azz-20220531

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-12777

AZZ Inc.

(Exact name of registrant as specified in its charter)


Texas		75-0948250
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Museum Place, Suite 500
3100 West 7th Street
Fort Worth,	Texas	76107
(Address of principal executive offices)		(Zip Code)

(817) 810-0095

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

AZZ

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, 2022 the registrant had outstanding 24,788,614 shares of common stock; $1.00 par value per share.

Table of Contents

AZZ INC.

INDEX


		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 5	Other Information	30
Item 6.	Exhibits	31

	SIGNATURES	32

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AZZ INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	May 31, 2022		February 28, 2022
Assets
Current assets:
Cash and cash equivalents	$	100,998	$	15,082
Accounts receivable (net of allowance for credit losses of $4,886 as of May 31, 2022 and $5,207 as of February 28, 2022)	255,749		167,016
Inventories:
Raw material	176,734		117,603
Work-in-process	9,032		7,285
Finished goods	3,649		1,212
Contract assets	155,863		74,629
Prepaid expenses and other	18,136		3,471
Assets held for sale	235		235
Total current assets	720,396		386,533
Property, plant and equipment, net	491,722		230,848
Right-of-use assets	51,909		43,286
Goodwill	918,877		385,613
Deferred tax assets	5,217		5,191
Intangibles and other assets, net	594,171		81,557
Total assets	$	2,782,292	$	1,133,028
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	185,645	$	43,987
Income tax payable	1,661		3,564
Accrued salaries and wages	27,261		28,424
Other accrued liabilities	57,477		24,092
Customer deposits	712		681
Contract liabilities	39,682		42,465
Lease liability, short-term	8,975		7,318
Debt due within one year	13,000		—

Total current liabilities	334,413		150,531
Debt due after one year, net	1,594,777		226,484
Lease liability, long-term	42,603		35,610
Deferred income taxes	48,137		47,672
Other long-term liabilities	74,803		5,366
Total liabilities	2,094,733		465,663
Commitments and contingencies
Shareholders’ equity:
Common stock, $1 par, shares authorized 100,000; 24,788 shares issued and outstanding at May 31, 2022 and 24,688 shares issued and outstanding at February 28, 2022	24,788		24,688
Capital in excess of par value	85,432		85,847
Retained earnings	604,039		584,154
Accumulated other comprehensive loss	(26,700)		(27,324)
Total shareholders’ equity	687,559		667,365
Total liabilities and shareholders' equity	$	2,782,292	$	1,133,028

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended May 31,
	2022		2021

Sales	$	314,398	$	229,826
Cost of sales	229,942		171,899
Gross margin	84,456		57,927

Selling, general and administrative	44,546		27,215

Operating income	39,910		30,712

Interest expense	7,473		1,697

Other expense (income), net	798		(969)
Income before income taxes	31,639		29,984
Income tax expense	7,562		7,647
Net income	$	24,077	$	22,337
Earnings per common share
Basic earnings per share	$	0.97	$	0.89
Diluted earnings per share	$	0.96	$	0.88

Cash dividends declared per common share	$	0.17	$	0.17

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended May 31,
	2022		2021
Net income	$	24,077	$	22,337
Other comprehensive income:
Unrealized translation gain	624		2,581

Other comprehensive income	624		2,581
Comprehensive income	$	24,701	$	24,918

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended May 31,
	2022		2021
Cash flows from operating activities
Net income	$	24,077	$	22,337
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt recoveries	(265)		(218)
Amortization and depreciation	15,119		11,084
Deferred income taxes	(2,722)		(892)




Net (gain) loss on sale of property, plant and equipment	(29)		(15)
Amortization of deferred borrowing costs	1,541		139
Share-based compensation expense	1,998		1,811
Effects of changes in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable	(10,625)		(7,966)
Inventories	(19,054)		(8,254)
Prepaid expenses and other	(12,452)		(5,419)
Other assets	300		(778)
Net change in contract assets and liabilities	(12,689)		(9,839)
Accounts payable	41,579		6,321
Other accrued liabilities and income taxes payable	(3,464)		2,749
Net cash provided by operating activities	23,314		11,060
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	33		23
Purchase of property, plant and equipment	(7,809)		(7,489)

Acquisition of subsidiaries, net of cash acquired	(1,298,513)		—
Net cash used in investing activities	(1,306,289)		(7,466)
Cash flows from financing activities

Payments for taxes related to net share settlement of equity awards	(2,313)		(2,101)
Proceeds from revolving loan	39,000		35,000
Payments on revolving loan	(116,000)		(28,000)
Proceeds from long term debt	1,540,000		—
Payments of debt financing costs	(87,555)		—

Repurchase and retirement of treasury stock	—		(6,264)
Payments of dividends	(4,192)		(4,245)
Net cash provided by (used in) financing activities	1,368,940		(5,610)
Effect of exchange rate changes on cash	(49)		(418)
Net increase (decrease) in cash and cash equivalents	85,916		(2,434)
Cash and cash equivalents at beginning of period	15,082		14,837
Cash and cash equivalents at end of period	$	100,998	$	12,403
Supplemental disclosures
Cash paid for interest	$	4,161	$	394
Cash paid for income taxes	$	4,034	$	1,322

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended May 31, 2022
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount
Balance at February 28, 2022	24,688	$	24,688	$	85,847	$	584,154	$	(27,324)	$	667,365
Share-based compensation	—	—		1,998		—		—		1,998
Common stock issued under stock-based plans and related income tax expense	100	100		(2,413)		—		—		(2,313)


Cash dividends paid	—	—		—		(4,192)		—		(4,192)
Net income	—	—		—		24,077		—		24,077
Foreign currency translation	—	—		—		—		624		624

Balance at May 31, 2022	24,788	$	24,788	$	85,432	$	604,039	$	(26,700)	$	687,559

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended May 31, 2021
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total

	Shares	Amount
Balance at February 28, 2021	25,108	$	25,108	$	75,979	$	547,289	$	(25,084)	$	623,292
Share-based compensation	—	—		1,811		—		—		1,811
Common stock issued under stock-based plans and related income tax expense	89	89		(2,190)		—		—		(2,101)

Repurchase and retirement of treasury shares	(126)	(126)		—		(6,138)		—		(6,264)
Cash dividends paid	—	—		—		(4,245)		—		(4,245)
Net income	—	—		—		22,337		—		22,337
Foreign currency translation	—	—		—		(70)		2,651		2,581

Balance at May 31, 2021	25,071	$	25,071	$	75,600	$	559,173	$	(22,433)	$	637,411

SEC Form 10-Q filed by AZZ Inc.