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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 August 31, 2023
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-12777
 azz2dblue2016.jpg
AZZ Inc.
(Exact name of registrant as specified in its charter)
Texas75-0948250
(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 classTrading SymbolName of each exchange on which registered
Common StockAZZNew 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 FilerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging 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 September 30, 2023, the registrant had outstanding 25,076,871 shares of common stock; $1.00 par value per share. 


  PAGE
NO.
PART I.
Item 1.
Financial Statements (Unaudited)
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Risk Factors
Item 2.
Item 5
Item 6.




PART I. FINANCIAL INFORMATION
AZZ INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
As of
August 31, 2023February 28, 2023
Assets
Current assets:
Cash and cash equivalents$2,108 $2,820 
Accounts receivable, net of allowance for credit losses of $2,137 and $5,752 at August 31, 2023 and February 28, 2023, respectively
183,951 183,412 
Inventories:
Raw material130,230 138,227 
Work-in-process2,186 1,558 
Finished goods4,061 4,135 
Contract assets76,799 79,273 
Prepaid expenses and other10,534 7,991 
Total current assets409,869 417,416 
Property, plant and equipment, net516,499 498,503 
Right-of-use assets24,273 26,392 
Goodwill705,531 702,512 
Deferred tax assets5,820 12,467 
Intangibles and other assets, net467,034 479,429 
Investment in joint venture85,535 84,760 
Total assets$2,214,561 $2,221,479 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$127,408 $109,861 
Income tax payable46 272 
Accrued salaries and wages21,307 26,262 
Other accrued liabilities50,984 44,442 
Lease liability, short-term6,572 6,403 
Total current liabilities206,317 187,240 
Long-term debt, net1,002,364 1,058,120 
Lease liability, long-term18,434 20,704 
Deferred tax liabilities31,417 40,536 
Other long-term liabilities57,952 61,419 
Total liabilities1,316,484 1,368,019 
Commitments and contingencies (Note 16)
Shareholders’ equity:
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 and 240 shares issued and outstanding at August 31, 2023 and February 28, 2023, respectively
240 240 
Common Stock, $1 par value; 100,000 shares authorized; 25,077 and 24,912 shares issued and outstanding at August 31, 2023 and February 28, 2023, respectively
25,077 24,912 
Capital in excess of par value331,366 326,839 
Retained earnings547,208 506,042 
Accumulated other comprehensive loss(5,814)(4,573)
Total shareholders’ equity898,077 853,460 
Total liabilities and shareholders' equity$2,214,561 $2,221,479 
 
The accompanying notes are an integral part of the consolidated financial statements.
3

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended August 31,Six Months Ended August 31,
 2023202220232022
Sales$398,542 $406,710 $789,415 $613,844 
Cost of sales301,296 305,155 595,150 452,236 
   Gross margin97,246 101,555 194,265 161,608 
                                                                                                                                                                                
Selling, general and administrative36,239 37,414 67,762 69,558 
   Operating income61,007 64,141 126,503 92,050 
Interest expense27,770 28,144 56,476 35,615 
Equity in (earnings) of unconsolidated subsidiaries(974) (2,394) 
Other (income) expense, net(88)55 (50)28 
Income from continuing operations before income taxes34,299 35,942 72,471 56,407 
Income tax expense5,967 10,822 15,617 15,922 
Net income from continuing operations28,332 25,120 56,854 40,485 
Income from discontinued operations, net of tax 6,737  15,449 
Loss on disposal of discontinued operations, net of tax (89,427) (89,427)
Net loss from discontinued operations (82,690) (73,978)
Net income (loss)28,332 (57,570)56,854 (33,493)
Dividends on preferred stock(3,600)(1,040)(7,200)(1,040)
Net income (loss) available to common shareholders$24,732 $(58,610)$49,654 $(34,533)
Basic earnings (loss) per share
Earnings per common share from continuing operations$0.99 $0.97 $1.99 $1.59 
Loss per common share from discontinued operations$ $(3.33)$ $(2.99)
Earnings (loss) per common share$0.99 $(2.36)$1.99 $(1.39)
Diluted earnings (loss) per share
Earnings per common share from continuing operations$0.97 $0.93 $1.95 $1.57 
Loss per common share from discontinued operations$ $(2.85)$ $(2.70)
Earnings (loss) per common share$0.97 $(1.91)$1.95 $(1.13)
Weighted average shares outstanding - Basic 25,054 24,836 24,997 24,772 
Weighted average shares outstanding - Diluted29,210 29,059 29,196 27,428 
Cash dividends declared per common share$0.17 $0.17 $0.34 $0.34 
The accompanying notes are an integral part of the consolidated financial statements.




4

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

 Three Months Ended August 31,Six Months Ended August 31,
2023202220232022
 
Net income (loss) available to common shareholders$24,732 $(58,610)$49,654 $(34,533)
Other comprehensive income (loss):
Unrealized translation loss(2,867)(3,370)(1,736)(2,746)
Unrealized gain (loss) on derivatives qualified for hedge accounting:
Unrealized gain (loss) on interest rate swap, net of tax(1)
5,531  1,982  
Amounts reclassified from accumulated other comprehensive income to earnings, net of tax(2)
(938) (1,487) 
Other comprehensive income (loss)1,726 (3,370)(1,241)(2,746)
Comprehensive income (loss)$26,458 $(61,980)$48,413 $(37,279)
(1) Net of tax expense of $2,009 and $720 for the three and six months ended August 31, 2023, respectively.
(2) Net of tax benefit of $(341) and $(540) for the three and six months ended August 31, 2023, respectively.
The accompanying notes are an integral part of the consolidated financial statements.
5

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 Six Months Ended August 31,
20232022
Cash flows from operating activities
Net income (loss) available to common shareholders$49,654 $(34,533)
Less: Net loss from discontinued operations 73,978 
Plus: Dividends on preferred stock7,200 1,040 
Net income from continuing operations56,854 40,485 
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Bad debt expense79 (1)
Depreciation and amortization38,677 33,875 
Deferred income taxes(2,656)(21,823)
Equity in earnings of unconsolidated entities(2,394) 
Impairment of long-lived assets 135 
Net (gain) on sale of property, plant and equipment(13)(2,742)
Amortization of debt financing costs6,062 4,661 
Share-based compensation expense4,019 4,770 
Changes in current assets and current liabilities21,384 (12,679)
Changes in other long-term assets and long-term liabilities(3,672)(4,670)
Net cash provided by operating activities of continuing operations118,340 42,011 
Cash flows from investing activities
Purchase of property, plant and equipment(42,726)(18,696)
Acquisition of subsidiaries, net of cash acquired (1,298,513)
Other investing activities20 4,089 
Net cash used in investing activities of continuing operations(42,706)(1,313,120)
Cash flows from financing activities
Proceeds from issuance of common stock1,464 1,767 
Payments for taxes related to net share settlement of equity awards(791)(2,306)
Proceeds from revolving loan142,000 175,000 
Payments on revolving loan(202,000)(225,000)
Proceeds from long term debt 1,540,000 
Payments of debt financing costs(1,203)(82,697)
Payments on long term debt and finance leases(162)(153,250)
Payments of dividends(15,687)(8,418)
Net cash provided by (used in) financing activities of continuing operations(76,379)1,245,096 
Effect of exchange rate changes on cash33 2,501 
Net cash provided by operating activities from discontinued operations 25,098 
Net cash used in investing activities from discontinued operations (2,328)
Net cash provided by discontinued operations 22,770 
Net decrease in cash and cash equivalents(712)(742)
Cash and cash equivalents at beginning of period2,820 15,082 
Cash and cash equivalents at end of period$2,108 $14,340 
Less: Cash and cash equivalents from discontinued operations at end of period (3,000)
Cash and cash equivalents from continuing operations at end of period$2,108 $11,340 

 The accompanying notes are an integral part of the consolidated financial statements.
6

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Three Months Ended August 31, 2023
 Series A Preferred StockCommon StockCapital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
 SharesAmountSharesAmount
Balance at May 31, 2023240 $240 25,013 $25,013 $326,931 $526,729 $(7,540)$871,373 
Share-based compensation— — — — 2,115 — — 2,115 
Common stock issued under stock-based plans and related income tax expense— — 22 22 898 — — 920 
Common stock issued under employee stock purchase plan— — 42 42 1,422 — — 1,464 
Dividends on preferred stock— — — — — (3,600)— (3,600)
Dividends paid on common shares— — — — — (4,253)— (4,253)
Net income— — — — — 28,332 — 28,332 
Foreign currency translation— — — — — — (2,867)(2,867)
Interest rate swap— — — — — — 4,593 4,593 
Balance at August 31, 2023240 $240 25,077 $25,077 $331,366 $547,208 $(5,814)$898,077 
Six Months Ended August 31, 2023
Series A Preferred StockCommon StockCapital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at February 28, 2023240 $240 24,912 $24,912 $326,839 $506,042 $(4,573)$853,460 
Share-based compensation— — — — 4,019 — — 4,019 
Common stock issued under stock-based plans and related income tax expense— — 123 123 (914)— — (791)
Common stock issued under employee stock purchase plan— — 42 42 1,422 — — 1,464 
Dividends on preferred stock— — — — — (7,200)— (7,200)
Dividends paid on common shares— — — — — (8,488)— (8,488)
Net income— — — — — 56,854 — 56,854 
Foreign currency translation— — — — — — (1,736)(1,736)
Interest rate swap— — — — — — 495 495 
Balance at August 31, 2023240 $240 25,077 $25,077 $331,366 $547,208 $(5,814)$898,077 
7

Three Months Ended August 31, 2022
Series A Preferred StockCommon StockCapital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at May 31, 2022— $— 24,788 $24,788 $85,432 $604,039 $(26,700)$687,559 
Share-based compensation— — — — 2,772 — — 2,772 
Issuance of Class A convertible preferred stock in exchange for convertible debt240 240 — — 233,482 — — 233,722 
Common stock issued under stock-based plans and related income tax expense— — 22 22 (14)— — 8 
Common stock issued under employee stock purchase plan— — 52 52 1,714 — — 1,766 
Dividends on preferred stock— — — — — (1,040)— (1,040)
Dividends paid on common shares— — — — — (4,226)— (4,226)
Net loss— — — — — (57,570)— (57,570)
Foreign currency translation— — — — — — (3,370)(3,370)
Balance at August 31, 2022240 $240 24,862 $24,862 $323,386 $541,203 $(30,070)$859,621 
Six Months Ended August 31, 2022
Series A Preferred StockCommon StockCapital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at February 28, 2022— $— 24,688 $24,688 $85,847 $584,154 $(27,324)$667,365 
Share-based compensation— — — — 4,770 — — 4,770 
Issuance of Class A convertible preferred stock in exchange for convertible debt240 240 — — 233,482 — — 233,722 
Common stock issued under stock-based plans and related income tax expense— — 122 122 (2,428)— — (2,306)
Common stock issued under employee stock purchase plan— — 52 52 1,715 — — 1,767 
Dividends on preferred stock— — — — — (1,040)— (1,040)
Dividends paid on common shares— — — — — (8,418)— (8,418)
Net loss— — — — — (33,493)— (33,493)
Foreign currency translation— — — — — — (2,746)(2,746)
Balance at August 31, 2022240 $240 24,862 $24,862 $323,386 $541,203 $(30,070)$859,621 
The accompanying notes are an integral part of the consolidated financial statements.
8

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Basis of Presentation
AZZ Inc. ("AZZ", the "Company", "our" or "we") was established in 1956 and incorporated under the laws of the state of Texas. We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets in North America. We have three distinct operating segments: the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. The Company's AZZ Metal Coatings segment is a leading provider of metal finishing solutions for corrosion protection, including hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating to the North American steel fabrication and other industries. The AZZ Precoat Metals segment provides aesthetic and corrosion protective coatings and related value-added services for steel and aluminum coil, primarily serving the construction; appliance; heating, ventilation, and air conditioning (HVAC); container; transportation and other end markets in North America. The AZZ Infrastructure Solutions segment consists of the Company's 40% interest in AIS Investment Holdings LLC (the "AVAIL JV"). AIS Investment Holdings LLC is dedicated to delivering safe and reliable transmission of power from generation sources to end customers, and automated weld overlay solutions for corrosion and erosion mitigation to critical infrastructure in markets worldwide. AIS Investment Holdings LLC was wholly-owned by the Company until September 30, 2022, when AZZ contributed its' AZZ Infrastructure Solutions segment, excluding AZZ Crowley Tubing and excluding certain receivables retained by AZZ ("AIS"), to the AVAIL JV and sold a 60% interest in the AVAIL JV to Fernweh Group LLC ("Fernweh"). For the three and six months ended August 31, 2022, financial data for the AZZ Infrastructure Solutions segment is segregated and reported as discontinued operations.
Presentation
The accompanying condensed consolidated balance sheet as of February 28, 2023 was derived from audited financial statements. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended February 28, 2023, included in the Company’s Annual Report on Form 10-K covering such period.  Certain previously reported amounts have been reclassified to conform to current period presentation. See Note 3 for more information about results of operations reported in discontinued operations in the consolidated statement of operations and statement of cash flows for the three and six months ended August 31, 2022.
The Company's fiscal year ends on the last day of February and is identified as the fiscal year for the calendar year in which it ends. For example, the fiscal year ending February 29, 2024 is referred to as fiscal 2024.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly the financial position of the Company as of August 31, 2023, the results of its operations for the three and six months ended August 31, 2023 and 2022, and cash flows for the six months ended August 31, 2023 and 2022. The interim results reported herein are not necessarily indicative of results for a full year.
2. Acquisitions
Precoat Acquisition
On May 13, 2022, the Company acquired Precoat Metals for a purchase price of approximately $1.3 billion (the "Precoat Acquisition"). Precoat is the leading independent provider of metal coil coating solutions in North America. The acquisition represented a continued transition of the Company to a focused provider of coating and galvanizing services for critical applications. The Company completed the final purchase accounting valuation during the first quarter of fiscal year 2024.
The Company accounted for the Precoat Acquisition as a business combination under the acquisition method of accounting. Goodwill from the acquisition of $527.8 million represents the excess purchase price over the estimated value of net tangible and intangible assets and liabilities assumed, and is expected to be deductible for income tax purposes. The Company's chief operating decision maker assesses performance and allocates resources to Precoat separately from the AZZ Metal Coatings segment; therefore, Precoat is accounted for as a separate segment, the AZZ Precoat Metals segment. See Note 7 for more information about the Company's operating segments. Goodwill from the acquisition was allocated to the AZZ
9

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Precoat Metals segment. Assets acquired and liabilities assumed in the Precoat Acquisition were recorded at their estimated fair values as of the acquisition date. See Note 16 for additional information regarding certain environmental liabilities assumed as part of the Precoat Acquisition.
When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. The Company engaged third-party valuation experts to assist in determination of fair value of property and equipment, intangible assets, pension benefit obligation and certain other assets and liabilities. Management believes that the current information provides a reasonable basis for the fair values of assets acquired and liabilities assumed. During the first quarter of fiscal 2024, the Company made purchase price allocation adjustments that impacted goodwill, contract assets and accrued expenses.
The following table represents the summary of the assets acquired and liabilities assumed, in aggregate, related to the Precoat Acquisition, as of the date of the acquisition (in thousands):
May 13, 2022
Assets
Accounts receivable$77,422 
Inventories43,369 
Contract assets68,314 
Prepaid expenses and other2,247 
Property, plant and equipment305,503 
Right-of-use asset13,753 
Goodwill527,793 
Deferred tax asset8,660 
Intangibles and other assets446,546 
Total fair value of assets acquired$1,493,607 
Liabilities
Accounts payable(99,223)
Accrued expenses(31,761)
Other accrued liabilities(5,330)
Lease liability, short-term(2,440)
Lease liability, long-term(11,313)
Other long-term liabilities(60,091)
Total fair value of liabilities assumed$(210,158)
Total purchase price, net of cash acquired$1,283,449 
Intangible assets include customer relationships, tradenames and technology. Other long-term liabilities include the Company's pension obligation and certain environmental liabilities. See Notes 15 and 16 for more information about these long-term liabilities.
Unaudited Pro Forma Information

The following unaudited pro forma financial information for the three and six months ended August 31, 2023 and 2022 combines the historical results of the Company and the acquisition of Precoat Metals, assuming that the companies were combined as of March 1, 2022. The pro forma financial information includes business combination accounting effects from the Precoat Acquisition, including amortization expense from acquired intangible assets, depreciation expense from acquired property, plant and equipment, interest expense from financing transactions which occurred to fund the Precoat Acquisition, acquisition-related transaction costs and tax-related effects. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition of Precoat Metals had taken place on March 1, 2022 or of future operating performance.
10

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended August 31,Six Months Ended August 31,
2023202220232022
Revenue$398,542 $406,710 789,415 806,864 
Net income from continuing operations(1)
$28,332 $25,120 56,854 25,015 
(1) Net income for the six months ended August 31, 2022 includes acquisition costs of approximately $45.0 million, of which $11.5 million was incurred by AZZ and $33.5 million was incurred by Precoat Metals prior to the acquisition.

3. Discontinued Operations
On September 30, 2022, AZZ contributed its AZZ Infrastructure Solutions ("AIS") segment, excluding AZZ Crowley Tubing, to a joint venture, AIS Investment Holdings LLC (the "AVAIL JV") and sold a 60% interest in the AVAIL JV to Fernweh Group LLC ("Fernweh"). On September 30, 2022, the AVAIL JV was deconsolidated. Beginning October 1, 2022, the Company began accounting for its 40% interest in the AVAIL JV under the equity method of accounting. The AVAIL JV is included in the AZZ Infrastructure Solutions segment.
The divestiture of the AZZ Infrastructure Solutions segment represents an intentional strategic shift in our operations and will allow the Company to become a focused provider of coating and galvanizing solutions for critical applications. As a result, the results of the AIS segment were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for the three and six months ended August 31, 2022.
As part of recognizing the business as held for sale in accordance with GAAP, the Company was required to measure AIS at the lower of its carrying amount or fair value less cost to sell. As a result of this analysis, during fiscal 2023, the Company recognized an estimated non-cash, pre-tax loss on disposal of $159.9 million, of which $114.9 million was recognized during the three months ended August 31, 2022, and $27.8 million was recognized during the third quarter of fiscal 2023. The loss is included in "Loss on disposal of discontinued operations" in the consolidated statements of operations. The loss was determined by comparing the fair value of the consideration received for the sale of a 60% interest in the AIS JV and the fair value of the Company’s retained 40% investment in the AIS JV with the net assets of the AIS JV immediately prior to the transaction. The fair value of the Company’s retained investment in the AIS JV was determined in a manner consistent with the transaction price received for the sale of the 60% interest in the AIS JV.














11

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The results of operations from discontinued operations for the three and six months ended August 31, 2022, have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):
Three Months EndedSix Months Ended
August 31, 2022August 31, 2022
Sales$106,660 $213,924 
Cost of sales84,826 167,686 
Gross margin21,834 46,238 
Selling, general and administrative9,710 22,114 
Loss on disposal of discontinued operations114,900 114,900 
Operating loss from discontinued operations(102,776)(90,776)
Interest expense5 6 
Other (income) expense, net3,443 4,268 
Loss from discontinued operations before income tax(106,224)(95,050)
Income tax benefit(23,534)(21,072)
Net loss from discontinued operations$(82,690)$(73,978)
Loss per common share from discontinued operations:
Basic loss per share$(3.33)$(2.99)
Diluted loss per share$(2.85)$(2.70)
The depreciation, amortization, capital expenditures, and significant operating and investing non-cash items of the discontinued operations consist of the following (in thousands):
Six Months Ended August 31, 2022
Depreciation and amortization$6,248 
Purchase of property, plant and equipment2,878 
Loss on discontinued operations(114,900)

4. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each year. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the year.
12

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended August 31,Six Months Ended August 31,
2023202220232022
Numerator:
Net income from continuing operations$28,332 $25,120 $56,854 $40,485 
Dividends on preferred stock(3,600)(1,040)(7,200)(1,040)
Numerator for basic earnings per share continuing operations$24,732 $24,080 $49,654 $39,445 
After-tax interest expense for Convertible Notes 2,006  2,554 
Dividends on preferred stock3,600 1,040 7,200 1,040 
Numerator for diluted earnings per share continuing operations$28,332 $27,126 $56,854 $43,039 
Net loss from discontinued operations$ $(82,690)$ $(73,978)
Net income (loss) available to common shareholders$24,732 $(58,610)$49,654 $(34,533)
After-tax interest expense for Convertible Notes 2,006  2,554 
Dividends on preferred stock3,600 1,040 7,200 1,040 
Numerator for diluted earnings per share—net income (loss) available to common shareholders$28,332 $(55,564)$56,854 $(30,939)
Denominator:
Weighted average shares outstanding for basic earnings per share25,054 24,836 24,997 24,772 
Effect of dilutive securities:
Employee and director stock awards39 106 82 172 
Convertible Notes 2,953  1,902 
Series A Convertible Preferred Stock4,117 1,164 4,117 582 
Denominator for diluted earnings per share29,210 29,059 29,196 27,428 
Basic earnings (loss) per share
Earnings per common share from continuing operations$0.99 $0.97 $1.99 $1.59 
Loss per common share from discontinued operations$ $(3.33)$ $(2.99)
Earnings (loss) per common share$0.99 $(2.36)$1.99 $(1.39)
Diluted earnings (loss) per share
Earnings per common share from continuing operations$0.97 $0.93 $1.95 $1.57 
Loss per common share from discontinued operations$ $(2.85)$ $(2.70)
Earnings (loss) per common share$0.97 $(1.91)$1.95 $(1.13)
For the three months ended August 31, 2023 and 2022, approximately 126,882 and 102,616 shares related to employee equity awards, respectively, were excluded from the computation of diluted earnings per share, as their effect would have been anti-dilutive. For the six months ended August 31, 2023 and 2022, 125,793 and 57,025 shares, respectively, were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive.
13

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Sales
Disaggregated Sales
The following table presents disaggregated sales, for continuing operations, by customer industry (in thousands):
Three Months Ended August 31,Six Months Ended August 31,
2023202220232022
Sales:
Construction$216,807 $220,657 $422,337 $289,882 
Industrial42,245 41,214 82,889 79,182 
Consumer34,673 38,340 70,258 45,421 
Transportation35,869 36,825 72,626 69,097 
Electrical/Utility25,905 24,172 51,312 46,452 
Other (1)
43,043 45,502 89,993 83,810 
Total Sales$398,542 $406,710 $789,415 $613,844 
(1) Other includes less significant markets, such as agriculture, recreation, petro-chem, AZZ Tubular products and sales from recycling.
See also Note 7 for sales information by operating segment.
Contract Assets and Liabilities
The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets (unbilled receivables), and contract liabilities (customer advances and deposits) on the consolidated balance sheets. Our contract assets and contract liabilities are primarily related to the Company’s Precoat Metals segment. Customer billing can occur subsequent to revenue recognition, resulting in contract assets. In addition, the Company can receive advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.
As of August 31, 2023 and February 28, 2023, the balance for contract assets was $76.8 million and $79.3 million, respectively, primarily related to the AZZ Precoat Metals segment. Contract liabilities of $1.1 million and $1.3 million as of August 31, 2023 and February 28, 2023, respectively, are included in "Other accrued liabilities" in the consolidated balance sheets.

6. Supplemental Cash Flow Information

In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):
Six Months Ended August 31,
20232022
Decrease (increase) in current assets:
Accounts receivable, net$(610)$(35,813)
Inventories7,460 (16,081)
Contract assets57 (7,751)
Prepaid expenses and other(2,544)(9,238)
Increase (decrease) in current liabilities:
Accounts payable15,036 32,842 
Income taxes payable(226)7,388 
Accrued expenses2,211 15,974 
Changes in current assets and current liabilities$21,384 $(12,679)
14

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Cash flows related to interest and income taxes were as follows (in thousands):

Six Months Ended August 31,
20232022
Cash paid for interest$51,539 $23,888 
Cash paid for income taxes12,930 10,065 

Supplemental disclosures of non-cash investing and financing activities were as follows (in thousands):
Six Months Ended August 31,
20232022
Issuance of preferred stock in exchange for convertible notes$ $233,722 
Accrued dividends on preferred stock2,400 1,040 
Accruals for capital expenditures5,579  

7. Operating Segments
Segment Information
The Company’s Chief Executive Officer, who is the chief operating decision maker ("CODM"), reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Sales and operating income are the primary measures used by the CODM to evaluate segment operating performance and to allocate resources to the AZZ Metal Coatings and the AZZ Precoat Metals segments, and net income is the primary measure used by the CODM to evaluate performance and allocate resources to the AZZ Infrastructure Solutions segment. Expenses related to certain centralized administration or executive functions that are not specifically related to an operating segment are included in Corporate. As presented in Note 3, the AVAIL JV operating results for the period prior to deconsolidation are included within discontinued operations, with the exception of AZZ Crowley Tubing, which was retained by the Company and merged into the AZZ Metal Coatings segment. See Note 3 for the results of operations related to the AZZ Infrastructure Solutions segment.
A summary of each of the Company's operating segments is as follows:
AZZ Metal Coatings — provides hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating, and other metal coating applications to the steel fabrication and other industries through facilities located throughout the United States and Canada. Hot-dip galvanizing is a metallurgical manufacturing process in which molten zinc reacts to steel. The zinc alloying provides corrosion protection and extends the life-cycle of fabricated steel for several decades.
AZZ Precoat Metals — engages in the advanced application of protective and decorative coatings and related value-added manufacturing for steel and aluminum coil primarily serving the construction; appliance; heating, ventilation and air conditioning (HVAC); container; transportation and other end markets.
AZZ Infrastructure Solutions — consists of the equity in earnings of the Company's 40% investment in the AVAIL JV, as well as other expenses directly related to AIS receivables that were retained following the divestiture of the AIS business. The AVAIL JV provides specialized products and services designed to support primarily industrial and electrical applications. The product offerings include custom switchgear, electrical enclosures, medium- and high-voltage bus ducts, explosion proof and hazardous duty lighting products. The AZZ Infrastructure Solutions segment also focuses on life-cycle extension for the power generation, refining and industrial infrastructure, through providing automated weld overlay solutions for corrosion and erosion mitigation.
15

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net income from continuing operations by segment for the three and six months ended August 31, 2023 and 2022 was as follows (in thousands):
Three Months Ended August 31, 2023
Metal CoatingsPrecoat Metals
Infrastructure Solutions(1)
Corporate(2)(3)
Total
Sales$169,837 $228,705 $ $ $398,542 
Cost of sales119,471 181,825   301,296 
Gross margin50,366 46,880   97,246 
Selling, general and administrative5,285 7,874 5,932 17,148 36,239 
Operating income (loss) from continuing operations$45,081 $39,006 (5,932)(17,148)61,007 
Interest expense 27,770 27,770 
Equity in earnings of unconsolidated subsidiaries (974) (974)
Other (income) expense  (88)(88)
Income (loss) from continuing operations before income tax$(4,958)(44,830)34,299 
Income tax expense5,967 5,967 
Net income (loss) from continuing operations$(50,797)$28,332 
Six Months Ended August 31, 2023
Metal CoatingsPrecoat Metals
Infrastructure Solutions(1)
Corporate(2)(3)
Total
Sales$338,631 $450,784 $ $ $789,415 
Cost of sales237,328 357,822   595,150 
Gross margin101,303 92,962   194,265 
Selling, general and administrative10,751 16,266 5,954 34,791 67,762 
Operating income (loss) from continuing operations$90,552 $76,696 (5,954)(34,791)126,503 
Interest expense 56,476 56,476 
Equity in earnings of unconsolidated subsidiaries(2,394) (2,394)
Other (income) expense (50)(50)
Income (loss) from continuing operations before income tax$(3,560)(91,217)72,471 
Income tax expense15,617 15,617 
Net income (loss) from continuing operations$(106,834)$56,854 
16

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended August 31, 2022
Metal CoatingsPrecoat Metals
Infrastructure Solutions(1)
Corporate(2)(3)
Total
Sales$165,849 $240,861 $ $ $406,710 
Cost of sales116,437 188,718   305,155 
Gross margin49,412 52,143   101,555 
Selling, general and administrative4,416 15,930  17,068 37,414 
Operating income (loss) from continuing operations$44,996 $36,213  (17,068)64,141 
Interest expense 28,144 28,144 
Other (income) expense 55 55 
Income (loss) from continuing operations before income tax$ (45,267)35,942 
Income tax expense10,822 10,822 
Net income (loss) from continuing operations$(56,089)$25,120 
Six Months Ended August 31, 2022
Metal CoatingsPrecoat Metals
Infrastructure Solutions(1)
Corporate(2)(3)
Total
Sales$329,293 $284,551 $ $ $613,844 
Cost of sales230,018 222,218   452,236 
Gross margin99,275 62,333   161,608 
Selling, general and administrative9,009 19,472  41,077 69,558 
Operating income (loss) from continuing operations$90,266 $42,861  (41,077)92,050 
Interest expense 35,615 35,615 
Other (income) expense 28 28 
Income (loss) from continuing operations before income tax$ (76,720)56,407 
Income tax expense15,922 15,922 
Net income (loss) from continuing operations$(92,642)$40,485 
(1) Infrastructure Solutions segment includes the Company’s equity in (earnings) loss from its investment in the AVAIL JV, as well as other expenses related to receivables and liabilities that were retained by the Company following the sale of the AIS business. See Note 16 for a description of a legal settlement recognized during the three months ended August 31, 2023 related to AIS business.
(2) Interest expense, Other (income) expense and Income tax expense are included in the Corporate segment as these items are not allocated to the segments.
(3) For fiscal year 2024, amortization expense for acquired intangible assets is included in Corporate expenses in "Selling, general and administrative" expense as these expenses are not allocated to the segments.






17

AZZ INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Asset balances by operating segment for each period were as follows (in thousands):
As of
August 31, 2023February 28, 2023
Assets:
Metal Coatings$575,330 $588,337 
Precoat Metals1,504,940