The condensed consolidated financial statements included herein have been prepared by Brady Corporation and subsidiaries (the “Company” or “Brady”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of April 30,October 31, 2011 and July 3l, 2010,2011, and its results of operations for the three and nine months ended April 30, 2011 and 2010, and its cash flows for the ninethree months ended April 30,October 31, 2011 and 2010. The condensed consolidated balance sheet as of July 31, 20102011 has been derived from the audited consolidated financial statements of that date. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statement presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K for the year ended July 31, 2010.

Changes in the carrying amount of goodwill for the nine monthsquarter ended April 30,October 31, 2011, are as follows:

Goodwill increased $30,795decreased $8,040 during the ninethree months ended April 30, 2011. Of the $30,795 increase, $38,079 wasOctober 31, 2011 due to the positivenegative effects of foreign currency translationtranslation. Goodwill at October 31, 2011 and $4,792 resulted from the acquisition of ID Warehouse during the second quarter of fiscal 2011. The increase was offset by a $12,076 decrease in goodwill as a result of the divestiture of the Company’s Teklynx business during the second quarter of fiscal 2011. See Note L, “Acquisitions and Divestitures” for further discussion.July 31, 2011 did not include any accumulated impairment losses.

The value of goodwill and other intangible assets in the Condensed Consolidated Balance Sheetcondensed consolidated financial statements at April 30,October 31, 2011 differs from the value assigned to them in 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 States Dollar between the date of acquisition and April 30,October 31, 2011. The acquisition completed during the nine months ended April 30, 2011 increased the customer relationships by $1,846 and increased the amortizable trademarks by $487. See Note L, “Acquisitions and Divestitures” for further discussion.

Amortization expense on intangible assets was $5,117$4,080 and $5,160$5,147 for the three-month periods ended April 30, 2011 and 2010, respectively and $15,387 and $16,395 for the nine-month periods ended April 30,October 31, 2011 and 2010, respectively. AnnualThe amortization over each of the next five fiscal years is projected to be $20,740, $16,794, $10,959, $5,941$16,436, $10,578, $5,617, $5,263 and $5,531$4,163 for the fiscal years ending July 31, 2011, 2012, 2013, 2014, 2015 and 2015,2016, respectively.

Total comprehensive income for the periods presented was aas follows:

The increasedecrease in total comprehensive income for the quarter ended April 30,October 31, 2011 as compared to April 30,the quarter ended October 31, 2010 was primarily due to the depreciationappreciation of the U.S. dollar against other currencies.

The Company evaluates short-term segment performance based on segment profit or loss and customer sales. Corporate long-term performance is evaluated based on shareholder value enhancement (“SVE”), which incorporates the cost of capital as a hurdle rate for capital expenditures, new product development, and acquisitions. Segment profit or loss does not include certain administrative costs, such as the cost of finance, information technology and human resources, which are managed as global functions. Restructuring charges, stock options, interest, investment and other income (expense) and income taxes are also excluded when evaluating performance.

The Company is organized and managed on a geographic basis by region. Each of these regions, Americas, Europe and Asia-Pacific, has a President that reports directly to the Company’s chief operating decision maker, its Chief Executive Officer. Each region has its own distinct operations, is managed by its own management team, maintains its own financial reports and is evaluated based on regional segment profit. The Company has determined that these regions comprise its operating and reportable segments based on the information used by the Chief Executive Officer to allocate resources and assess performance.

Intersegment sales and transfers are recorded at cost plus a standard percentage markup. Intercompany profit is eliminated in consolidation. It is not practicable to disclose enterprise-wide revenue from external customers on the basis of product or service.

Following is a summary of segment information for the three and nine months ended April 30,October 31, 2011 and 2010:

The Company has an incentive stock planplans under which the Board of Directors may grant unrestricted stock, nonqualified stock options, to purchaseincentive stock options, shares of Class A Nonvoting Common Stock or restricted sharesstock and restricted stock units to eligible employees and Directors of Class A Nonvoting Common Stock to employees. Additionally, the Company has a nonqualified stock option plan for non-employee directors under whichand its affiliates. The stock options to purchase shares of Class A Nonvoting Common Stock are available for grant. Thegranted under the Company’s active incentive stock optionsplans 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. Stock options issued under these plans, referred to herein as “service-based” stock options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above; these options are referred to herein as “performance-based” stock options. Performance-based stock options expire 10 years from the date of grant. Restricted shares have an issuance price equal to the fair market value of the underlying stock at the date of grant. The Company granted restricted shares in fiscal 2008 and fiscal 2011 that have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares vest at the end of a five-year period, with respect to the restricted shares issuedgranted in fiscal 2008 were amended in fiscal 2011 to allow for vesting after a seven-year period upon meeting both performance and service conditions. The restricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4three, four and 5 with respect to the restricted shares issued in fiscal 2011, andfive upon meeting certain financial performance conditions; theseand service conditions. The restricted shares granted in fiscal 2008 and 2011 are referred to herein as “performance-based restricted shares.”

As of April 30,October 31, 2011, the Company has reserved 5,885,2496,885,999 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 740,0005,020,700 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the variousactive 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 on a straight-line basis over the vesting period of the award. Total stock compensation expense recognized by the Company during the three months ended April 30,October 31, 2011 and 2010 was $2,527$3,591 ($1,5412,190 net of taxes) and $2,418$4,069 ($1,475 net of taxes), respectively, and expense recognized during the nine months ended April 30, 2011 and 2010 was $9,396 ($5,732 net of taxes) and $7,574 ($4,6202,482 net of taxes), respectively. As of April 30,October 31, 2011, total unrecognized compensation cost related to share-based compensation awards was $18,384$22,882 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.22.3 years.

The Company has estimated the fair value of its service-based and performance-based stock option awards granted during the ninethree months ended April 30,October 31, 2011 and 2010 using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:

A summary of stock option activity under the Company’s share-based compensation plans for the ninethree months ended April 30,October 31, 2011 is presented below:

The Company adopted newIn accordance with fair value accounting guidance, on fair value measurements on August 1, 2008 as it relates to financial assets and liabilities. The Company adopted the new accounting guidance on fair value measurements for its nonfinancial assets and liabilities on August 1, 2009. The accounting guidance applies to other accounting pronouncements that require or permit fair value measurements, defines fair value based upon an exit price model, establishes a framework for measuring fair value, and expands the applicable disclosure requirements. The accounting guidance indicates, among other things, that a fair value measurement 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 a principal market, the most advantageous market for the asset or liability.

The following tables set forth by level within the fair value hierarchy, the Company’sour financial assets and liabilities that were accounted for at fair value on a recurring basis at April 30,October 31, 2011, and July 31, 2010,2011, according to the valuation techniques the Company used to determine their fair values.

There have been no transfers of assets or liabilities between the fair value hierarchy levels, outlined above, during the ninethree months ended April 30,October 31, 2011.

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

The estimated fair value of the Company’s short-term and long-term debt obligations, including current maturities, based on the quoted market prices for similar issues and on the current rates offered for debt of similar maturities, was $430,276$414,631 and $467,479$416,694 at April 30,October 31, 2011 and July 31, 2010,2011, respectively, as compared to the carrying value of $413,053$391,318 and $444,204$393,178 at April 30,October 31, 2011 and July 31, 2010,2011, respectively.

Disclosures for nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis, were required prospectively beginning August 1, 2009. During the ninethree months ended April 30,October 31, 2011, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition other than for the acquisition of ID Warehouse and divestiture of the Teklynx business. See Note L, “Acquisitions and Divestitures” for further information.recognition.

In fiscal 2010,2009, in response to the global economic downturn, the Company took several measures to address its cost structure. In addition to a company-wide salary freeze and decreased discretionary spending, the Company reduced its workforce by 25%. The Company reduced its workforce through voluntary and involuntary separation programs, voluntary retirement programs, and facility consolidations. The Company continued the execution of its restructuring actions announcedduring fiscal 2011. These actions included a reduction in fiscal 2009.its contract labor and decreased discretionary spending. As a result of these actions, the Company recorded restructuring charges of $15,314 in fiscal$3,641 during the three months ended October 31, 2010. The restructuring charges included $10,850$2,665 of employee separation costs, $2,260$951 of non-cash fixed asset write-offs, $1,493 of other facility closure related costs, and $711 of contract termination costs. The Company continued executing its restructuring actions during the nine months ended April 30, 2011.

A reconciliation of the Company’s fiscal 2011 restructuring activity is as follows:

The Company hedges a portion of known exposure using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Singapore Dollar, Swedish Krona, Japanese Yen, Swiss Franc and the Korean Won.Singapore Dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to protect against exposure resulting from sales and identified inventory or other asset purchases.

The Company has designated a portion of its foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the Condensed Consolidated Balance Sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At April 30,October 31, 2011, and July 31, 2010, unrealized lossesgains of $2,210 and $493$252 have been included in OCI, respectively.OCI. As of July 31, 2011, unrealized losses of $1,535 have been included in OCI. All balances are expected to be reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings.

At April 30,October 31, 2011 and July 31, 2010,2011, the Company had $65$296 and $156$16 of forward exchange contracts designated as cash flow hedges included in “Prepaid expenses and other current assets” on the accompanying Condensed Consolidated Balance Sheets. At April 30,October 31, 2011 and July 31, 2010,2011, the Company had $1,672$188 and $829,$830, respectively, of forward exchange contracts designated as cash flow hedgeshedge instruments included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets. At April 30,October 31, 2011 and July 31, 2010,2011, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $20,475$25,288 and $32,020,$30,519, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and Swiss Franc.

The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investments hedges. During the three months ended October 31, 2011, the Company designated €4,581 of intercompany loans as net investment hedges to hedge portions of its net investment in European foreign operations. No intercompany loans were designated as net investment hedges as of July 31, 2011. On May 13, 2010, the Company completed the private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited institutional investors. This Euro-denominated debt obligation was designated as a net investment hedge to selectively hedge portions of the Company’sits net investment in Euro-denominatedEuropean foreign operations. As net investment hedges, the currency effects of the intercompany and third party debt obligations are reflected in the foreign currency translation adjustments component of accumulated other comprehensive income where they offset gains and losses recorded on the Company’s net investment in Euro-denominatedEuropean operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.

During the three and nine month period ended April 30, 2011,Additionally, the Company usedutilizes forward foreign exchange currency contracts designated as net investment hedgeshedge instruments to hedge portions of the Company’s net investments in Euro-denominated foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign exchangecumulative translation adjustment component of accumulatedwithin other comprehensive income where it offsets gains and losses recorded on the Company’s net investment in Euro-denominated foreign operations.income. Any ineffective portions are to be recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At April 30,October 31, 2011 and July 31, 2011, the Company had $14,069$2,656 and $5,295, respectively, of forward foreign exchange currency contracts designated as net investment hedges included in “Other current liabilities” on the Condensed Consolidated Balance Sheet. At April 30,October 31, 2011 and July 31, 2011, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $100,000. There were no forward foreign exchange$31,650 and $50,000, respectively, including contracts designated as net investment hedges outstanding as of July 31, 2010.to sell Euros and Singapore Dollars.

Fair values of derivative instruments in the Condensed Consolidated Balance Sheets were as follows: