Company Quick10K Filing
Quick10K
AZZ
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$48.12 26 $1,260
10-Q 2019-05-31 Quarter: 2019-05-31
10-K 2019-02-28 Annual: 2019-02-28
10-Q 2018-11-30 Quarter: 2018-11-30
10-Q 2018-08-31 Quarter: 2018-08-31
10-Q 2018-05-31 Quarter: 2018-05-31
10-K 2018-02-28 Annual: 2018-02-28
10-Q 2017-11-30 Quarter: 2017-11-30
10-Q 2017-08-31 Quarter: 2017-08-31
10-Q 2017-05-31 Quarter: 2017-05-31
10-K 2017-02-28 Annual: 2017-02-28
10-Q 2016-11-30 Quarter: 2016-11-30
10-Q 2016-08-31 Quarter: 2016-08-31
10-Q 2016-05-31 Quarter: 2016-05-31
10-K 2016-02-29 Annual: 2016-02-29
10-Q 2015-11-30 Quarter: 2015-11-30
10-Q 2015-08-31 Quarter: 2015-08-31
10-Q 2015-05-31 Quarter: 2015-05-31
10-K 2015-02-28 Annual: 2015-02-28
10-Q 2014-11-30 Quarter: 2014-11-30
10-Q 2014-08-31 Quarter: 2014-08-31
10-Q 2014-05-31 Quarter: 2014-05-31
10-K 2014-02-28 Annual: 2014-02-28
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-07-09 Shareholder Vote
8-K 2019-07-08 Earnings, Regulation FD, Exhibits
8-K 2019-07-02 Other Events, Exhibits
8-K 2019-05-20 Earnings, Regulation FD, Exhibits
8-K 2019-05-17 Accountant, Exhibits
8-K 2019-04-04 Other Events, Exhibits
8-K 2019-01-17 Officers, Other Events, Exhibits
8-K 2019-01-08 Earnings, Regulation FD, Exhibits
8-K 2018-10-09 Earnings, Regulation FD, Exhibits
8-K 2018-10-05 Other Events, Exhibits
8-K 2018-07-10 Shareholder Vote
8-K 2018-07-03 Earnings, Regulation FD, Exhibits
8-K 2018-06-29 Other Events, Exhibits
8-K 2018-04-03 Officers
8-K 2018-03-26 Earnings, Amendment, Exhibits
8-K 2018-01-19 Other Events, Exhibits
8-K 2018-01-09 Other Events, Exhibits
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CNP Centerpoint Energy 14,670
FMC FMC 10,490
OGS One Gas 4,530
STAY Extended Stay America 3,410
TGLS Tecnoglass 310
PBIP Prudential Bancorp 153
LYTS LSI Industries 91
GHSI Guardion Health Sciences 38
AZZ 2019-05-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex31120190531.htm
EX-31.2 ex31220190531.htm
EX-32.1 ex32120190531.htm
EX-32.2 ex32220190531.htm

AZZ Earnings 2019-05-31

AZZ 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 azz2019053110-q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2019
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)
 
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)
NONE
(Former name, former address and former fiscal year, if changed since last report) 

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  ý    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  ý    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
  
ý
  
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  ý
As of May 31, 2019, the registrant had outstanding 26,151,966 shares of common stock; $1.00 par value per share. 



AZZ INC.
INDEX

 
 
PAGE
NO.
PART I.
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II.
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 
 
 
 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
AZZ INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 
 
(Unaudited)
 
 
 
 
May 31, 2019
 
February 28, 2019
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
13,586

 
$
24,005

Accounts receivable (net of allowance for doubtful accounts of $5,154 as of May 31, 2019 and $2,267 as of February 28, 2019)
 
159,234

 
144,887

Inventories:
 
 
 
 
Raw material
 
101,434

 
94,410

Work-in-process
 
12,638

 
19,067

Finished goods
 
4,150

 
11,370

Contract assets
 
95,544

 
75,561

Prepaid expenses and other
 
10,359

 
9,245

Total current assets
 
396,945

 
378,545

Property, plant and equipment, net
 
206,305

 
210,227

Operating lease right-of-use assets
 
46,983

 
45,870

Goodwill
 
360,059

 
323,756

Intangibles and other assets, net
 
125,387

 
130,172

Total assets
 
$
1,135,679

 
$
1,088,570

Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
60,436

 
$
53,047

Income tax payable
 
5,272

 
632

Accrued salaries and wages
 
17,895

 
30,395

Other accrued liabilities
 
26,379

 
17,631

Customer deposits
 
514

 
481

Contract liabilities
 
22,319

 
56,928

Lease liability, short-term
 
5,951

 
5,657

Total current liabilities
 
138,766

 
164,771

Debt due after one year, net
 
296,779

 
240,745

Lease liability, long-term
 
42,042

 
41,190

Other long-term liabilities
 
1,599

 
1,513

Deferred income taxes
 
37,236

 
36,623

Total liabilities
 
516,422

 
484,842

Commitments and contingencies
 
 
 
 
Shareholders’ equity:
 
 
 
 
Common stock, $1 par, shares authorized 100,000; 26,152 shares issued and outstanding at May 31, 2019 and 26,115 shares issued and outstanding at February 28, 2019
 
26,152

 
26,115

Capital in excess of par value
 
46,763

 
46,141

Retained earnings
 
577,068

 
560,224

Accumulated other comprehensive loss
 
(30,726
)
 
(28,752
)
Total shareholders’ equity
 
619,257

 
603,728

Total liabilities and shareholders' equity
 
$
1,135,679

 
$
1,088,570

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

3


AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
 
 
Three Months Ended May 31,
 
 
2019
 
2018
 
 
 
 
 
Net sales
 
$
289,123

 
$
262,236

Cost of sales
 
223,016

 
203,531

Gross margin
 
66,107

 
58,705



 
 
 
 
Selling, general and administrative
 
35,133

 
35,009

Operating income
 
30,974

 
23,696

 
 
 
 
 
Interest expense
 
3,584

 
3,838

Other (income) expense, net
 
424

 
(291
)
Income before income taxes
 
26,966

 
20,149

Income tax expense
 
5,682

 
4,431

Net income
 
$
21,284

 
$
15,718

Earnings per common share
 
 
 
 
Basic earnings per share
 
$
0.81

 
$
0.60

Diluted earnings per share
 
$
0.81

 
$
0.60

 
 
 
 
 
Cash dividends declared per common share
 
$
0.17

 
$
0.17

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


4


AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended May 31,
 
 
2019
 
2018
 
 
 
 
 
Net income
 
$
21,284

 
$
15,718

Other comprehensive loss:
 
 
 
 
Foreign currency translation adjustments, net of income tax of $0
 
(1,960
)
 
(2,256
)
Interest rate swap, net of income tax of $7 and $7, respectively.
 
(14
)
 
(14
)
Other comprehensive loss
 
(1,974
)
 
(2,270
)
Comprehensive income
 
$
19,310

 
$
13,448

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)
 
 
Three Months Ended May 31,
 
 
2019
 
2018
 
 
 
 
 
Cash Flows From Operating Activities
 
 
 
 
Net income
 
$
21,284

 
$
15,718

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Provision for doubtful accounts
 
2,616

 
1,815

Amortization and depreciation
 
12,326

 
13,071

Deferred income taxes
 
668

 
639

Net (gain) loss on sale of property, plant and equipment
 
(200
)
 
212

Amortization of deferred borrowing costs
 
136

 
138

Share-based compensation expense
 
1,350

 
1,358

Effects of changes in assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable
 
(14,228
)
 
(29,577
)
Inventories
 
7,681

 
(1,362
)
Prepaid expenses and other
 
(1,240
)
 
(5,927
)
Other assets
 
185

 
(1,148
)
Net change in contract assets and liabilities
 
(55,088
)
 
(20,438
)
Accounts payable
 
7,068

 
5,576

Other accrued liabilities and income taxes payable
 
(1,145
)
 
7,559

Net cash used in operating activities
 
(18,587
)
 
(12,366
)
Cash Flows From Investing Activities
 
 
 
 
Proceeds from sale of property, plant and equipment
 
210

 

Purchase of property, plant and equipment
 
(4,686
)
 
(2,847
)
Acquisition of subsidiaries, net of cash acquired
 
(38,993
)
 
(8,000
)
Net cash used in investing activities
 
(43,469
)
 
(10,847
)
Cash Flows From Financing Activities
 
 
 
 
Proceeds from revolving loan
 
187,000

 
102,500

Payments on revolving loan
 
(131,000
)
 
(67,000
)
Payments on long term debt
 

 
(14,286
)
Payments of dividends
 
(4,440
)
 
(4,418
)
Net cash provided by financing activities
 
51,560

 
16,796

Effect of exchange rate changes on cash
 
77

 
(498
)
Net decrease in cash and cash equivalents
 
(10,419
)
 
(6,915
)
Cash and cash equivalents at beginning of period
 
24,005

 
20,853

Cash and cash equivalents at end of period
 
$
13,586

 
$
13,938

 
 
 
 
 
Supplemental disclosures
 
 
 
 
Cash paid for interest
 
$
1,600

 
$
2,465

Cash paid for income taxes
 
$
567

 
$
670

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

6


AZZ INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
 
Three Months Ended May 31, 2019
 
 
 
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
Common Stock
 
 
 
Shares
 
Amount
 
Balance at February 28, 2019
 
26,115

 
$
26,115

 
$
46,141

 
$
560,224

 
$
(28,752
)
 
$
603,728

Share-based compensation
 

 

 
1,350

 

 

 
1,350

Restricted stock units
 
37

 
37

 
(728
)
 

 

 
(691
)
Cash dividends paid
 

 

 

 
(4,440
)
 

 
(4,440
)
Net income
 

 

 

 
21,284

 

 
21,284

Foreign currency translation
 

 

 

 

 
(1,960
)
 
(1,960
)
Interest rate swap
 

 

 

 

 
(14
)
 
(14
)
Balance at May 31, 2019
 
26,152

 
$
26,152

 
$
46,763

 
$
577,068

 
$
(30,726
)
 
$
619,257



 
 
Three Months Ended May 31, 2018
 
 
 
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
Common Stock
 
 
 
Shares
 
Amount
 
Balance at February 28, 2018
 
25,959

 
$
25,959

 
$
38,446

 
$
526,018

 
$
(25,220
)
 
$
565,203

Impact of ASC 606 adoption
 

 

 

 
716

 

 
716

Share-based compensation
 

 

 
1,358

 

 

 
1,358

Restricted stock units
 
30

 
30

 
(549
)
 

 

 
(519
)
Stock issued for SARs
 
1

 
1

 

 

 

 
1

Employee stock purchase plan
 
37

 
37

 
1,290

 

 

 
1,327

Cash dividends paid
 

 

 

 
(4,418
)
 

 
(4,418
)
Net income
 

 

 

 
15,718

 

 
15,718

Foreign currency translation
 

 

 

 

 
(2,256
)
 
(2,256
)
Interest rate swap
 

 

 

 

 
(14
)
 
(14
)
Balance at May 31, 2018
 
26,027

 
$
26,027

 
$
40,545

 
$
538,034

 
$
(27,490
)
 
$
577,116


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


7


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, welding solutions, specialty electrical equipment and highly engineered services to the power generation, transmission, distribution, refining and industrial markets. The Company has two distinct operating segments: the Energy segment and the Metal Coatings segment. AZZ Energy 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 the energy markets worldwide. AZZ Metal Coatings is a leading provider of metal finishing solutions for corrosion protection, including hot dip galvanizing to the North American steel fabrication industry.
Presentation
The accompanying condensed consolidated balance sheet as of February 28, 2019, which was derived from audited financial statements, and 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, 2019, included in the Company’s Annual Report on Form 10-K covering such period. 
Our 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, 2020 is referred to as fiscal 2020.
In the opinion of management, the accompanying unaudited 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 May 31, 2019, the results of its operations for the three months ended May 31, 2019 and 2018, and cash flows for the three months ended May 31, 2019 and 2018. These interim results are not necessarily indicative of results for a full year.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments, including the Company's accounts receivable and contract assets. The Company will adopt ASU 2016-13 in the first quarter of its fiscal 2021 utilizing the modified retrospective transition method. Based on the composition of the Company’s accounts receivable and contract assets, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software, in order to determine the applicable costs to capitalize and the applicable costs to expense as incurred. The Company will adopt ASU 2018-15 in the first quarter of its fiscal 2021. The standard can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company intends to adopt ASU 2018-15 using the prospective approach and the adoption is not expected to have a material impact on its consolidated financial statements.



8



2.
Earnings Per Share
Earnings per share is based on the weighted average number of shares outstanding during each period, adjusted for the dilutive effect of stock awards.
The following table sets forth the computation of basic and diluted earnings per share (in thousands, expect per share data):
 
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Numerator:
 
 
 
 
Net income for basic and diluted earnings per common share
 
$
21,284

 
$
15,718

Denominator:
 
 
 
 
Denominator for basic earnings per common share–weighted average shares
 
26,124

 
25,984

Effect of dilutive securities:
 
 
 
 
Employee and director stock awards
 
69

 
50

Denominator for diluted earnings per common share
 
26,193

 
26,034

Earnings per share basic and diluted:
 
 
 
 
Basic earnings per common share
 
$
0.81

 
$
0.60

Diluted earnings per common share
 
$
0.81

 
$
0.60

For both the three months ended May 31, 2019 and 2018, approximately 0.1 million shares related to employee and director stock awards were excluded from the diluted shares outstanding count as the effect was anti-dilutive.

3.
Revenues
Disaggregated Revenue
The following table presents disaggregated revenue by customer industry (in thousands):
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Net sales:
 
 
 
 
Industrial - oil and gas, construction, and general
 
$
164,800

 
$
151,308

Transmission and distribution
 
72,281

 
65,954

Power generation
 
52,042

 
44,974

Total net sales
 
$
289,123

 
$
262,236

See Note 5 for revenue information by segment.
Contract Liabilities
The following table shows the changes in contract liabilities for the three months ended May 31, 2019 and 2018, respectively (in thousands):
 
 
May 31, 2019
 
May 31, 2018
Balance at beginning of period
 
$
56,928

 
$
22,698

Contract liabilities added during the period
 
10,970

 
16,441

Revenue recognized during the period
 
(45,579
)
 
(17,301
)
Balance at end of period
 
$
22,319

 
$
21,838


9


The Company did not record any revenues for the three months ended May 31, 2019 or 2018 related to performance obligations satisfied in prior periods. The increases or decreases in accounts receivable, contract assets and contract liabilities during the three months ended May 31, 2019 and 2018 were due primarily to normal timing differences between the Company’s performance and customer payments. The acquisitions described in Note 9 had no impact on contract assets or liabilities as of the date of acquisitions.
The Company expects to recognize revenues of approximately $17.9 million, $2.0 million, $2.3 million and $0.1 million in fiscal 2020, 2021, 2022 and 2023, respectively, related to the $22.3 million balance of contract liabilities as of May 31, 2019.

4.
Share-based Compensation
The Company has two share-based compensation plans, the 2014 Long Term Incentive Plan (the "2014 Plan") and the Amended and Restated 2005 Long Term Incentive Plan (the “2005 Plan”).
The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and members of the board of directors and permits the granting of restricted shares, restricted stock units, performance awards, stock appreciation rights and other stock-based awards. The maximum number of shares that may be issued under the 2014 Plan is 1.5 million shares and, as of May 31, 2019, the Company had approximately 1.2 million shares reserved for future issuance under this plan.
The 2005 Plan permitted the granting of stock appreciation rights and other equity-based awards to certain employees. This plan was terminated upon the effective date of the 2014 Plan and no future grants may be made under the 2005 Plan. However, there were stock appreciation rights that were granted under the 2005 Plan prior to its termination that remain outstanding, and if exercised, such awards will be settled from the balance of shares available for issuance under the 2005 Plan. As of May 31, 2019, there were 0.1 million shares available for issuance under the 2005 Plan. The 2005 Plan will be formally retired when all remaining outstanding stock appreciation rights are exercised, forfeited or expire. All outstanding stock appreciation rights will expire on or before March 1, 2021.
Restricted Stock Unit Awards
Restricted stock unit awards are valued at the market price of our common stock on the grant date. Awards generally vest ratably over a period of three years but these awards may vest earlier in accordance with the Plan’s accelerated vesting provisions.
A summary of the Company’s non-vested restricted stock unit award activity for the three months ended May 31, 2019 is as follows:
 
 
 
Restricted
Stock Units
 
Weighted Average
Grant Date Fair 
Value Per Share
Non-vested balance as of February 28, 2019
 
146,532

 
$
48.93

Granted
 
84,674

 
43.70

Vested
 
(51,195
)
 
49.33

Forfeited
 
(2,461
)
 
47.60

Non-vested balance as of May 31, 2019
 
177,550

 
$
46.34


10


Performance Share Unit Awards
The Company also grants performance share unit ("PSU") awards to certain employees. These PSU awards have a three year performance cycle and will vest and become issuable, if at all, on the third anniversary of the award date. The PSU awards are subject to the Company’s degree of achievement of a target annual average adjusted return on assets during these three-year periods and, in certain circumstances, vesting is based on the relative performance of a predetermined group of peer companies. In addition, these PSU awards may have vesting conditions or certain vesting multipliers, which are based on the Company’s total shareholder return during such three-year period in comparison to a defined specific industry peer group. The Company estimates the fair value of PSU awards with performance and service conditions using the value of the Company's common stock on the date of grant. The Company estimates the fair value of PSU awards with market conditions using a Monte Carlo simulation model on the date of grant.
A summary of the Company’ non-vested performance share unit award activity for the three months ended May 31, 2019 is as follows:
 
 
Performance
Stock Units
 
Weighted Average
Grant Date Fair
Value Per Share
Non-vested balance as of February 28, 2019
 
83,125

 
$
42.69

Granted
 
47,774

 
42.00

Vested
 

 

Forfeited
 
(18,862
)
 
55.85

Non-vested balance as of May 31, 2019
 
112,037

 
$
40.84

Stock Appreciation Rights
Stock appreciation rights are granted with an exercise price equal to the market value of our common stock on the date of grant. These awards generally have a contractual term of 7 years and vest ratably over a period of three years although some may vest immediately on issuance. These awards are valued using the Black-Scholes option-pricing model.
A summary of the Company’s stock appreciation right activity for the three months ended May 31, 2019 is as follows:
 
 
SARs
 
Weighted Average
Exercise Price
Outstanding as of February 28, 2019
 
98,184

 
$
44.46

Granted
 

 

Exercised
 

 

Forfeited
 

 

Outstanding as of May 31, 2019
 
98,184

 
$
44.46

Exercisable as of May 31, 2019
 
98,184

 
$
44.46


The average remaining contractual term for those stock appreciation rights outstanding and those stock appreciation rights that were exercisable as of May 31, 2019 was 1.59 years, with an aggregate intrinsic value of approximately $0.1 million.
Employee Stock Purchase Plan
The Company also has an Employee Stock Purchase Plan ("ESPP"), which allows employees of the Company to purchase common stock of the Company through accumulated payroll deductions. Offerings under this plan have a duration of 24 months (the "offering period"). On the first day of an offering period (the “enrollment date”) the participant is granted the option to purchase shares on each exercise date at the lower of 85% of the market value of a share of the Company's common stock on the enrollment date or the exercise date. The participant’s right to purchase common stock under the plan is restricted to no more than $25,000 per calendar year and the participant may not purchase more than 5,000 shares during any offering period. Participants may terminate their interest in a given offering or a given exercise period by withdrawing all of their accumulated payroll deductions at any time prior to the end of the offering period. The fair value of the estimated number of shares to be issued under each offering is determined using the Black-Scholes option-pricing model. No ESPP shares were issued during the three months ended May 31, 2019.

11


Share-based Compensation Expense
Share-based compensation expense and related income tax benefits related to all the plans listed above were as follows (in thousands):
 
 
 
Three Months Ended May 31,

 
2019
 
2018
Compensation expense
 
$
1,350

 
$
1,358

Income tax benefits
 
$
284

 
$
306

Unrecognized compensation cost related to restricted stock units, performance share unit awards, stock appreciation rights, and the Company's Employee Stock Purchase Plan at May 31, 2019 totals $10.1 million and is expected to be recognized over a weighted-average period of 2.26 years.
The Company’s policy is to issue shares required under these plans from the Company’s authorized but unissued shares.

5.
Segments
Segment Information
Net sales and operating income (loss) by segment for each period were as follows (in thousands):
 
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Net sales:
 
 
 
 
Energy
 
$
166,969

 
$
146,986

Metal Coatings
 
122,154

 
115,250

Total net sales
 
$
289,123

 
$
262,236

 
 
 
 
 
Operating income (loss):
 
 
 
 
Energy
 
$
12,571

 
$
9,958

Metal Coatings
 
29,392

 
25,184

Corporate
 
(10,989
)
 
(11,446
)
Total operating income
 
$
30,974

 
$
23,696


Asset balances by segment for each period were as follows (in thousands):

 
 
May 31, 2019
 
February 28, 2019
Total assets:
 
 
 
 
Energy
 
$
629,157

 
$
630,134

Metal Coatings
 
487,922

 
440,090

Corporate
 
18,600

 
18,346

Total
 
$
1,135,679

 
$
1,088,570





12


Financial Information About Geographical Areas
The following table presents revenues by geographic region for each period (in thousands):
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Net sales:
 
 
 
 
United States
 
$
230,337

 
$
213,606

International
 
58,786

 
48,630

Total
 
$
289,123

 
$
262,236

    
The following table presents fixed assets by geographic region for each period (in thousands):

 
 
May 31, 2019
 
February 28, 2019
Property, plant and equipment, net:
 


 


United States
 
$
185,294

 
$
189,281

Canada
 
17,033

 
16,961

Other countries
 
3,978

 
3,985

          Total
 
$
206,305

 
$
210,227


6.
Warranty Reserves
A reserve has been established to provide for the estimated future cost of warranties on a portion of the Company’s delivered products and is classified within other accrued liabilities on the condensed consolidated balance sheets. Management periodically reviews the reserves and makes adjustments accordingly. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. 
The following table shows the changes in the warranty reserves for the three months ended May 31, 2019 (in thousands):
 
 
Warranty Reserve
Balance at February 28, 2019
$
1,751

Warranty costs incurred
(1,232
)
Additions charged to income
2,642

Balance at May 31, 2019
$
3,161

7.
Debt
The Company's debt consisted of the following for each of the periods presented (in thousands):
 
May 31, 2019
 
February 28, 2019
2017 Revolving Credit Facility
$
172,000

 
$
116,000

2011 Senior Notes
125,000

 
125,000

Total debt, gross
297,000

 
241,000

Unamortized debt issuance costs
(221
)
 
(255
)
Total debt, net
$
296,779

 
$
240,745



13


8.
Leases
The Company is a lessee under various operating leases for facilities and equipment. Supplemental information related to the Company's portfolio of operating leases was as follows (in thousands, except years and percentages):
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Operating lease cost
 
$
4,266

 
$
3,930

Operating cash flows from operating leases included in lease liabilities
 
2,275

 
1,910

ROU assets obtained in exchange for new operating lease liabilities
 
2,506

 
4,046

 
 
May 31, 2019
 
February 28, 2019
Weighted-average remaining lease term - operating leases
 
8.93 years

 
9.23 years

Weighted-average discount rate - operating leases
 
5.10
%
 
5.13
%
As of May 31, 2019, maturities of the Company's lease liabilities were as follows (in thousands):
Fiscal year:
Operating Leases
2020 (remaining 9 months)
$
6,252

2021
7,685

2022
7,313

2023
6,867

2024
6,124

Thereafter
25,520

Total lease payments
59,761

Less imputed interest
(11,768
)
Total
$
47,993


9.
Acquisitions
In April 2019, the Company completed the acquisition of all the outstanding shares of K2 Partners, Inc. (“K2”) and Tennessee Galvanizing, Inc. ("Tennessee Galvanizing"), two privately held companies. K2 provides powder coating and electroplating solutions to customers in the Midwest and Southeast from locations in Texas and Florida. Tennessee Galvanizing provides galvanizing solutions to customers throughout the United States. These acquisitions expand the Company's geographical reach in metal coating solutions and broaden its offerings in strategic markets. The goodwill arising from these acquisitions was allocated to the Metal Coatings segment and is not deductible for income tax purposes.
The fair values of the net assets acquired, including property, plant and equipment, intangibles and goodwill may be subject to change as additional information is received and finalized. Accordingly, the provisional measurements of fair value for these items are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition dates.
The Company paid approximately $39.0 million for these acquisitions, net of cash acquired. These acquisitions were not significant individually or in the aggregate. Accordingly, disclosures of the preliminary purchase price allocations and unaudited pro forma results of operations have not been provided.

14


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. In addition, certain factors could affect the outcome of the matters described herein. This Quarterly Report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand and response to products and services offered by AZZ, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets, and the hot dip galvanizing markets; prices and raw material cost, including zinc and natural gas which are used in the hot dip galvanizing process; changes in the political stability and economic conditions of the various markets that AZZ serves, foreign and domestic, customer requested delays of shipments, acquisition opportunities, currency exchange rates, adequacy of financing, and availability of experienced management and employees to implement AZZ’s continued growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; the continuing economic volatility in the U.S. and other markets in which we operate; acts of war or terrorism inside the United States or abroad; natural disasters in the countries in which we operate; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business in AZZ’s Annual Report on Form 10-K for the fiscal year ended February 28, 2019 and other filings with the SEC, available for viewing on AZZ’s website at www.azz.com and on the SEC’s website at www.sec.gov.
You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The following discussion should be read in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
Results of Operations
We have two distinct operating segments, the Energy segment and the Metal Coatings segment, as defined in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019. Management believes that the most meaningful analysis of our results of operations is to analyze our performance by segment. We use revenue and operating income by segment to evaluate our segments. Segment operating income consists of net sales less cost of sales and selling, general and administrative expenses that are specifically identifiable to a segment. For a reconciliation of segment operating income to consolidated operating income, see Note 5 to our quarterly condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Orders and Backlog
Our entire backlog, which is inclusive of transaction taxes for certain foreign subsidiaries, relates to our Energy segment and was $300.1 million as of May 31, 2019, a decrease of $32.8 million, or 9.9%, as compared to $332.9 million as of February 28, 2019. Our backlog decreased $4.8 million, or 1.6%, as compared to the same period in the prior fiscal year. For the three months ended May 31, 2019, our incoming net orders decreased by $39.4 million, or 13.3% when compared to same period of fiscal 2019 and our book-to-revenue ratio decreased to 0.89 to 1 from 1.13 to 1. These decreases were primarily attributable to softness in net bookings due to lower overall international project bookings. The decreases in backlog were also due to higher overall revenues for the three months ended May 31, 2019 related primarily to certain large international projects that were booked in the prior year and commenced revenue recognition in the first quarter of fiscal 2020 upon satisfying the revenue recognition criteria.

15


The table below includes the progression of backlog (in thousands):
 
 
 
Period Ended
 
 
 
Period Ended
 
 
Backlog
 
2/28/2019
 
$
332,894

 
2/28/2018
 
$
265,417

Net bookings
 
 
 
256,344

 
 
 
295,738

Acquired backlog
 
 
 

 
 
 
6,006

Revenues recognized
 
 
 
(289,123
)
 
 
 
(262,236
)
Backlog
 
5/31/2019
 
300,115

 
5/31/2018
 
304,925

Book to revenue ratio
 
 
 
0.89

 
 
 
1.13

Segment Revenues
For the three months ended May 31, 2019, consolidated revenues increased $26.9 million, or 10.3% as compared to the same periods in fiscal 2019.
The following table reflects the breakdown of revenue by segment (in thousands):
 
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Net sales:
 
 
 
 
Energy
 
$
166,969

 
$
146,986

Metal Coatings
 
122,154

 
115,250

Total net sales
 
$
289,123

 
$
262,236

Revenues for the Energy segment increased $20.0 million or 13.6% for the three months ended May 31, 2019 as compared to the same period in fiscal 2019. This increase was primarily attributable to a general uptick in the sales of our electrical products, the satisfaction of the revenue recognition criteria for certain large international electrical projects that were booked in the prior year and the Westinghouse settlement noted further below. These increases were partially offset by a decline in revenues for our industrial solutions, which was driven by lower international revenues resulting from a large refining project recorded in the prior year comparable period.
Revenues for the Metal Coatings segment increased $6.9 million or 6.0% for the three months ended May 31, 2019 as compared to the same period in fiscal 2019. This increase was the result of slightly higher selling prices and slightly higher volumes of steel processed due primarily to our acquisition of Tennessee Galvanizing, Inc. during the first quarter of fiscal 2020. In addition, the increase was attributable to increased volumes from the solar and telecommunications markets and incremental revenues from our acquisition of K2 Partners, Inc., also during the first quarter of fiscal 2020. For additional information on our recent acquisitions in the Metal Coatings segment see Note 9 to the condensed consolidated financial statements.
Segment Operating Income
The following table reflects the breakdown of operating income (loss) by segment (in thousands):
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Operating income (loss):
 
 
 
 
Energy
 
$
12,571

 
$
9,958

Metal Coatings
 
29,392

 
25,184

Corporate
 
(10,989
)
 
(11,446
)
Total operating income
 
$
30,974

 
$
23,696

Operating income for the Energy segment increased by $2.6 million or 26.1%, for the three months ended May 31, 2019 as compared to the same period in fiscal 2019. Operating margins were 7.5% and 6.8%, for the three months ended May 31, 2019 and 2018, respectively. These increases were primarily attributable to the positive factors noted above and improvements in project margins for our electrical products. These increases were partially offset by lower revenues for our industrial solutions.

16


Operating income for the Metal Coatings segment increased by $4.2 million or 16.7% for the three months ended May 31, 2019 as compared to the same period in fiscal 2019. In addition, operating margins improved to 24.1% for the three months ended May 31, 2019 as compared to 21.9%, for the prior year comparable period. These increases were primarily attributable to the increased volumes and selling prices noted above and a decline in zinc costs.
Corporate Expenses
Corporate expenses decreased by $0.5 million or 4.4%, for the three months ended May 31, 2019 as compared to the prior year comparable period. The decrease was primarily attributable to slightly lower spending for outside services.
Interest Expense
Interest expense for the three months ended May 31, 2019 was $3.6 million as compared to $3.8 million for the prior year comparable period. The decrease was primarily attributable to lower average outstanding debt balances and was partially offset by higher interest rates on variable rate debt. Our gross debt to equity ratio was 0.48 to 1 as of May 31, 2019, compared to 0.56 to 1 as of May 31, 2018.
Income Taxes
The provision for income taxes reflects an effective tax rate of 21.1% and 22.0% for the three months ended May 31, 2019 and 2018, respectively, and the change was primarily attributable to state tax benefits.
Westinghouse Electric Company Bankruptcy Case
We had existing contracts with subsidiaries of Westinghouse Electric Company (“WEC”). WEC and the relevant subsidiaries (the "Debtors") filed relief under Chapter 11 of the Bankruptcy Code on March 29, 2017 in the United States Bankruptcy Court for the Southern District of New York, jointly administered as In re Westinghouse Electric Company, et al., Case No. 17-10751 (the "Bankruptcy Case"). The Company has been collecting on post-petition amounts due and owed. On February 22, 2018, the United States Bankruptcy Court for the Southern District of New York approved the Debtors’ Modified First Amended Disclosure Statement for the Joint Chapter 11 Plan of Reorganization. In the Disclosure Statement, the Debtors estimated a 98.9% to 100% distribution on Allowed General Unsecured Claims. We filed approximately $12 million of such claims with the court, which includes 100% of our pre-petition claims. In April 2019, for one of our plants, the Company entered into a settlement agreement with the third party bankruptcy administrator related to outstanding claims. The agreement amount of approximately $8.1 million represented 100% of those outstanding claims for such plant. The impact of the settlement noted above had no material impact on operating income for the period. Including the above noted settlement and approximately $2.1 million of adjustments to the initial claim amounts, $1.8 million of claims remain outstanding, of which $0.6 million has been reserved.

17


Liquidity and Capital Resources
We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements are generally for operating activities, cash dividend payments, capital improvements, debt repayment, acquisitions and share repurchases. We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.
Cash Flows
The following table summarizes our cash flows by category for the periods presented (in thousands):
 
 
Three Months Ended May 31,
 
 
2019
 
2018
Net cash used in operating activities
 
$
(18,587
)
 
$
(12,366
)
Net cash used in investing activities
 
(43,469
)
 
(10,847
)
Net cash provided by financing activities
 
51,560

 
16,796

For the three months ended May 31, 2019, net cash used in operating activities was $18.6 million, net cash used in investing activities was $43.5 million, net cash provided by financing activities was $51.6 million, and a decrease of $0.1 million from the net effect of exchange rate changes on cash resulting in a net decrease in cash and cash equivalents of $10.4 million. In comparison to the comparable period in fiscal 2019, the results in the statement of cash flows for operating activities for the three months ended May 31, 2019, are primarily attributable to less favorable impacts of changes in working capital that were partially offset by the increase in net income. The Company's use of cash for investing activities was higher due to increased spending on acquisitions and capital expenditures. Net cash provided by financing activities was higher during the three months ended May 31, 2019 as compared to the prior year comparable period due primarily to increased net borrowings.
Our working capital was $258.2 million as of May 31, 2019, as compared to $213.8 million at February 28, 2019.
Financing and Capital
As of May 31, 2019, the Company had $297.0 million of floating and fixed rate notes outstanding with varying maturities through fiscal 2023 and the Company was in compliance with all of the covenants related to these outstanding borrowings. As of May 31, 2019, the Company had approximately $259.3 million of additional credit available for future draws or letters of credit.
For additional information on the Company's outstanding borrowings see Note 7 to the condensed consolidated financial statements and further below under Contractual Obligations.
Share Repurchase Program
In January of 2012, our Board authorized the repurchase of up to ten percent of the outstanding shares of our Common Stock. The share repurchase authorization does not have an expiration date, and the amount and prices paid for any future share purchases under the authorization will be based on market conditions and other factors at the time of the purchase. Repurchases under this share repurchase authorization would be made through open market purchases or private transactions in accordance with applicable federal securities laws, including Rule 10b-18 under the Exchange Act. The Company did not make any repurchases of its common shares during the three months ended May 31, 2019.
Other Exposures
We have exposure to commodity price increases in both segments of our business, primarily copper, aluminum, steel and nickel based alloys in the Energy segment and zinc and natural gas in the Metal Coatings segment. We attempt to minimize these increases through escalation clauses in customer contracts for copper, aluminum, steel and nickel based alloys, when market conditions allow and through fixed cost contract purchases on zinc. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices where competitively feasible.

18


Off Balance Sheet Arrangements and Contractual Obligations
As of May 31, 2019, the Company did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
The following summarizes our operating lease obligations, purchase commitments, debt principal payments, and interest payments for the remainder of the next five fiscal years and beyond (in thousands):
 
 
 
Operating
Leases
 
Purchase Commitments (1)
 
Long-Term
Debt
 
Interest (2)
 
Total
Fiscal:
 

2020
 
$
6,252

 
$
34,300

 
$

 
$
12,090

 
$
52,642

2021
 
7,685

 

 
125,000

 
13,828

 
146,513

2022
 
7,313

 

 

 
7,053

 
14,366

2023
 
6,867

 

 
172,000

 
696

 
179,563

2024
 
6,124

 

 

 

 
6,124

Thereafter
 
25,520

 

 

 

 
25,520

Total
 
$
59,761

 
$
34,300

 
$
297,000

 
$
33,667

 
$
424,728

(1) Purchase commitments consist of non-cancelable forward contracts to purchase zinc at various volumes and prices. All such contracts expire in fiscal 2020.
(2) For variable rate debt, interest payments are calculated using current interest rates.
As of May 31, 2019, we had outstanding letters of credit in the amount of $41.3 million. These letters of credit are issued for a number of reasons, but are most commonly issued in lieu of customer retention withholding payments covering warranty or performance periods.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources.
During the three months ended May 31, 2019, there were no significant changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended February 28, 2019.
Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements, included herein, for a full description of recent accounting pronouncements, including the actual and expected dates of adoption and estimated effects on our consolidated results of operations and financial condition, which is incorporated herein by reference.


19


Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company’s market risk disclosures during the first three months of fiscal 2020. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended February 28, 2019.  

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, due to the material weakness described below, the Company's disclosure controls and procedures were not effective as of the end of the period covered by this Form 10-Q to provide reasonable assurance that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were not effective as of the end of the period covered by this Form 10-Q to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely discussions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
As of February 28, 2019, management concluded the Company’s internal control over financial reporting was ineffective due to the inadequate design of controls pertaining to the Company’s review and ongoing monitoring of its revenue recognition reconciliations. In particular, as part of the adoption of the new revenue recognition standard on March 1, 2018 the Company identified errors in its revenue reconciliations. These errors, which were not detected timely by management, were the result of inadequate operating effectiveness of controls pertaining to the Company’s preparation and review of its revenue reconciliations. The errors were corrected in the Company's fiscal year 2019 consolidated financial statements; however, the deficiency represents a material weakness in the Company’s internal control over financial reporting.
Management is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness identified above. The remediation plan includes i) new controls over recording revenue transactions and reviewing revenue reconciliations, and ii) additional training.
Management believes the measures described above and others that may be implemented will remediate the material weaknesses that we have identified. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures identified.
Subject to these remediation efforts, there have been no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

20


PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are named defendants in various routine lawsuits incidental to our business.  These proceedings include labor and employment claims, use of the Company’s intellectual property, worker’s compensation and various environmental matters, all arising in the normal course of business.  Although the outcome of these lawsuits or other proceedings cannot be predicted with certainty, and the amount of any potential liability that could arise with respect to such lawsuits or other matters cannot be predicted at this time, management, after consultation with legal counsel, does not expect liabilities, if any, from these claims or proceedings, either individually or in the aggregate, to have a material effect on the Company’s financial position, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes in the risk factors disclosed under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 28, 2019.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January of 2012, our Board authorized the repurchase of up to ten percent of the outstanding shares of our Common Stock. The share repurchase authorization does not have an expiration date, and the amount and prices paid for any future share purchases under the authorization will be based on market conditions and other factors at the time of the purchase. Repurchases under this share repurchase authorization would be made through open market purchases or private transactions in accordance with applicable federal securities laws, including Rule 10b-18 under the Exchange Act. The Company did not make any repurchases of its common shares during the three months ended May 31, 2019.

21


Item 6. Exhibits
3.1
 
Amended and Restated Certificate of Formation of AZZ Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on July 14, 2015)
 
 
3.2
 
Amended and Restated Bylaws of AZZ Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed by the Registrant on January 23, 2017)
 
 
10.1*
 
 
 
10.2
 
Note Purchase Agreement, dated as of January 20, 2011, by and among AZZ incorporated and the purchasers identified therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on January 21, 2011).
 
 
10.3
 
 
 
 
10.4*
 
AZZ incorporated 2014 Long Term Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Form DEFA filed May 29, 2014).
 
 
 
10.5*
 
First Amendment to AZZ Inc. 2014 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on January 21, 2016.
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Definition Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
* Management contract, compensatory plan or arrangement

22


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
AZZ Inc.
(Registrant)
 
 
 
 
 
Date:
July 8, 2019
 
By:
/s/ Paul W. Fehlman
 
 
 
 
Paul W. Fehlman
Senior Vice President and
Chief Financial Officer

23