Except as provided in Section 5 hereof, any such notice shall be deemed tohave been duly given, if and when enclosed in a properly sealed envelope addressed as aforesaid, and deposited, postage prepaid, in the UnitedStates mail.18.Provisions of Plan ControllingThis Option is subject in all respects to the provisions of the Plan. In the event of any conflict between any provisions of this Option and theprovisions of the Plan, the provisions of the Plan shall control, except to the extent the Plan permits the Committee to modify the terms of an Optiongrant and has done so herein. Terms defined in the Plan where used herein shall have the meanings as so defined. Employee acknowledges receipt ofa copy of the Plan.19.Wisconsin ContractThis Option has been granted in Wisconsin and shall be construed under the laws of that state.20.SeverabilityWherever possible, each provision of this Option will be interpreted in such manner as to be effective and valid under applicable law, but if anyprovision hereof is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition orinvalidity, without invalidating the remainder of such provision or the remaining provisions hereof.IN WITNESS WHEREOF, the Corporation has granted this Option as of the day and year first above written.BRADY CORPORATIONBy: Name:Its:EMPLOYEE'S ACCEPTANCEI, ___________________________, hereby accept the foregoing Option award and agree to the terms and conditions thereof, including therestrictions contained in Section 10 of this Agreement.EMPLOYEE:Signature: Print Name:  BRADY CORPORATIONDIRECTOR NONQUALIFIED STOCK OPTION AGREEMENTOption granted on ________ X, 20XX, by Brady Corporation, a Wisconsin corporation (hereinafter called the “Company”), to____________________(hereinafter called the “Director”) pursuant to the terms of the Brady Corporation 2012 Omnibus Incentive Stock Plan. TheCorporation’s records shall be the official record of the Option grant described herein and, in the event of any conflict between this description andCorporation’s records, the Corporation’s records shall control.1.Number of Shares Optioned; Option Price. The Company grants to the Director the right and option to purchase, on the terms and conditionshereof, all or any part of an aggregate of X,XXX shares of the presently authorized Class A Common Stock of the Company, $.01 par value,whether unissued or issued and reacquired by the Company, at the price of $XX.XX per share (the “Option Price”).2.Conditions of Exercise of Options During Director’s Lifetime; Vesting of Option. Except as provided hereinafter in this paragraph and inparagraph 3, this Option may not be exercised (a) unless Director is at the date of the exercise a Director of the Company and (b) until Director shallhave been continuously a Director for a period of at least one year from the date hereof. Thereafter, this Option shall be exercisable for any amount ofshares up to the maximum percentage of shares covered by this Option (rounded up to the nearest whole share) as follows (but in no event shall thisOption be exercisable for any shares after the expiration date provided in paragraph 7):Number of Completed Years AfterDate of Grant of this OptionMaximumPercentageof Shares ForWhich Option isExercisable Less than 1ZeroAt least 1 but less than 233-1/3%At least 2 but less than 366-2/3%At least 3100%If Director shall cease to be a Director of the Company for any reason (except death or disability, or if the Director has been a member of the Board ofDirectors for at least three years) after Director shall have been continuously a Director for one year after the grant of this Option, Director may, atany time within three months of such termination, but in no event later than the date of expiration of this Option, exercise this Option to the extentDirector was entitled to do so on the date of such termination. This Agreement does not confer upon Director any right to continue as a Director of theCompany.3.Termination of Directorship, Etc.A. Notwithstanding the provisions of paragraph 2 hereof, in the event of the termination of the Directorship with theCompany prior to three years from date of grant, due to death or disability, this Option shall become 100% vested and fully exercisable.For purposes of this Agreement, “Disability” means that the Director is disabled as a result of sickness or injury, such that he is unablesatisfactorily to perform the Director’s duties as determined by the Board of Directors, on the basis of medical evidence satisfactory to it.B. (i) If the Directorship is terminated by the death of the Director, any unexercised, unexpired Stock Optionsgranted hereunder to the Director shall be exercisable, in whole or in part, at any time within one year after the date of death, by the Director’s personalrepresentative or by the person to whom the Stock Options are transferred under the Director’s last will and testament or the applicable laws of descent anddistribution. (ii) If the Directorship is terminated as a result of the disability of the Director, any unexercised, unexpired Stock Options granted hereunder to theDirector shall be exercisable, in whole or in part, at any time within one year after the date of disability. (iii) If the Directorship is terminated after the Directorhas been a member of the Board for at least three years, any unexercised, unexpired Stock Options granted hereunder to the Director shallcontinue to vest as provided in paragraph 2 and any option that is or becomes vested may be exercised within the term of such option.C. In the event of (a) the merger or consolidation of the Company with or into another corporation or corporations in which the Company is not thesurviving corporation, (b) the adoption of any plan for the dissolution of the Company, or (c) the sale or exchange of all or substantially all the assets of theCompany for cash or for shares of stock or other securities of another corporation, this Option shall become fully vested and exercisable immediately prior toany such event in which the Company is not the surviving corporation.4.Deferral of Exercise. Although the Company intends to exert its best efforts so that the shares purchasable upon the exercise of this Option will beregistered under, or exempt from the registration requirements of, the Federal Securities Act of 1933 (the “Act”) and any applicable state securities lawat the time or times this Option (or any portion of this Option) first becomes exercisable, if the exercise of this Option would otherwise result in theviolation by the Company of any provision of the Act or of any state securities law, the Company may require that such exercise be deferred until theCompany has taken appropriate action to avoid any such violation.5.Method of Exercising Option. This Option shall be exercised by delivering to the Company, at the office of its Treasurer, a written notice of thenumber of shares with respect to which this Option is at the time being exercised and by paying the Company in full the Option Price of the sharesbeing acquired at the time.6.Method of Payment. Payment shall be made either (i) in cash; (ii) by delivering shares of the Company’s Class A Common Stock which have beenbeneficially owned by the Director, the spouse of the Director, or both of them, for a period of at least six months prior to the time of exercise(“Delivered Stock”); (iii) by surrendering to the Company shares of Class A Common Stock otherwise receivable upon exercise of the Option (a “NetExercise”); or (iv) any combination of the foregoing. Payment in the form of Delivered Stock shall be in the amount of the Fair Market Value of thestock at the date of exercise, determined in accordance with paragraph 9.7.Expiration Date. This Option shall expire ten years after the date on which this Option was granted.8.Withholding Taxes. The Company may require payment of or withhold any tax which it believes is payable as a result of the exercise of thisOption, and the Company may defer making delivery with respect to the shares until arrangements satisfactory to the Company have been madewith regard to any such withholding obligations. In lieu of part or all of any such payment, the Director, in satisfaction of all withholding taxes(including, without limitation, Federal income, FICA (Social Security and Medicare) and any state and local income taxes) payable as a result ofsuch exercise, may elect, subject to such rules and regulations as the Company may adopt from time to time, to have the Company withhold thatnumber of shares (valued at Fair Market Value on the date of exercise and rounded upward) required to settle such withholding taxes.9.Method of Valuation of Stock. The “Fair Market Value” of the Class A Common Stock of the Company on any date shall mean, if the stock isthen listed and traded on a registered national securities exchange, or is quoted in the NASDAQ National Market System, the average of the high andlow sale prices recorded in composite transactions for such date or, if such date is not a business day or if no sales of shares shall have been reportedwith respect to such date, the next preceding business date with respect to which sales were reported. In the absence of reported sales or if the stock isnot so listed or quoted, but is traded in the over-the-counter market, Fair Market Value shall be the average of the closing bid and asked prices forsuch shares on the relevant date.10.Clawback. This Option is subject to the terms of the Corporation's recoupment, clawback or similar policy as it may be in effect from time to time,as well as any similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of awards or anyshares of Common Stock or other cash or property received with respect to the awards (including any value received from a disposition of the sharesacquired upon payment of the awards).11.No Rights in Shares Until Certificates Issued. Neither the Director nor his heirs nor his personal representative shall have any of the rights orprivileges of a stockholder of the Company in respect of any of the shares issuable upon the exercise of the Option herein granted, unless and untilcertificates representing such shares shall have been issued. 12.Option Not Transferable During Director’s Lifetime. This Option shall not be transferable by the Director other than by his will or by the lawsof descent and distribution and shall be exercisable during his lifetime only by him.13.Prohibition Against Pledge, Attachment, Etc. Except as otherwise herein provided, the Option herein granted and the rights and privilegespertaining thereto shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not besubject to execution, attachment or similar process.14.Changes in Stock. In the event there are any changes in the Class A Common Stock of the Company through merger, consolidation, reorganization,recapitalization, stock dividend, stock split, combination or exchange of shares, rights offering or any other change affecting the Class A CommonStock of the Company, appropriate changes shall be made by the Board of Directors of the Company, in the aggregate number of shares and thepurchase price and kind of shares subject to this Option, to prevent substantial dilution or enlargement of the rights granted to or available forDirector.15.Dissolution or Merger. Anything contained herein to the contrary notwithstanding, upon the dissolution or liquidation of the Company, or uponany merger in which the Company is not the surviving corporation, at any time prior to the expiration date of the termination of this Option, theDirector shall have the right immediately prior to the effective date of such dissolution, liquidation or merger, to surrender all or any unexercisedportion of this Option to the Company for cash, subject to the discretion of the Board of Directors as to the exact timing of said surrender.Notwithstanding the foregoing, however, in the event Director has retired or died, Director’s right to surrender all or any unexercised portion of thisOption under this paragraph shall be available only to the extent that at the time of any such surrender, Director would have been entitled to exercisethis Option under paragraphs 2 or 3 hereof, as the case may be. The amount of cash to be paid to Director for the portion of this Option sosurrendered, shall be equal to the number of shares of Class A Common Stock subject to the surrendered Option multiplied by the difference betweenthe Option Price per share, as described in paragraph 1 hereof, and the Fair Market Value per share, determined in accordance with paragraph 9hereof, as of the time of surrender.16.Notices. Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company in care of its Vice Presidentand Chief Financial Officer, and any notice to be given to the Director may be addressed at the address as it appears on the Company’s records, or atsuch other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given if andwhen enclosed in a properly sealed envelope addressed as aforesaid, and deposited, postage prepaid, in the United States mail.17.Provisions of Plan Controlling. This Option is subject in all respects to the provisions of the Plan. In the event of any conflict between anyprovisions of this Option and the provisions of the Plan, the provisions of the Plan shall control, except to the extent the Plan permits the Committeeto modify the terms of an Option grant and has done so herein. Terms defined in the Plan where used herein shall have the meanings as so defined.Director acknowledges receipt of a copy of the Plan.18.Wisconsin Contract. This Option has been granted in Wisconsin and shall be construed under the laws of that state.19.Severability. Wherever possible, each provision of this Option will be interpreted in such manner as to be effective and valid under applicable law,but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of suchprohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.IN WITNESS WHEREOF, the Corporation has granted this Option as of the day and year first above written.BRADY CORPORATIONBy: Name: Its: DIRECTOR'S ACCEPTANCEI, ___________________________, hereby accept the foregoing Option award and agree to the terms and conditions thereof.DIRECTOR:Signature: Print Name: BRADY CORPORATIONRESTRICTED STOCK UNIT AGREEMENTUpon management’s recommendation, the Management Development and Compensation Committee (the “Committee”) of the Brady CorporationBoard of Directors has awarded to ______________ (“Employee”) a restricted stock unit award effective _____________, 20XX pursuant to the terms ofthe Brady Corporation 2012 Omnibus Incentive Stock Plan (the “Plan”). The Corporation’s records shall be the official record of the grant described hereinand, in the event of any conflict between this description and the Corporation’s records, the Corporation’s records shall control.1.Number of UnitsThis Restricted Stock Unit Award applies to X,XXX shares of the presently authorized Class A Nonvoting Common Stock of the Corporation, $.01par value (the “Restricted Stock Units”). The Restricted Stock Units granted under this Agreement are units that will be reflected in a book accountmaintained by the Corporation until they become vested or have been forfeited.2.Service Vesting RequirementThe vesting of this Award (other than pursuant to accelerated vesting in certain circumstances as provided in Section 3 below) shall be subject to thesatisfaction of the condition set forth in Section 2(a) below:(a)Vesting. The Award shall be subject to the following service vesting requirement. If the Employee continues in employment through thevesting dates listed below, the Restricted Stock Units shall be vested as listed in the following table: Vesting DateCumulative Percentage of Vested RestrictedStock Units First anniversary of grant date33-1/3%Second anniversary of grant date66-2/3%Third anniversary of grant date100% (b)Forfeiture of Restricted Stock Units. Except as provided in Section 3, if the Employee terminates employment prior to the satisfaction of thevesting requirements set forth in Section 2(a) above, any unvested Restricted Stock Units shall immediately be forfeited. The period of timeduring which the Restricted Stock Units covered by this Award are forfeitable is referred to as the “Restricted Period.”3.Accelerated Vesting.(a)Notwithstanding the terms and conditions of Section 2 hereof, in the event of the termination of the Employee’s employment with theCorporation (and any Affiliate) prior to the end of the Restricted Period due to death or Disability, the Restricted Stock Units shall becomefully vested.(b)In the event of the termination of the Employee’s employment with the Corporation (and any Affiliate) prior to the end of the RestrictedPeriod due to a Change in Control, the Restricted Stock Units shall become unrestricted and fully vested.For purposes of this Agreement, a “Change of Control” shall occur if any person or group of persons (as defined in Section 13(d)(3) of the Securitiesand Exchange Act of 1934) other than the members of the family of William H. Brady, Jr. and their descendants, or trusts for their benefit, and theW. H. Brady Foundation, Inc., collectively, directly or indirectly controls in excess of 50% of the voting common stock of the Corporation.For purposes of this Agreement, a termination due to Change of Control shall occur if within the 12 month period beginning with the date a Changeof Control occurs (i) the Employee’s employment with the Corporation (and any Affiliate) is involuntarily terminated (other than by reason of death,disability or Cause) or (ii) the Employee’s employment with the Corporation (and any Affiliate) is voluntarily terminated by the Employeesubsequent to (A) a 10% or more diminution in the total of the Employee’s annual base salary (exclusive of fringe benefits) and the Employee’s targetbonus in comparison with the Employee’s total of annual base salary and target bonus immediately prior to the date the Change of Control occurs,(B) a significant diminution in the responsibilities or authority of the Employee in comparison with the Employee’s responsibility and authorityimmediately prior to the date the Change of Control occurs or (C) the imposition of a requirement by the Corporation that the Employee relocate to aprincipal work location more than 50 miles from the Employee’s principal work location immediately prior to the date the Change of Control occurs.For purposes of this Agreement, Cause means (i) the Employee’s willful and continued failure to substantially perform the Employee’s duties withthe Corporation (other than any such failure resulting from physical or mental incapacity) after written demand for performance is given to theEmployee by the Corporation which specifically identifies the manner in which the Corporation believes the Employee has not substantiallyperformed and a reasonable time to cure has transpired, (ii) the Employee’s conviction of or plea of nolo contendere for the commission of a felony, or(iii) the Employee’s commission of an act of dishonesty or of any willful act of misconduct which results in or could reasonably be expected to resultin significant injury (monetarily or otherwise) to the Corporation, as determined in good faith by the Committee.(c)In the event of (i) the merger or consolidation of the Corporation with or into another corporation or corporations in which the Corporation isnot the surviving corporation, (ii) the adoption of any plan for the dissolution of the Corporation, or (iii) the sale or exchange of all orsubstantially all the assets of the Corporation for cash or for shares of stock or other securities of another corporation, the Restricted StockUnits shall become fully vested.(d)If the vesting of the Restricted Stock Units would result in any excise tax to the Employee as a result of Section 280G of the Code, theCorporation shall pay the Employee an amount equal to such excise tax.4.No DividendsNo dividends will be paid or accrued on any Restricted Stock Units during the Restricted Period.5.Settlement of Restricted Stock Units.As soon as practicable after Restricted Stock Units become vested, the Company shall deliver to the Employee one share of the Corporation's Class ANonvoting Common Stock, $.01 par value ("Corporation Stock") for each Restricted Stock Unit which becomes vested.6.Transfer RestrictionsThis Award is non-transferable and may not be assigned, pledged or hypothecated and shall not be subject to execution, attachment or similarprocess. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and voidand the Restricted Stock Units shall be forfeited.7.Withholding TaxesThe Corporation may require payment of or withhold any tax which it believes is payable as a result of the Restricted Stock Units becoming vested,and the Corporation may defer making delivery of the Corporation Stock until arrangements satisfactory to the Corporation have been made withregard to any such withholding obligations. In lieu of part or all of any such payment, the Employee, in satisfaction of all withholding taxes(including, without limitation, Federal income, FICA (Social Security and Medicare) and any state and local income taxes) payable as a result ofsuch vesting, may elect, subject to such rules and regulations as the Committee may adopt from time to time, to have the Corporation withhold thatnumber of shares of Corporation Stock (valued at Fair Market Value on the date of vesting and rounded upward) required to settle such withholdingtaxes.8.Death of EmployeeIf the Restricted Stock Units shall vest upon the death of the Employee, the shares of Corporation Stock and any amounts in the Employee'sDividend Account shall be issued and paid to the estate of the Employee unless the Corporation shall have theretofore received in writing a beneficiarydesignation, in which event they shall be issued and paid to the designated beneficiary.9.Confidentiality, Non-Solicitation and Non-CompeteAs consideration for the grant of this Award, Employee agrees to, understands and acknowledges the following:(a)During Employee's employment with the Corporation and its Affiliates (the "Company"), the Company will provide Employee withConfidential Information relating to the Company, its business and clients, the disclosure or misuse of which would cause severe andirreparable harm to the Company. Employee agrees that all Confidential Information is and shall remain the sole and absolute property ofthe Company. Upon the termination of Employee's employment with the Company for any reason, Employee shall immediately return tothe Company all documents and materials that contain or constitute Confidential Information, in any form whatsoever, including but notlimited to, all copies, abstracts, electronic versions, and summaries thereof. Executive further agrees that, without the written consent of theChief Executive Officer of the Corporation or, in the case of the Chief Executive Officer of the Corporation, without the written approval ofthe Board of Directors of the Corporation, Employee will not disclose, use, copy or duplicate, or otherwise permit the use, disclosure,copying or duplication of any Confidential Information of the Company, other than in connection with the authorized activities conductedin the course of Employee's employment with the Company. Employee agrees to take all reasonable steps and precautions to prevent anyunauthorized disclosure, use, copying or duplication of Confidential Information. For purposes of this Agreement, Confidential Informationmeans any and all financial, technical, commercial or other information concerning the business and affairs of the Company that isconfidential and proprietary to the Company, including without limitation,(i)information relating to the Company’s past and existing customers and vendors and development of prospective customers andvendors, including specific customer product requirements, pricing arrangements, payments terms, customer lists and othersimilar information;(ii)inventions, designs, methods, discoveries, works of authorship, creations, improvements or ideas developed or otherwiseproduced, acquired or used by the Company;(iii)the Company’s proprietary programs, processes or software, consisting of but not limited to, computer programs in source orobject code and all related documentation and training materials, including all upgrades, updates, improvements, derivatives andmodifications thereof and including programs and documentation in incomplete stages of design or research and development;(iv)the subject matter of the Company’s patents, design patents, copyrights, trade secrets, trademarks, service marks, trade names,trade dress, manuals, operating instructions, training materials, and other industrial property, including such information inincomplete stages of design or research and development; and(v)other confidential and proprietary information or documents relating to the Company’s products, business and marketing plansand techniques, sales and distribution networks and any other information or documents which the Company reasonably regardsas being confidential.(a)Employee agrees that, without the written consent of the Chief Executive Officer of the Corporation, in the case of the Chief ExecutiveOfficer of the Corporation, without the written approval of the Board of Directors of the Corporation, Employee shall not engage in any ofthe conduct described in subsections (i) or (ii), below, either directly or indirectly, or as an employee, contractor, consultant, partner,officer, director or stockholder, other than a stockholder of less than 5% of the equities of a publicly traded corporation, or in any othercapacity for any person, firm, partnership or corporation:(i)During the time of Employee's employment with Company, Employee will not: (A) perform duties as or for a Competitor; or (B)participate in the inducement of or otherwise encourage Company employees, clients, or vendors to currently and/or prospectivelybreach, modify, or terminate any agreement or relationship they have or had with Company.(ii)For a period of 12 months following the termination of Employee's employment with Company, Employee will not: (A) performduties as or for a Competitor that are the same as or similar to the duties performed by Employee for the Company at any timeduring any part of the 24 month period preceding the termination of Employee's employment with Company; or (B) participate inthe inducement of or otherwise encourage Company employees, clients, or vendors to currently and/orprospectively breach, modify, or terminate any agreement or relationship they have or had with Company during any part of the24 month period preceding the termination of Employee's employment with Company.For purposes of this Agreement, a Competitor shall mean any corporation, person, firm or organization (or division or part thereof) engagedin or about to become engaged in research and development work on, or the production and/or sale of, any product or service which isdirectly competitive with one with respect to which Employee acquired Confidential Information by reason of Employee's work with theCompany.(b)Employee acknowledges and agrees that compliance with this Section 9 is necessary to protect the Company, and that a breach of any ofthis Section 9 will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law. In theevent of a breach of this Section 9, or any part thereof, the Company, and its successors and assigns, shall be entitled to injunctive reliefand to such other and further relief as is proper under the circumstances. The Company shall institute and prosecute proceedings in anyCourt of competent jurisdiction either in law or in equity to obtain damages for any such breach of this Section 9, or to enjoin Employeefrom performing services in breach of Section 9(b) during the term of employment and for a period of 12 months following the terminationof employment. Employee hereby agrees to submit to the jurisdiction of any Court of competent jurisdiction in any disputes that arise underthis Agreement.(c)Employee further agrees that, in the event of a breach of this Section 9, the Corporation shall also be entitled to recover the value of anyamounts previously paid or payable or any shares (or the value of any shares) delivered or deliverable to Employee pursuant to anyCompany bonus program, this Agreement, and any other Company plan or arrangement.(d)Employee agrees that the terms of this Section 9 shall survive the termination of Employee's employment with the Company.(e)EMPLOYEE HAS READ THIS SECTION 9 AND AGREES THAT THE CONSIDERATION PROVIDED BY THE CORPORATIONIS FAIR AND REASONABLE AND FURTHER AGREES THAT GIVEN THE IMPORTANCE TO THE COMPANY OF ITSCONFIDENTIAL AND PROPRIETARY INFORMATION, THE POST-EMPLOYMENT RESTRICTIONS ON EMPLOYEE'SACTIVITIES ARE LIKEWISE FAIR AND REASONABLE.10.ClawbackThis Award is subject to the terms of the Corporation's recoupment, clawback or similar policy as it may be in effect from time to time, as well asany similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of awards or any shares ofCorporation Stock or other cash or property received with respect to the awards (including any value received from a disposition of the sharesacquired upon payment of the awards).11.Adjustment of SharesThe terms and provisions of this Award (including, without limitation, the terms and provisions relating to the number and class of shares subject tothis Award) shall be subject to appropriate adjustment in the event of any recapitalization, merger, consolidation, disposition of property or stock,separation, reorganization, stock dividend, issuance of rights, combination or split-up or exchange of shares, or the like.12.Provisions of Plan ControllingThis Award is subject in all respects to the provisions of the Plan. In the event of any conflict between any provisions of this Award and theprovisions of the Plan, the provisions of the Plan shall control, except to the extent the Plan permits the Committee to modify the terms of an Awardgrant and has done so herein. Terms defined in the Plan where used herein shall have the meanings as so defined. Employee acknowledges receipt ofa copy of the Plan.13.Wisconsin ContractThis Award has been granted in Wisconsin and shall be construed under the laws of that state.14.SeverabilityWherever possible, each provision of this Award will be interpreted in such manner as to be effective and valid under applicable law, but if anyprovision hereof is held to be prohibited by or invalid under applicable law, such provisionwill be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remainingprovisions hereof.IN WITNESS WHEREOF, the Corporation has granted this Award as of the day and year first above written.BRADY CORPORATIONBy: Name: Its: EMPLOYEE'S ACCEPTANCEI, ___________________________, hereby accept the foregoing Award and agree to the terms and conditions thereof, including the restrictionscontained in Section 9 of this Agreement.EMPLOYEE:Signature: Print Name: EXHIBIT 21SCHEDULE OF SUBSIDIARIES OF BRADY CORPORATIONJuly 31, 2013 State (Country) Percentage of VotingName of Company Of Incorporation Securities OwnedBrady Corporation Wisconsin ParentTricor Direct, Inc. Delaware 100% Doing Business As: Seton Seton Name Plate Company D&G Sign and Label Seton Identification Products Emedco Champion America DAWG, Inc. Worldmark of Wisconsin Inc. Delaware 100%AIO Acquisition Inc. Delaware 100% Doing Business As: All-In-One Products Personnel Concepts Personnel Concepts Limited Personnel Concepts Ltd. PC Limited USA Printing & Mailing Dual Core LLC Wisconsin 100% Doing Business As: Identicard Systems Worldwide Brady People ID JAM Plastics PromoVision Palomino Temtec Stopware BIG Badges Brady Holdings Mexico LLC Delaware 100%Clement Communications, Inc. Pennsylvania 100%Brady International Co. Wisconsin 100%Brady Worldwide, Inc. Wisconsin 100% Also Doing Business As: Brandon International Sorbent Products Company TISCOR Electromark Precision Dynamics Corporation California 100% Also Doing Business As: Pharmex PDMX, Inc. California 100%Precision Dynamics International, Inc. California 100%Brady Australia Holdings Pty. Ltd. Australia 100%Brady Australia Pty. Ltd. Australia 100%Seton Australia Pty. Ltd. Australia 100%Accidental Health & Safety Pty. Ltd. Australia 100%Trafalgar First Aid Pty. Ltd. Australia 100%Carroll Australasia Pty. Ltd. Australia 100%Scafftag Australia Pty. Ltd. Australia 100%Visisign Pty. Ltd. Australia 100%ID Warehouse Pty. Ltd. Australia 100%Mix Group Australasia Pty. Ltd. Australia 100%Transposafe Systems Belgium NV/SA Belgium 100%W.H. Brady, N.V. Belgium 100%PDC Belgium Holdings Sprl Belgium 100%PDC Europe Sprl Belgium 100%Stickolor Industria e Comércio de Auto Adesivos Ltda. Brazil 100%W.H.B. do Brasil Ltda. Brazil 100%BRC Financial Canada 100%W.H.B. Identification Solutions Inc. Canada 100% Doing Business As: Brady Identicam Systems Seton Brady Cayman Finance Company Cayman Islands 100%Brady Investment Management (Shanghai) Co., Ltd. China 100%Brady Technology (Wuxi) Co. Ltd. China 100%Brady (Beijing) Co. Ltd. China 100%Brady (Shenzhen) Co., Ltd. China 100%Brady Technology (Dongguan) Co., Ltd. China 100%Brady Technology (Langfang) Co., Ltd. China 100%Brady (Xiamen) Co., Ltd. China 100%Brady A/S Denmark 100%Braton Europe S.A.R.L France 100%Brady Groupe S.A.S France 100% Doing Business As: Seton Signals BIG Securimed S.A.S. France 100%Brady GmbH Germany 100% Doing Business As: Seton Balkhausen Etimark Brady Holdings GmbH & Co. KG Germany 100%Brady Holdings Verwaltungs GmbH Germany 100%Transposafe Systems Deutschland GmbH Germany 100%Bakee Metal Manufactory Company Limited Hong Kong 100%Brady Corporation Hong Kong Limited Hong Kong 100%Brady Company India Private Limited India 100%Brady Italia, S.r.l. Italy 100%Nippon Brady K.K. Japan 100%Brady S.à r.l. Luxembourg 100%Brady Luxembourg S.à r.l. Luxembourg 100%Brady Finance Luxembourg S.à r.l. Luxembourg 100%Brady Technology SDN. BHD. Malaysia 100%W. H. Brady S. de R.L. de C.V. Mexico 100%Brady Servicios, S. de R.L. de C.V. Mexico 100%Macquila Products del Noroeste S.de R.L. de C.V. Mexico 100%PDC Brazeletesy Productos S.de R.L. de C.V. Mexico 100%St. John Healthcare s.de R.L. de C.V. Mexico 100%Brady B.V. Netherlands 100%Brady Finance B.V. Netherlands 100%Holland Mounting Systems B.V. Netherlands 100% Transposafe Systems Holland B.V. Netherlands 100%Brady AS Norway 100%Pervaco AS Norway 100%Brady Philippines Direct Marketing Inc. Philippines 100%Transposafe Systems Polska Sp. Z.o.o. Poland 100%Brady ID Solutions S.R.L. Romania 100%Brady LLC Russia 100%Brady Corporation S.E.A. Pte. Ltd. Singapore 100%Brady Corporation Asia Pte. Ltd. Singapore 100%Brady Asia Holding Pte. Ltd. Singapore 100%Brady Corporation Asia Pacific Pte. Ltd. Singapore 100%Brady Asia Pacific Pte. Ltd. Singapore 100%Brady s.r.o. Slovakia 100%Wiremarkers Africa Pty. Ltd. South Africa 100%Grafo Wiremarkers Pty. Ltd. South Africa 100%Brady Korea LLP South Korea 100%Brady Identificación S.L.U. Spain 100%Brady AB Sweden 100%Brady Sweden Holding AB Sweden 100%Runelandhs Fastighter AB Sweden 100%Runelandhs Försäljnings AB Sweden 100%Brady Converting AB Sweden 100%Tradex AB Sweden 100%Brady Technologies (Thailand) Co. Ltd. Thailand 100%Brady Etiket ve Isaretleme Ticaret Ltd. Sirketi Turkey 100%Brady Middle East FZE United Arab Emirates 100%B.I. (UK) Limited United Kingdom 100%Brady Corporation Limited United Kingdom 100%Brady European Finance Limited United Kingdom 100%Brady European Holdings Limited United Kingdom 100%EXHIBIT 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-38857, 333-38859, 333-44505, 333-92417, 333-110949, 333-122867, 333-134503, 333-137686, 333-141402, 333-162538 and 333-177039 on Form S-8 and 333-177529 on Form S-3 of our reports dated September 30, 2013, relatingto the consolidated financial statements and financial statement schedule of Brady Corporation, and the effectiveness of Brady Corporation's internal controlover financial reporting, appearing in this Annual Report on Form 10-K of Brady Corporation for the year ended July 31, 2013./s/ DELOITTE & TOUCHE LLPMilwaukee, WisconsinSeptember 30, 2013EXHIBIT 31.1RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, Frank M. Jaehnert, certify that:(1) I have reviewed this annual report on Form 10-K of Brady Corporation;(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervisionto provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: September 30, 2013 /s/ FRANK M. JAEHNERT Frank M. Jaehnert President and Chief Executive Officer EXHIBIT 31.2RULE 13a-14(a)/15d-14(a) CERTIFICATIONI, Thomas J. Felmer, certify that:(1) I have reviewed this annual report on Form 10-K of Brady Corporation;(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material act necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervisionto provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: September 30, 2013 /s/ THOMAS J. FELMER Thomas J. Felmer Senior Vice President and Chief Financial Officer EXHIBIT 32.1SECTION 1350 CERTIFICATIONPursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of BradyCorporation (the “Company”) certifies to his knowledge that:(1) The Annual Report on Form 10-K of the Company for the year ended July 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934; and(2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of theCompany. Date: September 30, 2013 /s/ FRANK M. JAEHNERT Frank M. Jaehnert President and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting thesignature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company andwill be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies thisreport pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended.EXHIBIT 32.2SECTION 1350 CERTIFICATIONPursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of BradyCorporation (the “Company”) certifies to his knowledge that:(1) The Annual Report on Form 10-K of the Company for the year ended July 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934; and(2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of theCompany. Date: September 30, 2013 /s/ THOMAS J. FELMER Thomas J. Felmer Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting thesignature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company andwill be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies thisreport pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended.

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