AZZ Inc (AZZ) 2006 Q4 法說會逐字稿

At this time I would like to welcome everyone to the AZZ Incorporated fourth quarter financial results conference call. (OPERATOR INSTRUCTIONS). Mr. Dorame, you may begin your conference.

Good morning. Thank you for joining us today to review the financial results of AZZ Incorporated for the fourth quarter and fiscal year 2006 ended February 28, 2006. As the conference call operator indicated, my name is Joe Dorame. I am with Lytham Partners. We are the financial relations consulting firm for AZZ Incorporated. With us today representing the Company are Mr. David Dingus, President and Chief Executive Officer, and Mr. Dana Perry, Chief Financial Officer.

Before we begin we submit for the record this conference call has been made available by the way of webcast technology on the Internet and direct dial via a conference call service to all interested parties. This conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by the Company with the SEC.

Those risks and uncertainties include, but are not limited to, changes in customer demand and response to products and services offered by the Company, including demand by the electrical power generation markets, transmission and distribution markets, the industrial markets and the hot dip galvanizing markets; prices and raw material costs, including zinc and natural gas, which are used in the hot dip galvanizing process; changes in economic conditions of the various markets the Company serves, foreign and domestic; customer requested delays of shipments; acquisition opportunities; adequate financing; and availability of experienced management employees to implement the Company's growth strategy.

The Company can give no assurance that such forward-looking statements will prove to be correct. With that having been said, I would like to turn the call over to Mr. David Dingus, President and Chief Executive Officer of AZZ.

Thanks to each of you for taking the time to join us for the conference call for the fourth quarter and the fiscal year ended February 28, 2006. For the fourth quarter revenues increased 33% to 50.3 million, a record-setting revenue quarter. Net income is up 78% to 2.6 million, and diluted earnings per share increased 73% to $0.45.

We are pleased to again report a very strong double-digit quarter-over-quarter and year-over-year growth. In general, the market indicators and the dollar value of quotation levels suggest that some of our markets continue to show improvement. Large international quotations are continuing. And while no new major international orders were secured in the fourth quarter, we did book a significant international order in March of 2006, the first month of our new fiscal year, which I will cover later.

Total incoming orders for the quarter were 40.9 million, while shipments for the quarter totaled 50.3 million, resulting in a book to ship ratio of 81% for the fourth quarter. Orders received for this fiscal year total 196.2 million compared to 140.2 million in the prior fiscal year, or an increase of 40% in incoming orders. Our book to ship ratio for the fiscal year was 105%.

While our markets have strengthened over fiscal 2005, there is a continuum of excess capacity, which continues to put downward pressure on pricing. We do not believe that over the next few months we will see market increases that will significantly reduce this excess capacity, particularly for our utility products.

Backlog at the end of the quarter was 73.8 million versus 64.8 million in the prior year period, for an increase of 14%. Backlog did, however, decrease some 9.4 million from the third quarter. Now since the end of the fiscal year, we have seen an improved level of bookings. We were able to close on a very large high voltage order for the Middle East in the month of March. This, combined with bookings and other products that exceeded shipments. At this time we anticipate that the backlog at the end of the first quarter of fiscal 2007 should approximate or even exceed that of the third quarter of fiscal year 2006.

We believe that at this time that the book to ship ratio of 81% for the quarter was more of a factor of timing of receipt of orders rather than reduced totaled worldwide market demand. We anticipate that we will be able to overcome the fourth quarter backlog reduction. Based upon current customer required delivery dates, we estimate that 84% of the year-end backlog is scheduled to be delivered in fiscal year 2007.

Galvanizing demand remains strong, and tonnage of steel galvanized improves by 11% on a quarter-over-quarter basis, and 16% on a year-over-year basis. This volume increase to spread across all of our markets. We are seeing work related to the Gulf Coast rebuilding and repair programs, and anticipate that there is potential for additional work.

We continue to be amazed at the escalation of zinc costs. We increased pricing in concert with the cost increase, and will have to continue this to offset a continuation of zinc costs escalation. As we have discussed previously, there is a possibility they will reach some point where customers begin to seek alternatives to galvanizing, or even in some cases may delay or cancel projects because of the cost.

As a Company our accomplishments have improved, and we continue to double and redouble our efforts to secure profitable business. Our programs of continual emphasis on systems and procedures, sharing of best practices among our operations to further enhance operating efficiency had a very positive impact on our operating results during fiscal year 2006. We believe that these efforts, combined with pricing improvement and the leveraged gain from additional volumes led to the 78% increase in income on a 33% increase in revenues for the fiscal year.

Now with that as an overview of our results, Dana will now give us a review of the operating results for the quarter and our fiscal year.

I would also like to welcome each of you to our fourth quarter conference call. At this time I will review our unaudited consolidated results for the period ending February 28, 2006.

We reported revenues for the quarter ending of 50.3 million, a 32.6% increase as compared to 37.9 million in the prior year. Net income for the quarter increased 77.6% to 2.6 million as compared to 1.5 million. Diluted earnings per share was $0.45 as compared to last year's $0.26.

Our fourth quarter was favorably impacted by improved pricing, increased volumes, and by several quick turn jobs in our Electrical and Industrial Products segment, and increased demand for our Galvanizing Service.

Revenue and earnings resulted for fiscal 2006 exceeded our previously (technical difficulty) guidance. Revenues for the 12 month period ending February 28, 2006 were 187.2 million, a 22.8% increase compared to 152.4 million in the prior year. Net income for the 12 month period was 7.8 million, an increase of 62.7% as compared to 4.8 million. Diluted earnings per share of $1.38 as compared to $0.87.

Our Electrical and Industrial segment generated 66% of our revenues, while our Galvanizing and Services segment generated 34%. We anticipate approximately the same percentage breakdown for fiscal 2007.

Backlog at the end of the fourth quarter, as David indicated, was 73.8 million, which compares to 64.8 million at the end of last year. Our book to ship ratio was (indiscernible) for the year. As David indicated, our book to ship ratio for the fourth quarter was .81 to 1. Booking levels since the end of the fiscal year are showing signs of improvement, with backlog increasing with a large high voltage transmission order from the Middle East during the month of March. We are optimistic that improved competitive pricing patterns will have a favorable impact on our future book to ship ratios. At this time David will give us an overview of the Electrical and Industrial Products segment.

As we indicated last quarter, the passage of energy legislation has, and we believe will continue to have, a very positive impact on our Electrical Industrial Products segment. There are incentives, reliability standards and programs to promote alternative energy sources, which should continue to enhance customer spending.

Industrial demand for our Power and Distribution and Motor Control Center products is showing improvement due to new projects, major renovations and expansions and improved industrial capacity utilization levels. Additional projects continue to be reported by the engineering procurement and construction firms. And while we have not yet been requested to quote equipment for many of these projects, we are encouraged by their announcement and anxiously await the opportunity to quote and pursue this business.

We believe that continued emphasis on the need for spending related to refining, LNG, clean fuel initiatives, mining systems upgrade should lead to additional opportunities.

Our Specialty Lighting products has seen, and should continue to see, improved demand due to new products, higher demand related to the repair and replacement of the lighting for the offshore and onshore equipment and facilities which were damaged in the recent hurricanes.

Operating results of our Metal Plant Outdoor Switchgear products remains strong. Utility distribution substation incoming orders in the fourth quarter were below our expectations, and we trust this is seasonal. We will be better to assess this and hopefully confirm this at the end of the first quarter of 2007. The mining application of this product continues to show strength, and made a strong contribution to our results in fiscal 2006.

Our relay and control panels and industrial automation services financial performance has significantly improved over the prior periods. Continued improvement in capital spending and a continuation of the 80% plus investor utilization levels as reported by the Federal Reserve should sustain this improved operating level.

Inquiries and bookings for our higher voltage transmission products continues at a very encouraging and robust level. The securing of another large international order from the Middle East in the March of 2006, which was after the close of our fiscal year, has resulted in a record backlog for this operation. The backlog at this operation does reflect strong domestic and strong international orders.

Orders and shipments of our tubular products to the petroleum market remains strong, and we have completed another very successful year.

Dana will now cover the operating results of our Electrical and Industrial Products segment.

In our Electrical and Industrial Products AZZ recorded revenues for the quarter of 33.9 million, a 38.3% increase, as compared to prior your results of 24.5 million. Operating income was 4.3 million, an 84.8% increase, again as compared to 2.3 million in the prior year.

Operating and margins improved to 12.7% for the quarter compared to 9.5%. While we have seen improved pricing levels, the continuation of competitive pricing due to excess capacity in the industry continues to inhibit a full recovery of material cost increases which we have incurred over the past 18 months.

Year-to-date revenues increased to 123.7 million from 100.5 million in the previous year. We categorize our Electrical and Industrial Products segment into three major categories, Transmission and Distribution, Industrial, and Power Generation. Our fiscal 2006 Transmission and Distribution represented 50% of our business. The Industrial sector represented 39%, and the Power Generation sector represented 11%. We are projecting for fiscal 2007 that Transmission and Distribution will represent 49%, the Industrial sector will represent 43, and the balance will come from our Power Generation market.

At this time David will give us an overview of the Galvanizing sector.

We remain concerned about our ability to fully recover the escalation of zinc costs. This was a concern for the fourth quarter and it is a concern for fiscal 2007. While every effort will be made, competitive forces may inhibit accomplishment of our needed price changes. Demand remains strong across our served markets. Our results do reflect the improvement in the industrial U.S. market that has resulted in increased capital spending for expansion, as well as maintenance. Emergency work related to the hurricanes also positively contributed to our third quarter -- I'm sorry, our fourth quarter volumes.

Based upon our own market intelligence and published data, we believe that the demand in our geographic markets continue to be stronger than in other areas of North America and contributed to the excellent results for the fiscal year.

The American Galvanizing Association estimated the growth of galvanized steel was 3% for calendar 2005. And we were able to achieve a 16% increase in tonnage galvanized in our fiscal 2006, which essentially covers the same calendar period. Due to the fact that offshore rigs and platforms and coastal industrial insulations are extensive users of galvanizing steel, we anticipate that we will see additional demand in the second quarter of fiscal 2007 as the area continues to rebuild and replace the heavy damaged infrastructure and industrial complex.

Dana will now give us a review of the key operating statistics for this segment and cover the key balance sheet items.

Revenues in our Galvanizing segment for the quarter were 16.4 million, an increase of 22.2% as compared to 13.4 million recorded in the fourth quarter in fiscal '05. Our volumes of steel shipped, as well as our selling prices, were up when compared to the same quarter last year.

Operating income was 3.5 million, an increase of 44% compared to 2.4 million. Operating margins were 21.3% for the quarter compared to 18%.

Our comparative power operating results were achieved through increased revenues, as well as operating leverage achieved through improved pricing and higher volumes, as increased revenues were a result of strong demand for our products in our served markets, primarily in the U.S. industrial marketplace. Work related to the rebuilding of the Gulf Coast due to the hurricane continues to increase. A large portion of our improved selling price has been offset by the increased cost of zinc, which increased for the quarter by approximately $744,000.

The settlement from our business interruption insurance from the impact of Hurricanes Katrina and Rita was booked in the amount of $458,000 during the third and fourth quarters, offsetting a portion of our costs associated with lost production. Property damage associated with the hurricanes resulted in a write-down of the carrying value of affected assets in the amount of $507,000, which was netted against replacement cost insurance proceeds in the amount of 574,000. This resulted in a $67,000 gain, which was booked in our third and fourth quarters. Additional insurance proceeds will be booked in the future for property damage as these amounts are determined and the proceeds are received.

At this time I will cover some of our key cash flow and balance sheet items on a comparative basis. For the twelve-month period cash provided by operations was 12.3 million compared to 6.4 million in the prior year. Our receivable days outstanding and our inventory turns remain good. Accounts receivable days outstanding were 53 days at the end of February in '06 as compared to 57 days at the end of the last fiscal year. Year-to-date capital improvements were made in the amount of 6.6 million, and depreciation amortization for the year was 5.7 million.

Our total outstanding bank debt at the end of the year was 19.9 million. We continue to reduce our leverage as our emphasis remains on liquidity. Our current long-term debt to equity ratio at the end of the quarter was .16 to 1 as compared to .3 to 1 for the same period last year.

Our return on average assets continues to improve in both segments of the business, moving back into solid double-digit returns. Our average return on assets in our Industrial and Electrical Products segment was 14% this year compared -- and 27% for our Galvanizing segment.

At this time I will turn the conference call over to David for closing comments, and then we will open up to a question and answer session.

Our optimism about the improvement that has occurred in our markets is tempered by the potential slowing in the rate of growth, or in some cases of our markets reaching a plateau. The tremendous escalation in the cost of key commodities and energy remains a concern not only in the pricing objectives, but the potential impact on our served markets. While to date they have absorbed these cost levels, some concerns do remain as to how much more they can and will sustain.

We reported last quarter that some are projecting moderation and even reduction in the cost of critical commodities. This not only has not happened, we have actually seen an acceleration in the increases, particularly in zinc and copper. The aggressive steps we are taking in seeking out new domestic and international opportunities, improving our distribution channels, and lowering our cost structure, increasing our minimum pricing levels, improving operating efficiencies, enhanced management of our working capital, and significant reductions in our funded debt are reflected in our improved operating results for fiscal year 2006.

Additional improvements in volume going forward should further advance the gains we have made due to leverage. Our products and services are well positioned to continue to benefit from a continuing strong industrial economy, the new energy legislation, and the repair and the renovation of the storm damaged Gulf Coast infrastructure.

While we anticipate the current market conditions will continue, and in some cases improve, the timing of projects and release of orders could limit our ability to recognize the full benefit of this in fiscal year 2007. This, combined with a continuation of competitive pricing due to excess capacity, and a continuing increase in commodity pricing, particularly zinc, could inhibit our growth opportunities in fiscal year 2007, and keep pressure on our margins. We will continue our efforts to aggressively manage our way through these conditions in order to build upon the accomplishments of fiscal year 2006.

Based upon the evaluation of information that is currently available to management, we are estimating fiscal 2007 earnings to be within a range of $1.45 to $1.55 per diluted share, and revenues to be within the range of 195 to 205 million. We anticipate that fiscal year 2007 revenue breakdown by segment will be approximately the same as in fiscal year 2006, which was 66% Electrical and Industrial, and 34% Galvanizing Services.

Even though we have stated that our backlog is recovering, the lower bookings of the fourth quarter will likely adversely impact our second quarter operating results as we (indiscernible) the reaction time at several of our operations to fill available production slots. Therefore we believe the second quarter will be our weakest in terms of revenue and earnings in fiscal 2007, just as it was in fiscal year 2006.

Again, we appreciate your support and thank you in advance for continuation of that support. And at this time we would like to open up for any questions you may have.

(OPERATOR INSTRUCTIONS). John Franzreb with Sidoti & Co.

I would like to discuss some of the push backs you're alluding to that might be the primary reason for the less than enthusiastic forecast. You talk about excess capacity in the industry. Could you talk a little bit more who has it, and who has been the aggressive people on pricing -- give a little caller there?

The main thing that is impacting us on our outlook is still the excess capacity, particularly in the utility distribution side of our business. As you know, that is the least cyclical part of our business. That is the good news. And the bad news is it doesn't go down as much when the market goes down. It doesn't go up as much as it has. All of that capacity that came on as a result of the power generation boom is still out there. We have continued to see -- and these are more the regional privately held companies than of the public companies. We are continuing to find that pressure as being in the number one position in that metal clad outdoor switchgear. We've got everybody gunning for us, and the pricing has still been there.

Even though there has been growth in the industrial market, primarily as it relates to the petrochemical side, it is only recently that we have started seeing some relief in the pricing in that area. As we compete for the business in China and in the Middle East in and Western Europe, the Western Europe being large as well as small companies, are still very aggressive in their pricing. But in total we have seen an improvement. We're still getting hit pretty hard on utility distribution, as well as the international business, and the pricing pressure on power generation is as aggressive as it has been in the last two years.

In utility distribution market you are saying some relief in pricing, but it is not as much as you would hope to see at this point in the cycle? Is that fair?

Absolutely.

How about what the zinc? It would seem to me to be fairly easy to push through the zinc price increases given the geographical limits of that business. Why isn't that the case?

You have got essentially two pricing philosophies. Recall now that even though we have got a dominant position in our geographic area, we still complete with a number of small independent operators. Our pricing philosophy says that we increase pricing as a result of zinc in order to maintain margins on that business, so we have more dollars at the same margin. A small independent operator will say, I was scheduled to make 500,000. I am just going to increase my prices enough to maintain $500,000.

He is managing total dollars and margins, while we're managing margin as a percent of sales. Naturally our approach in a high inflationary type period makes us the high price. And you still get pricing pressures coming from those independents. Because a family-owned company that has been there for 20 years, its income is based on 500,000 a year. So they only raise their prices enough to keep it at that, whereas we raise it to maintain the margin. (multiple speakers).

But, David, wouldn’t that be a limited number of competitors, because the [huge] costs of shipping that product would offset maybe their ability to underprice you?

Even if we've got the dominant position in our area, 60% is maintained by privately held companies.

Okay.

Now we're still not banking off. We're getting a little more following of this. But up to this point with the forecast continued increased in zinc, we don't know whether they're going to back off or not. We're not going to back off.

(OPERATOR INSTRUCTIONS). Will Lyons with Westminster Securities.

Congratulations on a good quarter.

Thank you. It feels good.

I'm sure it does. I have a couple of questions. David, you mentioned some of your customers in the galvanizing business could turn to alternatives. What alternatives are there?

You could always go with an alternative -- you can paint instead of galvanize, and say, all right even though I have to do it in eight to ten years, it is still more economical. There's also a crossover point and sometimes where you would do with a concrete pole instead of a galvanized pole. And even on hand rails get to the point where aluminum is more cost-effective than galvanized steel. There are alternatives that will cause them to do that. Is that the largest portion of the market, no? But is it significant enough to impact our operations, absolutely.

Would you say 20%, 30%, what is your guess on that?

20, 15, 20.

Okay.

But there is one more piece I don't want you to leave out. There is some that say, well, I believe that the price is going to settle down, and this is going to get back to others, so I'm just going to delay it for six months. That is the other factor that hits us. That's what happened when steel went through the roof a few years ago. Everybody just went on hold for 90 days, and it hammered us.

Now those project came back, but still -- so on some of the things where they feel they can wait, that will do that. I don't think that is as large a percent as the other, but you can put all of those in there and you might end up with 30% that could potentially be at risk because of escalating cost.

Sure. But that gets back to delay, not complete abandonment of a project.

Right. But what we experienced when the steel went through that was a three to four month delay.

Interesting. Okay. Still on the galvanizing side, what industry you say in the last six months have been the most important for you?

We have been very, very fortunate in that all of our industries have shown almost equal improvement. And then it goes all away from our OEMs to the industrial, and then naturally getting the petrochem from where we're located. All construction is up on the industrial side. And even though we do have limited amounts of bridge and highway, we have been doing more in the signage in that, and that has improved. We got a boost from the Gulf Coast, but the bigger boost has come from across the board. As I indicated, I think our customer base has had -- and has got a larger share of the total North American market than the North American market has gone up. I think we have benefited from growth in the industrial sector, as well as being very fortunate in where we're located geographically.

Interesting. My last question in regards to the Electrical sector. I heard you say that the galvanizing you think has definitely benefited from reconstruction related to the hurricanes in the Gulf region. Have you seen any of the same effect on the Electrical side?

Just right now to this point it has been limited to our lighting products, and that has been pretty significant. It has not yet hit the other, because as we have talked about before, the basic plan is you repair and Band-Aid and put the other in order to get back up, and then you come back in and do a more orderly replacement cycle. So we have not seen that on that. But we have seen a nice boost in our lighting products as a result of it.

Again, congratulations on a great quarter.

Thanks very much.

[Vic Debeck] with Gabelli & Co.

A couple of questions. The first one on segment margins in '07. What is your best guess in terms of the margins for steel -- I guess Galvanizing as well as Electrical segments? That is my first question. And the second is what percentage of your sales come from international markets?

On the first question, our guidance is based upon margins of the Electrical and Industrial Products of 10.5%, and Galvanizing Services of 17.5%. Now normally when I answer on the international I answer as a percent of our Electrical Products -- Electrical and Industrial Products only. And we think in '07 that would be right in the range of 15%.

(OPERATOR INSTRUCTIONS). Todd Wakefield with the Boston Company.

I was wondering if you could talk about the power transmission part of your business, and maybe talk about where backlog is there versus last year? And what are you seeing activitywise, and maybe bids you might be seeing for the next three to six months?

As I have indicated on the high voltage products, which primarily addressed those in the Transmission side, we have had a strong year domestically, and an extremely strong year, if you include the month of March, internationally.

We are seeing improvement in the domestic market as a result of the reliability standards and the necessity spending. As we have indicated, we are still not seeing a breaking loose from a massive investment in the infrastructure. We're very pleased with that. Then as I said, the mix between the international is definitely more in the international side than in the domestic side. But yet the domestic backlog is the best it has been in many years also. It is a significant portion of our backlog. But it is not to the point that the distribution is going to dramatically distort our results.

I would also remind you that a great portion, not a great portion of that, but a significant portion of that will hit us in the FY '08. But most of the projects that we're looking at in the Transmission side that we're encouraged continued to be into the Asia market, the Middle East market, as well as particularly the northeast U.S. market. And those should give us additional strength going for our next fiscal year of 2008.

Would you mind -- I'm sorry if you already maybe gave us these numbers -- but in Q4 cost of goods sold -- consolidated cost of goods sold and SG&A?

We're filing -- it might help you out -- we're filing an 8-K as we speak that will break all those numbers out for you. That should be available very quickly.

(OPERATOR INSTRUCTIONS). Tim O'Toole with Delta Management.

Congratulations in addition from me on a great quarter, a solid quarter, and good execution obviously within that picking up. I guess one area I would love to get a little more color on is could you let me know what for the fourth quarter your unallocated G&A was? And then you had some, I think, some incremental SOX -- like everyone else on the planet -- expenses. I think they were fairly high in the third quarter. What were they like in the fourth quarter? And could you try and characterize what you see as the direction for that -- those expenditures next year?

This is Dana Perry. I will answer that for you. We spent approximately 1 million 8 in total last year on our SOX project. We also spent about 3 to $400,000 on the completion of our implementation of our ERP system. So those were a couple of the kind of unusual, unreoccurring items. Next year we are anticipating that Sarbanes-Oxley would be much less than half of what we spent this year. This was our first year to be compliant.

Right, and it seemed to be back end loaded in the year also (multiple speakers).

Yes, it was.

3Q, 4Q were both high.

Yes.

Do you expect the runrate to drop off? Do you really feel like you've all got it under your belt, and you're in pretty good shape there, or do you -- is there still a little bit of a tail as you get into this next quarter?

We will have a little bit going into the first quarter because of our year-end audits and so forth.

And then how about on the ERP, is that all done?

That is complete. Yes.

There were some other kind of puts and takes I think around the hurricanes I guess that seem like there would have been some of -- a little bit of a tail into this past quarter as well. On a net basis could you let me know what that looked like? And also for the -- for this last quarter, how much came through in stock appreciation rights? Could you give me a sense for where you see that going?

On the first, on the hurricane, I don't actually have that number, but it is not significant. It was -- we anticipate it to increase, but it was not the primary driving force. The primary driving force for our improvement was the overall improvement. And on the fourth quarter and related to stock appreciation expense?

For the full year we expensed about $700,000 for stock our appreciation rights program.

So there was a fair amount. I mean a fair amount in this last quarter -- is that because of bonuses that you then knew or --?

It is tied to the price of stock, and we saw a nice appreciation in our stock.

I was going to say maybe --. Was it mostly -- the pickup in the fourth quarter or this last quarter mostly the price?

It is proportioned between third and fourth.

Any other kind of one off from the last quarter? What was the total on allocated G&A in the last quarter?

I'm not sure we understand the unallocated, because under our segment reporting we report everything that is direct and the rest is reported as corporate expense.

Let's just say overall corporate expense then to that characterization, the stuff that doesn't get accounted as an expense in the segments.

Just a moment.

That is roughly $10 million for last year.

For the full year?

For the whole year. And again, that included 1 million 8 for SOX and 700,000 SARs and so forth and so on.

The SARs as we go into the next year, is that going to be -- you know, is it going to swing a little bit because of the price appreciating? The fundamentals are pretty good, and hopefully the stock price keeps going. If the price goes up another couple of bucks, is that likely to go up on a runrate basis, or is that likely to moderate a little bit?

It will moderate. We were up -- I think our stock appreciated from 15 to the $24 level over the course of last year. We will see that go up some. But we're also implementing accounting for stock options this year. And that is going to amount to about $0.03 to $0.04 a share for us for the fiscal year. This will be in our first year of implementing that.

For options? Okay.

Yes.

You still use some options as well as the stock appreciation?

These are old options that are vesting that were in place prior to some of the new issues.

You are changing things around. Okay, great. That is helpful as well. And $0.03 to $0.04 is actually not too bad for (multiple speakers).

We didn't have that many still left that were (multiple speakers).

Right, you have a pretty small share count. On the Electrical and Industrial Products Group how much -- I guess, how much think do you actually used there? I'm not sure if it is so much there, it is really I think more a function of the Galvanizing Services area. But you probably do use a fair amount of copper I am guessing. How much proper to consume also there?

I would have to get that for you. Now the increase -- and it is a significant number on the Electrical side. The impact of copper increase on us is probably 25% of the impact of the increase of zinc.

Really?

Yes. In other words, because in most cases in the larger contracts you're able to secure escalation clauses for copper.

For the copper, but that is less visible in those situations for the zinc?

That is correct.

Interesting. Thanks very much. That's helpful. Well actually before I let you off and let the next folks in, you're contemplating operating margins I think on the Galvanizing side. I think you mentioned 17.5%ish into this next fiscal year. Which is -- I think when I did the math before that it is -- that is actually a lower number than we'd just experienced in last quarter. And maybe below -- I know there is some volatility in there, but that is at the low end of the band, I think.

What do you think -- you kind of tend to pass along both natural gas and zinc I think fairly directly, or you have been able to. What would be the reason that you would expect the operating margins to come down? (multiple speakers).

What is happening to us, we turn our zinc inventories -- of course they are in large kettles -- twice a year. We were implementing price increases as the price zinc is going up, and enjoying that through margins before the cost of the inventory comes out through the P&L.

I've got you. Okay.

So the latter half of the year we're going to see higher zinc costs start rolling through and offsetting some of the positive effects of the price improvement.

That is kind of helpful. I know that can be kind of a time lag there.

And just going back to the copper, we use approximately 300,000 pounds of copper a year.

Per annum, okay. Would you expect -- that is what you used last year? Would you expect that to be up a little bit this year?

Yes, up, consistent with the change.

But in that case, as you alluded to, in that case you have much -- you almost -- I'm not sure if it is really a surcharge mechanism, but it looks more like a surcharge mechanism in the pass-through on a lot of the contract content. Okay, thanks very much. I will jump off and congrats again.

(OPERATOR INSTRUCTIONS). At this time there are no further questions. I would now like to turn the conference back over to Mr. Dingus for closing remarks.

We do appreciate the time that you took to spend with us today to cover the results. As we indicated, we are pleased with them. We're diligently working to secure every opportunity that we can to sustain a growth for the Company; and that it is profitable growth. As we said, we developed a very aggressively minimum margin business model this past year. I believe it is working for us. It may have slowed our growth somewhat, but we are pleased with the results, and hope we can continue to report progress on a quarter over quarter basis in these conference calls.

Thanks again. The information will be available on the website. If you need anything further, please do not hesitate to contact Lytham Partners or ourselves. Have a great day.

Ladies and gentlemen, this concludes today's AZZ Incorporated fourth quarter financial results conference call. You may now disconnect.