BRADY CORP - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

---------------------

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2002
COMMISSION FILE NUMBER 1-14959

---------------------

BRADY CORPORATION
(Exact name of registrant as specified in charter)

WISCONSIN 39-0178960
(State of Incorporation) (IRS Employer Identification No.)

6555 WEST GOOD HOPE ROAD
MILWAUKEE, WI 53223
(Address of Principal Executive Offices and Zip Code)
(414) 358-6600
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
CLASS A NONVOTING COMMON STOCK, PAR VALUE $.01 PER SHARE, NEW YORK STOCK
EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

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 12 months (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 [X] 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's knowledge, 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. Yes [X] No [ ]

The aggregate market value of the non-voting common stock held by
non-affiliates of the entity as of October 1, 2002 was approximately
$580,858,102, (based on closing sale price of $32.85 per share on that date as
reported for the New York Stock Exchange). As of October 1, 2002, there were
outstanding 21,345,841 shares of Class A Nonvoting Common Stock (the "Class A
Common Stock"), and 1,769,314 shares of Class B Common Stock. The Class B Common
Stock, all of which is held by affiliates of the Registrant, is the only voting
stock.
DOCUMENTS INCORPORATED BY REFERENCE
BRADY CORPORATION 2002 ANNUAL REPORT, INCORPORATED INTO PART II & IV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

INDEX

2

PART I

Brady Corporation and Subsidiaries are referred to herein as the "Company"
or "Brady".

ITEM 1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

The Company, a Wisconsin corporation founded in 1914, currently operates 25
manufacturing facilities worldwide. Ten are located in the United States, three
in Australia, two each in Brazil and France and one each in Belgium, Canada,
China, England, Germany, Italy, Japan and Singapore. The Company sells through
subsidiaries or sales offices in Australia, Belgium, Brazil, Canada, China,
England, France, Germany, Hong Kong, Hungary, Italy, Japan, Korea, Malaysia,
Mexico, the Philippines, Singapore, Sweden, Taiwan and the United States. The
Company's corporate headquarters are located at 6555 West Good Hope Road,
Milwaukee, Wisconsin 53223, and the telephone number is (414) 358-6600. The
Company's Internet address is http://www.bradycorp.com.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The information required by this Item is provided in Note 7 of the Notes to
Consolidated Financial Statements contained in Item 8 -- Financial Statements
and Supplementary Data.

(C) NARRATIVE DESCRIPTION OF BUSINESS

OVERVIEW

Brady Corporation is a leading international manufacturer and marketer of
high-performance identification solutions and specialty coated materials. The
Company's products consist of over 50,000 stock and custom items as well as
complete identification systems that are used by the Company's customers to
create safer work environments for employees, improve production and operating
efficiencies, and increase the utilization of assets through tracking and
inventory process controls. Major product categories include: industrial
identification solutions and specialty tapes and graphics and workplace
solutions.

The Company's products are sold in a variety of markets, including
electrical, electronic, telecommunication, governmental, public utility,
computer, construction, general manufacturing, laboratory, transportation
equipment and education. The need for the Company's products is driven by
specification of customer engineering departments, by regulatory compliance
requirements imposed by agencies such as the Occupational Safety & Health
Administration (OSHA) and the Environmental Protection Agency (EPA), or by the
need to identify and track assets, or to direct, warn, inform, train and protect
people. The Company manufactures and sells products domestically and
internationally through multiple channels including direct sales, distributor
sales, mail-order catalogs, telemarketing and electronic access through the
Internet. The Company has a broad customer base, which in fiscal 2002 consisted
of more than 300,000 companies, with the largest customer representing just over
5% of net sales. Sales from international operations represented 48.5%, 44.0%,
and 44.4% of net sales in fiscal 2002, 2001, and 2000, respectively.

BUSINESS STRATEGY

Brady's mission is to be the world leader in identification and material
solutions that help companies improve productivity, performance, safety and
security. The Company's goal is to accomplish this objective by offering a broad
range of high-quality, innovative products to a widely diversified customer base
in a prompt and responsive manner. Underlying the Company's business strategy is
a Company-wide commitment to enhancing shareholder value. The Company's
long-term focus on activities that will create sustainable value for
shareholders drives decision making at all levels of the Company. The Company's
employees participate in an incentive plan that has a component focused upon
growth, profitability and return on invested capital. This

I-1

incentive plan serves to motivate employees, foster a team-oriented work
environment and maximize the utilization of assets. Key elements of the
Company's business strategy include:

Product innovation. The Company continually seeks to improve existing
products and to develop innovative products to satisfy customers' requirements
and expectations. Brady's commitment to product innovation is reflected in
research and development efforts that include approximately 175 employees
primarily dedicated to research and development activities in the United States,
Canada, Belgium, France and Singapore.

Breadth of product line. The Company's products include over 50,000 stock
as well as custom items. The number of products offered allows Brady to serve as
a one-stop shopping network for customers. Additionally, management believes
that the Company provides a broader range of identification solutions than many
of its competitors.

Focus on customers. The Company seeks to provide "seamless" customer
service and to offer rapid response to customer orders and inquiries. To meet
this goal, the Company has streamlined its manufacturing processes to shorten
lead-times and has increased investment in telecommunications and management
information systems worldwide.

Niche markets. The Company strives to be a major player in niche markets
that allow the Company to leverage its capabilities in specialty materials,
die-cut parts and printing systems. By focusing on specific markets and
value-added product applications, the Company has established leading positions
in the electrical and safety markets with certain products such as wire markers,
pipe markers, safety signs and printing systems. It also is a leader in high
performance work-in-process labels, precision die-cut materials and
bar-code-label-generation software.

GROWTH STRATEGY

The major elements of the Company's strategy for growth include:

New products and new markets. The Company, through strong product
innovation and development activities, seeks continually to introduce new
products and explore additional applications for products in existing and new
markets. Through its market planning process, the Company seeks to fully
understand the broad needs of each of its major market segments and determine a
strategy to meet those needs in each segment.

Increased market penetration. The Company seeks to increase market
penetration in existing domestic and international markets through existing
distribution channels and strong sales and marketing efforts. To achieve this
objective, the Company is aligning more closely with distributors, expanding its
current sales force and pursuing additional channels.

Geographic expansion. Sales from Brady's international operations have
increased from $50,707,000 or 26.5% of net sales in fiscal 1990 to $250,518,000
or 48.5% of net sales in fiscal 2002. The Company believes that international
markets continue to represent a significant growth opportunity. Accordingly, the
Company is actively seeking to increase penetration in established markets in
Europe, Asia/Pacific and Canada and to enter new emerging markets elsewhere in
Eastern Europe, the Pacific Rim and Latin America.

Strategic acquisitions and joint ventures. While the Company intends to
continue pursuing internal growth through the above strategies, it also intends,
where practical, to fill product lines or market sectors, open new geographic
markets, acquire new technology, and strengthen product offerings through the
pursuit of strategic acquisitions and joint ventures.

E-business. E-Business will help support growth as the Company works to
make every Brady business an electronic or Internet-enabled business. Brady's
long-term goal is to transact 50 percent of its business electronically. Brady
has increased investments in e-commerce and information technology to help it
achieve this goal.

I-2

Process Improvement. Process Improvement will also support the Company as
it grows. Brady has been working over the last three years on its Earning
Customer Loyalty through Integrated Processes and Systems Everywhere (Eclipse)
initiative, a global project creating one Brady enterprise with common and
shared processes supported by a single integrated system (SAP). This will allow
Brady to better anticipate and serve the future needs of its customers while
making improvements in working capital measures and Selling, General and
Administrative (SG&A) expense. As of July 31, 2002, approximately 45% of Brady's
global operations were operating on this system.

PRODUCTS

The Company's products consist of over 50,000 stock and thousands of custom
items as well as complete identification systems that are used by the Company's
customers to create a safer work environment for employees, improve production
and operating efficiencies and increase the utilization of assets through
tracking and inventory process controls. Major product categories include:
identification solutions and specialty tapes products including wire and cable
markers, high-performance labels, laboratory identification products,
stand-alone printing systems, bar-code and other software, automatic
identification and data collection systems and specialty tapes and precision
die-cut solutions; graphics and workplace solutions products including signs,
pipe and valve markers, storage markers, asset identification tags,
lockout/tagout products, traffic-control products, printing systems, software
and graphics products.

Many of the Company's stock products were originally designed, developed
and manufactured as custom products for a specific purchaser. However, such
products have frequently developed wide industry acceptance and become stock
items offered by the Company through mail-order and distributor sales. The
Company's most significant types of products are described below.

IDENTIFICATION SOLUTIONS AND SPECIALTY TAPES PRODUCTS

WIRE AND CABLE MARKERS

Brady manufactures a broad range of wire- and cable-marking products. These
products help mark and identify wires, cables and their termination points. Such
products may be used in virtually every industrial, power and communication
market to specify the origination and/or destination of wiring and to facilitate
repair or maintenance of equipment and data communication and electrical wiring
systems.

HIGH PERFORMANCE LABELS

Brady produces a complete line of label materials to meet customers' needs
for identification that performs under harsh or sensitive conditions. Brady
prints stock and custom labels and also sells unprinted materials to enable
customers to print their own labels on site, on demand, using thermal-transfer,
laser, dot-matrix and inkjet printers. Brady labels range from
static-dissipative labels for use on electronic components to labels that
withstand extreme conditions, such as 1000 degrees Fahrenheit temperatures and
harsh chemicals. Such products may be used in the general industrial or
electronics manufacturing markets, among others.

SOFTWARE AND PRINTING SYSTEMS

The Company designs and produces various computer software packages,
industrial thermal-transfer and dot matrix printers and other electromechanical
devices to serve the growing and specialized needs of customers in a wide
variety of markets. Industrial labeling systems, software, tapes, ribbons and
label stocks provide customers with the resources and flexibility to produce
signs and labels on demand at their site.

AUTOMATIC IDENTIFICATION AND DATA-COLLECTION SYSTEMS

Brady's automatic identification and data collection solutions include
bar-code-label-generating software and bar-code tags and labels to enable
accurate tracking of manufacturing, warehousing, receiving and shipping data.
The Company's software applications, integration services, fixed station
terminals, high-speed printers and associated customized consumable products
allow its customers, in a wide variety of markets, to

I-3

have a higher degree of knowledge and control over production, asset management
and all phases of inventory control, including receiving, warehousing,
work-in-process, finished goods and shipping.

SPECIALTY TAPES

Brady manufactures specialty tapes and related products that are used in a
variety of audio, video and computer applications. These specialty tape products
are characterized by high-performance adhesives, most of which are formulated by
the Company, to meet high-tolerance requirements of the industries in which they
are used. Its data-storage products include audio and videocassette splicing
tapes.

PRECISION DIE-CUT SOLUTIONS

The Company develops customized precision die-cut solutions which are used
to seal, insulate, protect, shield or provide other mechanical performance
properties in the assembly of electronic, telecommunications and other
equipment, including cellular phones, personal data assistants, computer hard
drives, computers and other devices. Solutions not only include the materials
and converting, but also automatic placement and other value-added services.

GRAPHICS AND WORKPLACE SOLUTIONS PRODUCTS

SIGNS

The Company manufactures safety and informational signs for use in a broad
range of industrial, commercial, governmental and institutional applications.
These signs are either self-adhesive or mechanically mounted, are designed for
both indoor and outdoor use and are manufactured to meet standards issued by the
National Safety Council, OSHA and a variety of industry associations in the
United States and abroad. The Company's sign products are categorized by type of
message to be conveyed, including admittance, directional and exit signs;
electrical hazard warnings; energy conservation messages; fire protection and
fire equipment signs; hazardous waste labels; hazardous and toxic material
warning signs; personal hazard warnings; housekeeping and operational warnings;
pictograms; radiation and laser signs; safety practices signs and regulatory
markings. The Company also offers architectural signage products including sign
systems, nameplates, Braille signs and desk plates.

PIPE AND VALVE MARKERS

The Company manufactures both self-adhesive and mechanically applied stock
and custom-designed pipe markers, and plastic and metal valve tags for the
identification of pipes and control valves in the mechanical contractor and
process industry markets. These products are designed to help identify and
provide information as to the contents, direction of flow and special hazardous
properties of materials contained in piping systems, and to facilitate repair or
maintenance of the system.

WAREHOUSE PRODUCTS

The Company produces signs, self-adhesive and self-aligning die-cut numbers
and letters, labels, signs and tags used to mark warehouse locations and
identify inventory. Warehouse products are primarily used by industrial
companies in storage facilities such as warehouses, factories, stockrooms and
other facilities.

ASSET IDENTIFICATION MARKERS

Brady offers a wide range of asset-identification products that are an
important part of an effective asset management program in a wide variety of
markets. These include self-adhesive or mechanically mounted labels or tags made
of aluminum, brass, stainless steel, polycarbonate, vinyl, polyester, mylar and
paper. These products are also offered in tamper-evident varieties.

I-4

LOCKOUT/TAGOUT PRODUCTS

Brady offers a wide variety of lockout/tagout products. Under OSHA
regulations, all energy sources must be "locked out" while machines are being
serviced or maintained to prevent accidental engagement and injury. The
Company's products allow its customers to comply with these regulations and to
ensure worker safety for a wide variety of energy- and fluid-transmission
systems and operating machinery.

SECURITY CONTROL PRODUCTS

The Company offers identification and security products including a variety
of self-expiring badges, security seals, parking permits and wristbands designed
for visitor control in financial, governmental, educational and commercial
facilities including meeting and convention sites. Some of these products make
use of migratory ink technology, which, upon activation, starts a timed process
resulting in an altered message, color or design to indicate expiration.

TRAFFIC CONTROL PRODUCTS

The Company offers a wide variety of traffic control devices including
traffic signs, directional and warning signs, parking tags and permits,
barriers, cones and other devices.

GRAPHICS PRODUCTS

Brady serves the identification and information needs of various
non-industrial markets with a variety of easy-to-use printing systems and
consumable supplies. It provides lettering and labeling systems, poster
printers, laminators and supplies to education and training markets.

OTHER

The Company also offers sign-making kits, barricading products, visual
warning systems, floor-marking products, safety badges, photo-identification
kits, and first aid cabinets/kits, among others.

OTHER PRODUCTS

The Company also sells a variety of other products, none of which
individually accounts for a material portion of its sales, including: hospital
and clinical labels, packing and shipping goods, name plates, and quality and
production control products, among others.

MARKETING AND SALES

The Company's products are sold in a wide variety of markets including
electrical, electronic, telecommunications, governmental, public utility,
commercial office, computer, construction, general manufacturing, laboratory,
transportation equipment and education. Brady has a diverse customer base that
consisted of over 300,000 customers in fiscal 2002. No material part of the
Company's business is dependent upon a single customer or group of customers,
and the loss of a particular customer would not have a material adverse effect
upon the Company's business. In fiscal 2002, Brady's largest customer accounted
for just over 5% of the Company's net sales.

Brady seeks to offer the right product with rapid response times and
superior service so that it can provide solutions to the customer that are
better, faster and more economical than those available from its competitors.
The Company markets and sells its products domestically and internationally
through multiple channels including direct sales, distributor sales,
mail-order-catalog marketing and electronic access through the Internet. The
Company currently has over 4,000 established relationships with a broad range of
electrical, safety, industrial and other domestic and international
distributors. To support the needs of its direct customers and its distributor
network, the Company employs a sales force of over 500 people. The Company's
sales force seeks to establish and foster ongoing relationships with the
end-users and distributors by providing technical support and
product-application advice.

I-5

The Company direct markets certain products and those of other
manufacturers by catalog sales in both domestic and international markets. Such
products include industrial and facility identification products, safety and
regulatory-compliance products and original equipment manufacturer component
products, among others. Catalog operations are conducted through offices in the
U.S., Australia, Brazil, Canada, England, France, Germany and Italy, and include
foreign-language catalogs.

MANUFACTURING PROCESS AND RAW MATERIALS

The Company manufactures the majority of the products it sells, while
purchasing certain items from other manufacturers. Products manufactured by the
Company generally require a high degree of precision and the application of
adhesives with chemical and physical properties suited for specific uses. The
Company's manufacturing processes include compounding, coating, converting,
software development and printer design and assembly. The compounding process
involves the mixing of chemical batches for primers, top coatings and adhesives,
in solvent- or water-based materials. The coatings and adhesives are applied to
a wide variety of materials including polyester, polyimide, cloth, paper, metal
and metal foil. The converting process may include embossing, perforating,
laminating, die cutting, slitting, and printing or marking the materials as
required.

The Company seeks to optimize the performance, quality and durability of
its products, while continually improving manufacturing processes, shortening
lead times and lowering manufacturing costs. The Company produces the majority
of the adhesive stocks and top-coated materials through an integrated
manufacturing process. These integrated manufacturing processes permit greater
flexibility in product design and manufacture, and an improved ability to
provide specialized products designed to meet the needs of specific
applications. Brady's "cellular" manufacturing processes and "just-in-time"
inventory control are designed to attain profitability in small orders by
emphasizing flexibility and the maximization of assets through quick turnaround
and delivery. A growing part of the Company's manufacturing is done through a
Web-to-Workbench(TM) process. In this process, orders received for items such as
signs and asset identification labels are sent directly from the Internet to the
manufacturing floor. Most of the Company's manufacturing facilities have
received ISO 9001 or 9002 certification.

The materials used in the products manufactured by the Company consist
primarily of plastic sheets and films (primarily polyesters, vinyls and
polycarbonates), paper, metal and metal foil, cloth, fiberglass, inks, dyes,
adhesives, pigments, natural and synthetic rubber, organic chemicals, polymers
and solvents. The Company purchases its raw materials from many suppliers and is
not dependent upon any single supplier for any of its critical base materials.

TECHNOLOGY AND PRODUCT DEVELOPMENT

The Company focuses its research and development efforts on material
development, systems design and software development. Material development
involves the application of surface chemistry concepts to coatings and adhesives
applied to a variety of base materials. Systems design integrates materials,
custom firmware and a variety of printing technologies to form a complete
solution for customer applications or the Company's own production requirements.

The Company possesses patents covering various aspects of adhesive
chemistry, electronic circuitry, computer-generated wire markers, systems for
aligning letters and patterns, and visually changing paper. Although the Company
believes that its patents are a significant factor in maintaining market
position for certain products, technology in the areas covered by many of the
patents is evolving rapidly and may limit the value of such patents. The
Company's business is not dependent on any single patent or group of patents.

The Company conducts much of its technology and development activities at
the Frederic S. Tobey Research and Innovation Center (approximately 39,600 sq.
ft.) in Milwaukee, Wisconsin. The Company spent approximately $17,300,000,
$20,300,000, and $20,600,000 in fiscal 2002, 2001, and 2000, respectively, on
its research and development activities. In fiscal 2002, approximately 175
employees were engaged in research and development activities for the Company.
Additional research projects were conducted under contract with universities,
other institutions and consultants.
I-6

The Company's name and its registered trademarks are important to each of
its business segments. In addition, the Company owns other important trademarks
applicable to only certain of its products.

INTERNATIONAL OPERATIONS

In fiscal 2002, 2001, and 2000, sales from international operations
accounted for 48.5%, 44.0%, and 44.4% respectively, of the Company's net sales.
The Company's global infrastructure includes subsidiaries in Australia, Belgium,
Brazil, Canada, China, England, France, Germany, Hungary, Italy, Japan, Mexico,
Singapore, and Sweden and sales offices in Hong Kong, Korea, Malaysia, the
Philippines, and Taiwan. Several of these locations manufacture or have the
capability to manufacture certain of the products they sell. The Company
acquired or opened new operations in Australia, Brazil, China, Germany and
Hungary in the last three years. The Company expects to continue to expand its
international operations as appropriate.

COMPETITION

The markets for most of the Company's products are competitive. The Company
believes that it is one of the leading domestic producer of self-adhesive wire
markers, safety signs, pipe markers, precision die-cut materials and
bar-code-label-generating software. The Company competes for business
principally on the basis of product quality, performance, service, range of
products offered and to a lesser extent, on price. Product quality is determined
by factors such as suitability of component materials for various applications,
adhesive properties, graphics quality, durability, product consistency and
workmanship. Competition in many of the Company's product markets is highly
fragmented, ranging from smaller companies offering only one or a few types of
products, to some of the world's major adhesive and electrical product companies
offering some competing products as part of their product lines. A number of the
Company's competitors are larger than the Company and have greater resources.
Notwithstanding the resources of these competitors, management believes that the
Company provides a broader range of identification solutions than any of its
competitors.

BACKLOG

As of July 31, 2002, the amount of the Company's backlog orders believed to
be firm was approximately $22,300,000. This compares with approximately
$22,100,000 and $27,100,000 of backlog orders as of July 31, 2001 and 2000,
respectively. Average delivery time for the Company's orders varies from one day
to one month, depending on the type of product, and whether the product is stock
or custom designed and manufactured.

ENVIRONMENT

At present, the manufacturing processes for the Company's adhesive-based
products utilize certain evaporative solvents, which, unless controlled, would
be vented into the atmosphere. Emissions of these substances are regulated at
the federal, state and local levels. During the past several years, the Company
has implemented a number of procedures to reduce atmospheric emissions and/or to
recover solvents. Management believes the Company is substantially in compliance
with all environmental regulations.

EMPLOYEES

As of July 31, 2002, the Company employed approximately 3,200 individuals.
The Company has never experienced a material work stoppage due to a labor
dispute, is not a party to any labor contract and considers its relations with
employees to be excellent.

ACQUISITIONS

Information about the Company's acquisitions is provided in Note 2 of the
Notes to Consolidated Financial Statements contained in Item 8 -- Financial
Statements and Supplementary Data.

I-7

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

The information required by this Item is provided in Note 7 of the Notes to
Consolidated Financial Statements contained in Item 8 -- Financial Statements
and Supplementary Data.

ITEM 2. PROPERTIES

The Company currently operates 25 manufacturing facilities. Ten are located
in the United States, three in Australia, two each in Brazil and France and one
each in Belgium, Canada, China, England, Germany, Italy, Japan and Singapore.
The Company's present operating facilities contain a total of approximately
1,623,000 square feet of space, of which approximately 828,000 square feet is
leased. The Company believes that its equipment and facilities are modern, well
maintained and adequate for present needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is, and may in the future be, party to litigation arising in
the course of business. The Company is not currently a party to any material
pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

I-8

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

(a) Market Information

Brady Corporation Class A Nonvoting Common Stock trades on the New York
Stock Exchange under the symbol BRC and on the Berlin Stock Exchange under the
number 900104. There is no trading market for the Company's Class B Voting
Common Stock.

Stock price disclosure required by this Item is incorporated by reference
to Page 8 of the Brady Corporation 2002 Annual Report.

(b) Holders

The number of holders of record of the Company's Class A and Class B Common
Stock as of September 10, 2002, was 350 and 3, respectively.

(c) Dividends

The Company has followed a practice of paying quarterly dividends on
outstanding common stock. Before 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 $.033 per share (subject to adjustment in the
event of future stock splits, stock dividends or similar events involving shares
of Class A Common Stock). Thereafter, any further dividend in that fiscal year
must be paid on all shares of Class A Common Stock and Class B Common Stock on
an equal basis. The Company's revolving credit agreement requires that it
maintain a specified level of consolidated net worth, which could restrict the
Company's ability to pay dividends. At July 31, 2002, the required consolidated
net worth was approximately $255,000,000 and the Company's actual consolidated
net worth was approximately $324,000,000.

During its two most recent fiscal years and for the first quarter of the
current year, the Company declared the following dividends per share on its
Class A and Class B Common Stock for the years ended July 31:

ITEM 6. SELECTED FINANCIAL DATA

The information required by this Item is incorporated by reference to Pages
6 and 7 of the Brady Corporation 2002 Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Fiscal 2002 was the second straight year of difficult business conditions
and disappointing sales and earnings results for Brady Corporation. Despite the
challenges of a weak U.S. economy in the short term, we remained committed to
investing in our businesses on a global basis for the long term. We continued
with our key initiatives of process improvement through building an integrated
global infrastructure of facilities and capabilities. We focused on meeting the
needs of our customers with innovative new products and exceptional service
through global expansion. Above all, we maintained an unwavering adherence to
the highest standards of integrity.

The recovery from the recession that has stalled our growth has not come as
quickly or as strongly as we had hoped. Our sales for fiscal 2002 were $517.0
million, down 5.3 percent from $545.9 million in fiscal 2001. Our Graphics and
Workplace Solutions group began to see some signs of stabilization in its
markets, but sales

II-1

for our Identification Solutions & Specialty Tapes (ISST) group declined as its
higher tech markets, particularly telecommunications and electronics, continued
to struggle. Regionally, U.S. sales slipped, but we saw gains in China, parts of
Europe, and Latin America.

Our reported net income for fiscal 2002 was $28.3 million or $1.20 per
diluted share, compared to $27.5 million or $1.18 per diluted share in the
previous year. To ensure that our cost structure reflects the levels of current
activity, we reduced our workforce by about 3 percent, and are consolidating
some resources and facilities at our U.S., European, and Asian operations, with
expected pre-tax savings of about $4 million in fiscal 2003. As a result, we
took a restructuring charge of $3.0 million pre-tax in the fourth quarter of
fiscal 2002. Excluding non-recurring items and goodwill amortization in both
years, net income for fiscal 2002 was $30.0 million or $1.28 per diluted share
compared to $39.4 million or $1.70 per diluted share in fiscal 2001.

Brady maintains a strong balance sheet, with virtually no debt, and solid
cash reserves of $76.0 million, up from $62.8 million at the end of fiscal 2001,
even after investments in strategic initiatives for process improvement,
e-business, global expansion, research and development, and dividend payments to
our shareholders.

YEAR ENDED JULY 31, 2002, COMPARED TO YEAR ENDED JULY 31, 2001

Sales for fiscal 2002 decreased by $28,982,000 or 5.3% from fiscal 2001.
Sales of the Company's international operations increased 4.7% in U.S. dollars.
The acquisition of Balkhausen GmbH in March 2001, Eset in July 2001 and Safety
Signs Service in November 2001 increased international sales by 4.4% in fiscal
2002. International base business increased by 0.8% in local currencies. These
increases were partially offset by the negative effect of fluctuations in the
exchange rates used to translate financial results into U.S. currency, which
reduced international sales by 0.5%. Sales of the Company's U.S. operations
decreased 13.0%, with a base business decline of 14.3% partially offset by the
acquisitions of Strandware, Inc. in November 2001 and Temtec, Inc in April 2002,
which added 1.3% to sales.

The cost of products sold as a percentage of sales increased from 47.1% to
49.6%. The increase was due to higher unabsorbed manufacturing overhead costs,
changes in product mix and the impact of a full year of Balkhausen's operations
compared to four months in fiscal 2001; Balkhausen operations have lower margins
than the company average due to a high portion of pass through items in their
sales mix.

Selling, general and administrative expenses as a percentage of sales
decreased to 39.1% from 41.0% in fiscal 2001. Fiscal 2002 expenses include a net
nonrecurring charge of $2,720,000 which included a $3,030,000 charge relating
primarily to consolidation of facilities in Asia/Pacific, United States and
Europe and a workforce reduction of approximately 3 percent, offset by a
$310,000 adjustment to the fiscal 2001 severance accrual. Fiscal 2001 expenses
included a nonrecurring charge of $9,560,000, primarily related to facilities
consolidation and a workforce reduction of approximately 5 percent as well as
goodwill amortization of $6,119,000. Excluding these nonrecurring items and
goodwill amortization in both years, selling, general and administrative
expenses as a percentage of sales increased from 38.1% to 38.6%, while
decreasing in dollar amount by $8,819,000. The increase as a percentage of sales
was due primarily to fixed administrative expenses spread over a lower sales
base.

Research and development investment as a percentage of sales was 3.3%, down
from 3.7% in fiscal 2001.

Operating income decreased $3,019,000 to $41,503,000 in fiscal 2002.
Excluding the nonrecurring items in both years and goodwill amortization in
fiscal 2001, operating income decreased $15,978,000 or 26.5% from $60,201,000 to
$44,223,000.

Investment and other income increased $1,028,000 from the prior year
primarily due to the net effect of foreign exchange, primarily on intercompany
transactions, improving over the prior year by approximately $2,000,000.
Reductions in interest income of $800,000 partially offset the foreign exchange
improvement.

Income before income taxes was $43,135,000, a decrease of 3.7% compared to
fiscal 2001's $44,790,000. Excluding the nonrecurring items in both years and
goodwill amortization in fiscal 2001, income before income taxes in 2002
decreased 24.2%.

II-2

The Company's effective tax rate decreased from 38.5% for fiscal 2001 to
34.5% for fiscal 2002. The large decrease in the effective rate is due to the
effect of ceasing goodwill amortization on August 1, 2001.

Net income was $28,253,000 for fiscal 2002, compared to $27,546,000 for
fiscal 2001 due to the factors discussed above. Excluding the nonrecurring items
(a $1,782,000 nonrecurring charge after-tax in fiscal 2002, a $5,879,000
nonrecurring charge after-tax in fiscal 2001 and goodwill amortization in fiscal
2001 of $5,939,000 after-tax), net income decreased 23.7% from the prior year.

YEAR ENDED JULY 31, 2001, COMPARED TO YEAR ENDED JULY 31, 2000

Sales for fiscal 2001 decreased by $4,720,000 or 0.9% from fiscal 2000.
Sales of the Company's international operations decreased 2.7% in U.S. dollars.
The acquisition of Balkhausen GmbH in March 2001 increased international sales
by 1.7%. International base business increased by 5.1% in local currencies.
These increases were more than offset by the negative effect of fluctuations in
the exchange rates used to translate financial results into U.S. currency, which
reduced international sales by 9.5%. Sales of the Company's U.S. operations
increased 0.5%, with the acquisitions of Data Recognition, Inc. and Imtec, Inc.
in March 2000 adding 5.9%, which was offset by a decline in base business of
5.4%.

The cost of products sold as a percentage of sales increased from 44.6% to
47.1% in fiscal 2001. The increase was due to changes in product mix, fixed
costs spread over a lower sales volume and negative foreign exchange impact.

Selling, general and administrative expenses as a percentage of sales
increased from 39.1% to 41.0% in fiscal 2001. Fiscal 2001 expenses included a
nonrecurring charge of $9,560,000 primarily relating to facilities consolidation
and a workforce reduction of approximately 5 percent. Fiscal 2000 expenses
included $4,352,000 associated with the unsuccessful attempt to acquire
Critchley Group plc. Excluding these nonrecurring items in both years, selling,
general and administrative expenses as a percentage of sales increased from
38.3% to 39.2%. The increase was due primarily to fixed administrative expenses
spread over a lower sales base.

Research and development investment as a percentage of sales remained
constant at 3.7%.

Operating income decreased $24,769,000 to $44,522,000 in fiscal 2001.
Excluding the nonrecurring items in both years (a nonrecurring charge in 2001
related to facilities consolidations and a workforce reduction and a charge in
2000 for expenses associated with the Critchley bid), operating income decreased
$19,561,000 or 26.6% from $73,643,000 to $54,082,000.

Investment and other income decreased $6,732,000 from fiscal 2000. Fiscal
2000 results included a $6,766,000 before-expenses gain from the Critchley
transaction. Excluding this one-time gain, investment and other income increased
$34,000.

Income before income taxes was $44,790,000, a decrease of 41.2% compared to
fiscal 2000's $76,131,000. Excluding the nonrecurring items in both years,
income before income taxes in 2001 decreased 26.3%.

The Company's effective tax rate increased from 38.0% for fiscal 2000 to
38.5% for fiscal 2001.

Net income was $27,546,000 for fiscal 2001, compared to $47,201,000 for
fiscal 2000 due to the factors discussed above. Excluding the nonrecurring items
(a $5,879,000 nonrecurring charge after-tax in fiscal 2001 and a $1,497,000 net
gain on the Critchley bid in fiscal 2000), net income decreased 26.9% from
fiscal 2000.

BUSINESS SEGMENT OPERATING RESULTS

IDENTIFICATION SOLUTIONS & SPECIALTY TAPES (ISST) GROUP

ISST sales decreased 12.9% in fiscal 2002 (down 12.5% in local currencies)
from fiscal 2001, following an increase of 0.3% in fiscal 2001 versus 2000.
Base-business sales in fiscal 2002 were down 16.7% due to continued weakness in
the global electrical, electronic, telecommunication and automatic
identification markets. Acquisitions added 4.3% to the group's sales in fiscal
2002. Acquisitions included Balkhausen GmbH in March 2001, Eset GmbH in July
2001 and Strandware, Inc. in November 2001.

II-3

Segment profit as a percentage of sales decreased from 19.7% in 2001 to
13.5% in 2002 as a result of the sales decline. Comparing fiscal 2000 to 2001,
segment profit as a percentage of sales decreased from 26.1% to 19.7% as a
result of sales decline in the group's higher margin products, the negative
effect of foreign currencies and increased utility costs.

GRAPHICS & WORKPLACE SOLUTIONS GROUP

Graphics & Workplace Solutions' sales increased 1.4% in fiscal 2002 from
fiscal 2001. The acquisitions of Safety Signs Service in November 2001 and
Temtec, Inc. in April 2002 added 1.2% to the group's sales. Foreign currency did
not have an impact on the group's sales in fiscal 2002 as compared to fiscal
2001. Sales decreased 1.9% in fiscal 2001 from fiscal 2000. Fiscal 2001 sales
were negatively affected by the effect of foreign currency by 4.9%.

Segment profit as a percentage of sales in the group declined to 24.8% in
fiscal 2002 from 25.7% in fiscal 2001 due to a decline in gross margin. This
decline was driven by lower sales volume in North America and production costs
for a new product introduction. Segment profit as a percentage of sales in the
Graphics Group increased to 25.7% in fiscal 2001 from 24.4% in fiscal 2000. The
improvement in fiscal 2001 was due to cost control measures, continued
refinement in mail plan techniques and improvement in productivity of selling
and marketing expenses.

LIQUIDITY

The Company's liquidity remains strong. Cash and cash equivalents were
$75,969,000 at July 31, 2002, compared to $62,811,000 at July 31, 2001, and
$60,784,000 at July 31, 2000. Working capital increased $11,934,000 during
fiscal 2002 to $135,764,000 at July 31, 2002.

The Company has maintained significant cash balances due in large part to
its strong operating cash flow, which totaled $54,251,000 for fiscal 2002,
$53,228,000 for fiscal 2001 and $48,408,000 for fiscal 2000.

Capital expenditures were $13,095,000 in fiscal 2002, $20,770,000 in fiscal
2001 and $22,624,000 in fiscal 2000. Fiscal 2002's capital expenditures included
new toolings for two new products, continued investment in software related to
our E-clipse initiative, computers and building improvements in Europe. Fiscal
2001's capital expenditures included a new manufacturing location in Brazil, new
software, computers and manufacturing equipment in Europe. Fiscal 2000 capital
expenditures were primarily from capital investments related to new software, a
new facility in the United States, a startup in China and a new global
telecommunications system.

In fiscal 2000, the Company made an unsuccessful bid for the purchase of
Critchley Group plc in the United Kingdom. Associated transactions included the
purchase of Critchley shares at a total cost of $22,931,000 in the third quarter
and the subsequent sale of the shares in the fourth quarter for $27,345,000,
before expenses.

Financing activities required $13,385,000 in fiscal 2002, $22,676,000 in
fiscal 2001 and $6,605,000 in fiscal 2000. Cash used for dividends to
shareholders was $17,358,000 in fiscal 2002, $16,229,000 in fiscal 2001 and
$15,260,000 in fiscal 2000. In fiscal 2000, net cash borrowed was $24,947,000,
primarily used to purchase the Critchley securities, which was subsequently
repaid in fiscal 2000 and 2001.

In fiscal 1999, the Company entered into a $150,000,000 multicurrency
revolving loan agreement with a group of six banks, which expires on September
23, 2004. On January 31, 2000, the multicurrency revolving loan was amended,
increasing the amount available to $200,000,000. On October 31, 2001, the
multicurrency revolving loan was amended to modify a financial covenant to
restrict the amount of line of credit available to a multiple of domestic
earnings. Under the agreement, the Company has the option to elect to have
interest rates determined based upon the prime rate at PNC Bank N.A. plus margin
or a LIBOR rate plus margin. A commitment fee is payable on the unused amount of
credit. The agreement requires the Company to maintain certain financial
covenants. The Company is in compliance with the covenants of the agreement. At
July 31, 2002, approximately $107,000,000 of the line of credit was available to
the Company under the formulas contained in the agreement. The agreement
requires that the Company maintain a specified level of

II-4

consolidated net worth, which could restrict the Company's ability to pay
dividends. At July 31, 2002, the required consolidated net worth was
approximately $255,000,000 and the Company's actual consolidated net worth on
that date was approximately $324,000,000. At July 31, 2002 and 2001, there were
no borrowings under this line of credit.

Long-term obligations as a percentage of long-term obligations plus
stockholders' investment were 1.1% at July 31, 2002 and 1.4% at July 31, 2001
and 2000.

The Company continues to seek opportunities to invest in new products, new
markets and strategic acquisitions and joint ventures, which fit its growth
strategy. Management believes the Company's cash and cash equivalents, available
line of credit, and the cash flow it generates from operating activities are
adequate to meet the Company's current investing and financing needs.

The Company does not have material off-balance sheet arrangements or
related party transactions. The Company is not aware of factors that are
reasonably likely to adversely affect liquidity trends, other than the risk
factors presented in other Company filings. However, the following additional
information is provided to assist financial statement users.

Operating Leases -- These leases generally are entered into only for
non-strategic investments (e.g., warehouses, office buildings, computer
equipment) where the economic profile is favorable.

Purchase Commitments -- The Company has purchase commitments for materials,
supplies, services, and property, plant and equipment as part of the ordinary
conduct of business. In the aggregate, such commitments are not in excess of
current market prices. Due to the proprietary nature of many of the Company's
materials and processes, certain supply contracts contain penalty provisions for
early termination. The Company does not believe a material amount of penalties
is reasonably likely to be incurred under these contracts based upon historical
experience and current expectations.

Other Contractual Obligations -- The Company does not have material
financial guarantees or other contractual commitments that are reasonably likely
to adversely affect liquidity.

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

The Company's future commitments at July 31, 2002 for long-term debt and
capital lease obligations, and operating lease obligations are as follows
(dollars in thousands):

INFLATION

Essentially all of the Company's revenue is derived from the sale of its
products in competitive markets. Because prices are influenced by market
conditions, it is not always possible to fully recover cost increases through
pricing. Changes in product mix from year to year and timing differences in
instituting price changes make it virtually impossible to accurately define the
impact of inflation on profit margins.

II-5

EURO CONVERSION

On January 1, 1999, the Euro was adopted as the national currency of 11
European Union member nations. During a three-year transition period, the Euro
has been used as a non-cash transactional currency. The Company began conducting
business in Euros in January 1999, and has changed its functional currencies
during the three-year transition period. The conversion to the Euro did not have
a significant operational impact or a material impact on the results of
operations, cash flows or financial condition of the Company.

CRITICAL ACCOUNTING POLICIES

ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of goods to customers. The
vast majority of the Company's revenue relates to sale of inventory to
customers, and revenue is recognized when title and the risks and rewards of
ownership pass to the customer. Given the nature of the Company's business and
the applicable rules guiding revenue recognition, the Company's revenue
recognition practices do not contain estimates that materially affect results of
operations.

RESTRUCTURING

Restructuring charges relate to the restructurings in fiscal 2002 and 2001.
The Company provides forward-looking information about the restructuring
activities, including estimated costs and savings. Such disclosures represent
management's best estimate, but do require significant estimates that may change
over time. However, the specific reserves recorded in each year under the
restructuring activities are not considered highly uncertain, as discussed in
more detail in Note 10 to the Consolidated Financial Statements.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
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
tax assets and liabilities. Changes in existing regulatory tax laws and rates
may affect the Company's ability to successfully manage regulatory matters
around the world, and future business results may affect the amount of deferred
tax liabilities or the valuation of deferred tax assets over time. The Company's
accounting for deferred tax consequences represents management's best estimate
of future events that can be appropriately reflected in the accounting
estimates. Although certain changes cannot be reasonably assumed in the
Company's current estimates, management does not believe such changes would
result in a material period-to-period impact on the results of operations or
financial condition.

PURCHASE PRICE ALLOCATION

The purchase price allocation process requires management estimates and
judgment as to expectations for future cash flows of the acquired business and
application of those cash flows to identifiable intangible assets in determining
the estimated fair value for allocation purposes. If the actual results differ
from the

II-6

estimates and judgments used in the purchase price allocation, the amounts
recorded in the financial statements could result in a possible impairment of
the intangible assets and goodwill or require acceleration in the amortization
expense. In addition, FAS 142 requires that goodwill be tested annually for
impairment. Changes in management estimates or judgments could result in an
impairment charge, and such a charge could have an adverse effect on the
Company's financial condition and results of operations.

NEW ACCOUNTING STANDARDS

As of August 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the consolidated balance sheet, and no
longer be amortized, but tested for impairment on at least a periodic basis.

The Company performed the transitional assessment of goodwill on August 1,
2001 and the annual assessment on May 1, 2002. The assessments included
comparing the carrying amount of net assets, including goodwill, of each
reporting unit to their respective fair value as of the date of the assessment.
Fair value was estimated based upon discounted cash flow analyses. Because the
estimated fair value of each of the Company's reporting units exceeded their
carrying amount, management believes that no impairment existed as of the date
of the latest assessment. No indications of impairment have been identified
between the date of the latest assessment and July 31, 2002.

In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective August 1, 2001.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. In August 2001, the FASB issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company adopted both SFAS No. 143 and SFAS No. 144 in
August 2002. The Company does not expect the statements to have a material
impact on its financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This pronouncement is effective
for exit or disposal activities that are initiated after December 31, 2002, and
requires these costs to be recognized when the liability is incurred and not at
project initiation. The Company is reviewing the provisions of this Statement,
but does not expect it to have a material impact on its financial statements.

FORWARD-LOOKING STATEMENTS

Except for historical information, the Company's reports to the Securities
and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases,
as well as other public documents and statements, may contain "forward-looking
statements," as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are often identified by words such as "intend,"
"anticipate," "assume," "believe," "estimate," "expect," "plan," "project,"
"will," and other expressions, which refer to future events and trends.

The ability of the Company to attain management's goals and objectives is
materially dependent on numerous factors, including those set forth herein.

ECONOMIC CONDITIONS

Operating results are significantly influenced by general economic
conditions and growth or contraction of the principal economies in which we
operate, including the United States, Canada, Europe, Latin America and the
Asia-Pacific region. This is especially true with respect to growth or
contraction of the industrial and technology sectors of those economies.
All economies in which we operate are cyclical

II-7

and the rates of growth or contraction can vary substantially. Because we
have few long-term contracts, we generally ship products within a short
period of time from receiving orders and thus maintain only a small
backlog. The extent to which we can rapidly adjust our cost structure and
output to changing economic conditions may have a significant effect on our
future profitability.

CURRENCY FLUCTUATIONS

Approximately half of our sales are in foreign currencies, which
fluctuate in relationship to one another and to the United States dollar.
Fluctuations in currencies can cause transaction, translation and other
losses. These fluctuations can have an adverse effect on our reported sales
and earnings.

COST OF RAW MATERIALS

As a manufacturer, our sales and profitability are also dependent upon
availability and cost of raw materials and the ability to control or pass
on costs of raw materials and labor. Inflationary and other increases in
the costs of raw materials and labor have occurred in the past and are
expected to recur. Our ability to reflect these costs in increased selling
prices for our products, increasing our productivity, and focusing on
higher profit businesses, will significantly influence our ability to
maintain our margins. Past performance may or may not be replicable in the
future.

RELIANCE ON SUPPLIERS

Our manufacturing operations depend on our suppliers' ability to
deliver quality components and products in time for us to meet critical
manufacturing and distribution schedules. If shortages or delays occur, our
operating results could suffer until other sources can be developed.

NEW PRODUCTS

A significant portion of the revenues in each of our recent fiscal
years has been represented by sales of products we have introduced within
three years prior to the period. Our ability to develop and successfully
market new products and to develop, acquire and retain necessary
intellectual property rights is therefore essential to maintaining our
growth, which ability cannot be assured.

ACQUISITIONS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES

Part of our historic growth has come through acquisitions. We may also
engage in strategic alliances, joint ventures and divestitures. Our ability
to effectively evaluate potential acquisition, strategic alliance, joint
venture or divestiture transactions and to effectuate such transactions at
a reasonable price can affect our profitability. In addition, acquisitions,
strategic alliances and joint ventures may require us to integrate with a
different company culture, management team and business infrastructure. We
may also have to develop, manufacture and market products with our products
in a way that enhances the performance of the combined business or product
line. Depending on the size and complexity of an acquisition, our
successful integration of the entity depends on a variety of factors,
including:

- The hiring and retention of key employees,

- Management of facilities and employees in separate geographic areas,

- The integration or coordination of different research and development
and product manufacturing facilities, and

- Systems integration and implementation.

All of these efforts require varying levels of management resources,
which may divert our attention from other business operations.

INTELLECTUAL PROPERTY

We generally rely upon patent, copyright, trademark and trade secret
laws in the U.S. and in certain other countries, and agreements with our
employees and customers to establish and maintain our property rights in
our technology and products. However, any of our intellectual property
rights could be
II-8

challenged, invalidated or circumvented. Third parties may claim that we
are infringing their intellectual property. Even if we do not believe that
our products are infringing third parties' intellectual property rights,
the claims can be time-consuming and costly to defend and divert
management's attention and resources away from our business. Claims of
intellectual property infringement might also require us to enter into
costly royalty or license agreements. If we cannot or do not license the
infringed technology or substitute similar technology from another source,
our business could suffer.

ENVIRONMENTAL

Some of our operations use substances regulated under various federal,
state and foreign laws governing the environment. It is our policy to apply
strict standards for environmental protection to sites inside and outside
the U.S., even when not subject to local government regulations. However, a
failure to comply with applicable standards or the accidental emission of
or exposure to hazardous materials could give rise to significant monetary
liability. Also, the imposition of new governmental standards or
requirements could materially increase our cost of operation.

EFFECT OF INTERNATIONAL POLITICAL CONSIDERATIONS

Our international operations may be significantly influenced by
political, economic and regulatory conditions (including tariffs) in the
countries in which we conduct our operations.

OTHER

Other factors include costs and other effects of interest rate
increases; legal and administrative cases and proceedings, settlements,
judgments and investigations, claims, and changes in those items; adoption
of new, or revised accounting policies and practices and the application of
such policies and practices; the successful implementation of a new
enterprise-resource-planning system; business reorganizations or
combinations; loss of significant contract or customer; the euro
conversion; the ability and willingness of purchasers to substitute other
products for the products that we distribute; and pricing, purchasing,
financing and promotional decisions by intermediaries in the distribution
channel.

The factors identified in this statement are believed to be important
factors (but not necessarily all of the important factors) that could cause
actual results to be materially different from those that may be expressed
or implied in any forward-looking statement made by, or on behalf of, the
Company. Other factors not discussed in this statement could also have
material adverse effects concerning forward-looking objectives or
estimates. The Company assumes no obligation to update the information
included in this statement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's business operations give rise to market risk exposure due to
changes in foreign exchange rates. To manage that risk effectively, the Company
enters into hedging transactions, according to established guidelines and
policies, that enable it to mitigate the adverse effects of this financial
market risk.

The global nature of the Company's business requires active participation
in the foreign exchange markets. As a result of investments, production
facilities and other operations on a global scale, the Company has assets,
liabilities and cash flows in currencies other than the U.S. Dollar. The primary
objective of the Company's foreign-exchange risk management is to minimize the
impact of currency movements on intercompany transactions and foreign
raw-material imports. To achieve this objective, the Company hedges a portion of
known exposures using forward contracts. Main exposures are related to
transactions denominated in the British Pound, the Euro, Canadian Dollar,
Japanese Yen and Australian Dollar. The risk of these hedging instruments is not
material.

The Company could be exposed to interest rate risk through its corporate
borrowing activities. The objective of the Company's interest rate risk
management 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 consists of entering into
approved interest rate derivatives when there is a desire to modify the
Company's exposure to interest rates. As of July 31, 2002, the Company has not
entered into any interest rate derivatives.

II-9

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BRADY CORPORATION

INDEX TO FINANCIAL STATEMENTS

II-10

INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Brady Corporation:

We have audited the accompanying consolidated balance sheets of Brady
Corporation and subsidiaries as of July 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' investment and cash flows for
each of the three years in the period ended July 31, 2002. Our audits also
included the financial statement schedule listed in the Index at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at July 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended July 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

September 9, 2002
Milwaukee, Wisconsin

II-11

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2002 AND 2001

See notes to consolidated financial statements.
II-12

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JULY 31, 2002, 2001 AND 2000

See notes to consolidated financial statements.
II-13

BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
YEARS ENDED JULY 31, 2002, 2001 AND 2000

See notes to consolidated financial statements.
II-14

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2002, 2001 AND 2000

See notes to consolidated financial statements.
II-15

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2002, 2001 AND 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Brady Corporation and its subsidiaries (the
"Company"), all of which are wholly-owned. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Fair Value of Financial Instruments -- The Company believes the carrying
amount of its financial instruments (cash and cash equivalents, accounts
receivable, accounts payable and long-term debt) is a reasonable estimate of the
fair value of these instruments due to their short-term nature or variable
interest rate.

Cash Equivalents -- The Company considers all highly liquid investments
with maturities of three months or less when acquired to be cash equivalents.

Inventories -- Inventories are stated at the lower of cost or market. Cost
has been determined using the last-in, first-out ("LIFO") method for certain
inventories (approximately 39% and 55% of total inventories at July 31, 2002 and
2001, respectively) and the first-in, first-out ("FIFO") method for other
inventories. The difference between the carrying value of domestic inventories
stated at LIFO cost and the value of such inventories stated at FIFO cost was
$5,874,000 at July 31, 2002 and $5,805,000 at July 31, 2001.

Depreciation -- The cost of buildings and improvements and machinery and
equipment is being depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes. The estimated useful
lives range from 3 to 33 years.

Intangible Assets -- The cost of intangible assets with determinable useful
lives is amortized to reflect the pattern of economic benefits consumed,
principally on a straight-line basis, over the estimated periods benefited.
Goodwill is evaluated annually for impairment. Beginning in fiscal 2002, such
determination of fair value is based on valuation models that incorporate
expected future cash flows and profitability projections. Prior to 2002,
goodwill was amortized over periods not exceeding 40 years.

Changes in the carrying amount of goodwill for the year ended July 31,
2002, are as follows:

Other long-term assets include patents, trademarks, non-compete agreements
and other intangibles with finite lives being amortized in accordance with SFAS
No. 142. The net book value of these assets was $3,918,000 and $1,643,000 at
July 31, 2002 and 2001, respectively. This amount consists of approximately
$2,950,000 related to patents and trademarks and $968,000 related to non-compete
agreements. Amortization expense related to intangible assets was not material.

II-16

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Impairment of Long-Lived Assets -- The Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets may warrant revision or that the remaining balance of an asset
may not be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of assets from expected future operating cash
flows on an undiscounted basis.

Catalog Costs -- Catalog costs are initially capitalized and amortized over
the estimated useful lives of the publications (generally eight months). At July
31, 2002 and 2001, $8,211,000 and $6,380,000 respectively, of prepaid catalog
costs were included in prepaid expenses and other current assets.

Revenue Recognition -- The Company recognizes revenue upon shipment of
goods to customers. In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). The Company adopted SAB 101 in the fourth quarter of
fiscal 2001. Adoption of this standard did not have a material impact on the
Company's financial statements.

Shipping and Handling Fees and Costs -- The Company accounts for Shipping
and Handling Fees and Costs in accordance with Emerging Issues Task Force
("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
Under Issue No. 00-10 amounts billed to a customer in a sale transaction related
to shipping costs are reported as net sales and the related costs incurred for
shipping are reported as cost of goods sold.

Research and Development -- Amounts expended for research and development
are expensed as incurred.

Foreign Currency Translation -- Foreign currency assets and liabilities are
translated into United States dollars at end of period rates of exchange, and
income and expense accounts are translated at the weighted average rates of
exchange for the period. Resulting translation adjustments are included in other
comprehensive income.

Income Taxes -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the 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 tax assets and liabilities.

Risk Management Activities -- The Company is exposed to market risk, such
as changes in interest rates and currency exchange rates. The Company does not
hold or issue derivative financial instruments for trading purposes.

Interest Rate Hedging -- The Company could be exposed to interest rate risk
through its corporate borrowing activities. The objective of the Company's
interest rate risk management 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 consists of
entering into approved interest rate derivatives when there is a desire to
modify the Company's exposure to interest rates. As of July 31, 2002, the
Company has not entered into any interest rate derivatives.

Currency Rate Hedging -- The primary objectives of the foreign exchange
risk management activities are to understand and mitigate the impact of
potential foreign exchange fluctuations on the Company's financial results and
its economic well-being. While the Company's risk management objectives and
strategies will be driven from an economic perspective, the Company will
attempt, where possible and practical, to ensure that
II-17

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the hedging strategies it engages in can be treated as "hedges" from an
accounting perspective or otherwise result in accounting treatment where the
earnings effect of the hedging instrument provides substantial offset (in the
same period) to the earnings effect of the hedged item. Generally, these risk
management transactions will involve the use of foreign currency derivatives to
protect against exposure resulting from intercompany sales and identified
inventory or other asset purchases.

The Company primarily utilizes forward exchange contracts with maturities
of less than 12 months, which qualify as cash flow hedges. These are intended to
offset the effect of exchange rate fluctuations on forecasted sales, inventory
purchases and intercompany charges. The fair value of these instruments at July
31, 2002 and 2001 was not material.

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
flows of 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. Any ineffective portions are to be recognized in
earnings immediately. The Company's existing cash flow hedges are considered to
be 100% effective. As a result, there is no current impact to earnings due to
hedge ineffectiveness.

No cash flow hedges were discontinued during the year ended July 31, 2002.

New Accounting Standards -- As of August 1, 2001, the Company adopted SFAS
No. 142, "Goodwill and Other Intangible Assets," which addresses the financial
accounting and reporting standards for the acquisition of intangible assets
outside of a business combination and for goodwill and other intangible assets
subsequent to their acquisition. This accounting standard requires that goodwill
be separately disclosed from other intangible assets in the consolidated balance
sheet, and no longer be amortized, but tested for impairment on at least a
periodic basis.

The Company performed the transitional assessment of goodwill on August 1,
2001 and the annual assessment on May 1, 2002. The assessments included
comparing the carrying amount of net assets, including goodwill, of each
reporting unit to their respective fair value as of the date of the assessment.
Fair value was estimated based upon discounted cash flow analyses. Because the
estimated fair value of each of the Company's reporting units exceeded their
carrying amount, management believes that no impairment existed as of the date
of the latest assessment. No indications of impairment have been identified
between the date of the latest assessment and July 31, 2002.

II-18

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective August 1, 2001. A reconciliation of previously reported
net income and net income per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. In August 2001, the FASB issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company will adopt both SFAS No. 143 and SFAS No. 144
in August 2002. The Company does not expect the statements to have a material
impact on its financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This pronouncement is effective
for exit or disposal activities that are initiated after December 31, 2002, and
requires these costs to be recognized when the liability is incurred and not at
project initiation. The Company is reviewing the provisions of this Statement,
but does not expect it to have a material impact on its financial statements.

Reclassifications -- Certain reclassifications have been made to the prior
years' financial statements to conform to the current year presentation.

2. ACQUISITIONS OF BUSINESSES

Effective September 1999, the Company acquired the brand name, customer
list and catalog artwork of Champion America, Inc., located in Chagrin Falls,
Ohio, a direct marketer of signs, labels and identification products for cash of
approximately $4,949,000 and a payable of approximately $561,000.

Effective March 2000, the Company acquired Data Recognition, Inc., located
in Austin, Texas, a systems integrator providing automatic identification and
data collection ("AIDC") solutions.

Effective March 2000, the Company acquired Imtec, Inc., located in Keene,
New Hampshire, a manufacturer of high-performance bar-code labels and labeling
systems used in automatic identification applications.

II-19

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company acquired Data Recognition, Inc. and Imtec, Inc. for cash of
approximately $33,422,000 and a payable of approximately $1,490,000.

Effective March 2001, the Company acquired the assets of Balkhausen GmbH,
located in Syke, Germany, a manufacturer of precision die-cut parts, specialty
materials and thermal-management products for cash of approximately $6,600,000
and assumed liabilities of approximately $4,300,000.

Effective July 2001, the Company acquired the assets of Eset, GmbH, located
in Munich, Germany, a developer of certain software printer drivers and label
design software.

In November 2001, the Company acquired Strandware, Inc., located in Eau
Claire, Wisconsin, a bar-code, label-design, and data-collection software
developer. Also in November 2001, the Company acquired Safety Signs Service,
located in Perth, Australia, a manufacturer and supplier of safety products. In
April 2002, the Company acquired Temtec, located in Suffern, New York, a
printing Company that develops and markets products for security applications.
The combined purchase price of these acquisitions was approximately $13,600,000.
Each of the acquisitions was for cash. The agreements include provisions for
contingent payments up to a maximum of $4,000,000 based on the earnings of the
acquired entities. Approximately $8,900,000 was assigned to goodwill and
approximately $2,000,000 was assigned to patents, which will be amortized over a
weighted average life of nine years.

These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations have been included since
the dates of acquisition in the accompanying financial statements. The pro forma
results of operations of the above acquisitions are not significant to the
financial statements.

3. EMPLOYEE BENEFIT PLANS

The Company provides postretirement medical, dental and vision benefits for
all regular full and part-time domestic employees (including spouses) who retire
on or after attainment of age 55 with 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 Company accounts for postretirement benefits other than pensions in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." The Company funds benefit costs on a pay-as-you-go basis.

The following table provides a reconciliation of the changes in the Plan's
benefit obligations at July 31, 2002, 2001 and 2000:

II-20

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table shows the unfunded status of the Plan as of July 31,
2002 and 2001:

The following table provides the components of net periodic benefit cost
for the Plan for fiscal years 2002, 2001 and 2000:

The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation at July 31, 2002 and 2001 were 10% grading
down 0.5% per year to 5.5% at July 31, 2011 and 2010, respectively.

The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 7.5% in 2001 and 2002.

If the health care cost trend rate assumptions were increased by 1% or
decreased by 1%, the accumulated postretirement benefit obligation as of July
31, 2002 would be increased by $59,200 and decreased by $59,200, respectively.
The effect of this change on the sum of the service cost and interest cost would
not be material. If the health care cost trend rate assumptions were increased
by 1% or decreased by 1%, the accumulated postretirement benefit obligation as
of July 31, 2001 would be increased by $35,400 and decreased by $35,400,
respectively. The effect of this change on the sum of the service cost and
interest cost would not be material.

The Company has retirement and profit-sharing plans covering substantially
all full-time domestic employees and certain of its foreign subsidiaries.
Contributions to the plans are determined annually or quarterly, according to
the plan, based on earnings of the respective companies and employee
contributions. At July 31, 2002 and 2001, $2,503,000 and $2,501,000,
respectively, of accrued profit-sharing contributions were included in other
current liabilities.

The Company also has deferred compensation plans for directors, officers
and key executives utilizing the phantom stock plan concept. At July 31, 2002
and 2001, $5,191,000 and $5,533,000, respectively, of deferred compensation was
included in current and other long-term liabilities.

During fiscal 1998, the Company adopted a new deferred compensation plan
that invests solely in shares of the Company's Class A Nonvoting Common Stock.
Participants in the old phantom stock plan were allowed to convert their
balances in the old plan to this new plan. The new plan was funded initially by
the issuance of 372,728 shares of Class A Nonvoting Common Stock to a Rabbi
Trust. All deferrals into the new

II-21

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plan result in purchases of Class A Nonvoting Common Stock by the Rabbi Trust.
No deferrals are allowed into the old plan. Shares held by the Rabbi Trust are
distributed to participants 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's Class
A Nonvoting Common Stock or in certain other investment vehicles. Prior deferred
compensation deferrals must remain in the Company's Class A Nonvoting Common
Stock. All deferrals into the new plan result in purchases of Class A Nonvoting
Common Stock or certain other investment vehicles by the Rabbi Trust. Balances
held by the Rabbi Trust are distributed to participants upon separation from the
Company as defined in the plan agreement.

The amounts charged to income for the plans described above were $8,918,000
in 2002, $7,515,000 in 2001 and $7,736,000 in 2000.

The Company has a voluntary employee benefit trust for the purpose of
funding employee medical benefits and certain other employee benefits. At July
31, 2002 and 2001, $4,142,000 and $2,378,000, respectively, of payments to the
trust to fund such benefits were included in prepaid expenses and other current
assets.

4. INCOME TAXES

Income taxes consist of the following:

Deferred income taxes result from temporary differences in the recognition
of revenues and expenses for financial statement and income tax purposes.

Pre-tax income consists of the following:

II-22

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The approximate tax effects of temporary differences are as follows:

The change in the valuation allowance was $930,000, $663,000 and $(229,000)
in fiscal 2002, 2001 and 2000, respectively.

II-23

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the tax computed by applying the statutory U.S. Federal
income tax rate to income before income taxes to the total income tax provision
is as follows:

The Company's policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the United
States. Accordingly, the Company does not currently provide for the additional
United States and foreign income taxes which would become payable upon remission
of undistributed earnings of foreign subsidiaries.

The cumulative undistributed earnings of such companies at July 31, 2002
amounted to approximately $57,893,000. If all such undistributed earnings were
remitted, an additional provision for foreign income taxes of $493,000 would be
required.

5. LONG-TERM OBLIGATIONS

On September 23, 1999, the Company entered into a $150,000,000
multicurrency revolving loan agreement with a group of six banks, which expires
on September 23, 2004. On January 31, 2000, the multicurrency revolving loan was
amended, increasing the amount available to $200,000,000. On October 31, 2001,
the multicurrency revolving loan was amended to modify a financial covenant to
restrict the amount of line of credit available to a multiple of domestic
earnings. Under the agreement, the Company has the option to elect to have
interest rates determined based upon the prime rate at PNC Bank N.A. plus margin
or a LIBOR rate plus margin. A commitment fee is payable on the unused amount of
credit. The agreement requires the Company to maintain certain financial
covenants. The Company is in compliance with the covenants of the agreement. At
July 31, 2002, approximately $107,000,000 of the line of credit was available to
the Company under the formulas contained in the agreement. The agreement
requires that the Company maintain a specified level of consolidated net worth,
which could restrict the Company's ability to pay dividends. At July 31, 2002,
the required consolidated net worth was approximately $255,000,000 and the
Company's actual consolidated net worth was approximately $324,000,000. At July
31, 2002 and 2001, there were no borrowings under this line of credit.

II-24

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term obligations consist of the following:

The carrying value of the Company's long-term obligations approximates fair
value due to the variable nature of its interest rates.

Maturities on long-term debt are as follows:

6. STOCKHOLDERS' INVESTMENT

Information as to the Company's capital stock at July 31, 2002 is as
follows:

On August 1, 2002, all Cumulative Preferred Stock was redeemed at a 6%
premium for approximately $3,000,000. Each share of $100 par value Cumulative
Preferred Stock was entitled to receive cumulative cash dividends and could be
redeemed, under certain circumstances, by the Company at par value plus accrued
dividends plus a premium of 6% of the par value. Such shares, which were held by
the initial holder thereof, were subject to redemption only if the holder
consented thereto.
II-25

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Before 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 $.0333 per share. Thereafter, any further dividend in that fiscal
year must be paid on each share of Class A Common Stock and Class B Common Stock
on an equal basis.

Holders of the Class A Common Stock are not entitled to any vote on
corporate matters, unless, in each of the three preceding fiscal years, the
$.0333 preferential dividend described above has not been paid in full. Holders
of the Class A Common Stock are entitled to one vote 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 of Class 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 were entitled to receive the sum of $1.67
per share before any payment or distribution to holders of the Class B Common
Stock. Thereafter, holders of the Class B Common Stock are entitled to receive a
payment or distribution of $1.67 per share. Thereafter, holders of the Class A
Common Stock and Class B Common Stock share equally in all payments or
distributions upon liquidation, dissolution or winding up of the Company.

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 the voting
rights of Class A Common Stock and Class B Common Stock become equal.

II-26

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of other activity in stockholders' investment
for the years ended July 31, 2000, 2001 and 2002:

There were 1,418,118, 859,770 and 809,575 options exercisable with a
respective weighted average exercise price of $24.39, $23.82 and $21.98 at July
31, 2002, 2001 and 2000, respectively.

The following table summarizes information about stock options outstanding
at July 31, 2002:

In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 establishes a fair value based method of accounting for
stock-based compensation; however, it allows entities to continue accounting for
employee stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." SFAS No. 123 requires certain disclosures, including pro forma net
income and net income per share as if the fair value based accounting method had
been used for employee stock-based compensation cost. The Company has adopted
SFAS No. 123 through disclosure with respect to employee stock-based
compensation.

If the Company had elected to recognize compensation cost for the Stock
Option Plans based on the fair value at the grant dates for awards under those
plans, consistent with the method prescribed by SFAS

II-28

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

No. 123, net income and net income per common share would have been changed to
the pro forma amounts indicated below:

The fair value of stock options used to compute pro forma net income and
net income per common share disclosure is the estimated present value at grant
date using the Black-Scholes option-pricing model with weighted average
assumptions and the resulting estimated fair value for fiscal years 2002, 2001
and 2000 as follows:

7. SEGMENT INFORMATION

Brady Corporation's reportable segments are business units that are each
managed separately because they manufacture and/or distribute distinct products
to differentiated markets. The Company has two reportable segments: the
Identification Solutions & Specialty Tapes Group and the Graphics and Workplace
Solutions Group. Effective August 1, 2001, the Company's Graphics and Direct
Marketing operating segments were combined to form Graphics and Workplace
Solutions. The prior year segment information has been reclassified to conform
to the current year presentation.

The Identification Solutions & Specialty Tape Group consists of
High-Performance Identification (HPI), Power & Communications Identification
(PCI), Precision Die-Cut Solutions and Brady Software & Services. HPI develops,
manufactures and sells high performance identification products including labels
and printing systems used in recording and transmitting data throughout the
manufacturing process. PCI develops, manufactures and sells identification
solutions for customers that design, build, install and manage power and
communications distribution systems. Precision Die Cut Solutions develops,
manufactures and sells precision die cut products and services for electronic,
telecommunication, automotive and computer original equipment manufacturers
requiring value-added engineering die-cut solutions and global support. Brady
Software & Services is focused on Automatic Identification and Data Collection
software development for barcode, label design and data collection applications
and system integration services.

The Graphics & Workplace Solutions Group consists primarily of Safety &
Facility Identification and Presentation Systems. Safety & Facility
Identification is the core business of the group and involves several brands:
Seton, Champion and Signals brands sell by direct marketing; Brady-Signmark(R)
brand sells through a field sales force and distributors. Each of the direct
marketing brands engages in direct selling to end users via direct-mail
catalogs, telemarketing and the Internet. Their products include more than
50,000 items including signs, property identification tags, training programs
for hazardous materials and regulatory compliance and related products, and
office accessories. Signmark(R) manufactures and sells signs, labels and devices
to meet

II-29

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

government safety requirements; printers and accessories for do-it-yourself
industrial signage and labels; regulatory training programs and products; and
barricade tape, accident-prevention tags and other visual warning systems.
Presentation systems focuses on the education market in North America under the
Varitronics brand and sells through distributors and telemarketing. Varitronics
produces and markets printing systems including lettering and labeling systems,
poster printers, and supplies and laminating equipment.

The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes, not including administrative costs,
interest, exchange gain or loss and nonrecurring items. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies.

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 a by
product or service basis.

II-30

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

* Revenues are attributed based on country of origin.

** Long-lived assets consist primarily of property, plant, and equipment and
goodwill.

8. NET INCOME PER COMMON SHARE

Net income per Common Share is computed by dividing net income (after
deducting the applicable Preferred Stock dividends and preferential Class A
Common Stock dividends) by the weighted average Common Shares outstanding of
23,023,687 for 2002, 22,824,398 for 2001 and 22,669,854 for 2000. The
preferential dividend on the Class A Common Stock of $.0333 per share has been
added to the net income per Class A Common Share for all years presented.

II-31

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliations of the numerator and denominator of the basic and diluted
per share computations for the Company's Class A and Class B common stock are
summarized as follows:

Options to purchase 0, 95,050, and 264,167 shares of Class A common stock
were not included in the computations of diluted net income per share for the
fiscal years 2002, 2001 and 2000, respectively, because the option exercise
prices were greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.

9. COMMITMENTS

The Company has entered into various noncancellable operating lease
agreements. Rental expense charged to operations was $8,955,000 for 2002,
$8,822,000 for 2001 and $9,293,000 for 2000. Future minimum lease payments
required under such leases in effect at July 31, 2002, are as follows (by fiscal
year):

2003........................................................ $ 8,867,000
2004........................................................ 7,102,000
2005........................................................ 5,469,000
2006........................................................ 1,632,000
2007........................................................ 1,616,000
Thereafter.................................................. 3,196,000
-----------
$27,882,000
===========

II-32

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. NONRECURRING AND ONE-TIME CHARGES

The Company recorded a nonrecurring charge of $3,030,000 in fiscal 2002
related primarily to consolidation of facilities in Asia/Pacific, United States
and Europe and workforce reduction of approximately three percent. The
$3,030,000 charge includes a provision for severance of approximately
$1,720,000, a provision for lease cancellation costs associated with the
facilities consolidation of $940,000 and write-off or impairment of assets and
other of $370,000. The workforce reduction of approximately 100 people was
essentially completed in July 2002. Total cash expenditures in connection with
these actions will approximate $2,750,000, of which, approximately $800,000 was
paid prior to July 31, 2002. The cost savings resulting from this plan are
expected to be recognized beginning in fiscal 2003. The $3,030,000 charge in
fiscal 2002 was partially offset by a credit of $310,000 related to adjustments
in severance costs associated with our fiscal 2001 restructuring. The net
nonrecurring charge in fiscal 2002 was $2,720,000 ($1,782,000 after tax, $0.07
per share).

In July 2001, the Company recorded a nonrecurring charge of $9,560,000
($5,879,000 after tax, $0.26 per share) in fiscal 2001 related primarily to
facilities consolidation in the United States and Europe and workforce
reductions in its operations around the world. The $9,560,000 charge includes a
provision for severance of approximately $5,700,000, write-off or impairment of
assets (primarily buildings) of approximately $2,750,000 and $1,110,000 of other
costs associated with the restructuring efforts. Other costs primarily include
lease cancellation costs associated with the facilities consolidation. The
workforce reduction of approximately 175 people was essentially completed in
August 2001. Total cash expenditures in connection with these actions will
approximate $6,800,000, of which, approximately $350,000 was paid prior to July
31, 2001.

A reconciliation of activity with respect to the Company's 2001
restructuring is as follows:

Ending balance, July 31, 2001............................... $ 6,937,000
Cash payments associated with severance and other......... (4,389,000)
Non-cash asset write-offs................................. (490,000)
Adjustment to severance accrual........................... (310,000)
-----------
Ending balance, July 31, 2002............................... $ 1,748,000
===========

II-33

BRADY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. UNAUDITED QUARTERLY FINANCIAL INFORMATION

- ---------------

* The fourth quarters of fiscal 2002 and 2001 include nonrecurring charges
related to restructuring activities of $2,720,000 ($1,782,000 after-tax) and
$9,560,000 ($5,879,000 after-tax), respectively.

* * * * * *

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

II-34

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Katherine M. Hudson -- Mrs. Hudson joined the Company in January 1994, as
President, Chief Executive Officer and Director. Before joining Brady
Corporation, she was a Vice President at Eastman Kodak Company and General
Manager of its Professional, Printing and Publishing Imaging Division. Her 24
years at Eastman Kodak Company included positions in finance, communication and
public affairs, information systems and the management of instant photography,
printing and publishing and professional photography. She is a director of CNH
Global N.V. and Charming Shoppes, Inc., and serves on the Alverno College Board
of Trustees, the Medical College of Wisconsin Board of Trustees and the Board of
Wisconsin United for Health Foundation.

David W. Hawke -- Mr. Hawke joined the Company in 1979. He served as
General Manager of the Industrial Products Division from 1985 to 1991. From 1991
to February 1995, he served as Managing Director -- European Operations. From
February 1995 to August 2001, he served as Vice President, Graphics Group. He
served as Vice President, Graphics and Workplace Solutions from August 2001 to
January 2002. In January 2002, he was appointed to his present position.

Frank M. Jaehnert -- Mr. Jaehnert joined the Company in 1995 as Finance
Director of the Identification Solutions & Specialty Tapes Group. He served as
Chief Financial Officer from November 1996 to January 2002. He was appointed to
his present position in January 2002. Before joining the Company, he held
various financial and management positions for Robert Bosch GmbH from 1983 to
1995.

Michael O. Oliver -- Mr. Oliver joined the Company in February 1997 as Vice
President -- Human Resources. He was appointed to his present position in
January 2002. Before joining the Company, he held various human resource
positions for Unilever from 1990 to 1997.

David W. Schroeder -- Mr. Schroeder joined the Company in June 1991 as
General Manager of the Industrial Products Division. He served as Vice
President, Identification Solutions & Specialty Tapes Group from March 1995 to
January 2002. He was appointed to his present position in January 2002. Before
joining the Company, he served as President and Chief Executive Officer of
Uniroyal Adhesives & Sealants Co., Inc. from 1988 to May 1991.

III-1

Conrad G. Goodkind -- Mr. Goodkind was elected Secretary of the Company in
November 1999. He is a partner of Quarles & Brady LLP, general counsel to the
Company, which he joined in 1979.

Peter J. Lettenberger -- Mr. Lettenberger has served as a Director of the
Company since January 1977. Mr. Lettenberger is a member of the Company's
Finance and Corporate Governance Committees. He is a partner of Quarles & Brady
LLP, general counsel to the Company, which he joined in 1964. He is also a
director of Electronic Tele-Communications, Inc., Waukesha, Wisconsin.

Robert C. Buchanan -- Mr. Buchanan has been a Director of the Company since
November 1987. Mr. Buchanan is a member of the Company's Finance Committee and
chairs its Corporate Governance Committee. Mr. Buchanan is President and
Chairman of the Board of Fox Valley Corporation in Appleton, Wisconsin, having
assumed that position November 1980. He is also a trustee of The Northwestern
Mutual Life Insurance Company, Milwaukee.

Roger D. Peirce -- Mr. Peirce has served as a Director of the Company since
September 1988. Mr. Peirce has been a member of the Compensation Committee of
the Company since September 1988, and its chairman since November 1996, and is a
member of its Corporate Governance and Finance Committees. Mr. Peirce is a
private investor and consultant and is a director and secretary/treasurer of The
Jor-Mac Company, Inc. in Grafton, Wisconsin. He was President and CEO of
Valuation Research Corporation from April 1995 to May 1996. From September 1988
to December 1993, he was President of Super Steel Products Corp. in Milwaukee,
Wisconsin. Prior to that he was a managing partner for Arthur Andersen LLP,
independent certified public accountants.

Richard A. Bemis -- Mr. Bemis has been a Director of the Company since
January 1990 and a member of its Compensation Committee since March 1990, and is
a member of its Technology Committee. Mr. Bemis is President and CEO of Bemis
Manufacturing Company, a manufacturer of molded plastic products in Sheboygan
Falls, Wisconsin. He is also a director of the Wisconsin Public Service
Corporation, Green Bay, Wisconsin.

Frank W. Harris -- Dr. Harris has been a Director of the Company since
November 1991, a member of its Audit Committee since May 1999, and is chair of
its Technology Committee. Dr. Harris is Professor and Director of the Maurice
Morton Institute of Polymer Science at the University of Akron, and has been on
its faculty since 1983.

Gary E. Nei -- Mr. Nei has been a Director of the Company since November
1992. Mr. Nei is a member of the Company's Governance Committee and Chair of its
Finance Committee. Mr. Nei is Chairman of B&B Publishing, a publishing company
in Walworth, Wisconsin, and Chairman of the Beverage Testing Institute, a
publishing company in Chicago, Illinois. He also serves as a consultant to Welsh
Carson Anderson and Stowe, a private investment company in New York, New York.
He is also a Director of Bone Care International, Inc. a pharmaceutical company
in Madison, Wisconsin.

Mary K. Bush -- Ms. Bush was elected to the Board of Directors in May 2000.
Ms. Bush is president of Bush International Inc., Washington, D.C., an
international financial advisory firm. She serves on the Audit Committee. Ms.
Bush is also a director of Mortgage Guarantee Insurance Corp., R.J. Reynolds
Tobacco Holdings, Inc., MasTec Inc., Sallie Mae and the Board of Trustees of the
Pioneer Funds. Former Boards include Texaco, Inc. and Nations Bank Trust
Company.

Frank R. Jarc -- Mr. Jarc was elected to the Board of Directors in May
2000. Mr. Jarc is a consultant specializing in corporate development and
international acquisitions. From April 1999 to March 2000 he was Senior Vice
President of Corporate Development at Office Depot, an operator of office supply
superstores. Between June 1996 and March 1999, he was Executive Vice President
and Chief Financial Officer of Viking Office Products, a direct mail marketer of
office products. Prior to that, he was Executive Vice President and Chief
Financial Officer of R.R. Donnelley and Sons, a global printing company. He is
chair of Brady's Audit Committee and serves on the Compensation Committee.

III-2

All directors serve until their respective successors are elected at the
next annual meeting of shareholders. Officers serve at the discretion of the
Board of Directors. None of the Company's directors or executive officers has
any family relationship with any other director or executive officer.

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended July 31, 2002, to those persons who,
as of the end of fiscal 2002, were the Named Executive Officers.

SUMMARY COMPENSATION TABLE

- ---------------

(1) Reflects bonus earned during the listed fiscal year, which was paid during
the next fiscal year.

(2) Unless otherwise noted, any prerequisites or other personal benefits
received from the Company by any of the named executives were less than the
reporting thresholds established by the Securities and Exchange Commission
(the lesser of $50,000 or 10% of the individual's cash compensation).

(3) All other compensation for fiscal 2002 for Mrs. Hudson, and Messrs.
Schroeder, Hawke, Jaehnert and Oliver, respectively, includes: (i) matching
contributions to the Company's Matched 401(k) Plan, Funded Retirement Plan
and Restoration Plan for each named executive officer of $25,013, $19,095,
$18,331, $16,872 and $14,889 respectively and (ii) the cost of group term
life insurance for each named executive officer of $2,931, $610, $569, $440
and $595, respectively.

All other compensation for fiscal 2001 for Mrs. Hudson, and Messrs.
Schroeder, Hawke, Jaehnert and Oliver, respectively, includes: (i) matching
contributions to the Company's Matched 401(k) Plan, Funded Retirement Plan
and Restoration Plan for each named executive officer of $44,165, $21,063,
$17,731, $16,449 and $12,060 respectively and (ii) the cost of group term
life insurance for each named executive officer of $1,572, $786, $718, $444
and $462, respectively.

All other compensation for fiscal 2000 for Mrs. Hudson, and Messrs.
Schroeder, Hawke, Jaehnert and Oliver, respectively, includes: (i) matching
contributions to the Company's Matched 401(k) Plan and Funded Retirement
Plan for each named executive officer of $9,600, $5,946, $5,977, $8,580 and
$7,182 respectively and (ii) the cost of group term life insurance for each
named executive officer of $1,485, $753, $758, $351 and $417 respectively.
III-3

(4) Fiscal 2002 includes $30,975 accrued, but not paid, for the current year's
portion of a Supplemental Executive Retirement Plan (SERP). Fiscal 2001
includes $49,326 accrued, but not paid, for that year's portion of the SERP.
Fiscal 2000 includes $46,974 accrued, but not paid, for that year's portion
of the SERP.

(5) Fiscal 2000 includes club dues of $74,500 and expenses associated with the
use of a company car of $7,562.

(6) In August 1997, the Company granted restricted stock awards to certain key
executives. Mrs. Hudson was awarded 50,000 shares of authorized, but
unissued Class A Common Stock and Messrs. Schroeder and Hawke were awarded
25,000 shares each of authorized, but unissued Class A Common Stock, which
shares such executive officers continued to hold as of July 31, 2002. Using
the closing price of $27.50 per share for the Company's Class A Common Stock
on July 31, 2002, Mrs. Hudson's holdings were valued at $1,375,000 and the
holdings of Messrs. Schroeder and Hawke were valued at $687,500 each. The
restricted stock awards granted to Mrs. Hudson vested on August 1, 2002. The
restricted stock awards granted to Messrs. Schroeder and Hawke vested 75% on
August 1, 2002, with the remaining 25% vesting on August 1, 2003. The
executives have the right to receive any cash dividends payable on these
shares.

STOCK OPTIONS

The following tables summarize option grants and exercises during fiscal
2002 to or by the executive officers named in the Summary Compensation Table
above, and the value of unexercised options held by such persons at July 31,
2002. Stock Appreciation Rights are not available under any of the Company's
plans.

OPTION GRANTS IN FISCAL 2002

INDIVIDUAL GRANTS

- ---------------
(1) The options granted October 16, 2001, become exercisable as follows: 33 1/3%
of the shares on October 16, 2002; 33 1/3% of the shares on October 16,
2003; and 33 1/3% of the shares on October 16, 2004. These options have a
term of ten years.

III-4

(2) The exercise price is the average of the highest and lowest sale prices of
the Company's Class A Common Stock as reported by the New York Stock
Exchange on the date of the grant.

(3) Represents total potential appreciation of approximately 0%, 63% and 159%
for assumed annual rates of appreciation of 0%, 5% and 10%, respectively,
compounded annually for the ten-year option term.

(4) Calculated from the $32.0000 exercise price applicable to the options
granted on October 16, 2001 and based on the 21,176,566 shares of Class A
Common Stock outstanding on October 16, 2001.

(5) Represents potential realizable value for all options granted in fiscal 2002
compared to the increase in market value of Brady Corporation Class A Common
Stock at assumed rates of stock price appreciation.

(6) The Company disavows the ability of any valuation model to predict or
estimate the Company's future stock price or to place a reasonably accurate
present value on these options because any model depends on assumptions
about the stock's future price movement that the Company is unable to
predict.

AGGREGATED OPTION EXERCISES IN FISCAL 2002
AND VALUE OF OPTIONS AT END OF FISCAL 2002

- ---------------

(1) Represents the closing price for the Company's Class A Common Stock on July
31, 2002, of $27.5000 less the exercise price for all outstanding
exercisable and unexercisable options for which the exercise price is less
than such closing price.

III-5

COMMON STOCK PRICE PERFORMANCE GRAPH

The 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,
1997, in each of Brady Corporation Class A Common Stock, the Standard & Poor's
(S&P) 500 Index, the Russell 2000 Index and the New York Stock Exchange (NYSE)
Composite Index.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
BRADY CORPORATION VERSUS PUBLISHED INDICES (S&P 500, RUSSELL 2000 AND NYSE)
FISCAL YEAR ENDING JULY 31,

[LINE GRAPH]

COMPENSATION OF DIRECTORS

Each director who is also an employee of the Company receives no additional
compensation for service on the Board or on any committee of the Board.
Directors who are not also employees of the Company receive an annual retainer
of $20,000 plus $1,500 for each committee they chair and $1,250 plus expenses
for each meeting of the Board or any committee thereof which they attend and are
a member. Directors receive $750 for each meeting they attend of any committee
for which they are not a member.

TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

In January 2001, the Board approved new Change in Control Agreements for
certain of its executive officers including Mrs. Hudson, Messrs. Schroeder,
Hawke, Jaehnert and Oliver. The agreements call for payment of an amount equal
to three times the annual salary and bonus for Mrs. Hudson and two times the
annual salary and bonus for Messrs. Schroeder, Hawke, Jaehnert and Oliver in the
event of termination or resignation upon a change of control. The agreements
also call for reimbursement of any excise taxes imposed and up to $25,000 of
attorney fees to enforce the executive's rights under the agreement. Payments
under the agreements will be spread over three years for Mrs. Hudson and two
years for Messrs. Schroeder, Hawke, Jaehnert and Oliver.

III-6

In fiscal 1994 the Company created a Supplemental Executive Retirement Plan
(SERP) for Mrs. Hudson. The stated amount of the Plan at January 1, 1999, was
$500,000. The Company credited a deferred compensation account with the net
present value of the stated amount in January 1994. The account is credited
annually with the current year's increase in the net present value calculation.
After January 1, 1999, interest accrues quarterly on the balance in the account
at the prime rate in effect at the end of each calendar quarter.

The Company is required to pay Mrs. Hudson the balance in the account over
a ten-year period beginning January 2009. The first payment will be one-tenth of
the balance in the account; the second one-ninth; and so on.

In the event of a change in control of the Company, Mrs. Hudson's SERP may
accelerate and become payable in 30 days.

RESTRICTED STOCK

In August 1997, the Company granted restricted stock awards to certain key
executives. Mrs. Hudson was awarded 50,000 shares of authorized, but unissued,
Class A Common Stock and Messrs. Schroeder and Hawke were awarded 25,000 shares
each of authorized, but unissued Class A Common Stock. The restricted stock
awards granted Mrs. Hudson vested on August 1, 2002. The restricted stock awards
granted Mr. Schroeder and Mr. Hawke vested 75% on August 1, 2002, with the
remaining 25% vesting on August 1, 2003. The executives have the right to
receive any cash dividends payable on these shares.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 2002, the Board's Compensation Committee was composed of
Messrs. Bemis, Jarc and Peirce. Mr. Lettenberger serves as a nonvoting advisor
to the Committee. None of these persons has at any time been an employee of the
Company or any of its subsidiaries. There are no relationships among the
Company's executive officers, members of the Compensation Committee or entities
whose executives serve on the Board that require disclosure under applicable SEC
regulations.

MONEY PURCHASE AND 401(K) PLAN

Substantially all Brady employees in the United States and certain
expatriate employees working for its international subsidiaries are eligible to
participate in the Company's Money Purchase ("Brady Corporation Funded
Retirement Plan") and Employee 401K Plan (the "Brady Corporation Matched 401(k)
Plan"). Under this plan the Company agrees to contribute certain amounts to the
Brady Corporation Matched 401(k) Plan. Under the Funded Retirement Plan, the
Company contributes 4% of the eligible earnings of each person covered by the
Funded Retirement Plan. In addition, participants may elect to have their annual
pay reduced by up to 4% and have the amount of this reduction contributed to the
Brady Corporation Matched 401(k) Plan and matched by an additional, equal
contribution by the Company. Participants may also elect to have up to another
8% of their eligible earnings contributed to the Brady Corporation Matched
401(k) Plan (without an additional matching contribution by the Company). The
assets of the Brady Corporation Matched 401(k) Plan and Brady Corporation Funded
Retirement Plan credited to each participant are invested by the trustee of the
Plans as directed in several investment funds as permitted by the Brady
Corporation Matched 401(k) Plan and Brady Corporation Funded Retirement Plan.
The annual contributions and forfeitures allocated to any participant under all
defined contribution plans may not exceed the lesser of $30,000 or 25% of the
participant's base compensation and bonuses.

Benefits are generally payable upon the death, disability, or retirement of
the participant or upon termination of employment before retirement, although
benefits may also be withdrawn from the Brady Corporation Matched 401(k) Plan
and paid to the participant if required for certain emergencies. Under certain
specified circumstances, the Brady Corporation Matched 401(k) Plan allows loans
to be drawn on a participant's account. The participant is immediately fully
vested with respect to the contributions attributable to reductions in pay; all
other contributions become fully vested over a three-year period of continuous
service

III-7

for the Brady Corporation Matched 401(k) Plan and after five years of continuous
service for the Brady Corporation Funded Retirement Plan.

DEFERRED COMPENSATION ARRANGEMENTS

During fiscal 1998, the Company adopted new deferred compensation plans
whereby directors, executive officers, corporate staff officers and certain key
management employees of the Company are permitted to defer portions of their
fees, salary and bonus into a plan account, the value which is measured by the
Company's Class A Common Stock. Participants in the old deferred compensation
plan were allowed to convert their balances in the old plan to this new plan.
The conversion to the new plan was funded by the issuance of 372,728 shares of
Class A Common Stock to a Rabbi Trust (the "Trust") in November 1997. All
deferrals into the new plan result in purchases of existing Class A Common Stock
by the Trust. No deferrals are allowed into the old plan.

Upon the retirement, disability, or death of a participant, the Company is
required under the new plan to pay, each year for a period of ten years, a
portion of the shares held in the participant's name by the Trust. The first
payment must be one-tenth of the number of shares held; the second one-ninth;
and so on, with the number of shares held in the Trust reduced by each payment.

If the participant's employment ends for reasons other than retirement,
disability or death, the shares held by the Trust in the participant's name will
be distributed over a period of ten years. At the request of the participant and
for special situations at the sole discretion of the Compensation Committee, the
Company may make distributions in larger installments or in a lump sum or other
basis.

In the old deferred compensation plan, directors, executive officers,
corporate staff officers and certain key management employees of the Company
were permitted to defer portions of their fees, salary and bonus into a plan,
the value of which was measured in "phantom stock" of the Company. "Phantom
Stock" is not actual stock or rights to acquire stock in the Company, but it
gives participants the right to share in increases in book value (as defined) of
the common stock. At the end of each fiscal year, the deferred compensation
balance (with interest) is credited to the purchase of phantom common stock at
the then book value of the common stock of the Company, and is thereafter
adjusted to reflect stock dividends and other dividends or distributions on the
Company's Class A Common Stock. No new deferrals are allowed into this old
deferred compensation plan. Upon the retirement, disability, or death of
participant, the Company is required to pay, each year for a period of ten
years, a portion of the book value of the phantom stock determined by the book
value of the corresponding number of common shares as of the end of each fiscal
year. The first payment must be one-tenth of the book value; the second
one-ninth; and so on, with the number of phantom shares reduced by the
equivalent in book value of each payment. At the request of the participant, the
Company may make payments in larger installments or in a lump sum on a
discounted or other basis.

All current directors and executives converted their balances to the new
deferred compensation plan. Certain retired participants elected not to transfer
their balances into the new plan. They were allowed to remain in the old
deferred compensation plan until the end of fiscal 2002. At that point the old
plan terminated and participant's balances earn simple interest at a rate equal
to the yield on a 30-year U.S. Treasury Bond as of July 31 of each year.

During fiscal 2002, the Company adopted new deferred compensation plans
whereby executive officers, corporate staff officers and certain key management
employees of the Company are permitted to defer portions of their fees, 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 Plan are held in a Rabbi Trust
and are invested by the trustee of the Plan as directed by the participant in
several investment funds as permitted by the Plan.

Upon the retirement, disability, or death of participant, the Company is
required under the plan to pay, each year for a period of ten years, a portion
of the balance held in the participant's name by the Trust. The first payment
must be one-tenth of the balance held; the second one-ninth; and so on, with the
balance held in the Trust reduced by each payment.

III-8

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Company's Compensation Committee (the "Committee") is composed entirely
of outside directors and is responsible for considering and approving
compensation arrangements for senior management of the Company, including the
Company's executive officers and the chief executive officer. It is the
philosophy of the Committee to establish a total executive compensation program,
which is competitive with a broad range of companies that it considers to be of
comparable size and complexity.

The primary components of the Company's executive compensation program are
(i) base salary, (ii) annual shareholder value enhancement plan cash bonuses and
(iii) long term incentive compensation in the form of stock options and/or
restricted stock. These are designed to align shareholder and management
interests, to balance the achievement of annual performance targets with actions
that focus on the long-term success of the Company, and to attract, motivate and
retain key executives who are important to the continued success of the Company.
Decisions made by the Committee relating to the base salary compensation and the
annual cash incentive compensation plan are reviewed and approved by the full
Board of Directors.

The Committee believes that:

- The Company's pay levels are appropriately targeted to attract and retain
key executives;

- The Company's incentive plan provides strong incentives for management to
increase shareholder value; and

- The Company's total executive compensation program is a cost-effective
strategy to increase shareholder value.

BASE SALARY

Consistent with the Committee's philosophy, base salaries are generally
maintained at or modestly above competitive base salary levels. Competitive
salary level is defined as the median base salary for similar responsibilities
in a group of companies selected by the Committee that the Committee considers
to be of comparable size and complexity. In setting base salaries for fiscal
2002, the Committee reviewed compensation survey data and was satisfied that the
base salary levels set would achieve the Company's objectives. Specific
increases reflect the Committee's subjective evaluation of individual
performance.

ANNUAL BONUS PLAN

The shareholder value enhancement plan (the "Bonus Plan") provides for the
annual payment of cash bonuses. When viewed together with the Company's base
salary, the purpose of the Bonus Plan is to provide a balance between fixed
compensation and variable, results-oriented compensation. The Bonus Plan is 80%
objective. It stresses maximization of Company profitability, revenue growth and
return on invested capital.

STOCK OPTIONS

In October 2001, the Company approved the Brady Corporation 2001 Omnibus
Incentive Stock Plan under which 500,000 shares of Class A Common Stock are
available for grant. In May 1997, the Company approved the Brady Corporation
1997 Omnibus Incentive Stock Plan and the Brady Corporation 1997 Nonqualified
Stock Option Plan for Non-Employee Directors (the "Option Plans") under which
2,000,000 shares and 125,000 shares, respectively, of Class A Common Stock are
available for grant. In 1989 the Board approved the Brady Corporation 1989
Non-Qualified Stock Option Plan (the "Option Plan") under which 1,500,000 shares
of Class A Common Stock were available for grant. The Option Plans assist
directors, executive officers, corporate staff officers and key management
employees in becoming shareholders with an important stake in the Company's
future, aligning their personal financial interest with that of all
shareholders. Stock options are typically granted annually and have a term of
ten years. Generally, the options become one-third exercisable one year after
the date of the grant and one-third additional in each of the succeeding two
years so that at the end of three years after the date of the grant they are
fully exercisable. All grants under the Option Plans are at market price on the
date of the grant.

III-9

COMPLIANCE WITH TAX REGULATIONS REGARDING EXECUTIVE COMPENSATION

Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget
Reconciliation Act of 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and the other named executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The Company's executive compensation program, as
currently constructed, is not likely to generate nondeductible compensation in
excess of these limits. The Compensation Committee will continue to review these
tax regulations as they apply to the Company's executive compensation program.
It is the Compensation Committee's intent to preserve the deductibility of
executive compensation to the extent reasonably practicable and to the extent
consistent with its other compensation objectives.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

Mrs. Hudson received $536,626 in base salary in fiscal 2002, an increase of
7.9% from the prior year's base salary. She was paid a bonus attributable to
fiscal 2002 of $100,000, an increase of $100,000, from fiscal 2001, when no
bonus was paid. The bonus was determined in accordance with the Company's
objective Bonus Plan, discussed above. Mrs. Hudson's compensation reflects:

(i) continued strong operating cash flow and the Company's relative
performance to its peers with respect to stock price performance, sales and
profits, given current economic conditions;

(ii) the successful acquisitions of Temtec, Inc., Safety Signs Service
and Strandware, Inc. this year and the integration of last year's
acquisitions of Balkhausen GmbH and Eset, GmbH;

(iii) continued improvement in asset utilization (an increase in
working capital of 12.9%);

(iv) continued efforts to focus the Company's resources on sustainable
value-enhancing long-term growth; and

(v) continued improvement in intercompany teamwork.

During fiscal 2002, Mrs. Hudson was awarded options to purchase 35,000
shares of Class A Common Stock.

The Committee believes these awards are consistent with the objectives of
the various plans and with the overall compensation policy of the Board of
Directors.

******************************

The Compensation Committee believes the executive compensation programs and
practices described above are competitive. They are designed to provide
increased compensation with improved financial performance and to provide
additional opportunity for capital accumulation.

Roger D. Peirce, Chairman
Richard A. Bemis
Frank R. Jarc

III-10

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth the current beneficial ownership of
shareholders who are known by the Company to own five percent (5%) of any class
of the Company's voting shares on September 11, 2002.

- ---------------

(1) The trustees of both trusts are Richard A. Bemis, Robert C. Buchanan, Peter
J. Lettenberger, Roger D. Peirce and Gary E. Nei, each of whom shares voting
and dispositive power.

(2) An additional 10 shares are owned by a third trust with the same trustees.

III-11

(B) SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the current beneficial ownership of each
class of equity securities of the Company by each Director or Nominee and by all
Directors and Officers of the Company as a group as of September 11, 2002.
Unless otherwise noted, the address for each of the listed persons is c/o Brady
Corporation, 6555 West Good Hope Road, Milwaukee, Wisconsin 53223. Except as
otherwise indicated, all shares are owned directly.

- ---------------

* Indicates less than one-tenth of one percent.

(1) The amount shown includes shares held directly by the William H. Brady, Jr.
Trust f/b/o Elizabeth B. Lurie (the "William H. Brady, Jr. Trust"), the
William H. Brady III Revocable Trust 2001 (the "Revocable Trust") and the
William H. Brady, Jr. Family Trust (the "Family Trust") (collectively, the
"Trusts"). The William H. Brady, Jr. Trust owns 1,160,128 shares of Class A
Common Stock and 884,652 shares of Class B Common Stock. The Revocable Trust
owns 1,260,128 shares of Class A Common Stock and 884,652 shares of Class B
Common Stock. The Family Trust owns 10 shares of Class B Common Stock. The
Trustees of the Trusts are Richard A. Bemis, Robert C. Buchanan, Peter J.
Lettenberger, Gary E. Nei and Roger D. Peirce, each of whom shares voting
and dispositive power.

(2) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Bemis owns 9,000 shares of Class A Common Stock directly and holds vested
options to acquire an additional 7,500 shares of Class A Common Stock.

(3) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Lettenberger owns directly 3,986 shares of Class A Common Stock and holds
vested options to acquire an additional 7,500 shares of Class A Common
Stock.

III-12

(4) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Peirce owns 1,500 shares of Class A Common Stock directly, 1,500 shares
through his Keogh plan and holds vested options to acquire an additional
7,500 shares of Class A Common Stock.

(5) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Buchanan owns 600 shares of Class A Common Stock directly, 1,500 additional
shares through his Keogh plan and holds vested options to acquire an
additional 7,500 shares of Class A Common Stock.

(6) In addition to shares beneficially owned as a trustee of the Trusts, Mr. Nei
owns 2,000 shares of Class A Common Stock directly and holds vested options
to acquire an additional 7,500 shares of Class A Common Stock.

(7) Mrs. Hudson owns 55,851 shares of Class A Common Stock directly and holds
vested options to acquire an additional 496,000 shares of Class A Common
Stock.

(8) The amount shown for all officers and directors as a group (16 persons)
includes options to acquire a total of 1,073,816 shares of Class A Common
Stock, which are currently exercisable or will be exercisable within 60 days
of September 11, 2002. It does not include other options for Class A Common
Stock, which have been granted at later dates.

(9) In addition to the shares shown in this table, the officers and directors as
a group owned the equivalent of 328,074 shares of the Company's Class A
Common Stock in its deferred compensation plans, including 96,074 for Mrs.
Hudson, 8,802 for Mr. Jaehnert, 35,986 for Mr. Hawke, 28,852 for Mr.
Schroeder, and 5,085 for Mr. Oliver.

(C) CHANGES IN CONTROL

No 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

The Company's Nonqualified Stock Option Plans allow the granting of stock
options to various officers, directors and other employees of the Company at
prices equal to fair market value at the date of grant. The Company has reserved
1,500,000, 2,125,000 and 500,000 shares of Class A Nonvoting Common Stock for
issuance under the 1989, 1997 and 2001 Plans, respectively. Options granted
prior to 1992 become exercisable once the employees have been continuously
employed for six months after the grant date. Generally, options granted in 1992
and thereafter will not be exercisable until one year after the date of grant,
and will be exercisable thereafter, to the extent of one-third per year and have
a maximum term of ten years.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Peter J. Lettenberger serves as a Director of the Company; he is also a
partner of Quarles & Brady LLP, general counsel to the Company. Mr. Conrad G.
Goodkind serves as Secretary to the Company; he is also a partner of Quarles &
Brady, general counsel to the Company.

III-13

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1) The selected financial data and stock price disclosure presented on
Pages 8 through 10 of the Company's 2002 Annual Report are
incorporated herein by reference.

2)Consolidated Financial Statement Schedule --

Schedule II Valuation and Qualifying Accounts

Independent Auditors' Report on Financial Statement Schedule

All other schedules are omitted as they are not required, or the
required information is shown in the consolidated financial
statements or notes thereto.

3) Exhibits -- See Exhibit Index at page IV-2 of this Form 10-K.

(b) Reports on Form 8-K.

No report on form 8-K was filed by the Company during the fourth quarter
of fiscal 2002.

IV-1

EXHIBIT INDEX

- ---------------
* 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 for
the fiscal year ended July 31, 1989

IV-2

(3) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 31, 1989

(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 Annual Report on Form 10-K for
the fiscal year ended July 31, 1994

(6) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1995

(7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 1997

(8) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1997

(9) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 2000

(10) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 2001

(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 31, 2002

(12) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 2002

IV-3

BRADY CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

IV-4

SIGNATURES

Pursuant 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
its behalf by the undersigned, thereunto duly authorized this twenty-third day
of October 2002.

BRADY CORPORATION

By /s/ D. W. SCHROEDER
------------------------------------
D. W. Schroeder
Senior Vice President & Chief
Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

/s/ K. M. HUDSON President and Director October 23, 2002
- ------------------------------------------ (Principal Executive Officer)
K. M. Hudson

/s/ P. J. LETTENBERGER Director October 23, 2002
- ------------------------------------------
P. J. Lettenberger

/s/ R. A. BEMIS Director October 23, 2002
- ------------------------------------------
R. A. Bemis

/s/ F. W. HARRIS Director October 23, 2002
- ------------------------------------------
F. W. Harris

/s/ R. C. BUCHANAN Director October 23, 2002
- ------------------------------------------
R. C. Buchanan

/s/ R. D. PEIRCE Director October 23, 2002
- ------------------------------------------
R. D. Peirce

/s/ G. E. NEI Director October 23, 2002
- ------------------------------------------
G. E. Nei

/s/ M. K. BUSH Director October 23, 2002
- ------------------------------------------
M. K. Bush

/s/ F. R. JARC Director October 23, 2002
- ------------------------------------------
F. R. Jarc

IV-5

CERTIFICATIONS

I, Katherine M. Hudson, certify that:

1. I have reviewed this annual report on Form 10-K of Brady
Corporation;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

Date: October 23, 2002

/s/ KATHERINE M. HUDSON
- ---------------------------------------------------------
Katherine M. Hudson
President and Chief Executive Officer

I, David W. Schroeder, certify that:

1. I have reviewed this annual report on Form 10-K of Brady
Corporation;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

Date: October 23, 2002

/s/ DAVID W. SCHROEDER
- ---------------------------------------------------------
David W. Schroeder
Senior Vice President and Chief Financial Officer

IV-6