Michael Nauman - President and Chief Executive Officer Aaron Pearce - Chief Financial Officer Tom Felmer - President, Workplace Safety Matt Williamson - President, Identification Solutions.

Jason Ursaner - CJS Securities Charley Brady - BMO Capital Markets Mig Dobre - Robert Baird Joe Mondillo - Sidoti & Company Dominic Ruccella - Northcoast Research Andrew Fleming - Heartland Advisors.

Good day, ladies and gentlemen and welcome to the Q4 2014 Brady Corporation Earnings Conference Call. My name is Whitley and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Aaron Pearce, CFO. Please proceed sir..

Thank you, Whitley. Good morning and welcome to the Brady Corporation’s fiscal 2014 fourth quarter earnings conference call. During the call this morning, you will hear from Michael Nauman, Brady’s President and CEO; Tom Felmer, President of Workplace Safety; and Matt Williamson, President of Identification Solutions.

After the prepared remarks, we will open up the call to questions. The slides for this morning’s call are located on our website at www.bradycorp.com. The prepared remarks will begin on Slide #3. Please note that during this call, we may make comments about forward-looking information.

Words such as expect, believe, forecast and anticipate are a few examples of words identifying a forward-looking statement. It’s important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results.

Risk factors were noted in our news release this morning and in Brady’s fiscal 2013 Form 10-K, which was filed with the SEC in September 2013. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet.

As such, your participation in the Q&A session will constitute your consent to being recorded. Thank you. And I will now turn the call over to Michael.

Michael?.

Good morning, and thank you for joining us. It’s great to be on the call with you today. Let me first say that I am honored to be leading the Brady Corporation. As the customer of Brady products for the past 25 years while working in the electronics industry, I have always associated Brady with innovation, quality and reliability.

Over the last 100 years, Brady has developed a powerful brand, innovative products, and lasting customer relationships. I look forward to using these strengths as the core foundation to help make Brady even stronger and increase its industry leadership over the next 100 years.

Over the past 30 days, I have been meeting and spending time with many Brady employees, visiting facilities and customers and working with the executive team to review the strategy and execution plans in detail for all of our business segments.

Over the next 60 days, I will continue to visit many of Brady’s facilities around the world in order to speak with employees and meet with customers. There will be changes in our focus in the upcoming months as we increase strategic alignment and work on the fundamentals of execution.

For instance the businesses we dedicated to prioritizing around the key set of business objectives that are directly linked with driving organic growth and profitability improvements. I expect to elaborate on this set of business objectives during next quarter’s conference call.

Tom Felmer and I have been working together closely during this transition and I have been very impressed with Tom’s passion and leadership. Tom is a talented executive who has been with Brady for more than 25 years and I am very pleased that he has accepted the challenge to lead and continue to turnaround of the Workplace Safety Group.

Effective immediately, Tom will focus all of his efforts as the President of the Workplace Safety Group. This focus is very important for us to make sure that the growth changes take place. Taking Tom’s previous role as CFO is Aaron Pearce and he has been with us for more than 10 years in a number of different roles in the finance organization.

And I am confident he will do an outstanding job in this role. Let me now turn it over to Aaron for some introductory remarks on our business result and to give a bit of color as to our fourth quarter financial results.

Aaron?.

Thanks, Michael. Our fourth quarter financial results were disappointing. However, we did make progress in several areas. Organic sales growth for the quarter was 1.1% marking the second quarter in a row of organic growth.

The BMP21-PLUS, our newest handheld printer which launched during the third quarter performed very well with unit volume and revenues exceeding our targets. And just after quarter end on August 1, we completed the second and final step of the divestiture of our Die-Cut business.

Fourth quarter sales growth was less than anticipated and profitability was below our expectations as a result of sales mix challenges, additional costs from facility consolidation projects and increased operational expenses. Fourth quarter non-GAAP EPS from continuing operations finished at $0.41.

Our Workplace Safety business returned to organic sales growth marking this as the first quarter of growth in WPS since fiscal 2012. And this business also reversed its trend of declining segment profit finishing with segment profit equal to 18% of sales compared to 14.3% in the third quarter.

During the quarter we incurred an impairment charge against certain intangible assets of $148.6 million or $2.29 per share. This impairment charge was primarily driven by sales declines in the company’s people ID reporting unit.

This reporting unit includes the December 2012 acquisition of Precision Dynamics Corporation, which primarily sold identification products into the healthcare industry. PDC’s organic sales declined low-single digits in fiscal 2014. These declines were driven primarily by a general contraction in the overall healthcare industry as we believe that U.S.

hospital admission rates were down approximately 2% during our fiscal year ended July 31, 2014. We have modified our strategy within PDC to focus on the full continuum of healthcare.

We have revisited PDC’s organic growth plans and concluded that the growth may not materialize as expected given slower than anticipated industry growth and fewer sales synergies than originally planned.

This lack of historical sales growth and reduced forecast for future sales and profit growth are the main drivers for the impairment of intangible assets. We have returned both of Brady’s segments to organic sales growth and are positioned to post growth across the company in fiscal 2015.

Our focus on execution and providing the best possible customer experience remains unwavering. In previous quarters we articulated focus areas in fiscal 2014 several of which remain priorities in fiscal 2015 as well. First, we are focused on driving profitable growth in our Workplace Safety business.

We returned WPS to organic growth and we will continue to expand our multi-channel direct marketing model with an increased focus on e-business which Tom will discuss in a moment.

Second, we are focused on growing our identification solutions business primarily through the development of innovative proprietary new products and a focus on penetrating specific vertical markets. Third, we are focused on reducing our cost structure through the consolidation of selected manufacturing facilities.

We are consolidating facilities in Tijuana, Mexico, the U.S. and in Europe. We incurred incremental costs such as additional labor and moving costs this year which negatively impacted our gross profit margins. Although we do expect to start to see savings in fiscal 2015, the purpose of these facility consolidations was not simply to save cost.

Our goal is to reduce the number of manufacturing sites to give us better scale and consistent global processes that will enable us to better serve our customers and further differentiate us from our competition.

We anticipate these facility consolidation activities to continue throughout fiscal 2015 and we intentionally slowed down certain consolidation activities to ensure the highest level of quality and delivery throughout the transition.

And finally, we continue to focus the organization on delivering what has differentiated Brady for nearly 100 years, a continuous stream of the most innovative products, a better customer experience than all of our competitors and relentless focus on providing identification solutions that help our sales people win everyday.

We are confident that the actions we have taken and the improvements we are now seeing will help enable future sales, profitability, and cash flow growth. Let’s turn to Slide 4 for more detail on our fourth quarter financial results. Overall, sales from continuing operations were up 2% to $316.7 million in the quarter.

And as I mentioned, this is made up of a 1.1% organic sales increase and a 0.9% increase from foreign currency translation. Our fourth quarter gross profit margin finished at 48.6%, down from the 50.8% gross profit margin in last year’s fourth quarter.

The decline in gross profit margin was the result of sales mix and the cost associated with the consolidation of our facilities during the quarter. SG&A expense was 35.1% of sales in the fourth quarter compared to 34.4% of sales in last year’s fourth quarter. Slide 5 is an overview of our earnings per share.

Non-GAAP EPS from continuing operations was $0.41 in the fourth quarter compared to non-GAAP EPS of $0.55 in the fourth quarter of last year. Slide 6 introduces our continuing operations guidance for fiscal 2015. We anticipate overall organic sales to show us low single-digit growth with organic sales growth in each of our two platforms.

For fiscal 2015, we expect earnings from continuing operations per diluted Class A non-voting common share of between $1.50 and $1.70 per share exclusive of restructuring charges and other non-routine items.

Included in this guidance is approximately $0.15 of incremental costs related to growth investments in our IDS segment, half of which relates to an increased focus on penetrating certain vertical markets, including healthcare and half of which relates to additional R&D investments to drive innovation and new product development initiatives, and an additional $0.10 of incremental expenses as we anticipate returning to more normalized level of incentive compensation.

This guidance is based on current exchange rates, a full year income tax rate in the mid to upper 20% range, capital expenditures of approximately $30 million and depreciation and amortization of approximately $45 million.

We are also anticipating restructuring charges of approximately $15 million in fiscal 2015 due primarily to the ongoing facility consolidation activities.

This effectively puts the midpoint of our fiscal 2015 EPS guidance range approximately 5% above our non-GAAP EPS of $1.53 in fiscal 2014 as our investments to drive long-term sustainable organic growth are expected to offset many of the profit increases coming from our anticipated organic sales growth and operational improvements.

Slide #7 is a summary of our quarterly sales trends. In the fourth quarter, revenues finished at $316.7 million, which is our second consecutive quarter of organic growth. As I mentioned, we have seen improving sales trends in most of our businesses and we returned WPS to organic growth this quarter.

Moving along to Slide #8, you can see the trending of our gross profit margins. Our fourth quarter gross profit margin was 48.6%.

Our gross profit margin has been trending down for a number of quarters partly due to the acquisition of PDC and challenges experienced in our WPS business, but more recently also due to the challenges in our IDS business from sales mix and the near-term implications of facility consolidation actions.

We are focused on driving gross profit margin improvements that will result in longer term improvements. For instance, our facility consolidation activities degraded our gross profit margin in fiscal 2014 and in this quarter, but over the long-term, these actions are expected to provide gross margin improvements.

We continued to focus on and invest in analytics and tools to better manage mix and pricing, which we believe will ultimately result in margin gains. On the right hand side of the slide, you can see the trending of SG&A expense. SG&A expense was up from approximately $107 million in Q4 of last year to $111.3 million in Q4 of this year.

We intentionally increased selling expenses in both IDS and WPS this quarter. In IDS, we made investments in sales people in multiple geographies, including the U.S., while in our WPS business we increased spending in both online advertising as well as traditional catalog advertising.

Moving to Slide #9, you can see that our non-GAAP EPS from continuing operations was $0.41, which compares to our non-GAAP EPS from continuing operations of $0.55 generated in the fourth quarter of last year.

As I mentioned, we are not pleased with our EPS result as our business did not grow as much as anticipated and our gross profit margin was weaker than anticipated in the quarter. We have summarized our cash generation on Slide #10. During the quarter, we generated $17.6 million of cash from operating activities.

We spent $13.6 million on capital expenditures. We also received $54 million of net proceeds from Phase 1 of the die-cut sale in Q4, of which $17.3 million was returned to shareholders through dividends and share buybacks and another $32.7 million was used to repay outstanding debt.

Looking forward, our focus will be on executing business fundamentals to drive organic sales growth, while deemphasizing acquisitions in the near-term. Our EBITDA trending and net debt trending are on Slide #11. Our balance sheet is strong giving us flexibility to fund future growth opportunities or return funds to our shareholders.

Our net debt to EBITDA was approximately $1.221 at the end of the quarter. Our total net debt position at July 31, 2014 was $181 million compared to net debt of $222 million at July 31, 2013.

This does not include the proceeds from the second phase of the die-cut sale of approximately $7 million since it closed after the completion of our fourth quarter. Let me now turn the call over to Tom Felmer for an explanation of the Workplace Safety results.

Tom?.

Thanks, Aaron. Let’s turn to Slide 12 for a summary of the Workplace Safety financial results. Sales increased by a total of 2.8% to $102.3 million in the fourth quarter. Organic sales increased 0.9% in foreign currency translation, added another 1.9%. Organic sales were up versus the prior year for the first time in 10 quarters.

We believe that the midyear changes in strategy and the focus on execution have shown positive results in stabilizing the business and creating a foundation for future sustainable growth. Our efforts are focused on improving business fundamentals and our WPS strategy is concentrated in five main areas.

First, we are expanding our focus on e-commerce and we have accelerated our investments in our digital capabilities. In the first half of the year, we set the foundation for growth in our staffing and dedicated digital team while increasing our digital marketing investment and moving forward with our global platform deployment.

Second, we are expanding our offering by the Workplace Safety products. By expanding the scope of products offered, we can leverage our broad customer reach and compliance now as to provide greater opportunities for organic growth around the world.

While a broader offering is important to our customers, we are focused on adding more differentiated and customized identification products that makeup the core of our product offering.

Third, we continue to focus on the segments of our business, where we can add the most value and we are building out industry expertise to further differentiate and enhance the value our customers receive. Fourth, we are evaluating and optimizing our value proposition.

Our business has been built on the foundation of providing expertise in the areas of regulatory compliance, facility safety and a broad range of unique and customized identification solutions.

We will continue to build on this foundation of high service levels, our broad offering of unique and customizable products that are attractive to our customers. And fifth, we have increased our catalog investment in all geographies to regain more of the high-value customers that have historically made up this business.

The costs to implement the above strategies, along with certain pricing actions, were the primary drivers of our decreased segment profitability when compared to the prior year. These investments are producing a number of positive signs that we expect to drive value over the long-term.

Specifically, new customers continue to increase in our digital traffic and digital revenues are growing. Segment profit in Workplace Safety global platform was $18.4 million in the quarter compared to $20.4 million in last year’s fourth quarter.

As a percent of sales, segment profit was 18% this quarter compared to 20.5% in last year’s fourth quarter. This segment profit percentage of 18% is a significant sequential improvement over the 14.3% incurred in the third quarter.

We have returned the business to positive organic sales growth in the quarter and exited the fiscal year with positive momentum. Our segment profitability is improving but still not where we would like it to be due to gross margin erosion in the growth investments I just mentioned.

Accelerating sales growth will be the key to improving our segment profit margins as this business has a relatively high fixed cost structure. As we go through fiscal 2015, we expect improving trends as our sales volumes improve and as we make adjustments to our value proposition.

We anticipate single-digit organic sales growth in the WPS segment in FY ‘15 and we also anticipate segment profit percentages to approximate what we are experiencing coming out of fiscal 2014. I would now like to turn the call over to Matt Williamson for a review of the ID solutions business.

Matt?.

Thanks Tom and good morning everyone. Before getting on to our quarterly results let me comment on one of our recent product launches which is on Slide 13. We recently launched our next generation portable label on wire identification printer the BMP21-PLUS which is also available in a version for the laboratory market.

This printer is designed to be a super durable tool with software specific for electrical, datacom, laboratory and industrial applications.

This versatile printer has been well received by our distribution partners and end users alike and has performed very well during the fourth quarter coming off a strong launch in quarter three exceeding our expectations in terms of both sales and unit volumes.

We anticipate this momentum to continue into fiscal 2015 along with additional product launches coming from our healthy pipeline of new products. Let’s turn to Slide 14 which is the identification solutions financial review. Sales increased to a total of 1.6% to $214.4 million in the fourth quarter.

This growth was the combination of 1.2% organic sales growth and an increase of 0.4% due to foreign currency translation. We have expanded our focus on industries such as chemical, oil and gas, food and beverage, laboratories, industrial OEMs and healthcare. We have also expanded and focused geographies such as China and Central Europe.

We believe we are on the front end of these resources beginning to generate results.

Additionally the keys to success in ID solutions hinge on consistently exceeding the expectations of our customers by providing an unrivaled customer experience supported by strong industry expertise, strong relationships with our distribution partners and introducing a steady stream of innovative new products, our BMP21 printer being a great example.

Segment profit decreased 10.4% to $43.3 million in the quarter compared to $48.4 million in the last year’s fourth quarter. As a percent of sales, segment profit was 20.2% this quarter compared to 22.9% in last year’s fourth quarter.

Segment profit was lower than anticipated due to higher than expected facility consolidation related costs and product mix. Product mix was driven by increased sales in Asia which has a lower gross profit margin than our average businesses, increased printer sales and increases in certain other lower margin business.

We also had additional costs associated with the expansion of our sales force primarily in North America and Europe. As we look to fiscal 2015 we anticipate the trends of low-single digit organic sales growth to continue with growth coming primarily from our global Brady brand business.

Overall the prospects for growth throughout the businesses are positive although some economies may not be growing at a robust rate our sales force expansion and our investments in organic sales initiatives are expected to help drive future revenue increases in the near-term.

Looking at future profitability trends, we expect fiscal 2015 segment profit to be comparable with what we experienced into 2014. As we move into the next year, we will be investing in both mid-term sales generation activities through our focus on industries such as healthcare and others.

We are also expecting to increase our R&D investment to reinvigorate our new product pipeline and continue to stay ahead of our competition through the development and launching of proprietary new products. I will now turn the time back to Michael for his concluding remarks..

As I said earlier, I am excited to be leading the Brady organization. I will continue to meet all of our employees and visit all of our businesses as I assess the company’s long-term strategy. I want to be clear that I am committed to executing on our current plans and improving our performance now and for the balance of fiscal 2015.

As you heard in today’s call, we did not perform up to my expectations and we are addressing those issues. Let me give you a few examples. First, one of our top priorities is to return our WPS business to profitable growth.

We have seen an improvement in that business since Tom took on the leadership of that business in the third quarter and I am confident we will continue to see improved results under Tom’s leadership of this business. Other areas that we discussed with some challenges are our facility consolidations and operational performance.

I have already put wheels in motion on a companywide effort to reestablish our operational excellence delivering quality products on time to our customers in most profitable way possible. This has been a hallmark of every business that I have run. I am confident we can improve our operation performance in the coming quarters.

Brady is a quality company with a 100-year legacy of success and innovation. Having been a customer of Brady for many years, I have experienced this firsthand. Over the coming months, we will work on to address the issues highlighted on the call and deliver on our strategic objectives.

I will also be working with the team to deliver a long-term strategy for accelerated growth and profit. I would now like to start the questions and answers.

Whitley, would you please provide instructions for our listeners?.

(Operator Instructions) Your first question comes from the line of Jason Ursaner of CJS Securities. Please proceed..

Good morning..

Good morning..

Just first on free cash flow for the full year without the Asia divestiture around $1 a share, obviously it’s a noisy year. As a percent of adjusted net income though it’s a bit lower than years past, you had some big working capital outflows.

Just wondering how you see those looking next year, some of those come back or are those more ongoing investments in capital?.

Yes, this is Aaron. Good question, Jason. You are right, our free cash flow was about $1 a share in fiscal 2014. There were two, I will say, two primary drivers. One of course was CapEx, we had $43 million of CapEx, much of which related to facility consolidations.

And as you just saw in our guidance, we anticipate that going down to the neighborhood of $30 million next year and then returning to, I will say, a norm – more normalized run rate in F ‘16. And then the second piece would be the working capital changes.

The primary working capital change that you see is actually an inventory and much of that inventory growth relates to facility consolidations. So, we don’t see that building up again next year. We haven’t of course given guidance on specific line items of our free cash flow, but we certainly don’t see that as a further use of cash next year..

Okay.

And for Tom in the WPS segment, maybe if you could just talk a little bit more about – reiterate what the digital strategy is there, what percent of sales is coming from online at this point, and how is it mixing together with the traditional catalog business right now?.

Thanks, Jason. The efforts that we have been focused on through the first half of the year as I commented is we have, I guess, a history of all of our businesses on separate websites. So, the first phase is really to get all of the businesses under a common platform, which we’re in the early stages of making that happen.

Once we – as we get them on to the new platform, there is improvement and I would say it’s things that you would expect to see typically, it’s getting all of our products working well on the websites, making it easy for customers to use the website, giving people the information that they need from a compliance standpoint and that work is also in process.

So, we are seeing as I commented digital sales are increasing. And as I look into the future I would expect that to be the fastest part of the growth within the segment. So I would expect the digital sales to improve - or increase as a percent of sales..

Okay.

And in the ID solutions segment maybe if you can just talk a little bit about mix you mentioned higher printer sales and kind of how that’s – I guess my understanding is that had been one of the things weighing on margin a little bit, so if you are showing organic growth next year and maybe have a better mix why wouldn’t you show a little bit more leverage there as opposed to consistent operating margin?.

Well, on that particular product line that would probably be true. We sold record number of printers this year and they are at a considerably lower margin. And so as we would look at that particular product family next year and we would get consumables from them, that particular product family we would expect margin to increase.

But in aggregate as we are forecasting our total mix, the profitability in aggregate would be about the same..

Okay. I will jump back in the queue. Thanks guys..

Your next question comes from line of Charley Brady with BMO Capital Markets. Please proceed..

Hi. Thanks.

Just to start on WPS and the common platform question to tie on to that, do you have a timeline as to when you expect that, you said it’s early stages, but are we looking at 12 months or longer or so when you think they are all kind of on a common platform as it’s running to the – pretty close to optimal where you wanted to be?.

We are looking at getting the majority of the – it’s I will say there is a long tail to the number of sites that we have. We are looking at getting the majority of the bigger sites online over the next 12 to 18 months and the rest will come on after that..

Okay.

And then Michael I wonder if you can just talk about you mentioned operational excellence objectives, can you maybe get a little more granular on kind of what you are looking as you come into the company and I know it’s really early days, but as you gone around the various sites and you are seeing what’s working and what’s not working, can you tie that back to what you see as the operational excellence initiatives to maybe change things from to improve where it needs to be improved?.

Sure, it certainly is among the earlier days, but I think you can already tell we are making changes here in the organization. I believe fundamentally Brady is a very strong brand, loyal customers, channel partners, great people and we have pretty strong financial fundamentals.

However, as you can tell in the operational excellence our recent financial performance hasn’t met your expectations or ours quite frankly. And as a result I will be making specific changes. I am still working on the process for the team the start to rollout my expectations and the needed changes both in strategy and direction.

It’s very important that I establish this internal direction with the employees prior to really sharing my vision externally. But my expectation is to be ready to share that change both in our vision, our strategy, our use of capital and specifically operational excellence after the end of the first quarter.

I do need some time to make sure that our team is totally aligned and moving in that direction..

That’s fair enough.

Just one more question and on the R&D spend just so I am clear did I hear correctly that within the new guidance there is an incremental $0.15 a share tied to R&D and kind of administrative costs…?.

And selling costs, yes..

Split about 50-50 between the two, so when you look at R&D costs as a percent of sales obviously that’s going to bump up a little bit can you – is it a temporary bump and what kind of level as a percent of sales do you see R&D spending going to and then again does it level out at that or do they come back down and we are at temporary bump here?.

Yes, I can answer that Charley. I don’t see this as just a temporary bump, I mean frankly over the long-term. I mean, we absolutely have to have new innovative products that’s key to our growth. So, no, I don’t see this as a temporary bump and then bouncing back down; now beyond F ‘15, that’s a great question.

I mean, we certainly don’t have, we are not putting all guidance with respect to F ‘16 at this point, but I don’t – at this point I don’t see it as a temporary bump..

Okay, thanks..

Your next question comes from the line of Mig Dobre with Robert Baird. Please proceed..

Good morning, everyone..

Good morning..

Good morning..

Michael, first and foremost, welcome, I think I am going to try to press you maybe a little more even though I know it’s early days for you with the company, but obviously you have had access now to I think a lot of the internal study that Brady has done and I know that some strategy consultants have looked at the business in the past.

And clearly, you are aware of the challenges that the business has faced over the past three years.

From your perspective, as a person with a fresh set of eyes, what do you think the real challenges for the business are? And I want to understand if you are basically trying to continue the strategy that - that has been put in place or if we should be expecting over the next 3, 6, 12 months a new strategy with a new route versus what we have heard in the past from the Brady management team?.

Mig, thanks for the kind welcome. I definitely appreciate it. And I want to let you know that I am, as you point out although I am new here, I am not somebody that lets a lot of time flew by without making decisions and moving on direction.

As I did state to the last question, it is critically important for me to make sure that the internal direction is really established with our employees first and foremost and then I will be moving forth.

I can really share with you today that we are going to be focusing our energy around a key set of business objectives that are designed to drive both organic growth and profitability improvements. And this approach that we are taking is different from the approach that we have been taking recently.

I think it will energize our efforts and help to drive us really in the execution of the fundamentals of our business in a better way. So, I appreciate the welcome and look forward to tremendous period of time with Brady..

Thank you for that. Aaron, I don’t know this might be a question for you. From a capital allocation standpoint, you are being pretty clear that there are no acquisitions currently worked on. That levels to me seem more than manageable and the stock is struggling today.

How is the board thinking in terms of capital allocation and I mean share buybacks at this point?.

Yes. Our capital allocation philosophy hasn’t changed with the exception of the piece that you have just articulated, which was the – I will say the less focus on acquisitions. And frankly that the lack of focus on acquisitions solely comes down to executing our fundamentals in our business and growing organically.

So, our policy, our thoughts around capital allocation has not changed. You are right we have very low leverage on our balance sheet. Our net debt to EBITDA is about 1.2 to 1. We look at share buybacks in an opportunistic manner. Historically, we certainly have not signaled in advance of any purchases. We don’t see that changing anytime soon.

So, I guess all that I can say is no change in our philosophy with the exception of deemphasizing acquisitions in the near-term..

Okay. And then Matt, looking at ID solution, I guess I am trying to understand why you are – why we have seen relatively low organic growth this quarter and why you are guiding for relatively low growth? Throughout the quarter, Eurozone PMIs have actually been decent, 52 on average, U.S. much higher than that.

So, at least the headline growth number seems to be – seem to be okay and yet that’s not what we are seeing in guidance, where is the headwind here?.

Well, let me comment, Europe, we have gotten good growth and we expect the types of things that we have seen there to continue. The headwind really has been in the underperformance in PDC and in Brazil..

And you are expecting that basically to continue even though constant theory could be getting easier?.

Well, we would like – we expect the PDC business to turnaround to low single-digit growth..

Okay.

And then my last question, you are guiding for flat margin in ID solutions, which to my math is call it 21.5%, but over the past three quarters, the run rate has been about 20%, which would imply actually pretty nice margin lift from where we have seen it in the last three quarters, what gives you confidence that that’s attainable given all the actions that you are taking new sales people, facility consolidation and so on?.

Well, there are several things there. There is a number of things from an operational improvement standpoint, operational savings, sourcing savings. We do expect as we go into this year when you look at facility consolidations that will pick up costs in the first half of the year, but the net of our facility consolidation costs would be positive.

So between those things we expect to pickup margin..

Thank you..

Your next question comes from the line Joe Mondillo with Sidoti & Company. Please proceed..

Good morning guys. First, Michael welcome to the company. My question – I have couple of questions.

First off, the consolidation costs, can you quantify how much that amounted to within the quarter?.

Yes. I can, in our fourth quarter it was about $1.5 million incremental dollars..

And did you say I can’t recall if you said or not, do expect any of that cost to run or amount to anything in the current year?.

We actually didn’t give – we didn’t talk specifically about it, but we absolutely can hear and that is that we do anticipate that we will get some benefit from facility consolidations next year for sure. And of course we will see a bit more in the second half of the year than the first half of the year as we continue with these consolidations.

So we don’t expect tailwinds in the back end of the year, because we should be in a pretty good shape by then..

Okay, great. And then I guess a bigger level question, I guess one of the biggest issues is the product differentiation and that’s you are clearly trying to attack that problem be it the increased R&D spend and all the initiatives that you are implementing in both segments.

Can you sort of give us an idea of where you want new products as a percent of the whole to be, where they are at right now, where you want them to be and sort of at what point in time do you see more of a normalized ongoing change to the product portfolio as opposed to sort of this big leap towards more of a differentiated product right now?.

Sure. By the way thank you for the warm welcome. I do appreciate that.

Fundamentally I believe that we have to provide our customers with core value and that we then have to make sure that that core value that they really can achieve is protected on our side and you can see that through the increased R&D investment that that is an absolute strategy that I know from both my history and the core history of Brady is highly successful.

So you will see us making specific moves in the direction of innovation, new product development making sure that we are focused on addressing the needs of specific marketplaces, but even more importantly specific customers and customer applications. So that direction is going to be taking place.

At this time we believe fundamentally that that we will be making a long-term important difference in the trajectory of our business..

And I know this whole differentiation of the product line has been something in place already, are you going to be doing anything different with that or are things do you see right now sort of in place and maybe you need to maybe make some tweaks or are you making some major changes with that because I am just wondering where – this plan was in place maybe three quarters ago in terms of differentiation and I am just wondering where we are at versus that plan, are we changing plan in terms of the differentiation?.

Well, I would like to say once again that I am – it’s very important that I make sure I rule out all of the changes that we are making internally prior to externally announcing them. But I do fundamentally believe we can make improvements in this area and that we will be making improvements in this area.

The general goal of the corporation to really create differentiable value to our customers will not be changing. That is a fundamental criteria that actually if you look back at our long history is something that we had been marked by.

I think we did get away from that with our acquisitive mode that they focused us from that effort as much as we should have, but I think it’s important to see that before my arrival the company recognized that we needed to get back to our fundamental routes of what made a strong and so that part is not going to change at all.

How we actually apply that? We will be improving and we will be executing on plans that I believe will make fundamentally positive differences in the long run..

Okay, great.

And then just finally the 18%, Tom or Michael, could you talk about what the major driver of that was, I think maybe you said it was mixed, but can you clarify that? And then also going forward, what are your thoughts of that 18%? Is that a run-rate going forward or it looks like it’s certainly not going to be sort of a run-rate, but talk about sort of the bar there that you saw on the fourth quarter?.

Yes. I mean, the improvements came in several areas. We did take actions also with our value proposition and we saw margins improve in the business. That was a big driver of the improvement. We are getting some more leverage and we have some growth, so that leverage also helps raise the profitability and raise that percentage.

What we have talked about I believe in the last call, in the last quarter was I don’t necessarily see getting back to historical profit levels of the group of several years ago, but our aspirations and direction has certainly I believe it has a – it will be a number of the 2 in front of that.

We did say in the guidance that for the next year, we expect the profit to be similar to what we saw exiting the year..

Okay, alright. Thanks a lot..

Your next question comes from the line of Keith Housum with Northcoast Research. Please proceed..

Thanks, guys. This is Dominic Ruccella sitting in for Keith Housum.

Aaron, the things will be directed towards you, can you help us understand the higher tax rate for the quarter and any drivers in that maybe permanent?.

Yes, it’s a good question. So, we had a 31% tax rate in our fourth quarter, which compares to about 17% in last year’s fourth quarter and that’s – of course, that’s after you removed the impact of the restructuring and then also the impairment.

And frankly as we look at next year, I mean going into next year, there are certainly some tax rate challenges and frankly I believe most domestic manufacturers will have these exact same challenges and that relates to the, I will say, the lapsing of the typical tax extenders.

So, it’s the flow through of (indiscernible) interest, etcetera that is now taxable, but frankly for us, the bigger issue is the R&D tax credit has gone.

So, if you look at F ‘14 and you strip out all of the non-routine items, so strip out the impairments, strip out restructuring, we actually had a tax rate of about 28%, which is exactly where we are guiding to next year. We are guiding to mid to upper 20% range. And I think that’s a good run rate going forward..

Okay. And would you mind providing a little bit more color in terms of the PDC performance that you guys saw specifically for this quarter.

I mean, was that hospital admissions that you guys seeing other things in there, that maybe impacting growth there?.

Yes, good question. The primary thing is the admissions rate that has been declining really since we acquired the company this year the trailing decrease in admissions is 2.2%, although that’s slightly improved more recently, but that’s the main thing.

I would emphasize though that the overall profitability of the business met our expectations in the year due to executing on some cost saving things.

Another thing that’s impacted that is that there are some older products in the offering that have declined faster than we anticipated, but primary thing is we expected the admissions rate to increase and it’s declined..

You said more recently, it started to improve, so during the fourth quarter do you guys have?.

It’s still declining. It’s just – it’s not declining as much based on the recent numbers that we have seen..

Okay.

And then last one, if you guys could just provide a little bit more color in terms of the geographical performance, I know you guys called out Asia a few times during the call but anything else you can provide us there?.

Yes. Actually Dominic let me jump in here and that is I mean historically we have given I will say a fair bit of detail underneath the platform level. I know we have talked about and just on this call today we would obviously are giving a fair bit of color with respect to PDC for obvious reasons, very significant acquisition for us.

And Matt has also talked about Brazil which is of course a location that we have had challenges as had many multinationals. But frankly we are trying to get away from talking much more detail below the platform level..

Alright. Understood. Thank you..

Thanks..

Our next question comes from the line of Andrew Fleming with Heartland Advisors. Please proceed..

Hey, good morning guys..

Good morning..

Tom first question is for you, congrats on the turnaround here in WPS, Workplace Safety, as you go from 18% to 20% you have alluded to earlier is that simply a function of operating leverage and top line growth or is there more to it?.

Certainly in the early phases, it’s going to be operating leverage, how far we go beyond it will depend on how successful we are with the digital efforts. I mean we have some – we said we will put some additional costs into the business or investment into the business to accelerate our digital platform, the migration and the capabilities.

And really over the course of the next 12 to 18 months we will begin to see and we will learn how effective we have been there and if it’s successful we maybe able to see something that’s what will determine how successful the business ultimately will become..

Okay.

And is the catalog portion of Workplace Safety where you wanted to be at this point?.

Yes. I think we have restored the catalog back to I guess what I would expect from it. Catalog, if you think of a long horizon catalogs will likely become a smaller piece of the business in terms of driving sales and profitability.

But in the near-term it’s still a major driver for the business and we need to optimize the catalog performance as best as we can. So I am pleased that it’s taking a couple of quarters to restore that, but as I look to the plans and get more deep into the processes I feel pretty good about what we have done over the last six months..

Okay.

So with the improved position with the catalog business, going forward is it safe to think of Workplace Safety, you are kind of in that a tighter band of maybe that 18% to 20% operating margin going forward?.

Yes. I think as we look over the course of next year yes..

Okay.

Then next question is for Michael and congrats on the new position and look forward to meeting you in the near-term, it’s all that we have had a slight pivot in the capital allocation strategy slightly more disciplined approach going forward and you mentioned in the earnings release that M&A will be down – deemphasized which clearly makes sense with the two big impairment charges that we have taken in the past two fourth quarters granted those were not on your watch, but with the stock where it’s priced today, the guidance implies this is probably trading about seven times ’15 EBITDA and with the CapEx going down it implies that free cash flows should probably be about $60 million after the dividend, buyback seems to have highly accretive right now and the balance sheet is in great shape, I am just curious your thoughts Michael and perhaps a more aggressive buyback now that we have hit the inflection point it appears on the organic growth side in both ID solutions and Workplace Safety?.

Absolutely and thanks for welcome Andrew. I do look forward to meeting you as well and hopefully having conversations in the future about our direction. In regards to our change in philosophy in regards to buybacks at this time we are not seeing a reason to change our philosophy at all. We are absolutely looking at all of the elements involved.

And if a market position changes we will determine at that point, but at this point, we have no reason to change our current strategy. We believe we fundamentally have uses of capital and we will work in that direction..

Ladies and gentlemen, that concludes our Q&A. I will now turn the conference over to Mr. Aaron Pearce, CFO for closing remarks..

Thank you and thank you everyone for your participation today. As a reminder, the audio and slides from this morning’s call are also available on our website at www.bradycorp.com and a replay of this conference call will be available via the phone beginning at 11:30 Central Time today September 11.

The phone number to access the call is 1-888-286-8010 or international callers can dial 617-801-6888 and the passcode is 68199609. As always, if you have questions, please contact us. Thanks. Have a great day. And operator, can you please disconnect the call..

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day..