BRADY CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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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, 2003
COMMISSION FILE NUMBER 1-14959

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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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the non-voting common stock held by
non-affiliates of the entity as of January 31, 2003 was approximately
$471,233,549, (based on closing sale price of $26.56 per share on that date as
reported for the New York Stock Exchange). As of September 15, 2003, there were
outstanding 21,636,682 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 2003 ANNUAL REPORT TO SHAREHOLDERS, INCORPORATED INTO PART II
& IV
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INDEX

2

PART I

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

ITEM 1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

The Company, a Wisconsin corporation founded in 1914, currently operates 28
manufacturing facilities worldwide. Nine are located in the United States, three
each in Australia, Brazil and China, two each in France and Germany and one each
in Belgium, Canada, England, Italy, Malaysia 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 is an international manufacturer and marketer of identification
solutions and specialty materials which help customers increase safety,
security, productivity and performance. Its products include high-performance
labels and signs, printing systems and software, label-application and
data-collection systems, safety devices and precision die-cut materials. Founded
in 1914, the Company serves more than 300,000 customers in electronics,
telecommunications, manufacturing, electrical, construction, education and a
variety of other industries. Brady's reputation for innovation, commitment to
quality and service, and dedicated employees have made it a world leader in its
markets.

Brady's major product categories include: 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 2003 consisted of more than 300,000 companies, with the
largest customer representing just over 5% of net sales. Sales from
international operations represented 52.3%, 48.5% and 44.0% of sales in fiscal
2003, 2002, and 2001, 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 and profitability. This incentive plan serves to

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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.

KEY INITIATIVES

The Company's key initiatives include:

Customer-driven growth. 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, combining its current sales
force and pursuing additional channels and expanding its geographic reach. Sales
from Brady's international operations have increased from $50,707,000 or 26.5%
of net sales in fiscal 1990 to $290,068,000 or 52.3% of net sales in fiscal
2003. 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.

Proprietary products. The Company, through strong product innovation and
development activities, seeks to continually 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.

Acquisitions. 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.

Process improvement. Process improvement will also support the Company as
it grows. Brady has been working over the last four 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, 2003, approximately 70% of Brady's
global operations were operating on this system, as measured by sales volume.

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Leadership. The Company highlights leadership as an important initiative
to its values and growth strategy. Its leadership principles include: customer
focus, high-performance expectations, boldness, decisiveness and accountability.

PRODUCTS

The Company's products consist of over 50,000 stock as well as custom items
and 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; and
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 are manufactured out of a
variety of films, predominantly coated by Brady, for applications in the
following markets: electronic, industrial, electrical, laboratory and security.

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, fixed station terminals, high-speed
printers and associated customized consumable products allow its customers, in a
wide variety of markets, to 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.

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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 that 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 systems.

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.

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.

I-4

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 currently
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 2003. 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 2003, 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 the Company's
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. 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.

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.

I-5

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 customer's
order on 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 $18,900,000,
$17,300,000, and $20,300,000 in fiscal 2003, 2002, and 2001, respectively, on
its research and development activities. In fiscal 2003, 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.

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.

I-6

INTERNATIONAL OPERATIONS

In fiscal 2003, 2002, and 2001, sales from international operations
accounted for 52.3%, 48.5% and 44.0%, respectively, of the Company's sales. The
Company's global infrastructure includes subsidiaries in Australia, Belgium,
Brazil, Canada, China, England, France, Germany, Hungary, Italy, Japan,
Malaysia, Mexico, Singapore, and Sweden and sales offices in Hong Kong, Korea,
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, China, England, Germany and
Malaysia 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 producers 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, 2003, the amount of the Company's backlog orders believed to
be firm was approximately $16,300,000. This compares with approximately
$22,300,000 and $22,100,000 of backlog orders as of July 31, 2002 and 2001,
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. 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, 2003, the Company employed approximately 3,300 individuals.
The Company has never experienced a material work stoppage due to a labor
dispute, is not a party to any negotiated labor contracts, 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.

(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.

I-7

(E) INFORMATION AVAILABLE ON THE INTERNET

The Company's Internet address is http://www.bradycorp.com. The Company
makes available, and has made available since June 2003, free of charge, on or
through its Internet website copies of its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 reports filed by
the Company's insiders, and amendments to all such reports as soon as reasonably
practicable after such reports are electronically filed with or furnished to the
SEC.

ITEM 2. PROPERTIES

The Company currently operates 28 manufacturing facilities. Nine are
located in the United States, three each in Australia, Brazil and China, two
each in France and Germany and one each in Belgium, Canada, England, Italy,
Malaysia and Singapore. The Company's present operating facilities contain a
total of approximately 1,545,000 square feet of space, of which approximately
709,000 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

On July 22, 2003, by written consent, the affirmative vote of 100% of the
1,769,314 shares of Class B Common Voting Stock approved the Brady Corporation
2003 Omnibus Incentive Stock Plan.

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 10 of the Brady Corporation 2003 Annual Report to Shareholders.

(b) Holders

The number of holders of record of the Company's Class A and Class B Common
Stock as of September 5, 2003, was 332 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 $.0333 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, 2003, the required consolidated
net worth was approximately $264,000,000 and the Company's actual consolidated
net worth was approximately $339,000,000.

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
8 and 9 of the Brady Corporation 2003 Annual Report to Shareholders.

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

OVERVIEW

In fiscal 2003, a difficult economic environment and shifting global
marketplace continued to challenge the Company. Nonetheless, the Company had
modest sales gains. However, reported net income dropped primarily due to
charges for restructuring the organization in response to a prolonged weak
economy and changes in the Company's global markets.

With no sign of a material economic rebound, getting the Company's cost
structure back in line became a top priority. The Company continued with its
long-term strategic initiatives and began to take significant steps to transform
the way it operates in order to return to higher levels of sales, long-term
profitability and growth. With a renewed focus on its customers, the Company
took action to simplify and streamline its organization.

II-1

Management believes this transformation is essential to ensure Brady's future
competitiveness and build shareholder value.

Sales for fiscal 2003 were $554.9 million, up 7.3 percent from fiscal 2002
sales of $517.0 million. The impact of foreign-currency translations was a
positive 5.1 percent. Sales from core businesses were down 0.7 percent, while
acquisitions contributed 2.9 percent to annual sales. Sales in the Graphics and
Workplace Solutions Group increased 10.2 percent, while the Identification
Solutions and Specialty Tapes Group sales increased 3.6 percent. Regionally,
sales in the U.S. declined slightly, while Europe showed modest improvement in
local currencies. Asian and Latin American sales experienced more significant
growth despite economic weakness in those regions.

As net income remained weak throughout the year, the Company initiated a
major restructuring of its global operations that includes the consolidation of
certain facilities in the U.S. and abroad, and a workforce reduction of
approximately 10 percent. This was not a downsizing in the traditional sense due
solely to a slowdown in work activities, but rather part of a comprehensive
re-design of the Company's operations intended to increase efficiency and
productivity in both the short and long term. After-tax net charges of $6.3
million were recorded in the fourth quarter, bringing the Company's reported net
income for fiscal 2003 to $21.4 million or $0.91 per diluted Class A Common
Share, compared with reported net income of $28.3 million or $1.20 per share in
fiscal 2002. As the Company's reorganization continues into fiscal 2004, Brady
expects to incur an additional $2 to $3 million in pre-tax restructuring
charges, and realize total after-tax savings of $7 to $9 million annually.

Despite the challenges of fiscal 2003, Brady remains a strong and vital
company. The Company finished the year with more than $76 million in cash and
little debt on its balance sheet, and increased its dividend payments to
investors for the 18th straight year.

YEAR ENDED JULY 31, 2003, COMPARED TO YEAR ENDED JULY 31, 2002

Sales for fiscal 2003 increased by $37,904,000 or 7.3% from fiscal 2002.
Sales of the Company's international operations increased 16.2% in U.S. dollars.
The acquisitions of Safety Signs Service in November 2001, Cleere Advantage in
February 2003 and Etimark GmbH in April 2003 increased international sales by
2.3% in fiscal 2003. International base business increased by 3.3% in local
currencies. These increases were aided by changes in the exchange rates used to
translate financial results into U.S. currency, which increased international
sales by 10.6%. Sales of the Company's U.S. operations decreased 1.0%, with a
base business decline of 4.4%, partially offset by the acquisitions of
Strandware, Inc. in November 2001, Temtec, Inc in April 2002 and TISCOR, Inc. in
January 2003. In total, acquisitions added 3.4% to sales.

The cost of products sold as a percentage of sales decreased from 49.6% to
49.5% in fiscal 2003. The decrease was due to the net effect of higher initial
production costs of the Company's Globalmark and Visimate products and the
temporary disruption of customer service levels in our North American Direct
Marketing operations as the Company implemented a new business system during the
year. These factors were more than offset by higher relative growth within the
higher margin Graphics and Workplace Solutions Group and savings from
restructuring activities performed in fiscal 2002 and 2003.

Research and development investment as a percentage of sales was 3.4%, up
from 3.3% in fiscal 2002.

Selling, general and administrative expenses as a percentage of sales
increased to 39.6% in fiscal 2003 from 38.5%. The increase was due to higher
administrative expenses from recent acquisitions, higher expenses associated
with a system implementation in the Company's direct marketing operations in
North America, additional spending in European direct marketing businesses and
general cost increases, including pay and benefit cost increases, offset by cost
reductions from restructuring activities.

Fiscal 2003 expenses included a net restructuring charge of $9,589,000,
which included a $10,215,000 charge relating primarily to consolidation of sales
and marketing resources in North America and Europe, consolidating operating
facilities in the United States and Europe, and a workforce reduction. The
$10,215,000 charge was offset by a $626,000 adjustment to the fiscal 2002 and
2001 restructuring accruals related to favorable settlement of leases upon
termination. Through attrition and position eliminations, the fiscal 2003
II-2

and 2004 restructuring actions will result in a workforce reduction of
approximately 10 percent. The Company expects to incur pre-tax restructuring
charges in fiscal 2004 of $2 to $3 million. Total annual pre-tax savings from
these activities are expected to approximate $10 to $13 million.

Fiscal 2002 expenses included a net restructuring charge of $2,720,000,
consisting of 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.

Operating income decreased $9,354,000 to $32,149,000 in fiscal 2003. The
majority of the decrease was due to an increase in net charges associated with
restructuring activities from fiscal 2002 to fiscal 2003 of $6,869,000. The
remaining decrease was a result of higher selling, general and administrative
expenses as discussed above.

Investment and other income decreased $1,287,000 from the prior year
primarily due to the net effect of foreign exchange rates, primarily on
intercompany transactions.

Income before income taxes was $32,455,000, a decrease of 24.8% from fiscal
2002. The higher expenses associated with restructuring activities in fiscal
2003 versus fiscal 2002 accounted for 15.9% of the decrease.

The Company's effective tax rate decreased from 34.5% for fiscal 2002 to
34.0% for fiscal 2003.

Net income was $21,420,000 for fiscal 2003, compared to $28,253,000 for
fiscal 2002. Net income included after-tax net restructuring charges of
$6,329,000 in fiscal 2003 and a $1,782,000 charge in fiscal 2002.

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.

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

Selling, general and administrative expenses as a percentage of sales
decreased to 38.5% in fiscal 2002, from 39.2% in fiscal 2001. Fiscal 2001
expenses included goodwill amortization of $6,119,000, which ceased on August 1,
2001. The remaining decrease of $8,819,000 was due primarily to fixed
administrative expenses spread over a lower sales base.

Fiscal 2002 expenses included a net restructuring charge of $2,720,000
which consisted of 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 restructuring charge of
$9,560,000, primarily related to facilities consolidation and a workforce
reduction of approximately 5 percent.

Operating income decreased $3,019,000 to $41,503,000 in fiscal 2002. Lower
expenses from restructuring and goodwill amortization when compared to fiscal
2001 were more than offset by reduced gross margin from lower sales volume,
resulting in the reduction in operating income.

II-3

Investment and other income increased $1,028,000 from the prior year
primarily due to the net effect of foreign exchange rates, 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, due to the factors cited above.

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 was 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. Net income included after-tax net restructuring charges of
$1,782,000 in fiscal 2002 and $5,879,000 in fiscal 2001 and goodwill
amortization in fiscal 2001 of $5,939,000 after-tax, which ceased on August 1,
2001.

BUSINESS SEGMENT OPERATING RESULTS

IDENTIFICATION SOLUTIONS & SPECIALTY TAPES (ISST) GROUP

ISST sales increased 3.6% in fiscal 2003 from fiscal 2002, following a
decrease of 12.9% in fiscal 2002 versus 2001. Base-business sales in fiscal 2003
were down 2.6% from fiscal 2002. The base business decline within the group was
most significant in North America, where a weak manufacturing economy impacted
our industrial base of customers. This was more than offset by the impact of
foreign currency translation, which added 4.1% to the group's sales and the
acquisitions of Strandware, Inc. in November 2001 and Etimark GmbH in April
2003, which added 2.1% to the group's sales.

Segment profit as a percentage of sales remained constant at 13.5% in both
2003 and 2002. Comparing fiscal 2002 to 2001, segment profit as a percentage of
sales decreased from 19.7% to 13.5% as a result of sales decline and unabsorbed
cost increases.

GRAPHICS & WORKPLACE SOLUTIONS GROUP

Graphics & Workplace Solutions' sales increased 10.2% in fiscal 2003 from
fiscal 2002. Foreign currency translation increased the group's sales by 5.9%
from fiscal 2002 to 2003. The acquisitions of Safety Signs Service in November
2001, Temtec, Inc. in April 2002, TISCOR, Inc. in January 2003 and Cleere
Advantage in February 2003 added 3.4% to the group's sales. Base business
increased 0.9% in fiscal 2003. 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
compared to fiscal 2001.

Segment profit as a percentage of sales in the group declined to 22.7% in
fiscal 2003 from 24.8% in fiscal 2002 due to higher costs and depressed sales in
our North American direct marketing operations as a result of a temporary
disruption of customer service levels related to a business system
implementation mid-way through fiscal 2003. 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.

LIQUIDITY

The Company's liquidity remains strong. Cash and cash equivalents were
$76,088,000 at July 31, 2003, compared to $75,969,000 at July 31, 2002 and
$62,811,000 at July 31, 2001. Working capital decreased $11,886,000 during
fiscal 2003 to $123,878,000 at July 31, 2003. Accounts receivable balances
increased $3,916,000 from July 31, 2002 to July 31, 2003. These increases were
due to foreign currency translation and accounts receivable balances added from
acquisitions completed during the fiscal year partially offset by a decrease
attributable to better management of receivables. Inventory remained essentially
flat from July 31, 2002 to July 31, 2003 as reduced unit volume offset increases
from foreign currency translation and acquisitions. Current liabilities
increased $17,017,000 due to the timing of income tax payments, increased
operating liabilities associated with acquisitions completed during fiscal 2003
and a larger accrual for restructuring charges at July 31, 2003 when compared to
July 31, 2002.
II-4

The Company has maintained significant cash balances due in large part to
its strong operating cash flow, which totaled $55,249,000 for fiscal 2003,
$54,251,000 for fiscal 2002 and $53,228,000 for fiscal 2001.

Capital expenditures were $14,438,000 in fiscal 2003, $13,095,000 in fiscal
2002 and $20,770,000 in fiscal 2001. Fiscal 2003's capital expenditures included
further investment in software related to our Eclipse initiative, plant
additions/expansions in Asia and tooling for additional new products. Fiscal
2002's capital expenditures included tooling for two new products, continued
investment in software related to our Eclipse 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.

Financing activities required $16,833,000 in fiscal 2003, $13,385,000 in
fiscal 2002 and $22,676,000 in fiscal 2001. Cash used for dividends to
shareholders was $17,936,000 in fiscal 2003, $17,358,000 in fiscal 2002 and
$16,229,000 in fiscal 2001. The Company also redeemed all of the outstanding
preferred stock during fiscal 2003 for $3,026,000, including a required $171,000
premium paid for the redemption.

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. On April 18, 2003, the multicurrency revolving loan was amended at the
Company's request, decreasing the amount available to $100,000,000. Under the
agreement, the Company has the option 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, 2003, approximately
$58,000,000 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, 2003, the required consolidated
net worth was approximately $264,000,000 and the Company's actual consolidated
net worth was approximately $339,000,000. There were no borrowings under this
line of credit during the years ended July 31, 2003 and 2002.

Long-term obligations as a percentage of long-term obligations plus
stockholders' investment were 0.2% at July 31, 2003 and 1.1% at July 31, 2002.
In November 2002, the Company successfully exited a capital lease of a domestic
facility. This capital lease represented approximately $3 million of the
long-term debt balance at July 31, 2002.

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

The Company believes that its strong liquidity and continued strong cash
flows will enable it to execute its long-term strategic plan. This strategic
plan includes investments, which expand our current market share, open new
markets and geographies, develop new products and distribution channels and
continue to improve our processes. This strategic plan also includes executing
key acquisitions. Even in uncertain economic times, the Company's strong
liquidity allows it to continue with investments for the Company's future.
Should the Company remain in an unleveraged position during expansionary times,
the Company may experience a less rapid rate of growth compared to some of its
competitors.

OFF-BALANCE SHEET ARRANGEMENTS

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.

II-5

Operating Leases -- These leases generally are entered into only for
non-strategic investments (e.g., warehouses, office buildings, computer
equipment) for which 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. 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 will 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 affect the results of operations, cash flow or financial
condition.

PAYMENTS DUE UNDER CONTRACTUAL OBLIGATIONS

The Company's future commitments at July 31, 2003 for long-term debt 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.

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenue when title and risk of loss have
transferred, there is evidence of an arrangement and collection of the sales
proceeds is reasonably assured, all of which generally occur 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 restructuring activities in fiscal
2003, 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.

II-6

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.

GOODWILL AND INTANGIBLE ASSETS

The allocation of purchase price for business combinations requires
management estimates and judgment as to expectations for future cash flows of
the acquired business and allocation of those cash flows to identifiable
intangible assets in determining the estimated fair value for purchase price
allocation purposes. If the actual results differ from the estimates and
judgments used in these estimates, 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 of finite lived
intangible assets. In addition, SFAS No. 142, "Goodwill and Other Intangible
Assets," requires that goodwill and other indefinite lived intangible assets 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.

RESERVES AND ALLOWANCES

The Company has recorded reserves or allowances for inventory obsolescence,
credit memos, allowance for doubtful accounts, incurred but not reported medical
claims, compensated absences, incentive compensation and income tax
contingencies. These reserves require the use of estimates and judgment. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. The
Company believes that such estimates are made with consistent and appropriate
methods. Actual results may differ from these estimates under different
assumptions or conditions.

NEW ACCOUNTING STANDARDS

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure." This pronouncement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123, "Accounting for Stock-based Compensation," to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. This pronouncement did not have
an effect on the Company's financial results. The Company adopted the disclosure
provisions of SFAS No. 148 during fiscal 2003.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
pronouncement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some

II-7

circumstances). Many of those instruments were previously classified as equity.
This Statement is effective for financial instruments entered into or modified
after May 31, 2003. This pronouncement does not impact the accounting of any of
the Company's financial instruments existing at July 31, 2003.

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 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.

II-8

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
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 computer viruses,
availability of electricity, natural gas and other sources of power, 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 contracts or customers; the ability and willingness of
purchasers to substitute other products for the products that

II-9

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, 2003, the Company has not
entered into any interest rate derivatives.

II-10

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BRADY CORPORATION

INDEX TO FINANCIAL STATEMENTS

II-11

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Brady Corporation:
Milwaukee, Wisconsin

We have audited the accompanying consolidated balance sheets of Brady
Corporation and subsidiaries (the "Company") as of July 31, 2003 and 2002, and
the related consolidated statements of income, stockholders' investment and cash
flows for each of the three years in the period ended July 31, 2003. Our audits
also included the financial statement schedule listed in 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 and financial statement schedule 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 Company at July 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years in the period ended July 31, 2003 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.

As discussed in Note 1 to the consolidated financial statements, the
Company ceased its amortization of goodwill as of August 1, 2001 in accordance
with Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets."

/s/ DELOITTE & TOUCHE LLP
September 8, 2003
Milwaukee, Wisconsin

II-12

BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JULY 31, 2003 AND 2002

See notes to consolidated financial statements.
II-13

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JULY 31, 2003, 2002 AND 2001

See notes to consolidated financial statements.
II-14

BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
YEARS ENDED JULY 31, 2003, 2002 AND 2001

See notes to consolidated financial statements.
II-15

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2003, 2002 AND 2001

See notes to consolidated financial statements.
II-16

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2003, 2002 AND 2001

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 36% and 39% of total inventories at July 31, 2003 and
2002, respectively) and the first-in, first-out ("FIFO") method for other
inventories. The carrying value of domestic inventories stated at FIFO cost
exceeded the value of such inventories stated at LIFO cost by $7,494,000 and
$5,874,000 at July 31, 2003 and 2002, respectively.

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 years ended July 31,
2003 and 2002, are as follows:

Goodwill increased by $22,614,000 during the year ended July 31, 2003,
including an increase of $4,986,000 attributable to the effects of foreign
currency translation and other. The acquisitions of TISCOR

II-17

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inc., Cleere Advantage Ltd., Etimark GmbH and Aztech Systems resulted in
$8,191,000, $2,169,000, $4,132,000 and $580,000 of additional goodwill,
respectively. An additional payment of $2,000,000 related to the fiscal 2002
Temtec, Inc. acquisition was earned and paid during the period, resulting in
additional goodwill of $2,000,000. Lastly, a holdback payment and a purchase
accounting adjustment related to the fiscal 2002 acquisitions of Strandware,
Inc. and Temtec, Inc., respectively, resulted in additional goodwill of
$556,000.

Goodwill increased by $12,012,000 during the year ended July 31, 2002,
including an increase of $3,141,000 attributable to the effects of foreign
currency translation and other. The acquisitions of Temtec, Inc., Strandware,
Inc. and Safety Signs Systems resulted in $5,397,000, $2,041,000 and $1,433,000
of additional goodwill, respectively.

Other long-term assets include patents, trademarks, non-compete agreements
and other intangibles with finite lives being amortized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." The net book value of these assets was as follows:

The amounts related to customer relationships and software were acquired
with the TISCOR, Inc. and Cleere Advantage Ltd. acquisitions during the year
ended July 31, 2003. The purchase accounting related to the Etimark GmbH and
Aztech Systems acquisitions is subject to change based on completion of final
valuations of the assets purchased.

Amortization expense related to intangible assets for 2003 and 2002 was
$1,539,000 and $385,000, respectively. The amortization over each of the next
five fiscal years will be $1,505,000, $1,385,000, $1,167,000, $1,062,000 and
$723,000 for 2004, 2005, 2006, 2007 and 2008, respectively.

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.

Impairment of Goodwill -- As of August 1, 2001, the Company adopted SFAS
No. 142 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 an annual basis.

The Company performed the transitional assessment of goodwill on August 1,
2001 and the annual assessments on May 1, 2002 and 2003. 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, 2003.

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:

Catalog Costs -- Catalog costs are initially capitalized and amortized over
the estimated useful lives of the publications (generally eight months). At July
31, 2003 and 2002, $8,507,000 and $8,211,000 respectively, of prepaid catalog
costs were included in prepaid expenses and other current assets.

Revenue Recognition -- The Company recognizes revenue when title and risk
of loss have transferred, there is evidence of an arrangement and collection of
the sales proceeds is reasonably assured, all of which generally occur 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.

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.

Stock Based Compensation -- The Company accounts for its stock based
compensation plans using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".

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.

II-19

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes -- The Company accounts for income taxes in accordance with
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.

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 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, 2003 and 2002 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.

No cash flow hedges were discontinued during the year ended July 31, 2003.

New Accounting Standards -- In June 2002, the Financial Accounting
Standards Board ("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 recorded a restructuring charge in fiscal 2003 in
accordance with the guidance of SFAS No. 146.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure." This pronouncement provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
This pronouncement did not have an effect on the Company's financial results.
The Company adopted the disclosure requirements of SFAS No. 148 during fiscal
2003.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
pronouncement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It

II-20

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003. This pronouncement does
not impact the accounting of any of the Company's financial instruments existing
at July 31, 2003.

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

2. ACQUISITIONS OF BUSINESSES

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 in calendar years 2002 and 2003, $2,000,000 of which was paid
during fiscal 2003. 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.

In January 2003, the Company acquired TISCOR, Inc., located in Poway,
California, an innovator in mobile workforce automation solutions, and an
industry leader in designing hand-held-computer software for technicians
performing site and equipment inspections. The purchase price was approximately
$13,500,000 in cash. The agreement includes provisions for contingent payments
up to a maximum of $3,000,000 based on the earnings of the acquired entity in
calendar years 2003 and 2004. The results of its operations have been included
since the respective date of acquisition in the accompanying condensed
consolidated financial statements. The allocation of the purchase price resulted
in the allocation to intangible assets as follows: $8,191,000 to goodwill,
$2,900,000 to customer relationships and $2,100,000 to software.

In February 2003, the Company acquired Cleere Advantage Ltd., a small
printing system distributor, located in the United Kingdom. In April 2003, the
Company acquired Etimark GmbH, located in Bad Nauheim, Germany, a leading
provider of complete barcode solutions including labels, printers, applicators
and software for the German Market. In July 2003, the Company acquired Aztech
Systems, an industrial labeling and signmaking system distributor, located in
Yorkshire, England. The combined purchase price for these acquisitions was
approximately $8,100,000 in cash. Preliminary allocations of the purchase price
for these acquisitions have been made based on the carrying values recorded by
the acquired entities. The purchase price allocations are preliminary and
pending the outcome of a valuation of some of the acquired entities, which are
in progress. Approximately $6,881,000 was assigned to goodwill in the
preliminary allocation of the purchase price.

In September 2003, the Company acquired Brandon International,
headquartered in Baldwin Park, California, a manufacturer of die-cut products,
for approximately $11 million in cash and notes payable.

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 consolidated

II-21

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial statements. The pro forma results of operations of the above
acquisitions are not significant to the consolidated 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
accumulated benefit obligations at July 31, 2003, 2002 and 2001:

The following table shows the unfunded status of the Plan as of July 31,
2003 and 2002:

The following table provides the components of net periodic benefit cost
for the Plan for fiscal years 2003, 2002 and 2001:

II-22

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation at July 31, 2003 was 12.0% trending down 0.5%
per year to 5.5% at July 31, 2017. The assumed health care cost trend rates used
in measuring the accumulated postretirement benefit obligation at July 31, 2002
was 9.5% trending down 0.5% per year to 5.5% at July 31, 2011.

The weighted average discount rates used in determining the accumulated
postretirement benefit obligation was 6.0% and 7.5% in 2003 and 2002,
respectively.

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, 2003 would be increased by $214,200 and decreased by $214,200, respectively.
The effect of a 1% increase or decrease in the health care cost trend rate
assumption on the sum of the service cost and interest cost would be increased
by $53,300 and decreased by $53,300, respectively. 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.

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, 2003 and 2002, $3,497,000 and $2,503,000,
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. At July 31, 2003 and 2002, $5,462,000 and $5,191,000,
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 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 retirement, profit-sharing and
deferred compensation plans described above were $8,506,000 in 2003, $8,918,000
in 2002 and $7,515,000 in 2001.

The Company has a voluntary employee benefit trust for the purpose of
funding employee medical benefits and certain other employee benefits. At July
31, 2003 and 2002, $2,428,000, and $4,142,000, respectively, of payments to the
trust to fund such benefits was included in prepaid expenses and other current
assets.

II-23

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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-24

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 $1,627,000, $930,000 and $663,000
in fiscal 2003, 2002 and 2001, respectively.

II-25

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, 2003
amounted to approximately $62,841,000. If all such undistributed earnings were
remitted, an additional provision for foreign income taxes of $2,150,000 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. On April 18, 2003, the multicurrency revolving loan was amended at the
Company's request, decreasing the amount available to $100,000,000. Under the
agreement, the Company has the option 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, 2003, approximately
$58,000,000 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, 2003, the required consolidated
net worth was approximately $264,000,000 and the Company's actual consolidated
net worth was approximately $339,000,000. There were no borrowings under this
line of credit during the years ended July 31, 2003 and 2002.

II-26

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, 2003 and 2002 is
as follows:

On August 1, 2002, all Cumulative Preferred Stock was redeemed at a 6%
premium for approximately $3,026,000. 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

II-27

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 are 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.

The following is a summary of other activity in stockholders' investment
for the years ended July 31, 2001, 2002 and 2003:

II-28

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There were 1,505,092, 1,418,118, and 859,770 options exercisable with a
weighted average exercise price of $25.57, $24.39, and $23.82 at July 31, 2003,
2002 and 2001, respectively.

II-29

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at July 31, 2003:

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 as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation," 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 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 2003, 2002
and 2001 as follows:

II-30

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

The Identification Solutions & Specialty Tapes 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 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
and Europe 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, foreign 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 the
basis of product or service.

In April 2003, the Company announced a new regional based management
structure. Throughout fiscal 2003, the Company continued to internally evaluate
its fiscal 2003 results under the historical group structure described above. As
a result, the Company will begin to report segment information by Americas,
Europe and Asia in fiscal 2004, when those segments are fully operational.

II-31

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

II-32

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

* Revenues are attributed based on country of origin.

** Long-lived assets consist 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
23,177,741 for 2003, 23,023,687 for 2002 and 22,824,398 for 2001. 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-33

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 778,684, 0, and 95,050 shares of Class A common stock
were not included in the computations of diluted net income per share for the
fiscal years 2003, 2002 and 2001, respectively, because the option exercise
prices were greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.

II-34

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS

The Company has entered into various noncancellable operating lease
agreements. Rental expense charged to operations was $10,800,000 for 2003,
$8,955,000 for 2002 and $8,822,000 for 2001. Future minimum lease payments
required under such leases in effect at July 31, 2003, are as follows (by fiscal
year):

2004........................................................ $10,358,000
2005........................................................ 7,681,000
2006........................................................ 2,688,000
2007........................................................ 2,503,000
2008........................................................ 1,757,000
Thereafter.................................................. 2,671,000
-----------
$27,658,000
===========

10. RESTRUCTURING CHARGES

The Company recorded a restructuring charge of $10,215,000 in fiscal 2003
related primarily to combining sales and marketing resources and consolidation
of facilities throughout North American and Europe resulting in a workforce
reduction of approximately 200 employees. The majority of the workforce
reduction was completed in May 2003. The $10,215,000 charge includes a provision
for severance of approximately $8,220,000 and write-off or impairment of assets
and other of $1,995,000. Total cash expenditures in connection with these
actions will approximate $9,000,000, of which, approximately $2,300,000 was paid
prior to July 31, 2003. The cost savings resulting from this began in fiscal
2003 and will continue into fiscal 2004. The $10,215,000 charge in fiscal 2003
was partially offset by a credit of $626,000 related to adjustments in lease
termination costs associated with the Company's fiscal 2002 and 2001
restructuring activities. The net restructuring charge in fiscal 2003 was
$9,589,000 ($6,329,000 after tax, $0.27 per diluted class A common share). The
total restructuring charge the Company expects to incur under this restructuring
program is $12,000,000 to $13,000,000, with the remainder to be incurred during
fiscal 2004.

The Company recorded a restructuring 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 $2,400,000, 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 the Company's fiscal 2001 restructuring
activities. The net restructuring charge in fiscal 2002 was $2,720,000
($1,782,000 after tax, $0.07 per diluted class A common share).

A reconciliation of activity with respect to the Company's 2002
restructuring is as follows:

Ending balance, July 31, 2002............................... $ 2,239,000
Cash payments associated with severance and other......... (1,461,000)
Non-cash asset write-offs................................. (195,000)
Adjustment to lease accrual............................... (453,000)
-----------
Ending balance, July 31, 2003............................... $ 130,000
===========

II-35

BRADY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 2001, the Company recorded a restructuring charge of $9,560,000
($5,879,000 after tax, $0.26 per share) 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 approximated
$6,300,000.

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
===========
Cash payments associated with severance and other......... (1,535,000)
Non-cash asset write-offs................................. (40,000)
Adjustment to lease accrual............................... (173,000)
-----------
Ending balance, July 31, 2003............................... $ --
===========

11. UNAUDITED QUARTERLY FINANCIAL INFORMATION

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

* The fourth quarters of fiscal 2003 and 2002 include net restructuring charges
of $9,589,000 ($6,329,000 after-tax, $0.27 per share) and $2,720,000
($1,782,000 after-tax, $0.07 per share), respectively.

II-36

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to ensure
that the information the Company must disclose in its filings with the
Securities and Exchange Commission is recorded, processed, summarized and
reported on a timely basis. The Company's Chief Executive Officer and Chief
Financial Officer have reviewed and evaluated the Company's disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the
period covered by this report (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in bringing to their attention
on a timely basis material information relating to the Company required to be
included in the Company's periodic filings under the Exchange Act.

There have not been any changes in the Company's internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
that occurred during the Company's most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

II-37

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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 served as Senior
Vice President of the Company and President, Identification Solutions and
Specialty Tapes Group from January 2002 to March 2003. In February 2003, he was
elected to his current position, effective April 1, 2003. Before joining the
Company, he held various financial and management positions for Robert Bosch
GmbH from 1983 to 1995.

Tracey F. Carpentier -- Mrs. Carpentier joined the Company in 1985. She
served in a variety of sales, marketing and management roles until 1997, when
she was appointed V.P. and General Manager of Brady Canada. From 1999 to 2003,
Mrs. Carpentier served as V.P. and General Manager of Brady's Seton division in
Branford, Connecticut. She was appointed to her current position in April 2003.

David R. 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. He served as Senior Vice President of the Company and President,
Graphics and Workplace Solutions Group from January 2002 to April 2003. In April
2003, he was appointed to his present position.

Allan J. Klotsche -- Mr. Klotsche joined the Company in 1988. He served in
a variety of sales, marketing, technical, and management roles until 1998, when
he was appointed V.P. and General Manager of the Precision Tapes Group. He was
appointed to his current position in April 2003.

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.

III-1

Donald E. Rearic -- Mr. Rearic joined the Company in 1990. He served in a
variety of treasury and finance roles until 2002, when he was appointed to his
current position. Before joining Brady, he served as V.P., Treasurer and
Assistant Secretary at CSC Industries, Inc., Warren Ohio, the holding company
for Copperweld Steel Company.

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.

Peter C. Sephton -- Mr. Sephton joined the Company in 1997 as Managing
Director -- Seton-UK. From 2001 to 2003 he served as managing director for
Brady's Identification Solutions Business in Europe. In April 2003, he was
appointed to his current position. Before joining Brady, he served in a variety
of managerial roles with Tate and Lyle Plc, Sutcliffe Speakman Plc and Morgan
Crucible Plc.

Matt O. Williamson -- Mr. Williamson joined the Company in 1979. From 1979
to 1998 he served in a variety of sales and marketing leadership roles. From
1998 to 2001, he served as V.P. and General Manager -- Identification Solutions
Division. From 2001 to 2003 he served as V.P. and General Manager of High
Performance Identification Business. In April 2003, he was appointed to his
current position.

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.

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.

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 from November 1996 to June
2003, and is a member of its Corporate Governance and Finance Committees. Mr.
Peirce is a private investor and consultant and is a director of Journal
Communications, Inc. He was the secretary/treasurer of The Jor-Mac Company,
Inc., a metal fabricator in Grafton, Wisconsin, from 1997 through 2002. 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

III-2

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 and Compensation Committees. Mr. Nei is Chairman of NEI-Turner Media, 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., Millennium Chemicals, Inc. 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.

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.

AUDIT COMMITTEE FINANCIAL EXPERT

The Company's board of directors has determined that at least one audit
committee financial expert is serving on its audit committee. Mr. Jarc, chair of
the audit committee is a financial expert and is independent as that term is
used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

During fiscal year 2003 with respect to the Company's Class A Common Stock:

1. On February 24, 2003, the Company granted options to purchase 100,000
shares of Class A Common Stock to Frank M. Jaehnert, an officer of the
Company. This transaction was reported on an amended Form 4 filed May
21, 2003.

2. On July 31, 2003, Mr. Jaehnert acquired 6 shares of Class A Common Stock
through the Company's dividend reinvestment program. This transaction
was reported on a Form 5 filed September 18, 2003.

CODE OF ETHICS

The Company has adopted a code of ethics that applies to its chief
executive officer, chief financial officer, chief accounting officer and other
key financial personnel. The code of ethics can be viewed at the Company's
website, www.bradycorp.com. The Company intends to satisfy the disclosure
requirements under

III-3

Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of
its code of ethics by putting such information on its Internet website.

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended July 31, 2003, to those persons who,
as of the end of fiscal 2003, 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 2003 for Mrs. Hudson, and Messrs.
Schroeder, Hawke, Jaehnert, Oliver and Rearic, 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
$55,000, $30,363, $24,485, $29,329, $19,400 and $18,126 respectively and
(ii) the cost of group term life insurance for each named executive officer
of $2,124, $4,742, $4,259, $3,042, $788 and $567, respectively.

All other compensation for fiscal 2002 for Mrs. Hudson, and Messrs.
Schroeder, Hawke, Jaehnert, Oliver and Rearic, 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, $14,889 and $12,569, respectively and
(ii) the cost of group term life insurance for each named executive officer
of $2,931, $610, $569, $440, $595 and $1,860, respectively.

III-4

All other compensation for fiscal 2001 for Mrs. Hudson, and Messrs.
Schroeder, Hawke, Jaehnert, Oliver and Rearic, 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, $12,060 and $9,239, respectively and
(ii) the cost of group term life insurance for each named executive officer
of $1,572, $786, $718, $444, $462 and $1,627, respectively.

(4) Fiscal 2003 includes $28,349 accrued, but not paid, for the current year's
portion of a Supplemental Executive Retirement Plan (SERP). Fiscal 2002
includes $30,975 accrued, but not paid, for that year's portion of the SERP.
Fiscal 2001 includes $49,326 accrued, but not paid, for that year's portion
of the SERP.

(5) 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. As of
July 31, 2003, Mrs. Hudson continued to hold 35,000 of such shares, Messrs.
Schroeder and Hawke continued to hold 6,250 of such shares at July 31, 2003.
Using the closing price of $34.41 per share for the Company's Class A Common
Stock on July 31, 2003, Mrs. Hudson's holdings were valued at $1,204,350 and
the holdings of Messrs. Schroeder and Hawke were valued at $215,063 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.

In June 2003, the Company granted restricted stock awards to certain key
executives. Messrs. Hawke and Oliver were awarded 10,000 shares each of
authorized, but unissued Class A Common Stock, which shares such executive
officers continued to hold as of July 31, 2003. The value of the grants
stated in the table is based on the closing price on the date of grant.
Using the closing price of $34.41 per share for the Company's Class A Common
Stock on July 31, 2003, the holdings of Messrs. Hawke and Oliver were valued
at $344,100 each. The restricted stock awards granted to Messrs. Hawke and
Oliver vest 100% on August 1, 2005. The executives have the right to receive
any cash dividends payable on these shares.

(6) Fiscal 2003 includes $56,180 accrued, but not paid, for the current year's
portion of a Supplemental Executive Retirement Plan (SERP). Fiscal 2002
includes $53,000 accrued, but not paid, for that year's portion of the SERP.
Fiscal 2001 includes $50,000 accrued, but not paid, for that year's portion
of the SERP.

STOCK OPTIONS

The following tables summarize option grants and exercises during fiscal
2003 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,
2003. Stock Appreciation Rights are not available under any of the Company's
plans.

OPTION GRANTS IN FISCAL 2003

INDIVIDUAL GRANTS

III-5

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

(1) The options granted November 14, 2002, become exercisable as follows:
33 1/3% of the shares on November 14, 2003; 33 1/3% of the shares on
November 14, 2004; and 33 1/3% of the shares on November 14, 2005. These
options have a term of ten years.

The options granted to Mr. Jaehnert on February 24, 2003, become exercisable
February 24, 2008, and have a term of ten years.

(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 terms.

(4) Calculated from the $32.7750 exercise price applicable to the options
granted on November 14, 2002 and the $26.6200 exercise price applicable to
the options granted on February 24, 2003 based on the 21,405,934 shares of
Class A Common Stock outstanding on February 24, 2003.

(5) Represents potential realizable value for all options granted in fiscal 2003
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 2003
AND VALUE OF OPTIONS AT END OF FISCAL 2003

III-6

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

(1) Represents the closing price for the Company's Class A Common Stock on July
31, 2003, of $34.4100 less the exercise price for all outstanding
exercisable and unexercisable options for which the exercise price is less
than such closing price.

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,
1998, 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)

III-7

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. Prior to
August 1, 2003, directors who were not also employees of the Company received an
annual retainer of $20,000 plus $1,500 for each committee they chaired and
$1,250 plus expenses for each meeting of the Board or any committee thereof,
which they attended and were a member. Directors also received $750 for each
meeting they attended of any committee for which they were not a member.

Effective August 1, 2003, directors who are not also employees of the
Company receive an annual retainer of $25,000 plus $1,500 for each committee
they chair ($5,500 for the audit committee chair) and $1,250 plus expenses for
each on-site meeting of the Board or any committee thereof, which they attend
and are a member or $750 for single issue telephonic committee meetings.
Directors also 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 May 2003, the Board approved a new Change in Control Agreement for Mr.
Jaehnert. The agreement calls for payment of an amount equal to three times the
annual salary and bonus for Mr. Jaehnert 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.

In January 2001, the Board approved new Change in Control Agreements for
certain of its executive officers including Messrs. Schroeder, Hawke and Oliver.
The agreements call for payment of an amount equal to two times the annual
salary and bonus for Messrs. Schroeder, Hawke, 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 two years for Messrs. Schroeder, Hawke and
Oliver.

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.

The Company's Board of Directors has approved a compensation package for
Mrs. Hudson, who served as the Company's President and CEO until March 31, 2003.
Mrs. Hudson will remain an employee of the Company for a period up to January
19, 2005, at her annual base salary in effect for fiscal 2003; and will be
eligible for coverage under the Company's regular medical insurance plan or a
payment in lieu thereof toward similar coverage. Until January 19, 2004, she
will also receive other executive benefits at the 2003 level and be eligible to
participate in the Company's bonus plan. While employed, Mrs. Hudson will
perform such duties as requested of her by the President. All compensation and
benefits will terminate if Mrs. Hudson accepts outside employment, other than
with an academic entity.

Mr. Schroeder currently serves as the Company's Chief Financial Officer,
but is seeking an executive position outside of the Company. The Compensation
Committee of the Board has agreed to continue Mr. Schroeder's salary and
benefits while he remains employed by the Company to a date not later than May
31, 2004; and to pay an amount equal to his base salary for a period of six
months following termination

III-8

of employment with the Company. While employed, Mr. Schroeder will be eligible
for participation in the Company's bonus plan. He is also eligible for Company
paid executive placement consulting services.

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. As of July 31, 2003, Mrs.
Hudson continued to hold 35,000 of such shares, Messrs. Schroeder and Hawke
continued to hold 6,250 of such shares at July 31, 2003. 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.

In June 2003, the Company granted restricted stock awards to certain key
executives. Messrs. Hawke and Oliver were awarded 10,000 shares each of
authorized, but unissued Class A Common Stock, which shares such executive
officers continued to hold as of July 31, 2003. Using the closing price of
$34.41 per share for the Company's Class A Common Stock on July 31, 2003, the
holdings of Messrs. Hawke and Oliver were valued at $344,100 each. The
restricted stock awards granted to Messrs. Hawke and Oliver vest 100% on August
1, 2005. The executives have the right to receive any cash dividends payable on
these shares.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 2003, the Board's Compensation Committee was composed of
Messrs. Bemis, Jarc, Nei 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.

FUNDED RETIREMENT AND 401(K) PLANS

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 Funded Retirement Plan ("Brady Corporation Funded
Retirement Plan") and Employee 401K Plan (the "Brady Corporation Matched 401(k)
Plan"). Under these plans the Company agrees to contribute certain amounts to
both Plans. 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 for the Brady Corporation Matched 401(k) Plan and after five years of
continuous service for the Brady Corporation Funded Retirement Plan.

III-9

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 of 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.

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
III-10

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 cash incentive plan 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. The base
salary compensation and the annual cash incentive compensation plan are reviewed
and approved by the Compensation Committee.

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
2003, 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 annual cash incentive compensation 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 July 2003, the Company's Class B Voting Common shareholders approved the
Brady Corporation 2003 Omnibus Incentive Stock Plan under which 750,000 shares
of Class A Common Stock are available for grant. In October 2001, the Company
approved the Brady Corporation 2001 Omnibus Incentive Stock Plan under which
500,000 shares of Class A Common Stock were 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. In August 2003, certain executives and key
management employees were issued stock options that vest upon meeting certain
financial performance conditions in addition to the vesting schedule described
above and have a term of five years. All grants under the Option Plans are at
market price on the date of the grant.
III-11

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 $550,000 in base salary in fiscal 2003, an increase of
2.5% from the prior year's base salary. Based on the terms of the Company's
objective Bonus Plan, discussed above, Mrs. Hudson earned a bonus attributable
to fiscal 2003 of $160,220. Mrs. Hudson voluntarily elected to waive her right
to this bonus, deferring the entire amount to be paid together with any bonus
earned in fiscal 2004, dependent upon certain financial performance in fiscal
2004. Consequently, she was not paid a bonus attributable to fiscal 2003, a
decrease of $100,000 from the bonus paid in fiscal 2002. 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;

(ii) the successful acquisitions of Tiscor, Inc., Cleere Advantage,
Etimark GmbH and Aztech Systems;

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

(iv) continued involvement in management team development and
succession planning.

During fiscal 2003, Mrs. Hudson was awarded options to purchase 36,300
shares of Class A Common Stock.

Mr. Jaehnert was elected President and Chief Executive Officer effective
April 1, 2003. Mr. Jaehnert's base salary was $345,769 in fiscal 2003. Based on
the terms of the Company's objective Bonus Plan, discussed above, Mr. Jaehnert
earned a bonus attributable to fiscal 2003 of $96,800. Mr. Jaehnert voluntarily
elected to waive his right to the bonus, deferring the entire amount to be paid
together with any bonus earned in fiscal 2004, dependent upon certain financial
performance in fiscal 2004. Consequently, Mr. Jaehnert was not paid a bonus
attributable to fiscal 2003, a decrease of $45,000 from the bonus paid in fiscal
2002. During fiscal 2003, Mr. Jaehnert was awarded options to purchase 115,000
shares of Class A Common Stock. Included in those options are 100,000 options
that vest all at once five years from the date of grant, February 24, 2003.

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.

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

III-12

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

(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 15, 2003.

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

(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.

(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 15, 2003.
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.

III-13

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

* 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 1,079,128 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 9,000 shares of Class A Common Stock.

(3) In addition to shares beneficially owned as a trustee of the Trusts, Mr.
Lettenberger owns directly 4,088 shares of Class A Common Stock and holds
vested options to acquire an additional 9,000 shares of Class A Common
Stock.

(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
9,000 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 9,000 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 (with respect to
which he shares voting and investment power with his spouse) and holds
vested options to acquire an additional 9,000 shares of Class A Common
Stock.

(7) Mrs. Hudson owns 44,231 shares of Class A Common Stock directly and holds
vested options to acquire an additional 531,433 shares of Class A Common
Stock.

(8) Of the shares listed, 2,732 shares are owned directly by Mr. Jaehnert's
spouse.

(9) The amount shown for all officers and directors as a group (15 persons)
includes options to acquire a total of 1,127,034 shares of Class A Common
Stock, which are currently exercisable or will be exercisable within 60
days of September 15, 2003. It does not include other options for Class A
Common Stock, which have been granted at later dates.

(10) In addition to the shares shown in this table, the officers and directors
as a group owned the equivalent of 355,264 shares of the Company's Class A
Common Stock in its deferred compensation plans, including 98,500 for Mrs.
Hudson, 10,154 for Mr. Jaehnert, 36,984 for Mr. Hawke, 29,580 for Mr.
Schroeder, 5,531 for Mr. Oliver, and 5,674 for Mr. Rearic.

(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.

III-14

(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, 500,000 and 750,000 shares of Class A Nonvoting Common
Stock for issuance under the 1989, 1997, 2001 and 2003 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. In August 2003, certain
executives and key management employees were issued stock options that vest upon
meeting certain financial performance conditions in addition to the vesting
schedule described above. All grants under the Option Plans are at market price
on the date of the grant.

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-15

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 2003 Annual Report to
Shareholders 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.

A report on Form 8-K was filed on June 9, 2003, relating to the
Company's sales and earnings expectations for the Company's fiscal 2004
year ending July 31, 2004. The Company also announced the closing of
certain facilities in the United States in connection with the Company's
previously announced restructuring activities.

A report on Form 8-K was furnished on May 16, 2003, relating to the
Company's fiscal 2003 third quarter financial results.

IV-1

EXHIBIT INDEX

IV-2

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

* 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

(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

(13) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 2002

(14) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 2003

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 2003.

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 has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ F. J. JAEHNERT President and Director October 23, 2003
- -------------------------------------- (Principal Executive Officer)
F. J. Jaehnert

/s/ K. M. HUDSON Director October 23, 2003
- --------------------------------------
K. M. Hudson

/s/ P. J. LETTENBERGER Director October 23, 2003
- --------------------------------------
P. J. Lettenberger

/s/ R. A. BEMIS Director October 23, 2003
- --------------------------------------
R. A. Bemis

/s/ F. W. HARRIS Director October 23, 2003
- --------------------------------------
F. W. Harris

/s/ R. C. BUCHANAN Director October 23, 2003
- --------------------------------------
R. C. Buchanan

/s/ R. D. PEIRCE Director October 23, 2003
- --------------------------------------
R. D. Peirce

/s/ G. E. NEI Director October 23, 2003
- --------------------------------------
G. E. Nei

/s/ M. K. BUSH Director October 23, 2003
- --------------------------------------
M. K. Bush

/s/ F. R. JARC Director October 23, 2003
- --------------------------------------
F. R. Jarc

IV-5