10-Q 1 azz-20220831.htm 10-Q azz-20220831
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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, 2022
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-12777
 azz-20220831_g1.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, 2022, the registrant had outstanding 24,862,235 shares of common stock; $1.00 par value per share. 


AZZ INC.
INDEX


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AZZ INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
August 31, 2022February 28, 2022
Assets
Current assets:
Cash and cash equivalents$11,340 $12,082 
Accounts receivable (net of allowance for credit losses of $5,801 as of August 31, 2022 and $4,716 as of February 28, 2022)
193,647 85,106 
Inventories:
Raw material137,841 81,022 
Work-in-process1,716 840 
Finished goods2,887 1,135 
Contract assets82,897 2,866 
Prepaid expenses and other13,044 1,583 
Assets held for sale 235 
Current assets of discontinued operations215,068 201,664 
Total current assets658,440 386,533 
Property, plant and equipment, net496,125 193,358 
Right-of-use assets25,550 13,954 
Goodwill736,218 190,391 
Intangibles and other assets, net478,284 39,115 
Deferred tax assets3,622 3,464 
Non-current assets of discontinued operations186,508 306,212 
Total assets$2,584,747 $1,133,027 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$158,085 $24,840 
Income tax payable11,135 3,828 
Accrued salaries and wages27,294 17,123 
Accrued dividends1,040  
Other accrued liabilities52,512 12,873 
Customer deposits323 294 
Contract liabilities1,553  
Lease liability, short-term5,386 3,289 
Debt due within one year13,000  
Current liabilities of discontinued operations79,932 88,283 
Total current liabilities350,260 150,530 
Debt due after one year, net1,238,170 226,484 
Lease liability, long-term20,941 11,403 
Deferred income taxes29,044 47,672 
Other long-term liabilities65,090 5,366 
Long-term liabilities of discontinued operations21,621 24,207 
Total liabilities1,725,126 465,662 
Commitments and contingencies
Shareholders’ equity:
Series A Convertible Preferred Stock, $1 par, shares authorized 240; 240 shares issued and outstanding at August 31, 2022 and 0 shares issued and outstanding at February 28, 2022
240  
Common stock, $1 par, shares authorized 100,000; 24,862 shares issued and outstanding at August 31, 2022 and 24,688 shares issued and outstanding at February 28, 2022
24,862 24,688 
Capital in excess of par value323,386 85,847 
Retained earnings541,203 584,154 
Accumulated other comprehensive loss(30,070)(27,324)
Total shareholders’ equity859,621 667,365 
Total liabilities and shareholders' equity$2,584,747 $1,133,027 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended August 31,Six Months Ended August 31,
 2022202120222021
Sales$406,710 $131,434 $613,844 $260,650 
Cost of sales305,155 94,991 452,236 188,062 
Gross margin101,555 36,443 161,608 72,588 
Selling, general and administrative37,414 16,481 69,558 31,200 
Operating income from continuing operations64,141 19,962 92,050 41,388 
Interest expense28,144 1,731 35,615 3,391 
Other (income) expense, net55 45 28 (15)
Income from continuing operations before income taxes35,942 18,186 56,407 38,012 
Income tax expense10,822 3,918 15,922 12,131 
Net income from continuing operations25,120 14,268 40,485 25,881 
Income from discontinued operations, net of tax6,737 4,710 15,449 15,434 
Estimated loss on disposal of discontinued operations, net of tax(89,427) (89,427) 
Net income (loss) from discontinued operations(82,690)4,710 (73,978)15,434 
Net income (loss)(57,570)18,978 (33,493)41,315 
Accrued dividends on preferred stock(1,040) (1,040) 
Net income (loss) available to common shareholders$(58,610)$18,978 $(34,533)$41,315 
Earnings per common share from continuing operations
Basic earnings per share$0.97 $0.57 $1.59 $1.04 
Diluted earnings per share$0.93 $0.57 $1.57 $1.03 
Earnings per common share from discontinued operations
Basic earnings (loss) per share$(3.33)$0.19 $(2.99)$0.62 
Diluted earnings (loss) per share$(2.85)$0.19 $(2.70)$0.61 
Earnings per common share from consolidated operations
Basic earnings (loss) per share$(2.36)$0.76 $(1.39)$1.65 
Diluted earnings (loss) per share$(1.91)$0.76 $(1.13)$1.64 
Cash dividends declared per common share$0.17 $0.17 $0.34 $0.34 

The accompanying notes are an integral part of the condensed 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,
 2022202120222021
Net income (loss) available to common shareholders$(58,610)$18,978 $(34,533)$41,315 
Other comprehensive income:
Unrealized translation loss(3,370)(3,096)(2,746)(515)
Other comprehensive loss(3,370)(3,096)(2,746)(515)
Comprehensive income (loss)$(61,980)$15,882 $(37,279)$40,800 

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

5

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended August 31,
 20222021
Cash flows from operating activities
Net income (loss) available to common shareholders(34,533)41,315 
Less: Net income (loss) from discontinued operations(73,978)15,434 
Plus: dividends on Preferred Stock1,040  
Net income from continuing operations40,485 25,881 
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Bad debt expense(1)12 
Depreciation and amortization33,875 15,912 
Deferred income taxes(21,823)(1,367)
Loss on disposal of business 552 
Impairment of long-lived assets135  
Net (gain) loss on sale of property, plant and equipment(2,742)(9)
Amortization of deferred borrowing costs4,661 330 
Share-based compensation expense4,770 4,682 
Effects of changes in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable(35,813)(10,166)
Inventories(16,081)(5,446)
Prepaid expenses and other(9,238)(2,231)
Other assets(4,254)(1,625)
Net change in contract assets and liabilities(7,751)(295)
Accounts payable32,840 836 
Other accrued liabilities and income taxes payable22,948 4,192 
Net cash provided by operating activities of continuing operations42,011 31,258 
Cash flows from investing activities
Proceeds from sale or insurance settlements of property, plant and equipment4,089 2,478 
Purchase of property, plant and equipment(18,696)(10,641)
Acquisition of subsidiaries, net of cash acquired(1,298,513) 
Net cash used in investing activities of continuing operations(1,313,120)(8,163)
Cash flows from financing activities
Proceeds from issuance of common stock1,767 1,544 
Payments for taxes related to net share settlement of equity awards(2,306)(2,149)
Proceeds from revolving loan175,000 182,000 
Payments on revolving loan(225,000)(178,000)
Proceeds from long term debt1,540,000  
Payments of debt financing costs(82,697) 
Payments on long term debt(153,250) 
Repurchase and retirement of treasury stock (21,233)
Payments of dividends(8,418)(8,510)
Net cash provided by (used in) financing activities of continuing operations1,245,096 (26,348)
Effect of exchange rate changes on cash2,501 (197)
Net cash provided by operating activities from discontinued operations25,098 6,499 
Net cash provided by investing activities from discontinued operations(2,328)(2,399)
Net cash used in financing activities from discontinued operations  
Cash provided by discontinued operations22,770 4,100 
Net increase (decrease) in cash and cash equivalents(742)650 
Cash and cash equivalents at beginning of period15,082 14,837 
Cash and cash equivalents at end of period14,340 15,487 
Less: Cash and cash equivalents from discontinued operations at end of period(3,000)(3,000)
Cash and cash equivalents from continuing operations at end of period$11,340 $12,487 

6

Supplemental disclosures of non-cash investing and financing activities
Cash paid for interest$3,442 $3,304 
Cash paid for income taxes$10,065 $14,360 
Issuance of preferred stock in exchange for convertible notes$233,722 $ 
Accrued dividends on Series A Preferred Stock$1,040 $ 



The accompanying notes are an integral part of the condensed consolidated financial statements.
7

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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 Series 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 
Accrued dividends on preferred stock— — — — — (1,040)— (1,040)
Cash dividends paid— — — — — (4,226)— (4,226)
Net income (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 Series 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 
Accrued dividends on preferred stock— — — — — (1,040)— (1,040)
Cash dividends paid— — — — — (8,418)— (8,418)
Net income (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 



8

AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended August 31, 2021
Series A Preferred StockCommon StockCapital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at May 31, 2021— $— 25,071 $25,071 $75,600 $559,173 $(22,433)$637,411 
Share-based compensation— — — — 2,871 — — 2,871 
Common stock issued under stock-based plans and related income tax expense— — 18 18 (66)— — (48)
Common stock issued under employee stock purchase plan— — 41 41 1,503 — — 1,544 
Repurchase and retirement of treasury shares— — (290)(290)— (14,679)— (14,969)
Cash dividends paid— — — — — (4,265)— (4,265)
Net income— — — — — 18,978 — 18,978 
Foreign currency translation— — — — —  (3,096)(3,096)
Balance at August 31, 2021 $ 24,840 $24,840 $79,908 $559,207 $(25,529)$638,426 
Six Months Ended August 31, 2021
Series A Preferred StockCommon StockCapital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
SharesAmountSharesAmount
Balance at February 28, 2021— $— 25,108 $25,108 $75,979 $547,289 $(25,084)$623,292 
Share-based compensation— — — — 4,682 — — 4,682 
Common stock issued under stock-based plans and related income tax expense— — 107 107 (2,256)— — (2,149)
Common stock issued under employee stock purchase plan— — 41 41 1,503 — — 1,544 
Repurchase and retirement of treasury shares— — (416)(416)— (20,817)— (21,233)
Cash dividends paid— — — — — (8,510)— (8,510)
Net income— — — — — 41,315 — 41,315 
Foreign currency translation— — — — — (70)(445)(515)
Balance at August 31, 2021 $ 24,840 $24,840 $79,908 $559,207 $(25,529)$638,426 
The accompanying notes are an integral part of the condensed consolidated financial statements.
9

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

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. The Company is a global provider of metal coating solutions, coil coating solutions, welding solutions, specialty electrical equipment and highly engineered services to the power generation, transmission, distribution, refining and industrial markets.
On May 13, 2022, the Company completed the acquisition of the Precoat Metals business division (“Precoat”) of Sequa Corporation (“Sequa”), a portfolio company of global investment firm Carlyle. See Notes 2 and 11 for further discussion about Precoat. As a result of the Precoat Acquisition, the Company changed its reportable segments, and added AZZ Precoat Metals as a new reportable segment. See Note 6 for more information about the Company's segments.
The Company has three distinct operating segments: the AZZ Metal Coatings segment, the AZZ Precoat Metals segment and the AZZ Infrastructure Solutions segment. 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 41 galvanizing plants and six surface technologies plants located in the United States and Canada. AZZ Precoat Metals provides advanced applications of protective and decorative 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. AZZ Precoat Metals operates through 13 plants located in the United States. AZZ Infrastructure Solutions 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. As discussed in Note 3, on June 23, 2022, the Company entered into a definitive agreement whereby the Company will contribute its AZZ Infrastructure Solutions business, excluding AZZ Crowley Tubing, to a joint venture and sell a 60% interest in the joint venture to Fernweh AIS Acquisition LP. The AZZ Infrastructure Solutions segment is now classified as assets held for sale and is reported as discontinued operations, and financial data for the segment has been segregated and presented as discontinued operations for all periods presented. See Note 3 and Note 13 for additional information about the Company's discontinued operations and consummation of the joint venture.
Presentation
The accompanying condensed consolidated balance sheet as of February 28, 2022 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, 2022, 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 and assets and liabilities reclassified as assets held for sale and reported in discontinued operations in the consolidated balance sheets, statements of operations and statements of cash flows as of and for the three and six months ended August 31, 2022 and as of February 28, 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 28, 2023 is referred to as fiscal 2023.
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, 2022, the results of its operations for the three and six months ended August 31, 2022 and 2021, and cash flows for the six months ended August 31, 2022 and 2021. The interim results reported herein are not necessarily indicative of results for a full year.
Coronavirus (COVID-19) and Business Environment
While we continue to support our customers, there remains continuing uncertainties regarding to what extent, if any, that the COVID-19 pandemic, or newly identified variants of COVID-19, or additional regulatory requirements, will ultimately have on the demand for our products and services or with our supply chain or our employees. We expect continued uncertainty in our
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business and the global economy due to the duration and intensity of the COVID-19 pandemic, pressure from inflation, supply chain disruptions, and volatility in employment trends and consumer confidence which may impact our results.
The impact of COVID-19 to the Company's personnel and operations has been limited during the second quarter of fiscal 2023. However, labor market shortages and supply chain challenges have continued during the quarter, resulting in increased operating expenses as the constrained labor market and supply chain disruptions impacted the availability and cost of skilled labor and materials. Disruptions to certain parts of our supply chain have, in certain cases, limited our ability to fulfill demand in the future. The extent of COVID-19's impact on our business will depend on future developments, including the continued new variants and surges in the spread of COVID-19, the Company's continued ability to source and distribute its products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending, all of which are uncertain and difficult to predict, considering the continuously evolving landscape. Accordingly, our financial condition, results of operations or cash flows could be impacted in ways that we are not able to predict today.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. ("ASU") 2021-08, Business combinations (Topic 805): Accounting for Contract Assets and Contract liabilities from Contracts with Customers (ASU 2021-08"), which requires contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") at the acquisition date as if the acquirer had originated the contracts rather than adjust them to fair value. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2021-08 during the first quarter of fiscal 2023. The adoption of ASU 2021-08 did not have a material impact on the Company's financial condition, results of operations or cash flows as of August 31, 2022, including the acquisition of Precoat Metals during the first quarter of fiscal 2023.
In March 2020 and as clarified in January 2021, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date between March 12, 2020 and December 31, 2022. The Company continues to evaluate its contracts and transactions for the potential application of ASU 2020-04, but there has been no material impact to its financial condition, results of operations, or cash flows as of August 31, 2022.
2. Acquisitions
Precoat Acquisition
On May 13, 2022, the Company acquired Precoat for a purchase price of approximately $1.3 billion (the "Precoat Acquisition"). Headquartered in St. Louis, Missouri, Precoat is the leading independent provider of metal coil coating solutions in North America. Precoat engages in the advanced application of protective and decorative 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. The acquisition represents a continued transition of the Company from a diverse holding company to a focused provider of coating and galvanizing services for critical applications.
The Precoat Acquisition was funded primarily with proceeds from the Term Loan B. See Note 7 for a description of the Term Loan B. The Company incurred acquisition costs of $12.6 million for the six months ended August 31, 2022, which are included in "Selling, general and administrative" expense in the accompanying condensed consolidated statements of operations. AZZ Precoat Metals contributed revenue of $284.6 million and operating income of $42.9 million to the Company's condensed consolidated statements of operations from May 13, 2022, through August 31, 2022.
The Company accounted for the Precoat Acquisition as a business combination under the acquisition method of accounting. Goodwill from the acquisition of $547.9 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 will assess performance and allocate resources to Precoat separately from the AZZ Metal Coatings and AZZ Infrastructure Solutions segments; therefore, Precoat will be accounted for as a separate segment, the AZZ Precoat Metals segment. See Note 6 for more information about the Company's segments. Goodwill from the acquisition was allocated to the AZZ 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 12 for additional information about the environmental liabilities assumed as part of the Precoat Acquisition.
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The Company has not finalized these estimates as of the date of this report; therefore, the fair value estimates set forth below are subject to adjustment during the measurement period following the acquisition date. The final allocation of purchase consideration could include changes in the estimated fair value of working capital (including accounts receivable, inventories, contract assets, prepaid assets, account payable and accrued liabilities), right-of-use assets and lease liabilities, property, plant and equipment, intangible assets and other long-term liabilities. Adjustments in the purchase price allocation may require a change in the amount allocated to goodwill during the period in which the adjustments are determined.
When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. The Company has 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. Preliminary estimates from third-party experts along with the analysis and expertise of management have formed the basis for the preliminary allocation. Detailed analysis and review of the condition, existence and utility of assets acquired, and assumptions inherent in the estimation of fair value of intangible assets and pension obligation is currently ongoing. Management believes that the current information provides a reasonable basis for estimating fair values of assets acquired and liabilities assumed. These estimates, judgments and assumptions are subject to change and should be treated as preliminary values as there could be significant changes upon final valuation. The Company expects to complete the final valuations within one year of the acquisition date.
The following table represents the preliminary 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 assets70,731 
Prepaid expenses and other2,245 
Property, plant and equipment306,953 
Right-of-use asset10,954 
Goodwill547,894 
Intangibles and other assets446,746 
Total fair value of assets acquired$1,506,314 
Liabilities
Accounts payable$(99,223)
Accrued expenses(31,781)
Other accrued liabilities(3,741)
Customer deposits(1,574)
Lease liability, short-term(1,706)
Lease liability, long-term(9,248)
Deferred tax liabilities(3,100)
Other long-term liabilities(56,711)
Total fair value of liabilities assumed(207,084)
Total Purchase Price, net of cash acquired$1,299,230 
During the three months ended August 31, 2022, the Company made adjustments to the assets acquired for Inventories, Property, plant and equipment, Goodwill and Intangibles and other assets. As a result of these changes, for the three months ended August 31, 2022, the Company recorded additional depreciation and amortization expense of approximately $0.1 million related to the first quarter of fiscal 2023.
DAAM Acquisition
On February 28, 2022, the Company entered into an agreement to acquire all the outstanding shares of DAAM Galvanizing Co. Ltd. ("DAAM"), a privately held hot-dip galvanizing company based in Edmonton, Alberta Canada, for approximately $35.5 million. DAAM currently operates two galvanizing facilities in Canada; one located in Edmonton, Alberta and a second in Saskatoon, Saskatchewan, as well as a service depot in Calgary, Alberta. The addition of DAAM expanded the Company's geographical coverage in the Northwest and enhanced the scope of metal coatings solutions in Canada. The business is included in the Company's AZZ Metal Coatings segment. The goodwill arising from this acquisition was allocated to the AZZ
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Metal Coatings segment, and the Company estimates that approximately 50% of the goodwill amount is expected to be deductible for income tax purposes.
The Company has engaged third-party valuation experts to assist with the purchase price allocation, the recorded valuation of property and equipment, intangible assets and certain other assets and liabilities. Preliminary estimates from third-party experts along with the analysis and expertise of management have formed the basis for the preliminary allocation. As of August 31, 2022, the purchase price allocation for certain assets acquired has not been finalized, including property, plant and equipment and intangible assets. As such, the fair values of the assets acquired and liabilities assumed should be treated as preliminary values as there could be significant changes upon final valuation.
The following table represents the preliminary summary of the assets acquired and liabilities assumed, in aggregate, related to the DAAM acquisition, as of the date of the acquisition (in thousands):
February 28, 2022
Assets
Accounts receivable$4,586 
Inventories3,119 
Prepaid and other assets23 
Property, plant and equipment14,436 
Goodwill24,369 
Liabilities
Accounts payable and other accrued liabilities(7,437)
Deferred tax liabilities(3,596)
Total purchase price$35,500 
Unaudited Pro Forma Information

The following unaudited pro forma financial information for the three and six months ended August 31, 2022 and 2021 combines the historical results of the Company and the acquisitions of Precoat Metals and DAAM, assuming that the companies were combined as of March 1, 2021 and include business combination accounting effects from the Precoat Acquisition, including amortization charges from acquired intangible assets, depreciation expense on acquired property, plant and equipment, interest expense on the financing transactions used 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 acquisitions of Precoat Metals and DAAM had taken place on March 1, 2021 or of future operating performance.
Three Months Ended August 31,Six Months Ended August 31,
2022202120222021
Revenue$406,710 $335,906 $806,864 $642,383 
Net income from continuing operations$25,120 $39,520 $42,085 $64,025 
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3. Discontinued Operations
In fiscal 2023, the Company continued to execute its plan to divest of non-core businesses. On June 23, 2022, the Company and Fernweh Group LLC ("Fernweh"), jointly entered into a definitive agreement whereby AZZ will contribute its AZZ Infrastructure Solutions segment (“AIS”) to AIS Investment Holdings LLC (the “AIS JV”), and sell a 60% interest in the AIS JV to Fernweh at an implied enterprise value of AIS of $300.0 million.

Management has committed to a plan to divest substantially all of the AIS segment prior to August 31, 2022, and has classified the AIS business as held for sale in the accompanying interim consolidated balance sheets. As part of recognizing the business as held for sale in accordance with GAAP, the Company is required to measure AIS at the lower of its carrying amount or fair value less cost to sell. As a result of this analysis, for the three months ended August 31, 2022, the Company recognized an estimated non-cash, pre-tax loss on disposal of approximately $114.9 million, which is included in "Estimated loss on disposal of discontinued operations" in the consolidated statements of operations. The estimated 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.
Upon closing of the transaction (which occurred on September 30, 2022), the AIS JV will be deconsolidated and the Company's retained 40% interest in the joint venture will be accounted for under the equity method of accounting. The transaction closed on September 30, 2022. The proceeds from the sale consisted of approximately $108.0 million, as well as $120.0 million that was funded by committed debt financing taken on by the AIS JV immediately prior to the closing of the sale. See Note 13 for further information.
The divestiture of the AZZ Infrastructure Solutions segment represents a strategic shift in our operations and will allow us to become a predominantly metal coatings focused company. 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 all periods presented.


















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We have separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of August 31, 2022 and February 28, 2022, and consist of the following (in thousands):
August 31, 2022February 28, 2022
Current assets of discontinued operations:
Cash and cash equivalents$3,000 $3,000 
Accounts receivable67,321 81,911 
Inventories
Raw materials47,665 36,581 
Work-in-process11,072 6,445 
Finished goods1 77 
Contract assets80,214 71,762 
Prepaid expenses and other5,795 1,888 
Total current assets of discontinued operations215,068 201,664 
Long-term assets of discontinued operations:
Property, plant and equipment35,841 37,490 
Right-of-use asset26,322 29,332 
Goodwill195,222 195,222 
Intangibles and other42,454 42,442 
Deferred tax asset1,569 1,726 
Less: Impairment of carrying amount of net assets held for sale to estimated sales price(114,900) 
Total non-current assets of discontinued operations186,508 306,212 
Total assets of discontinued operations$401,576 $507,876 
Current liabilities of discontinued operations:
Accounts payable$24,204 $19,146 
Income tax payable46 (264)
Accrued salaries and wages8,769 11,301 
Other accrued liabilities9,250 11,219 
Customer deposits309 387 
Contract liabilities33,508 42,465 
Lease liability, short-term3,846 4,029 
Total current liabilities of discontinued operations79,932 88,283 
Long-term liabilities of discontinued operations:
Lease liability, long-term21,621 24,207 
Total long-term liabilities of discontinued operations21,621 24,207 
Total liabilities of discontinued operations$101,553 $112,490 







15

The results of operations from discontinued operations for the three and six months ended August 31, 2022 and 2021, have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):
Three Months Ended August 31,Six Months Ended August 31,
2022202120222021
Sales$106,660 $85,013 $213,924 $185,624 
Cost of sales84,826 66,341 167,686 145,169 
Gross margin21,834 18,672 46,238 40,455 
Selling, general and administrative9,710 12,106 22,114 24,603 
Estimated loss on disposal of discontinued operations114,900